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Absolute covenants and landlord’s consent

Duval v 11-13 Randolph Crescent Ltd [2018] EWCA Civ 2298

A recent landlord and tenant dispute in the Court of Appeal regarding the ability of the landlord to allow a flat tenant to carry out alterations beyond that permitted by its lease looks set to cause waves for residential landlords where the lease contains a mutual enforceability covenant on the part of the landlord.

Facts

The dispute relates to premises known as 11-13 Randolph Crescent, Maida Vale. The premises originally formed two houses but were subsequently converted into nine flats. Each of the nine flats is 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:
  • 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.

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 (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 works, notwithstanding an absolute covenant of this nature, subject to such conditions as the landlord may require, including for example, the payment of a premium and / or satisfaction of further conditions.

Dr Duval argued that the Landlord could not, in fact, consent to the alterations. He based this argument on the existence in clause 3.19 of Mrs Winfield’s lease 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.

Decision

The Court of Appeal overturned the earlier judgment of the County Court and 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.
Greater weight was, however, given to a long line of authorities, dating back to a nineteenth century case relating to a promise of marriage, which, together, 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.

Accordingly, in this case the Landlord in granting consent to the alterations (which would otherwise be a breach of the tenant’s lease) was in breach of the landlord’s covenants in clause 3.19 of the lease and that such a breach could occur (i) where consent is given after a request is made to enforce such a covenant and also (ii) where the landlord’s obligation in clause 3.19 remains contingent.

In reaching this decision some helpful practical observations were made:

  • This interpretation of the lease would not prevent a landlord from consenting to such alterations as the landlord’s power to consent to the works that would otherwise be a breach of covenant remains, but the landlord would be in breach of its obligations in clause 3.19 in doing so.
  • A landlord in this situation would not be under an obligation to inform the tenants in the building of its intention to consent to the works.
  • A tenant wishing to enforce the obligations in clause 3.19 against its landlord would have a right of action:
    • If the consent had already been given and acted upon the landlord would not be able to comply with the enforcement obligations in clause 3.19 and the tenant’s only remedy against the landlord would be damages for breach of covenant.
    • If the consent had not yet been granted, or if granted not yet acted upon, a court may possibly order an injunction to prevent the grant of the licence or require it to be “undone” but in doing so the objecting tenant’s objections would be assessed before the grant of an injunction.

Observations

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

Where a consent such as licence to alter has been granted, and implemented, notwithstanding an absolute prohibition in the lease, the licence remains valid and 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 future claim for damages from an aggrieved tenant, but it should be noted that the decision in this case 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.

March 2019

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