What does the implied obligation not to derogate from one’s grant mean for landlords and tenants? Vivien King and John Furber explain
“The expression ‘derogation from grant’ conjures up images of parchment and sealing wax, of copperplate handwriting and fusty title deeds.”
So said Nicholls LJ in Johnston & Sons Ltd v Holland [8] 1 EGLR 264.
So why has this apparently outmoded principle become so popular? There has been a flood of cases in this area, and allegations by a tenant that his landlord has derogated from his grant may often now be coupled with allegations that he has repudiated the lease itself. Is this a reflection of the sheep-like mentality of lawyers – one woolly head got through the gap so let us all rush the hedge? Or does it reflect willingness on the part of the judges to expand strict legal principles in order to do what seems just?
What is derogation from grant?
Nicholls LJ continued:
But the principle is not based on some ancient technicality of real property… it is a principle which merely embodies in a legal maxim a rule of common honesty. It was imposed in the interest of fair dealing…
A grantor having given a thing with one hand…is not to take away the means of enjoying it with the other… If A lets a plot of land to B… he may not act so as to frustrate the purpose for which in the contemplation of both parties the land was hired. The rule is clear but the difficulty is, as always, its application.
Never were truer words said.
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Key points |
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Acts of the landlord
The authorities suggest that if a landlord leases property for a particular purpose, he cannot do anything on his retained land to render the leased property substantially unfit for carrying on that purpose. Therefore, when land was leased to a timber merchant with an express covenant in the lease to use the land for that purpose only, the landlord was held to have derogated from grant when he interfered with the ordinary course of that business by obstructing the flow of air to sheds used for drying timber, by building on the retained land: Aldin v Latimer Clark, Muirhead & Co [4] 2 Ch 437.
This was so even though there could have been no claim in nuisance relating to the obstruction of the flow of air generally. Thus, in principle, a claim based on derogation from grant may be available even where there is no claim in nuisance.
This principle has now been extended so that it may cover the acts of the landlord done on land acquired by him after the grant of the lease.This may be so though only in exceptional cases since the obligation is construed by reference to the circumstances existing at the time of the grant.
However, as Parker J stated in Browne v Flower [1] 1 Ch 219, parting with an interest in one piece of land does not in itself impose any kind of restrictive covenant on any land retained:
A landowner may sell a piece of land for the purpose of building a house which when built may derive a great part of its value from advantages of prospect or privacy. It would, I think, be impossible to hold that because of this the vendor was precluded from laying out the land retained by him as a building estate, though in so doing he might destroy the views from the purchasers house, interfere with his privacy, render the premises noisy, and to a great extent interfere with the comfortable enjoyment and diminish the value of the property sold by him.
There is thus a distinction between making property substantially unfit for its intended use, and making that use less convenient or profitable. If premises are let for a particular purpose, it is not a derogation from grant if the landlord lets an adjoining shop for the same purpose, even where there is a covenant by the landlord to administer his property in accordance with the principles of good estate management: Romulus Trading Co Ltd v Comet Properties Ltd [6] 2 EGLR 70.
The obligation not to derogate from grant is, as an implied obligation, derived from the obvious intention of the parties. Thus if the tenant knew of the use to which the landlord was going to put the retained land, he cannot complain of its effect on his activities. Note, too, that the principle is equally applicable to tenants’ acts where the lease reserves a right in favour of the landlord, granted by the tenant.
Actions by others
What happens if another party, say another tenant or even a trespasser, acts in a way that interferes with the tenant’s use of the land?
It is no defence for the landlord to say that the tenant itself could take action against the third party to prevent a nuisance which is occurring; he may himself become liable for the consequences of the third party’s acts. In the now well-known judgment of Henry LJ in Chartered Trust plc v Davies [7] 2 EGLR 83, which strikes fear in the hearts of many a landlord, he said:
Where a landlord is granting leases in his shopping mall over which he has maintained control, and charged a service charge therefor, it is simply no answer to say that a tenant’s sole protection is his own ability and willingness to bring his individual action. Litigation is too expensive, too uncertain and offers no proper protection against, say, trespassing and threatening members of the public. The duty to act should lie with the landlord.
Here, the action the landlord had failed to take related to the conduct of a pawnbroker’s business, which interfered with the business of another tenant in the shopping mall. In particular, entry to the pawnbroker’s shop was restricted to one customer at a time, so that potential customers would congregate outside, deterring visitors from the neighbouring shop.
It was held that the conduct of the pawnbroker’s was a nuisance, and that the landlord could and should have acted to stop it, by enforcing the covenant not to cause nuisance or by ensuring that the passageways in the mall were kept clear. In failing to stop the nuisance, the landlords continued the nuisance and derogated from the grant.
The finding of nuisance is not strictly necessary to establish a derogation from grant by virtue of a failure to control third parties. The landlord owes a duty to act not only against its tenants but also “trespassing and threatening members of the public”.
The question of trespassers was also considered by Neuberger J in Yankwood Ltd v Havering London Borough Council [8] PLSCS 151, where he stated that the landlord “should… have done more to discourage trespassers”. A frightening prospect for any landlord – not only in so far as he may find himself in derogation from grant but also because he may be held to have repudiated the lease, as in Chartered Trust.
Repudiation or damages?
The doctrine of repudiation (the termination of a contract by one party accepting a repudiatory breach by another) had until recently no part to play in the law of landlord and tenant, which is concerned with property interests. However, the courts have now held that the law of landlord and tenant is in essence part of the law of contract. It is possible for leases both to be frustrated and repudiated.
It is not easy to define the circumstances in which a lease is repudiated. In Hussein v Mehlman [2] 2 EGLR 87 the landlord’s breaches of repairing covenant in a lease of a house forced the tenant to leave the house and return the keys, thereby accepting what the judge found to be repudiatory breaches. Mr Sedley QC described the conduct of the landlord in terms that help identify the ingredients of a repudiatory breach:
The defendant was making it as plain as was possible that he was not going to comply with his covenant to keep the structure and exterior of the premises in repair… this was not due to a bona fide mistake of law or to logistical difficulties with builders: it was due to the determination of the defendant … to put not a penny back into the house and, if necessary, to let the tenants suffer hardship in consequence … the two plaintiffs who were living in the house did suffer real hardship and the breaches deprived all three of the essential part of what they had contracted for – a house in which all rooms were usable, in which ceilings were not either collapsed or collapsing and into which rain, wind and cold did not penetrate.
In Chartered Trust, the court held that the landlord’s derogation from grant amounted to a repudiation of the lease. However, breaches of the covenant not to derogate from grant are not of themselves always repudiatory. In Nynehead Developments Ltd v RH Fibreboard Containers Ltd [9] 1 EGLR 7, the landlord failed to prevent two of his tenants parking on a forecourt, in such a way as to interfere with the rights of another tenant, and it was held that his conduct, by adopting a nuisance, constituted a derogation from grant. It was not a repudiatory breach, however, as it did not deprive the tenant of substantially the whole benefit that it was intended that he should obtain from the contract. The tenant’s sanction was a claim for damages, not the termination of the lease.
It therefore seems that there may be degrees of substantial interference with the use of land, some repudiatory, some not, and we think it likely that only in exceptional cases will the court find that the landlord’s conduct amounts to a repudiatory breach. However, this will probably not deter the sheep from trying to get through the hedge.
Vivien M King is a partner at solicitors DJ Freeman and John Furber QC is a barrister at Wilberforce Chambers
