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Enforcement of leasehold covenants: One to watch

Lease agreement Print publication

04/04/2019

An ongoing residential tenancy dispute has potentially far-reaching implications for landlords of residential multi-let buildings. Karl Anders, Nick Cannon and Martin McKeague explain Duval v Randolph Crescent and look forward to Supreme Court clarity on the enforcement of leasehold covenants.

Covenants containing absolute prohibitions against carrying out certain acts or works are common in leases of residential multi-let buildings and appear, albeit more rarely, in some commercial developments. The same prohibitions are generally mirrored in all leases within the development and they are effective because of a landlord’s obligation to enforce against anyone in breach at the request of other tenants.  Such covenants can be essential for good estate management and can preserve property and investment values.

However, landlords often nevertheless choose to license or waive breaches of such covenants, as that can be commercially advantageous and it can foster good landlord and tenant relationships.

The Duval v Randolph Crescent case calls into question the working of such covenants and, in particular, a landlord’s ability to consent to or waive breaches so as to deal with its premises as it sees fit.  Permission has been granted for the case to be heard by the Supreme Court, because of its wide-ranging application and importance.

What do landlords need to know?

This particular case involves residential long leases containing: an absolute prohibition against carrying out structural works to walls within or enclosing individual flats; and a landlord’s covenant that all leases in the building will contain the same prohibition and will be enforced at the request of any other tenant.

One of the tenants applied for permission to carry out works which would breach the prohibition and the landlord wanted to grant consent. However another tenant, Duval, objected.  Duval argued that the landlord was precluded from consenting to the works as that would prevent it from complying with its covenant to enforce.

The County Court agreed with Duval; the High Court agreed with the landlord; and, in 2018, the Court of Appeal allowed Duval’s appeal. They key points to note from that decision are:

  • Whilst the practicalities of block management and commercial common sense are relevant, the starting point in a dispute of this type is the wording of the lease itself [2].
  • Here, the wording of the landlord’s covenant did not expressly preclude a landlord from licensing or waiving a breach of a tenant covenant/prohibition…
  • …but the question was whether that could be implied.
  • The Court of Appeal considered authority on the test for implying terms [3] and the line of cases in which the courts have consistently held that where an obligor undertakes a contingent obligation, he must not put it out of his power to comply with the obligation if and when the contingency arises.
  • It concluded that implying a term that a landlord could not license or waive a breach of the relevant prohibition was necessary. (“[i]t would not give 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[4].)
  • The Court of Appeal therefore held that to permit or waive a breach of the tenant’s absolute prohibition would amount to a breach of the landlord’s covenant, which would open up the landlord to a damages claim.

Practical advice

Walker Morris will monitor this case and report on the Supreme Court’s decision as soon as possible.

In the meantime, landlords should review their leases of multi-let buildings and ensure that they are aware of the particular terms of, and any procedures relating to, any tenant prohibitions. Where any such prohibitions are absolute (that is, where they are not expressly qualified as being subject to landlord’s consent), landlords may be well-advised to avoid granting consent to prohibited acts/works, or at the very least to carefully assess the risk of inciting potentially costly damages claims from other tenants.  It follows that, wherever possible on the grant of any new leases, landlords may wish to ensure that tenant prohibitions are expressly made subject to landlord’s consent.

Pending the outcome of the Supreme Court’s hearing of this case, landlords and their managing agents should also increasingly be alive to the risk of tenants simply carrying out prohibited acts or works without even asking for permission (and therefore entirely without the landlord’s oversight or control) – something which may be an unintended consequence of the Court of Appeal’s decision.

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[1] [2018] EWCA Civ 2298
[2] Arnold v Britton [2015] UKSC 36 (and see our earlier briefing)
[3] M&S v BNP Paribas [2015] UKSC 72 (and see our earlier briefing)
[4] Duval para 27

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