January 22, 2019

Landlord’s obligations

In the recent case of Duval v 11-13 Randolf Crescent Ltd [2018] EWCA Civ 2298, the Court of Appeal considered whether a landlord will be in breach of its covenant to enforce tenant covenants if it grants consent to works which would otherwise be in breach of an absolute covenant in the lease.

Background

This case concerns a block of nine flats in Randolph Crescent, Maida Vale, each of which is held under a long lease. In 2015, the lessee of one of the flats, Mrs Winfield, requested the landlord’s consent to proposed works to her flat which included the removal of a load-bearing wall. The landlord was willing to grant its consent to the works, however, another lessee, Dr Duval, said that the terms of the lease prohibited the landlord from doing so.

Mrs Winfield had covenanted at clause 2.6 of her lease “not without the previous written consent of the Landlord to erect any structure pipe partition wire or post upon the Demised Premises nor make or suffer to be made any alteration or improvement in or addition to the Demised Premises.” As this is a qualified covenant, it is subject to an implied statutory proviso that consent will not be unreasonably withheld.

Mrs Winfield also covenanted at clause 2.7 “not to commit or permit or suffer any waste spoil or destruction in or upon the Demised Premises nor cut maim or injure or suffer to be cut maimed or injured any roof wall or ceiling within or enclosing the Demised Premises or any sewers drains pipes radiators ventilators wires and cables therein …” This is an absolute covenant and so the lease does not provide for the landlord to grant its consent to an act which would otherwise amount to a breach of this clause.

The landlord, meanwhile, had given a covenant in the following terms:

Clause 3.19 - “That every lease of a residential unit in the Building hereafter granted by the Landlord at a premium shall contain … covenants of a similar nature to those contained in Clauses 2 and 3 of this Lease AND at the request of the Tenant and subject to payment by the Tenant of (and provision beforehand of security for) the costs of the Landlord on a complete indemnity basis to enforce any covenants entered into with the Landlord by a tenant of any residential unit in the Building of a similar nature to those contained in clause 2 of this Lease.”

Dr Duval sought to rely upon this clause which essentially has two elements: 1) a promise that each lease would contain similar legally binding obligations on each lessee; and 2) a promise to enforce the covenants at the tenant’s request and expense. The second ‘promise’ is a contingent obligation, the relevant contingency being the tenant’s request and the provision of security.

Dr Duval pointed to the fact that clause 2.7 of Mrs Winfield’s lease contains an absolute prohibition against cutting a wall and the landlord has covenanted at clause 3.19 to enforce that covenant if another lessee so requests. If the landlord has the right to grant consent to works which would otherwise be a breach of clause 2.7, or to waive compliance with that clause, it would have relinquished its power to comply with clause 3.19 and it was implicit in a covenant like clause 3.19 that the landlord would not do so.

On the other hand, the landlord argued that it is entitled to do as it pleases with its property and to consent to what might otherwise be a breach of a tenant’s covenant, thereby nullifying the effect of clause 3.19.

The decision

The Court of Appeal agreed with Dr Duval. Lewison LJ pointed to a long line of authorities in which the courts have held that where a party undertakes a contingent or conditional obligation, he is under an obligation not to prevent the contingency from occurring, or from putting it out of his power to comply with the obligation if and when the contingency arises.

The court held that if the landlord waives a breach of covenant by a lessee or grants a licence to do something which would otherwise be a breach of the lease, it will be in breach of clause 3.19. This is the case not only where the lessee has already made the request for the landlord to enforce and has provided security, but also where the obligation under clause 3.19 remains contingent.

Lewison LJ did, however, note that this does not mean that the landlord cannot grant a licence in these circumstances. The landlord has the power to license something which would otherwise be a breach of covenant – and that licence will be effective to preclude the landlord from subsequently taking enforcement action against the lessee – but the landlord will be in breach of clause 3.19 if it chooses to do so. The other lessees will have a cause of action against the landlord should they wish to enforce clause 3.19.

Lewison LJ also noted that the position would of course be different if the clause in question is a qualified covenant - in other words, that the tenant shall not do the prohibited acts without the landlord’s consent. The landlord would not commit a breach of clause 3.19 by granting consent.

Comment

This case illustrates the need for landlords to be aware of their obligations to enforce tenant covenants at the request of other lessees.

If a landlord has granted a licence consenting to an act which would otherwise be prohibited under a lease and the licence has been acted upon, the landlord will be unable to enforce the relevant covenant and so a disgruntled lessee could bring a claim against the landlord for damages for breach of its covenant to enforce.

If, on the other hand, a licence has not yet been granted or, if it has been granted it has not been acted upon, Lewison LJ commented that it is possible that the court might grant an injunction either preventing the grant or requiring the licence to be undone in those circumstances.

That being said, the decision is likely to have limited repercussions. If a lessee adopts a “dog in the manger” attitude (which criticism was levelled at Dr Duval by the landlord’s legal team) and seeks to compel a landlord to enforce another lessee’s covenants in circumstances where the relevant breach has little, if any, effect on the complaining lessee, the court is likely to take this into consideration and will no doubt award nominal damages as opposed to an injunction.

If, however, a landlord proposes to authorise a breach which would have an adverse impact on other lessees, lessees will take reassurance from this decision that the landlord does not have ‘carte blanche’ to vary or modify covenants or to authorise something which would otherwise be a breach of them.

The article first appeared in our Real Estate Bulletin - Janaury 2019.