Duval (Respondent) v 11-13 Randolph Crescent Ltd (Appellant)
Consenting to tenant’s alterations despite absolute prohibition puts landlord in breach of covenant to enforce obligations
The Supreme Court has unanimously held that a landlord who gave consent to a leaseholder to carry out alterations in breach of an absolute prohibition in its lease, would be in breach of its obligation to enforce the lease covenants at the request of another tenant in the block. The landlord was not free to grant licence for works in breach of, or to waive compliance with, the absolute covenant without the agreement of all the other flat tenants.
The Landlord’s appeal was dismissed and it has been held that:
- Clauses 2.6 and 2.7 of the lease were directed at different kinds of activity;
- Clause 2.7 was directed at works which went beyond the routine alterations and improvements envisaged by clause 2.6. In other words, works that may be intrinsically damaging or destructive to the building. Accordingly, it was entirely appropriate that the leaseholder’s proposed works should require the consent of the other tenants;
- Clause 2.7 was an absolute covenant and, under clause 3.19, the other leaseholders were entitled, on provision of security, to require the landlord to enforce it as an absolute covenant. The landlord did not have the right to unilaterally vary or modify clause 2.7 or to authorise that which would otherwise be a breach of it. To do so would prevent it from complying with an enforcement request under clause 3.19 and deprive the flat tenants of a right of action.
THE BACKGROUND TO THE CASE:
The courts were required to construe two clauses in the individual leases governing a block of nine flats. One of the leaseholders (W) wanted to carry out works to her flat, including the removal of a portion of a wall.
Clause 2.7 of the leases contained an absolute covenant requiring each lessee not to cut into any of the walls or ceilings.
At Clause 3.19, the landlord covenanted to enforce any covenants entered into between him and a leaseholder at the request of any of the other leaseholders upon the provision of security. The landlord was willing to grant W a licence to carry out the works to avoid her being in breach of Clause 2.7. The appellant brought successful proceedings, arguing that granting a licence would be a breach of Clause 3.19. That decision was subsequently reversed.
HELD BY COURT OF APPEAL:
The respect of the wording of the leases, in Clause 3.19 the landlord had made two express promises:
- firstly, that each lease would contain similar legally binding obligations on each leaseholder. That promise was designed to have a practical effect, namely that each leaseholder would be bound to observe similar legal obligations. Each leaseholder would have known that the landlord had covenanted, or would covenant, with every other leaseholder to enforce the obligations contained in the lease;
- secondly, the landlord would enforce the covenants at the leaseholder’s request and expense. That was a contingent obligation.
The combination of those two promises meant that the leaseholder could be sure that upon request and provision of security the landlord would enforce the covenants by which each leaseholder had agreed to be bound. As the leases of the various flats did not amount to a letting scheme, the power of enforcement was vested in the landlord. However, each leaseholder had been given the right to compel the landlord to enforce the covenants in the lease regardless of whether he wanted to or not (see paragraphs 13-16 of judgment).
Would the landlord be in breach of Clause 3.19 if he granted a licence permitting W to carry out actions that would otherwise be a breach of the absolute covenant?
Clause 3.19 did not specifically state a breach would be committed in those circumstances. The issue was therefore whether it was necessarily implied in the way the obligation had been drafted. There was a long line of authority in which the courts had consistently held that where an obligor undertook a contingent or conditional obligation, they were under an obligation not to prevent the contingency from occurring or from putting it out of their power to comply with the obligation if and when the contingency arose.
Once a leaseholder had made a request for enforcement and provided the necessary security, it would be a plain breach of covenant for the landlord to license the breach of which the lessee had complained. To do otherwise would defeat the whole purpose of the covenant. If a lessee was entitled to require the landlord to enforce Clause 2.7 in the face of a threatened breach, it seemed to follow that the landlord could not put it out of his power to do so by licensing what would otherwise be a breach of covenant. It would not give practical or commercial coherence to the lease if the landlord had carte blanche to vary or modify the covenants, or to authorise what would otherwise be a breach of them.
Outcome - in principle, the landlord would be in breach of Clause 3.19 if he granted to W a licence to do an act that would otherwise be in breach of the lease.
Whilst that interpretation might cause inconvenience to lessees, such as those who wanted to install recessed lights in the ceiling of the flat, the vice lay in the fact that Clause 2.7 had been drafted as an absolute covenant. Had it been a qualified covenant, it seems the landlord would not commit a breach of Clause 3.19 by granting consent.
ABSOLUTE v QUALIFIED COVENANTS
As set out, ironically it seems the Landlord would have been in a better position had the relevant alterations covenant been a qualified one (i.e. not to carry out the alterations without Landlord’s consent). In that situation (as the court conceded in this case), the Landlord would not have been in breach of covenant by giving consent.
Lewison LJ suggests that the Duval ‘problem’ is not really caused by Clause 3.19, but the fact that the covenant prohibiting the works desired by W was an absolute covenant. If the prohibiting covenant had been qualified and expressly stated that the prohibited works could be carried out with the prior consent of the landlord, then it would have been open for the landlord to give its consent to those works, and not be in breach of Clause 3.19.
However, it cannot be satisfactory to say that a landlord should qualify its covenants with its leaseholders to escape liability under an enforcement clause, such as Clause 3.19, as to do so requires the landlord to choose the lesser of two evils.
On the one hand, if a landlord choses to utilise absolute covenants, they are exposed to liability under an enforcement clause. That liability may prevent them from waiving or authorising breaches of the absolute covenant, even where those breaches may be desirable, and curtails the landlord’s power to manage its property.
On the other hand, if the landlord choses to utilise qualified covenants, that covenant contains an implied proviso that the landlord’s consent to any breaches will not be unreasonably withheld (Landlord and Tenant Act 1927, s19(2)). Therefore, the landlord will be restricted in its ability to withhold its consent, which also curtails the landlord’s freedom to manage its property, but will enable it to escape liability under an exclusion clause.
HEALTH WARNING:
The decision in Duval requires us to ask ourselves just how much of the landlord’s freedom to use and manage their property we are willing to take away.
A full copy of the Supreme Court Decision can be found here: Duval v 11-13 Randolph Crescent Ltd [2020] UKSC 18 (6 May 2020) (Lord Kitchin, Lady Hale, Lord Carnwath, Lady Black and Lord Sales).
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