Supreme Court ruling on landlord mutual enforceability covenants and consent under absolute covenants
The Supreme Court last week gave its eagerly anticipated judgment in the case of Duval v. 11-13 Randolph Crescent Limited. In doing so, it held unanimously that where a landlord of a residential flat grants consent to a leaseholder to undertake structural works which were subject to an absolute prohibition under the leaseholder’s lease of the flat, the landlord would be in breach of its obligations to other lessees of flats in the building to enforce covenants against structural alternations (known as a mutual enforceability clause).
11 – 13 Randolph Crescent is a building in Maida Vale, London, comprising nine separate flats, each held on leases granted for terms of 125 years.
Each of the leases includes the following clauses:
- At clause 2.6, a covenant against making improvements to the demised premises without prior written consent.
- At clause 2.7, an absolute covenant against cutting any wall within or enclosing the demised premises.
- At clause 3.19, a covenant that each other flat lease would contain like covenants, and that the landlord would enforce those other covenants at the request of the lessee, subject to payment of, and security for, its costs.
In 2015, Mrs Winfield, the leaseholder of flat 13, a basement flat at the building, approached the landlord, Randolph Crescent Limited, for permission to carry out certain works to her flat. The works included removal of a seven metre width of a load bearing wall. The landlord was willing to grant consent. Dr Duval, who owned two flats in the building, argued that the landlord was not able to grant consent because the works contravened clause 2.7 of the lease and because in granting such consent, the landlord would be in breach of its obligations to other leaseholders in the building as required by clause 3.19 of the respective leases.
Dr Duval sought a declaration that the landlord was not entitled to grant the consent because in doing so it would be unable to comply with its obligations in clause 3.19 to enforce covenants at the request of another leaseholder.
The landlord’s case was that it is for a freeholder landlord to do as it pleases with its own property and that in the normal course of events, a landlord is free to consent to what might otherwise be a breach of a leaseholder’s covenant.
The question for the Court to consider was this: is a landlord of a block of flats entitled, without breaching covenant, to grant a licence to a leaseholder to carry out work which would breach an absolute covenant contained in a lease of her flat, namely clause 2.7, where the leases of other flats on similar terms require the landlord to enforce covenants at the request of a leaseholder of one of those other flats?
The Supreme Court found in favour of Dr Duval on the grounds that, were it to grant the consent to Mrs Winfield to undertake the works, it would have been ‘put out of its power’ to comply with its mutual enforceability obligations to the other leaseholders in clause 3.19 of their respective leases. When granted in the 1980s, these were very valuable 125 year leases. The parties to them would have envisaged that leaseholders would need to do works of repair and modernisation unlikely to impinge on the structure and fabric of the building (which would fall under clause 2.6), but that destructive works to the fabric of the building were not permitted (under clause 2.7). Thus it must have been expected that the landlord would play its role in managing the block via clause 3.19 to provide protection to all the lessees. Again, there was an implied term, to give business efficacy to the lease, that the landlord could not put it out of its power to comply with clause 3.19, by licensing works which would otherwise be a breach of the lease.
The lease provisions which the Supreme Court considered are clauses extremely common in long residential leases and so the decision is likely to be of consequence for the overwhelming majority of landlords and leaseholders of such leases. Practically speaking, this decision appears to leave very little room for landlords to consider requests for structural works which would otherwise fall outside of those permitted in an absolute covenant clause in a lease. It does not matter how trivial the breach of an absolute covenant is, if the landlord permits a tenant to breach it, the landlord will very likely be in breach of its mutual enforceability obligations to the other leaseholders and may well face a claim for breach of lease as a result. This will also apply to any qualified covenant where the conditions are not met.
Landlords must therefore consider requests for alterations very carefully to ensure that in granting any consent they do not inadvertently breach their obligations to other leaseholders. They must also consider the risk of claims being made for previous consents granted, which may have breached their mutual enforceability obligations, although any such claims may now be time limited and any damages may well be minimal.
If you are a landlord faced with a request for a consent to alterations, or a tenant seeking such consent and you are unsure of your obligations, you should seek legal advice prior to making any decision.
This article is not intended and should not be relied upon for legal advice, Should you wish to discuss your matter, please contact Joe Reeves of our Litigation Department on 0207 481 6383 or firstname.lastname@example.org.