Landlords: beware breaches of absolute covenants

As the lockdown measures ease, applications for licences to alter have increased considerably. Here we take a look at the recent case of Duval v 11-13 Randolph Crescent Ltd and the significance of the judgement for both landlords and tenants.

In this case the Supreme Court ruled that landlords are not entitled to grant licences where the lease contains an absolute covenant and a mutually enforceable covenant.

Background

Mrs Winfield, one of the tenants, in a block of nine flats with long leases, wanted to remove a substantial part of a load bearing wall in her flat. Her lease had two clauses in relation to alterations which were:

Clause 2.6 (qualified covenant)

"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."

Clause 2.7 (absolute covenant)

"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."

In accordance with the terms of the lease she approached her landlord to grant consent to the proposed alterations fully aware they were in breach of clause 2.7. However, the landlord was minded to grant the licence having reviewed relevant reports relating to the proposed alterations.

Dr Duval, another tenant in the building, objected to the landlord’s consent on the grounds that by doing so would amount to a breach of a mutual enforceability covenant (see clause 3.19 below). Dr Duval issued proceedings to seek a declaration that the landlord did not possess the power to permit Mrs Winfield to act in breach of clause 3.19.

Clause 3.19

The landlord promises that every lease of a flat in the building granted by the landlord will contain covenants of a similar nature to those contained in clauses 2 and 3 of the lease.

The landlord promises that it will enforce covenants of a similar nature to those contained in clause 2 of the lease, provided the relevant conditions are satisfied. It is a condition of this particular lease that the landlord will enforce certain covenants in the lease (including clause 2.7) at the request of a lessee and subject to the payment by the lessee of the landlord's costs.

The Supreme Court held that the landlord could not grant consent to undertake works prohibited by the absolute covenant (clause 2.7) as to do so would breach their obligation to the other tenants under clause 3.19. Furthermore the Supreme Court concluded that it is well established that a party who undertakes a contingent obligation may be under a further obligation "not to put it out of its power" (i.e. not to act in a manner that takes away its power) to discharge the contingent obligation, should the contingency arise.

The implications

This case does not just affect alterations and is applicable to all absolute covenants such as sublettings, keeping pets and user clauses. 

Tenants have been given significant control as a landlord must obtain consent from all before granting consent on an absolute covenant.

The limitation period for a breach of covenant is 12 years and landlords will need to revisit previous consents as they may now be at risk of damages, claims and injunctions.

Whilst this case is in relation to a residential lease, the judgment will also apply to commercial leases.