Is a landlord entitled to grant a licence to a tenant of premises in a development, enabling it to carry out work that would breach an absolute covenant in the tenant’s lease, if it has promised its leaseholders that it would extract similar covenants from the others and enforce such obligations if requested to do so?
Covenants in this form are common in residential leases. In Duval v 11-13 Randolph Crescent Ltd [2018] EWCA Civ 2298; [2018] PLSCS 177 the tenant of one of the flats in a building wanted to remove part of a load-bearing wall at basement level – and, because this would breach an absolute prohibition in her lease, asked her landlord for consent.
The landlord was willing to agree to the work, but another tenant in the building objected. He pointed to the landlord’s covenant in his own lease “that every lease of a residential unit in the building … shall contain … covenants of a similar nature …. AND at the request of the tenant …. to enforce any covenants entered into with the landlord by a tenant of any residential unit in the building”.
The landlord argued that the lease did not actually prohibit it from granting a licence. Furthermore, if any single tenant of a flat had a “veto” over work proposed by another tenant, this would be a recipe for conflict – and no way to manage a residential block of flats. The landlord claimed that, were it to consent in advance to some activity by a tenant, there would not then a breach of covenant because there would be nothing to enforce.
The Court of Appeal was unimpressed. The grant of a licence might prevent the landlord from pursuing an action for breach of covenant against the one tenant. But it would not determine whether the grant of the licence was a breach of a separate contract between the landlord and another tenant.
The courts have consistently held that, where an obligor undertakes a contingent or conditional obligation, it is under an obligation not to prevent the contingency from occurring and not to put it out of its power to comply with the obligation if and when the contingency arises. And it would not give practical or commercial content to the landlord’s obligation if it were to have carte blanche to vary or modify its tenants’ covenants or to authorise what would otherwise be a breach of them.
Therefore, the grant of a licence for alterations, or a waiver of the prohibition, would be a breach of the landlord’s covenants with the claimant. However, the court would have reached a different conclusion had the prohibition taken the form of a qualified covenant (ie a covenant against alterations without the landlord’s consent) instead.
Lord Justice Lewison reassured landlords that they need not inform tenants in advance what they propose to do, although they might be liable for damages should they grant a licence in breach of covenant. But, if a claim were to be unreasonable, it was unlikely that the damages would be substantial. Furthermore, although the court can grant an injunction preventing the grant of a licence, or requiring an unimplemented licence to be undone, it can refuse to do so if the objections to the grant of the licence lack substance.
Allyson Colby, property law consultant
