The recent High Court judgment in MacDonald Botley Park Limited v Bank of Scotland Plc (published on 24 January 2025) has reaffirmed a lender’s discretion to refuse consent to a borrower’s proposed refinancing. The case offers reassurance to lenders, clarifying that a lender retains the freedom to refuse consent, provided the refusal is reasonably considered to be in the lender’s commercial best interests.

The Judgment and Its Significance

The High Court ruled in favour of Bank of Scotland Plc (the lender), stating that it was within its rights to refuse consent to the refinancing sought by MacDonald Hotels Limited (the borrower).

Despite this ruling, the judgment also introduced an important caveat: a lender would not be entitled to refuse consent if the refusal were “for reasons unconnected with the lender’s commercial best interests when no reasonable entity in the position of the lender could have refused consent.”

This suggests that, in certain circumstances, future cases may yield different outcomes depending on the facts and the terms of the agreements in question.

The Facts of the Case

  • The lender had granted loan facilities to the borrower under two secured loan facility agreements (the facility agreements).
  • The facility agreements contained provisions preventing the borrower from disposing of its assets without the lender’s written consent.
  • The borrower sought to refinance these agreements and repay its debt earlier than originally intended by securing finance from a different lender.
  • The lender refused its consent to the borrower’s proposed refinancing.
  • As a result, the borrower was compelled to sell certain properties to service its existing debt obligations under the facility agreements.
  • The borrower claimed the lender had acted in breach of a duty to act in good faith and had pressured it into selling properties.
  • The lender argued that it had an unqualified right to refuse consent and that no implied terms in the facility agreements required it to act in good faith.

The Court’s Decision

The High Court found that a term should be implied into the facility agreements stipulating that the lender was not entitled to refuse consent:

  • For reasons unconnected with its commercial best interests, or
  • Where no reasonable lender in the same position would have refused consent.

However, in this case, the lender had not breached the implied term. The Court accepted that allowing the borrower to refinance with a new lender could have prejudiced the commercial interests of Bank of Scotland Plc. Therefore, the lender was entitled to refuse consent and hold the borrower to the original facility agreements.

The ruling may be subject to appeal, and it remains to be seen whether future cases will develop the reasoning further.

Key Takeaways:

This decision has important implications for both borrowers and lenders:

  • For Borrowers: The ruling serves as a caution that lenders can, in certain circumstances, lawfully refuse refinancing proposals. Borrowers should carefully review the terms of their loan agreements to assess whether restrictions on asset disposals and refinancing exist and to understand the scope of a lender’s discretion to refuse consent.
  • For Lenders: The decision supports lenders’ rights to act in their own commercial best interests. However, lenders must be mindful that refusals must be commercially justifiable. The Court’s acknowledgment of an implied term introduces a level of reasonableness that lenders should document when making such decisions.

While this judgment provides some clarity, it also signals that lenders should remain cautious when exercising their rights to refuse consent. Future cases may refine the boundaries of this principle, particularly where refusals appear unjustified or contrary to industry norms. Both borrowers and lenders should ensure their agreements are carefully drafted to reflect their commercial intentions and to mitigate potential disputes over refinancing consents.

At Lewis Denley, our commercial team advises borrowers, lenders and services across all types of domestic real estate financing and handling complex structures. We offer broad transaction experience, market understanding and technology leadership. Please get in touch should you wish to speak with a member of our commercial team regarding any aspect of real estate finance.