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What is Duvalue of an absolute covenant in a lease?

On 6 May 2020, the Supreme Court handed down its judgment in the case of Duval v 11-13 Randolph Crescent Limited [2020] UKSC 18.  The question considered by the court was whether a landlord of a block of flats could consent to a tenant carrying out works which would amount to a breach of covenant under the lease, in circumstances where the remaining leases in the block required the landlord to enforce the covenants of all tenants.

The facts

Julia Duval held a long lease (125 years) of two of the nine flats in 11-13 Randolph Crescent.

Under the terms of all nine leases, the tenants were prohibited from carrying out certain alterations and improvements without the landlord’s consent, not to be unreasonably withheld.  There was a further, absolute prohibition on works that involved the cutting into any roofs, walls, ceilings or service media.

The landlord had covenanted with each of the tenants that it would, at the request and cost of the tenant, enforce certain covenants contained in the other tenants’ leases.

One tenant wished to remove a load-bearing wall at basement level and approached the landlord for consent.  The landlord was minded to consent to the works.  Duval issued proceedings arguing that the landlord had no power to give its consent as this would allow the tenant to breach its covenant under its lease.

The landlord argued that it was and should be able to deal with its own building as it saw fit and that, once it had granted consent, the works could no longer be considered a breach.

The Supreme Court’s decision

The Court found in favour of Duval, deciding that there was an implied covenant by the landlord in Duval’s lease not to do anything that would prevent the landlord from enforcing the tenants’ covenants in the other leases, including by consenting to something that would otherwise be a breach.  The Court felt the covenant would otherwise be useless if the landlord could essentially modify, vary or permit breaches of covenant as it pleased.

The Supreme Court drew a distinction between, on the one hand, routine works which the parties will have contemplated would be needed over the lifetime of the lease (such as repair and replacement of plumbing, drainage and heating systems and even modernisations and technological developments) and, on the other, those which went above and beyond routine alterations and which may be damaging or destructive to the building.  The fact that the leases were long-term and were acquired for a substantial premium assisted the Court in reaching this view.

What are the implications?

This case is likely to have far-ranging consequences particularly on blocks of residential flats where landlord covenants to enforce breaches of tenants’ covenants are common.  Although less common in the commercial context, the case may impact on commercial landlords of multi-let office buildings and shopping centres, for example.

Landlords should also ensure that they have an active role in managing their building to avoid any argument that they have, even by implication, consented to something that would otherwise be a breach of the tenant’s covenants. It would be prudent to review existing procedures for consenting to tenants’ works, as against the terms of the leases.

If appropriate, landlords should consider whether they have any discretion whether to enforce tenant covenants, for example only to enforce breaches which have a direct impact on the other tenants’ units or the common parts, or enforce “as the landlord deems fit” or “where the landlord considers it reasonable to do so“.  Landlords should also seek to negotiate these qualifications into future leases wherever relevant to maintain greater flexibility when managing their property. It is likely, though, that we will see landlords taking a much tougher stance when granting consent.

For tenants, a potential workaround could be to seek the agreement of all other tenants in the relevant building, though achieving this is, of course, often easier said than done!

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