Supreme Court upholds decision on absolute covenants

Duval v 11-13 Randolph Crescent Ltd [2020] UKSC 18

The Supreme Court has unanimously upheld the Court of Appeal decision that a landlord that gave consent to a flat tenant to carry out alterations beyond that permitted by its lease was in breach of the landlord’s covenant, given to the other flat tenants in the building, that it would enforce the tenants’ covenants in the flat leases within the building.

The dispute related to premises known as Randolph Crescent, Maida Vale. The premises comprised two houses, converted into nine flats, each held under a long lease with the reversion of the flats owned by the Landlord, Randolph Crescent Limited, a company owned by the tenants.

In 2015 the tenant of flat 13, Mrs Winfield, applied to the Landlord for consent to carry out significant alterations to her flat. The Landlord was willing to consent to the works but the tenant of flats 11G and H, Dr Duval, argued that the terms of Mrs Winfield’s lease prevented the Landlord from giving such consent.

The lease of flat 13 contained the following relevant tenant’s covenants:

• Clause 2.6: Not to make any alterations or improvements to the premises without the previous written consent of the Landlord. This is a “qualified” covenant, and accordingly, a statutory proviso is implied to the effect that such consent will not be unreasonably withheld.
• Clause 2.7: Not to commit or permit or suffer any waste spoil or destruction or cut maim or injure or suffer to be cut maimed or injured any roof, wall or ceiling within or enclosing the premises or any sewers, drains, pipes, radiators, ventilators, wires and cables therein. This is an “absolute” covenant and does not include any wording to indicate that consent may be given to do that which the covenant forbids.

The works that Mrs Winfield wished to carry out comprised the removal of around seven meters in width of the load bearing wall at basement level. This clearly would amount to a breach of the absolute covenant set out above. However, it is not uncommon, as in this case, for a landlord to agree to consent to such works, notwithstanding an absolute covenant, subject to such conditions, for example, the payment of a premium and / or satisfaction of further conditions.

Dr Duval argued that the Landlord could not consent to the alterations. She based this argument on the existence in clause 3.19 of the flat leases of a commonly found “mutual enforceability covenant” given by the landlord comprising two elements:

• That all future long flat leases in the building would contain similar tenant covenants (IE including but not limited to the alterations covenants set out above) (the mutuality covenant).
• That the landlord would enforce any such tenant covenants at the request and cost of the tenant (the enforceability covenant).
  Dr Duval reasoned that, if the landlord had the right to licence or permit what would otherwise be a breach of the tenant’s absolute covenant given in respect of alterations, the Landlord would not be able to comply with the two elements of clause 3.19 outlined above.

Court of Appeal (2018)

The Court of Appeal held in favour of Dr Duval. In reaching its judgment, the Court considered the case of Marks & Spencer plc v Paribas Securities Service Trust Co (Jersey) Ltd [2015] UKSC 72 as to the terms that may be implied into an agreement to give commercial or practical coherence to a contract.

Consideration was also given to a long line of authorities, dating back to a nineteenth century case relating to a promise of marriage. These cases established that, where a party undertakes a contingent or conditional obligation, that party is under an obligation not to prevent the contingency from occurring, or from putting it out of its power to comply with the obligation if and when the contingency arises. It followed that, in granting consent to the alterations (which would otherwise be a breach of the tenant’s lease), the Landlord had breached the covenant it had given in clause 3.19 of the flat leases.

Supreme Court (2020)

The Landlord company appealed arguing that the result of the Court of Appeal judgment was a “commercially unworkable scheme” “not contemplated by the parties to the lease when they were granted, and [a] recipe for chaos and conflict in multi-tenanted buildings”.

The Supreme Court did not agree, and unanimously upheld the decision of the Court of Appeal with Lord Kitchin, giving the sole judgment. Key points of which are set out below.

• The two alterations covenants in the lease were held to be quite distinct in purpose. Clause 2.6 (the qualified covenant) was intended to apply to day to day routine alterations that may be permitted with the landlord’s consent, whereas clause 2.7 (the absolute covenant) was intended to apply to non-routine works that may be intrinsically damaging to the building and therefore require additional control.
• Whilst the mutual enforceability covenant in clause 3.19 of the lease does not expressly say that the Landlord cannot give its consent to works that would otherwise be in breach of a tenant’s lease, such a term can be implied for the reasons set out below:
  • The purpose of the alterations covenants in clauses 2.6 and 2.7 and the mutual enforceability covenant in clause 3.19 are primarily to provide protection to all of the flat tenants in the building.
  • Each tenant would have known that the absolute alteration covenant in clause 2.7 of the leases would apply to all tenants and that under clause 3.19, and subject to satisfaction of certain conditions, the landlord could be asked to enforce the absolute covenant.
  • It would not give practical content to the obligation in clause 3.19 if the landlord had the right to vary or modify the absolute covenant or to authorise what would otherwise be in breach of it.

Practical points

Future consents

Landlords of leases containing a standard landlord’s mutual enforceability covenant of the type commonly found in residential leases, will need to consider the possible consequences should a tenant seek licence or consent to do something that would otherwise be prohibited by an absolute covenant in the tenant’s lease. Whilst this case related to alterations, the same principles can, potentially, be applied to other common absolute covenants such as use and alienation.

Existing consents

Where a consent such as licence to alter has already been granted, and implemented, notwithstanding an absolute prohibition in the lease, the consent remains valid. There is no question that the tenant, or any successor to the tenant, will face enforcement action regarding the alterations.

There is however a risk that the landlord may face a claim for damages from an aggrieved tenant on the grounds that it has suffered a loss or damage as a result of the grant and subsequent implementation of the consent. It will be of some comfort to landlords that the Court of Appeal decision indicated that any such damages were likely to be insubstantial, particularly where the tenant demanding enforcement is seen to be taking what may be described, as in this case, as a “dog in the manger” approach, that is to say attempting to keep something in order to prevent someone else from getting it.