9 June 2020
Residential property - June 2020 – 3 of 5 Insights
Landlords had been waiting with some trepidation for the Supreme Court judgment in the case of Duval v 11-13 Randolph Crescent Limited. The decision, handed down last month, is likely to have far reaching consequences for both landlords and tenants in removing much of the flexibility for landlords to consent to tenants undertaking alterations that are prohibited under the terms of their leases.
The case concerned 11-13 Randolph Crescent in Maida Vale, a building containing nine flats, all let under long leases. The tenant of Flat 13, Mrs Winfield, wanted to carry out works to her flat. The works included the removal of a section of an internal structural wall which was absolutely prohibited under the terms of her lease. She approached the landlord, 11-13 Randolph Crescent Limited (a company owned by the tenants) for consent to undertake the works.
While the landlord was willing to grant consent, Dr Duval – who owned two of the other flats in the block – objected. He brought a claim against the landlord for a declaration that it would be in breach of its mutual enforceability clause in Mrs Winfield's leases if it granted consent to the works. The clause in question (commonly found in leases) obliged the landlord to enforce the tenant's covenants contained in the leases of the other flats in the building.
The Supreme Court found for Dr Duval on the grounds that the landlord would have effectively "put it out of its power" to enforce the covenants in the lease if it had granted consent. In other words, the covenant in Dr Duval's leases would be pointless if the landlord could essentially modify or permit breaches of covenants in other leases as it pleased. There must therefore be an implied covenant by the landlord in Dr Duval's lease preventing it from consenting to anything that would be in breach of the tenant's covenants in the other leases.
This effectively means that where a lease contains a landlord's covenant for all leases in the building to be in substantially the same form – as well as an obligation on the landlord to enforce those tenant covenants upon request by another leaseholder – a landlord will be in breach if it gives consent to another tenant to carry out works in breach of an absolute covenant.
The distinction is an important one.
A qualified covenant provides that a tenant cannot undertake works to their property without permission from their landlord. Whether or not it's explicit in the drafting of the clause, it is implied under statute that, in these circumstances, consent from the landlord cannot be unreasonably withheld.
An absolute covenant prohibits a tenant from undertaking specified works and is generally limited to structural works. However, that is not always the case and there are many older leases that contain an absolute covenant against any alterations.
These absolute covenants do not contemplate the provision of landlord consent – the drafting does not mention consent at all – and are found in many leases of central London properties, particularly those across the large estates. In practice, landlords often give consent to leaseholders for these prohibited works, subject to the usual requirements of a licence for alterations and in some cases in return for a premium. However, there is no obligation on a landlord to consider any application and no reasonableness requirement.
It is expected that this case will have far reaching consequences for those blocks where alterations covenants in leases are absolute rather than qualified. The decision may also have wider implications. Although the Duval case involved a covenant against alterations, there is no reason why the decision should not be applied to a variety of other situations where there are absolute covenants, such as the keeping of pets or against having uncarpeted floors. Where landlords have exercised discretion in the past, we may now see more hesitancy.
One way around the issue may be for a landlord to seek consent to planned works from all of the leaseholders in a block before providing consent. However, while this may be feasible within smaller blocks, there are clearly going to be logistical difficulties in larger buildings, particularly as the case suggests that even one dissenting leaseholder could throw a spanner in the works.
Some landlords may decide to take a pragmatic approach and continue to provide consents even where the Duval case applies, on the assumption that any breach would not result in any loss to the other tenants in the block. In these cases, the landlord will probably seek an indemnity from the tenant in relation to any claims that may be brought against it by other tenants in the building.
Concern has been expressed over whether the decision could have an impact on those cases where works have already been completed. While this is theoretically possible, again, the question of loss suggests that any such claims are unlikely in practice in the majority of cases.
by Lisa Bevan
by Lisa Bevan