Landmark Supreme Court judgment upholds decision on absolute covenants in residential leases
A recent decision of the Supreme Court will have a significant effect on how landlords deal with applications by tenants in residential blocks for consent to do something prohibited by an absolute covenant in their lease. In this article, we look at the recent decision in Duval v 11-13 Randolph Crescent Ltd  UKSC 18 (6 May 2020).
The consequences of this judgment for landlords and tenants of leasehold flats are profound
The decision in Duval is an important one for landlords, managing agents and tenants of residential blocks of flats.
Facts of the case
11-13 Randolph Crescent, Maida Vale comprises what were originally two mid-terrace houses, but which is now a single block converted into nine flats let on long leases. Two of the leases are held by Dr Julia Duval, and a third is held by Mrs Martha Winfield. The landlord is 11-13 Randolph Crescent Ltd and all the shares in the landlord are owned by the leaseholders.
Mrs Winfield applied to the landlord for consent to carry out works to her flat that would involve removing a load-bearing wall. This was prohibited by clause 2.7 of her lease, which contained an absolute prohibition not to "cut maim or injure any roof wall or ceiling within … the demised premises".
Clause 3.19 of each flat lease contains a covenant by the landlord that all the other flat leases would contain covenants of a similar nature to those the tenant was giving. In addition, the clause stated that at the request of the tenant, and subject to payment of the landlord's costs, the landlord would enforce the covenants given by other flat owners. These types of covenant are common in leases in blocks of flats.
The landlord consented in principle to Mrs Winfield's works but before a formal licence was entered into Dr Duval objected. She brought proceedings to prevent the landlord from granting formal consent to Mrs Winfield. The case reached the Court of Appeal, which decided that granting Mrs Winfield a licence to commit what would otherwise be a breach of covenant would amount to a breach by the landlord of clause 3.19 of the leases held by the other tenants in the block.
Supreme Court's decision
Mrs Winfield appealed to the Supreme Court, which upheld the decision of the Court of Appeal. Dr Duval's case was that:
- Clause 3.19 precludes the landlord from granting a licence to any tenant to do anything that would otherwise amount to a breach of an absolute covenant in that tenant's lease, including clause 2.7.
- It is implicit in each lease that the landlord will not put it out of its power to comply with a request under clause 3.19, ie by granting the consent and thereby not making Mrs Winfield in breach of covenant.
The covenant in clause 3.19 of Dr Duval's lease only imposed an obligation on the landlord to enforce covenants in other leases if Dr Duval made a request and provided security for costs. She had made a request but not yet provided security for costs. Mrs Winfield argued that this meant the landlord was not under an obligation under clause 3.19.
The court disagreed. Lord Kitchin (who gave the judgment with which the other judges unanimously agreed) said: "I recognise that if a landlord waives its right to complain of an activity by a lessee in breach of clause 2.7 it cannot subsequently bring a claim against that lessee for breach of the covenant. But that does not mean to say that the landlord has not acted in breach of its obligation under clause 3.19 to another lessee. In my view it would be uncommercial and incoherent to say, as the landlord does, that clause 3.19 can be deprived of practical effect if it manages to give a lessee consent to carry out work in breach of clause 2.7 before another lessee makes an enforcement request and provides the necessary security."
The implications of the decision
The consequences of this judgment for landlords and tenants of leasehold flats are profound.
The principal of the decision extends to any absolute covenant in a lease. It gives landlord's far less power in managing blocks of flats than they thought they had and tenants considerably more. Say a tenant applies to keep a pet or put in wooden floors and the lease contains an absolute prohibition against this. In principle, the landlord will put itself in breach of all the other leases in the building if it grants consent without getting approval from all the other tenants.
Also, given the limitation period for breaches of covenant, landlords could face claims for consents granted up to 12 years ago. That's not to say the consent granted to the tenant is invalid, just that the other tenants in the building could claim damages against the landlord for granting the consent (although it may be difficult to establish anything other than minimal damages).
If you would like to discuss the impact of the decision, please contact us.