Summary
Is a landlord of a block of flats entitled to grant a licence to a lessee to carry out work which would breach an absolute covenant contained in a lease of their flat, where the leases of other flats in the same building require them to enforce covenants at the request of a lessee of one of those other flats, without being in breach of the latter covenant?
More specifically in this case, does allowing a lessee to breach the covenant below:
• “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.”
Put the landlord in breach of this covenant (that they have signed with all the other tenants in the same building):
• “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.”
The answer said the Supreme Court in May, is yes, it does.
Background
Duval (Respondent) v 11-13 Randolph Crescent Ltd (Appellant) [2020] UKSC 18, on appeal from [2018] EWCA Civ 2298, centred around what were 2 mid-terrace houses that had been converted into a single block separated into 9 flats, each of which were held under a long lease. The Appellant 11-13 Randolph Crescent Ltd (RCL) was a freehold company owned by the Respondent Dr Julia Duval (JD) and the 8 other tenants in the building.
In 2015, one of the tenants, Mrs Winfield (MW) approached the landlord asking for permission to carry out works to Flat 13 (which included the removal of a substantial amount of load-bearing wall at basement level, a clear breach of clause 2.7 if not authorised by the landlord), to which the landlord was initially agreeable. However, JD argued that clause 3.19 prevented the landlord from doing this and objected to the works being done. After toing and froing from authorising the licence to withdrawing it, the landlord finally went back to authorising the licence in late 2015.
In December 2015 and February 2016, JD asked the landlord to secure an undertaking from MW not to cut or maim any of the load bearing or structural walls within Flat 13. JD began proceedings in May 2016, with part of this claim seeking a declaration that RCL did not possess the power to allow MW to act in breach of 2.7.
JD came out on top in the first trial, before RCL won an appeal in the Central London County Court in July 2017. On appeal to the CoA, amongst other points, JD essentially argued that 2.7 is an absolute covenant, 3.19 is the landlord promising to enforce 2.7 if requested by another tenant, and that the landlord cannot be allowed to breach 3.19 by way of licensing a breach of 2.7 as it would undermine the covenant in 3.19 in its entirety.
The following arguments were made in response:
• That as a landlord, they have the right to do what they want with their property;
• The purpose of 3.19 is a retrospective one;
• Authorising one particular breach does not undermine the covenant as a whole, and it subsequently remains intact and enforceable for the future; and
• If one lessee had a veto option over the works proposed by another, that would lead to conflict and mismanagement of the entire block of flats.
In allowing JD’s appeal, the CoA considered the drafting of 3.19 and ruled that the obligations on the landlord by virtue of 3.19 were implicit not only upon the lessee making the request, but also as an ongoing, contingent obligation, which meant that the landlord could not put it out of their power to enforce the covenants by licensing a lessee to carry out works in breach of 2.7.
In bringing the appeal to the Supreme Court, RCL argued that the CoA had failed to construe the terms of the lease properly in their context, including their interpretation of 3.19.
JD responded by submitting the CoA was right in its interpretation of 3.19: it does prohibit the landlord from granting a licence to a lessee to do anything that would otherwise amount to a breach of an absolute covenant in their lease; the landlord cannot put itself out of its power to comply with 3.19; and 3.19 obliges them to enforce all the covenants 3.19 refers to and allows the lessee to compel them to do so (through legal action) if necessary.
The job for the Supreme Court was to consider the express terms themselves, before then moving onto what terms can be considered to have been implied in the contracts (per Marks and Spencer plc v BNP Paribas Securities Trust Co (Jersey) Ltd [2015] UKSC 72).
Before getting to that, they noted the background to the leases: that they are long-term ones; that the parties would be interested in maintaining the value of the flats; that it would be inevitable for works to be required on the flats; that more often than not the desired routine improvements and modifications would not have impacted on the other lessees; and that the parties would have appreciated the landlord not just keeping (in the interests of all the lessees) the reversionary interest in the flats but also the rights in possession of the common parts of the building (such as the stairwells, lobbies, corridors, and the outer and load bearing walls) and their obligations to maintain these areas as part of generally managing the building.
They moved onto consider clause 2.7 in the context of the lease and the leasehold scheme for the building as a whole, and importantly noted that it is directed at a specific type of activity (a distinction was made in that whereas other clauses in the lease were to do with routine improvements and alterations, 2.7 went beyond this and may subsequently impact the building as a whole).
The Supreme Court also noted that the landlord is subject to other restrictions on their ability to license a lessee to make alterations: that each lessee enjoys the benefit of a covenant for quiet enjoyment; the landlord must not derogate from this grant (which encompassed other clauses in the lease such as rights of way and passage and so on); and that each of the lessees are entitled to be protected from nuisance. Finally, they referred to the other parts of clause 3 as the landlord also generally covenanted to keep the building in good structural repair and to keep the common parts of it clean and properly lit.
Turning to the interpretation of 3.19, the Supreme Court agreed with JD and said that “each lessee knew that every other lessee would be bound by similar covenants to those contained in 2.6 and 2.7 and that each lease would contain a covenant similar to 3.19. They then considered the critical question: although 3.19 does not expressly say that the landlord cannot give a lessee permission to carry out structural work falling within the scope of 2.7, is this nevertheless implicit in the clause?
Referring to the general principle: “a party who undertakes a contingent or conditional obligation may, depending on the circumstances, be under a further obligation not to prevent the contingency from occurring; or from putting it out of his power to discharge the obligation if and when the contingency arises” (per Ogdens v Nelson [1903] 2 KB 287 at [296]) and after reviewing other authorities on this point, they agreed with the CoA and JD and dismissed RCL’s appeal (also rejecting other submissions by RCL which concerned the enforceability of the clause against a consenting landlord and that some minor works may also fall within the scope of 2.7).
They stated that the term JD argues is implicit in her lease (a promise by the landlord not to put it out of its power to enforce clause 2.7 in the leases of other lessees by licensing what would otherwise be a breach of it) must be implied in the lease between the parties, listing the following in support of their judgment:
• That the purposes of the covenants in clauses 2 and 3.19 is primarily to provide protection to all the lessees of the flats in the building, with 3.19 serving an important protective function; and
• The first obligation in 3.19 is a continuing one, hence the landlord cannot put it out of its power to enforce it by licensing activities that would be in breach of 3.19 as that would rid the obligation of its practical meaning.
This judgment provides clarification over the interpretation of clauses such as 3.19, which are commonly used in collective leasehold contracts of this nature.
Landlords in arrangements such as these should generally be aware of what works they are licensing before they give lessees the go-ahead to carry out works on their properties, as there may be some wriggle-room if the works are generally minor (i.e. a routine renovation or alteration) versus the proposed works potentially having a structural impact on the building.
If you require advice or assistance in connection with a landlord and tenant dispute, please do not hesitate to contact clerks@becket-chambers.co.uk who will be able to guide you through the process of instructing a barrister under the Direct Access scheme.
