Prohibition of alterations: Concerns for landlords owning multi-let buildings

Summary: Duval v 11-13 Randolph Crescent Limited [2018] EWCA Civ 2298

In this case, the Court of Appeal held that a landlord of a residential block would commit a breach of covenant, if it waived a tenant's breach of an absolute prohibition not to undertake structural alterations. The reason for this was that the landlord had covenanted with other tenants in the building to enforce the covenants in all of the leases. Unilaterally waiving the breach would therefore prevent it from being able to fulfil its obligations to the other tenants, if they called on the landlord to prevent the works being undertaken. That said, the Court did not consider the remedy available to the complaining tenant and it was made clear that the ordinary rules would apply. Tenants seeking to "veto" works in a multi-let building will therefore need good reasons to justify the grant of an injunction.

The facts

This case concerned a residential building in Maida Vale that had been divided into nine flats, each held on a long lease. In 2015, one of the tenants, Mrs Winfield, applied for a licence to carry out alterations to her flat. Although the landlord was willing to grant consent, another tenant, Dr Duval, argued that the terms of the lease prevented the landlord from doing so.

Mrs Winfield's lease contained an absolute prohibition on certain alterations being undertaken, in the following form:

"Not to commit or permit or suffer any waste spoil or destruction in or upon the Demised Premises nor cut maim or injure or suffer to be cut maimed or injured any roof wall or ceiling within or enclosing the Demised Premises or any sewers drains pipes radiators ventilators wires and cables therein…"

The works that Mrs Winfield intended to carry out would have involved removing roughly seven metres width of a load bearing wall at basement level. It was not disputed that this would have amounted to a breach of the absolute prohibition. With this in mind, Dr Duval brought an action founded on a separate clause of the lease, which confirmed that every lease of the premises would be granted with similar covenants and that the landlord would, at the request of a tenant and at that tenant's cost, enforce the covenants entered into by the landlord with other tenants. This type of obligation is very common. The question was therefore whether the landlord was entitled to grant a licence for the works, even though there was no provision for landlord's permission to be given in the relevant alterations clause.

Issues before the Court

Dr Duval argued simply that it was "necessarily implicit" that the landlord must not grant permission for works that another tenant could force it to stop. In response, the landlord argued that:

• Landlords may consent to what otherwise might be a breach of a tenant's covenant.
• It could not have been intended that the purpose of the clause providing for mutual enforcement would be to fetter the landlord's powers to deal with its property.
• Consenting to the works in advance would not be a breach by the landlord in itself, since no works would have been undertaken at this stage, and there would be no breach of covenant to enforce once the permission had been given as the landlord would have waived the requirement for compliance.
• From a policy perspective, it would be dangerous to allow single tenants to exercise a "veto" in such circumstances, as this could lead to conflict in multi-let blocks of flats.

The decision

The Court held that the landlord was unable to lawfully consent to the works Mrs Winfield sought to carry out, for the following reasons:

• The landlord had promised that each tenant would be bound to observe similar legal obligations. Each tenant would have known that the landlord had covenanted with the other tenants to enforce the obligations contained in the leases. This was the "basic policing mechanism of the block".
• The only person with the power to enforce the tenant's covenants was the landlord. As such, the effect of a licence would only be to preclude an action by the landlord against the tenant that would otherwise be in breach. However, this would not prevent a claim by another tenant against the landlord for failing to enforce the lease covenants.
• Several authorities supported the principle that parties to a contract must not do anything that would prevent them fulfilling their obligations. This could be characterised as a positive rule of law or possibly as an implied term.
• If the landlord had been able to sanction the alterations, this would defeat the purpose of the enforcement provisions. There would be no:

"…practical or commercial content to the obligation if the landlord had carte blanche to vary or modify the covenants; or to authorise what would otherwise be a breach of them."

• There was no adverse policy issue to dissuade the Court of its finding, since the situation would not have occurred if the absolute covenant had been drafted as a qualified covenant, enabling the landlord to exercise discretion. Equally, Dr Duval would not be entitled to an injunction, unless she could evidence good reasons for this.

Our comment

The result of this case is perhaps unsurprising, given that meaning and purpose had to be ascribed to the mutual enforcement provisions, in order to protect the rights of the tenants in the block. That said, the decision will no doubt worry landlords that are subject to similar obligations. Some may even adopt a policy of always seeking unanimous consent from all tenants before approving works that would otherwise be undertaken in breach of lease. However, the Judgment does make it clear that, although a landlord risks breaching its covenants if it grants a licence in these circumstances, there is unlikely to be an obligation to inform the other tenants of this. Furthermore, the remedy afforded for the breach is only likely to be an injunction in sufficiently serious circumstances. If the complaining tenant is simply acting capriciously, one would not expect an injunction to be awarded or for there to be damages of any significance.