The controversial Court of Appeal judgment has reasserted the balance of power held by tenants of residential flats over landlords, now enabling tenants to veto landlords granting other lessees a licence to act in a way that would otherwise breach the lease.
Many landlords will now find themselves unable to charge additional fees for a grant of consent (for example carrying out simple works such as LED light installations), detrimental to not only their additional income, but also the valuation of the property.
11-13 Randolph Crescent Ltd (the “landlord”, hereon known as L), a company owned by all the tenants, owned the freehold 11-13 Randolph Crescent, which was converted into nine flats, each held under a long lease. Mrs Winfield (“W”) and Dr Duval (“D”) were two tenants that resided in the block. Both their leases contained two key covenants, clause 2.7 and 3.19.
Clause 2.7 absolutely prohibited the cutting of any roof, wall or ceiling by the lessee.
Clause 3.19 stated that the Landlord covenanted to enforce covenants entered into with a lessee at the request of the other lessees.
W asked L for consent to carry out works that involved, amongst other things, cutting into a wall and removing substantial portions of load-bearing wall at basement level and consequently amounted to a breach of clause 2.7. L willingly consented to such alternations whilst D objected. D argued that L was prevented from granting permission due to the terms of the lease, in particular clause 3.19.
The Court of Appeal held that L would be in breach by granting W a licence to carry out works that would otherwise be in breach of the lease.
It confirmed the rule of law that when a party enters into an obligation, they cannot then act in a way that would make it impossible for them to perform the obligation. By granting consent to W’s works, L had failed to consider that all the leases imposed the same covenants on tenants and that their decision had made it impossible to enforce the covenants in the same way against D.
A distinction between absolute and qualified covenants was made. The prohibition of works desired by W, was an absolute covenant. This type of covenant prevents the ability to waive or authorise a breach, which in this case unavoidably reduced the landlord’s managerial power. A qualifying covenant, on the other hand, which is a covenant that requires the landlord’s consent but states that the landlord’s consent will not be unreasonably withheld, enables the landlord to give its consent and not be in breach.
The case has been remitted to the County Court to decide what remedy D should be awarded.
It may well be that tenant A took all the precautionary steps before carrying out works such as obtaining the relevant surveys and reports, and most importantly obtaining consent from the landlord. However, this may not be enough where the lease contains such scheme, for tenant B could then override such consent by simply “vetoing” the act.
Given how common mutual enforcement covenants are in long leases, this case suggests that many landlords will now have to act with caution when granting licences for works prohibited under the terms of the lease. It is important that landlords in such circumstances obtain prior consent from every leaseholder in the block of flats to ensure no claim for breach of lease occurs – an arduous and time-consuming exercise but one which would prove beneficial in preventing litigious claims.
Alternatively, and as mentioned above, at the drafting stage landlords may consider making sure that alteration covenants are qualifying, stating that no works are to be carried out without the landlord’s consent, as the courts conceded in this very case that there would be no breach of covenant by giving consent in such situation. Express words in a contract is vital, and if it is anything like the terms in Duval, a recipe for disaster is inevitable.