Landlord and tenant — Covenants — Implied term — Landlord proposing to construct additional flats on existing block of flats — Whether lease contained implied term against construction of additional flats — Whether construction of additional flats breach of landlord’s repairing obligation
The claimant held a 999-year lease of a top-floor flat in a
purpose-built block of 25 flats. All the shares in the defendant company were
owned by the lessees of the block. The company was formed for the purpose of
acquiring the freehold in 1990 and was therefore the claimant’s immediate
landlord. The roof surface and roof space were in the legal ownership and
possession of the landlord.
Following the grant of planning permission, the landlord proposed
to construct two flats on the roof, one of which would be immediately above the
claimant’s. The claimant sought summary judgment claiming a declaration that
the proposal was unlawful, in that it would be contrary to the provisions of
the lease, or, alternatively, would be in breach of an express covenant by the
landlord to repair. He contended that the lease contained an implied term that
the landlord would not construct any further flats as there was a ‘letting
scheme’ limiting their number.
landlord is entitled to use its retained property as it pleases, even where
that
Griffith [1938] 1 All ER 295. Although a letting scheme existed, it was not
restricted to a particular number of flats: Devonshire Reid Properties Ltd
v Trenaman [1997] 1 EGLR 45 distinguished. Having regard to the fact
that the landlord was owned by the all the lessees and that the profits of the
proposal would be returned to the lessees in some way, the proposal would not
increase the burden on the claimant tenant in an unacceptable way. The
claimant’s lease did not contain an implied term against the construction of
further flats. There would not be a breach of the repairing clause in the
lease: Devonshire Reid Properties Ltd v Trenaman [1997] 1 EGLR 45
not followed.
The following cases are referred to in this report.
BP Refinery
(Westernpoint) Pty Ltd v Shire of Hastings (1978) 52 ALJR 20
Devonshire Reid
Properties Ltd v Trenaman [1997] 1 EGLR 45; [1997] 20 EG 148
Gange v Lockwood
(1860) 2 F&F 115
Hughes v Greenwich
London Borough Council [1994] 1 AC 170; [1993] 3 WLR 821; [1993] 4 All ER
577
Philips
Electronique Grand Public SA v British Sky Broadcasting Ltd [1995]
EMLR 472
Port v Griffith
[1938] 1 All ER 295
Reigate v Union
Manufacturing Co (Ramsbottom) Ltd [1918] 1 KB 592
Torbay Hotel Ltd v
Jenkins [1927] 2 Ch 225
This was the hearing of an application by the claimant, Paul
Hannon, for summary judgment in proceedings against the defendant, 169 Queen’s
Gate Ltd, for declaratory relief.
Anthony Tanney (instructed by DJ Freeman) appeared for the
claimant; David Iwi (instructed by Park Nelson) represented the defendant.
Giving judgment, MR
BERNARD LIVESEY QC said: The claimant is, and has since 1977 been,
the lessee of flat 21 at premises known as 169 Queen’s Gate in Kensington and
Chelsea Royal London Borough; the defendant is the owner of the freehold and
his immediate landlord. The lease is for a term of 999 years from 25 December
1974. The defendant is a limited company that had been formed for the purpose
of acquiring the freehold in the premises; it apparently did so successfully in
about 1990. Each of the lessees in the premises is entitled, indeed required,
to be a shareholder of the defendant. The defendant determines, at a meeting of
the shareholders, how it is to discharge its functions both as landlord and
freeholder. In deciding how to cast their votes, it seems to me likely that the
shareholders will take into account their own individual interests as tenants.
The building is apparently a purpose-built block of flats
constructed around the turn of the century. I have not seen photographs or
plans either of the building or the land on which it stands, and, apart from
what I can infer from the terms of the lease, I know only that there are a
total of 25 flats in the building; that flat 21 is on the top floor; that the
roof is in part a flat roof covered by bitumen felt and in part hipped and
tiled. It is accepted that the roof surface and roof space remain in the
ownership and legal possession of the defendant. In 1998 the defendant obtained
outline planning consent for the construction of a further two flats, of which
one is to be constructed within the existing roof envelope about flat 21 and
the other is to be constructed within a new roof enclosure upon that part of
the roof that is flat and presently felted. It intends to proceed with the
construction in accordance with either the present consent or some further
planning consent.
The claimant is unhappy about this: it is obvious that, if the
development proceeds, it will particularly affect him, in that he is the one
who will be particularly disturbed by the building works and, following
completion, will become subject to the sounds of occupation from neighbours
above him whom he did not have before. It may also adversely affect the value
of his flat, although there has not been any discussion in the submissions made
to me either of that consideration or of the value of any countervailing
benefit to the defendant (or even to the claimant himself as a shareholder in
the defendant). He seeks summary judgment claiming a declaration that the
proposed development is unlawful, in that it is: (i) contrary to the provisions
of the lease; and (ii), alternatively, in breach of an express covenant on the
landlord to repair in clause 5(a) of the lease.
As regards the first point, there is no express covenant in the
lease that prohibits the defendant from carrying out a development that will
increase the number of flats in the building. The claimant seeks, therefore, to
contend that a covenant to that effect should be implied. The terms of the
declaration that he seeks are:
That the Lease dated 25th October 1991 made between the defendant
as lessor and claimant as lessee contains an implied term that the defendant
will not construct or cause to be constructed any more residential flats in or
upon (the property) at roof level, whether within the existing roof or within
any new roof enclosure.
The main thrust of the claimant’s argument on the first point is
that, on a proper analysis, there is here a ‘letting scheme’ that is limited to
the specific number of, and territorial area occupied by, the existing flats;
the addition of further flats would ‘fatally undermine’ the scheme; it is
therefore necessary to imply a covenant in the terms requested in order to
prevent the scheme being undermined. In response, the defendant contends that:
although there is a letting scheme, it is one that contemplates the addition of
further flats; a covenant prohibiting development cannot be implied on normal
contractual principles; and the term is, anyway, inconsistent with an express
power to build contained in the lease.
In determining this case, it is necessary to start from the
proposition that prima facie a landlord is entitled to use its retained
property as it pleases, even where that will be detrimental to the interest of
his lessee: see Port v Griffith [1938] 1 All ER 295. The claimant has not
sought to contradict, limit or distinguish this proposition. Since it is
accepted that the defendant’s retained property includes the roof space and
roof surface, it will have a prima facie entitlement to pursue the proposed
development as planned. A lessee will generally be able to prevent a landlord
acting in pursuance of such entitlement only where there is some express or
implied covenant in the lease that will enable him to do so. As I have
mentioned already, there is no express covenant in the lease upon which the
claimant can rely. The question therefore arises of whether a covenant can be
implied. This is primarily a question of construction of the lease in order to
determine the actual or presumed intention of the parties. This being so,
counsel for each party has trawled carefully through the lease to see if there
is a term, or even a phrase or two, that will support his contrary arguments.
Either in conjunction with this exercise or subsequently, it is
necessary to consider whether the proposed term should be implied on the basis
that its inclusion is necessary to give business efficacy to the contract.
However, the courts are reluctant to imply a term where, as here, there is a
long and complex legal document drawn up by the lawyers in which the parties
have crystallised the terms of their relationship. The conditions that must
apply before the courts will imply a term in these circumstances were set out
by Lord Simon in BP Refinery (Westernpoint) Pty Ltd v Shire of
Hastings (1978) 52 ALJR 20 at p26
and repeated by Sir Thomas Bingham MR in Philips Electronique Grand Public
SA v British Sky Broadcasting Ltd [1995] EMLR 472 at p481 as follows:
for a term to be implied, the following conditions (which may
overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it
must be necessary to give business efficacy to the contract, so that no term
will be implied if the contract is effective without it; (3) it must be so
obvious that ‘it goes without saying’; (4) it must be capable of clear
expression; (5) it must not contradict any express term of the contract.
To this, the defendant has suggested that a sixth principle has
been added by Hughes v Greenwich London Borough Council [1994] 1 AC 170, that the courts would imply a
term into a contract only where there was a compelling reason for doing so,
which I accept, although it seems to me that this may simply be another way of
looking at Lord Simon’s second condition.
Since this is primarily a question of construction, I propose to
record those provisions in the lease around which the argument in this case has
mainly turned.
Lease
The lease, which is in a format common to all flats in the
building, is a concurrent lease issued on or shortly after the completion by
the defendant of its acquisition of the freehold. The recitals confirm that:
(A) the Lessor is the owner of ALL THAT land and premises… upon
which stands a building divided into flats…;
(C) the Lessor has previously granted concurrent leases or intends
hereafter to grant concurrent leases of flats in the Building other than the
Flat (herein defined) and the Lessor has in every concurrent lease imposed and
will in every future concurrent lease impose the covenants on the part of the
Lessee contained in Clause (p) (q) (r) (s) (x) (y) (z)… to the intent that any
lessee for the time being of any part of the Building or any flat therein may
be able to enforce the observance of the said covenants restrictions and
regulations by the owners and occupiers for the time being of the other flats.
The habendum confirmed the demise of the flat to the lessee,
excepting and reserving unto the lessor the easements, rights and privileges
specified in the second schedule, one of which was:
The right for the Lessor to build on any part of the Building and
on any adjacent land of the Lessor notwithstanding any interference with the
access of light or air to the Flat or the interruption of any other easements
appertaining to or enjoyed with the Flat whether created by express grant or
otherwise.
By clause 3, the lessee covenanted ‘with the lessor and with and
for the benefit of the owners and lessees from time to time during the currency
of the term hereby granted of the other flats comprised in the Building’ to
observe certain covenants (which constituted a scheme of ‘domestic’
regulations) for their mutual benefit.
By clause 4, the lessee covenanted with the lessor to pay to the
lessor ‘a proportionate’ part of certain expenses and outgoings and that the
payments of the service charge shall be ‘a fair and proper proportion’ of the
lessor’s actual and anticipated expenditure as defined in the lease.
By clause 5 the lessor covenanted:
(a)… to keep the roofs foundations main timbers outside and main
walls joists of the ceilings and floors and the structure of the walls dividing
the Flat from the adjoining premises entrance doors and all other outside parts
of the Building and the conduits thereof in good and sufficient repair…
(i) if required by the Lessee for the reasonable protection of the
Flat to enforce or assist the Lessee in enforcing the said covenants entered
into or to be entered into by a lessee of any one or more of the other flats in
the Building…
Clause 9 provided that:
No diminution or abatement of rents service charge or other
compensation shall be claimed or allowed for inconvenience or discomfort if any
arising from the execution of building operations additions alterations
decorations repairs or improvements to the Building…
By clause 10, the lessor further covenanted with the lessee:
(b) that every lease or tenancy of a flat in the Building
hereafter granted by the Lessor shall contain covenants on the part of the
Lessee similar in all material respects to those contained in this Lease and
contain regulations to be observed by the lessee or tenant therefor identical
with the regulations and… shall be substantially in the form of this Lease.
Argument
The claimant submits that there is here a letting scheme comprising
a ‘local law’ for the building that imposes a code reciprocally enforceable for
the mutual benefit of the lessees of each plot and that the lessor itself is
obliged (by clauses 5(i) and 10(b)) to support. The concept of a letting scheme
is certainly well established and operates by analogy with the more familiar
building schemes in a similar way. There was, therefore, much discussion in
argument before me as to whether the characteristics of horizontal schemes
apply to flats that are located vertically as well as horizontally, and to this
I will return. It is clear to me from the terms of recital C, clauses 3, 5(i)
and 10(b) that a letting scheme applies, and the defendant accepts that this is
so. The claimant next submits that a development of additional flats outside the
scheme should not be allowed if it would ‘destroy’ the scheme, in that flats
constructed outside the scheme will not be able to benefit from or be bound by
the mutual code: he draws my attention to Torbay Hotel Ltd v Jenkins [1927]
2 Ch 225, where the attempt by a neighbour to enforce a restrictive covenant
failed because it was not possible to infer the necessary common intention to
create a building scheme whereby alone mutually enforceable covenants could
exist between them. He also draws my attention to the observations of Clauson J
at p241:
Such a common intention as I have described will be carried into
effect by the Court by enforcing the agreed restrictions on any owner for the
time being of the land intended to be affected thereby, at the suit of any
owner for the time being of any part of the rest of the property intended to be
comprised in the common area of mutual obligation if, but only if, the Court
can ascertain with reasonably clear definitiveness the geographical area within
which those mutual obligations are intended to operate.
If, contrary to the above, the claimant argues, further flats could
be tacked onto the scheme, the burden on existing tenants would be increased in
that: (i) for any breach, there would be a liability to an increased number of
fellow tenants; and (ii) the increased burden on services would lead to an
increased cost of repairs, of services and service charges. If one adds to that
the fact that recital A refers to a ‘building divided into flats’, this can
only mean ‘existing flats’ as divided at the date of the lease. If a scheme is
held to exist, the final piece of the jigsaw is, he submits, that it is
absolutely necessary to imply a covenant in order to restrain the landlord from
acting inconsistently with the scheme, as was done by Judge Rich QC in Devonshire
Reid Properties Ltd v Trenaman [1997] 1 EGLR 45.
In Trenaman, the recital recorded that the lessors
‘have previously granted leases of, or intends hereafter to grant leases of,
the three flats in the building other than the premises hereby demised’. Clause
7 provided that the reversioner could recover from each of the lessees ‘a
proportion equal to that ratio which the rateable value of each flat has to the
total rateable value of the four flats…’. Giving judgment, Judge Rich observed
at p47C:
In my judgment, the intention of the parties to the leases is
obvious from the form in which those leases have been drawn. Two things are
absolutely apparent; the first is that the costs of maintenance in so far as
the obligations fall upon the lessor should be shared in their entirety among
the four lessees of the flats within the building. That carries with it the
necessary implication that the parties did not contemplate any beneficial
occupation of the remainder of the premises either by the lessor or by anybody
holding under them. The second thing that, in my judgment, is clearly apparent
is that great care has been taken to ensure a mutuality of covenants among the
lessees. It is necessary in order that there shall be mutuality among them all
that they should be restricted to the number recited at the beginning of each
lease, namely four.
The defendant asks me to say that Trenaman was wrongly
decided. I do not presume to say that. However, it is clearly a distinguishing feature
that, in Trenaman, the recital in the lease expressly referred to four
flats, whereas in the instant case there is no such numerical reference. The
claimant submits that, as a matter of construction, the words in recital (A),
that the lessor is owner of land and premises upon which stands ‘a building
divided into flats’, can be interpreted only to refer to ‘existing flats’, or
to the building as divided at the date of the concurrent lease, and is
equivalent to a numerical reference. I do not agree. It seems to me that the
words in the recital are prima facie descriptive and not prescriptive. I
fail to see why the landlord should not, in the eventuality of a surrender or
forfeiture of one or more flats, either subdivide or aggregate those flats so
as either to increase or decrease the number of flats, and, if he can, it seems
to me that the importation of the word ‘existing’ cannot be made. In Trenaman,
the factor that was of critical importance was that the division of tenants’
charges was expressly specified to be among the four flats, which is not
the case here. Additionally, in the instant case, the landlord has, at the
least, impliedly reserved to itself in clause 9 the right to build and make
alterations and additions, which was not a feature of Trenaman.
Accordingly, it seems to me that Trenaman is not ‘on all fours’ with the
instant case.
Whether the addition of further flats outside the scheme would
‘fatally undermine’ the letting scheme may itself be debatable. On the assumption
that it would, it is necessary to investigate whether the requirement in Torbay
Hotel for a ‘reasonably clear defined geographical area’ is or is not
fulfilled in this case. The claimant asked me to look by analogy at building
schemes; there is not in those schemes any breach of the scheme by increasing
the number of units, either by addition or subdivision of units at a date
subsequent to the original division, provided only that it happens within the
geographical boundaries of what I will call the scheme ‘envelope’. The claimant
says that the addition of a plot adjacent to but outside the envelope, as
defined, of a building scheme would be outside the scheme. Whether the same
applies to flats, so that the proposed development is within or outside the reasonably
clearly defined geographical area or envelope, has been a matter of dispute.
It seems to me that the dispute between the parties comes down to a
matter of linguistics: if the geographical area is defined in such a way that
both the proposed flats are physically outside the envelope, then they will
both be outside the scheme; per contra if the line is drawn so that the
construction will be within the envelope. If, then, the line is drawn at the
level of the present ceiling to flat 21, then both proposed flats will be
outside the scheme. If it is drawn at the present roof level, then a further
flat can be constructed within the roof space and will be within the scheme,
but the second flat, constructed wholly on the flat roof, will be outside the scheme.
Is there somewhere to draw a vertical line or is the sky the limit?
In my judgment, in the absence of words that expressly define the
point at which the line is to be drawn or from which, by implication (as in Trenaman),
its position can be inferred, the conclusion should be reached, and I conclude
as a matter of construction in the instant case, that the envelope of the
scheme is to be found only in the horizontal plane and there is not any
vertical line. There is not any reason, it seems to me in this case, why the
number of additional flats that can be added should not be limited only to what
the planning authorities may choose to allow in the light of what is feasible
in building techniques and acceptable to them from time to time. On that basis,
clause 10(b) would require the lessor to import into the lease of each
additional flat the code of reciprocally enforceable obligations that applies
to the scheme as a whole, and each additional flat will be within the letting
scheme. Also, under clause 4, that which constitutes the ‘proportionate part’
of the expenses and outgoings will require adjustment from time to time in
order to accord to the number of flats and their respective sizes and demands.
I reject the contention that there will be an unacceptable increase in the
burden of the tenants’ covenants for three reasons. First of all, the cost of
any expense to construct the additional flats or adjust the services is not
within clause 4 and is not recoverable from the tenants. Second, the addition
of further flats will increase the number of persons among whom the expenses
and outgoings arising are to be divided and, therefore, prima facie,
will diminish rather than increase the burden on the lessee.
There is a third point. In this case I know nothing of the wording
of the leases that had existed from the construction of the building at the
turn of the century. I know only of the concurrent leases entered at the time
when the defendant purchased the freehold. There was argument whether it was
relevant to the decision in this case that the lessees were shareholders in the
defendant. Initially, I was inclined to think that the decision on the lease
would be the same as a matter of principle irrespective of the fact that the
lessees were shareholders in the freeholder. On reflection, I am persuaded that
the relationship between them is a potentially important matter that the court
can legitimately and should properly take into account. It is therefore
legitimate for me to infer that the defendant is proposing the development not
for humanitarian purposes but because there is a profit to be made from the
enterprise; a profit that may conceivably either be distributed as a dividend
to the lessees or kept in a reserve to assist in defraying those expenses that the
lessee has covenanted to contribute. Against this background, in the absence of
evidence to the contrary, I cannot accept the argument that the burden on the
tenant has been unacceptably increased.
This brings me to the final test of this matter, that is to say the
application of the ‘officious bystander’ test as described by Scrutton LJ in Reigate
v Union Manufacturing Co (Ramsbottom) Ltd [1918] 1 KB 592 at p605. Whatever might have
been the position at the turn of the century, the position in about 1971, at
the time of the concurrent leases, seems to me to be tolerably clear. The
burden lies on the claimant to establish that when the appropriate hypothetical
question was asked the parties would, with one voice, have responded: ‘Of
course, we will not countenance the construction of further flats; we did not
trouble to say that; it is too clear’. But what ought to be the appropriate
question in 1971, when I assume (contrary to the submission of the defendant)
that the question might well have been far from their minds? The appropriate
question, it seems to me, would be phrased as follows: ‘If in several years’
time it should transpire (as a result of an improvement in construction
techniques and astronomical property price inflation) that it is possible to
make a large profit for the freeholder by building further flats onto the
existing building, would we countenance such a development?’ Had that question
been asked, I am inclined to think that it is quite possible that the parties
may have said: ‘Of course. We will allow that, provided it is a meritorious
proposal at the time the decision is taken.’ What I am quite confident about is
that the parties would not have unanimously agreed to reject the proposal. In
reaching this conclusion, I think it is important to take into account the fact
that the tenants in 1971 were themselves the sole shareholders in the
freeholder. I can conceive that the answer might not be the same had they not
been.
I turn now to the second ground of the application, that the
proposed construction would inevitably involve a breach of the repairing
covenant in clause 5(a). It is agreed on both sides, for the purposes of the
present argument, that the construction of a flat within the roof space will
necessarily require some removal and substitution of structural roof timbers
and the insertion of windows or roof lights into the roof surface itself; and
that the construction of the other flat will, at the least, involve cutting
into timbers in order to provide a means of access, either by stairs or lifts
or both. Judge Rich in Trenaman, having been referred to Gange v Lockwood
(1860) 2 F&F 115, stated as follows at p46D:
In my judgment, a covenant to repair and maintain raises a duty
not to destroy wholly or partly and a proposal to do so is a breach of such
covenant. The proposed works involve such an intention and would… constitute
therefore a breach of the covenant to maintain, repair, redecorate and renew…
That which is proposed in respect of the roof departs from that restriction imposed
by the covenant, and therefore could not be carried out, in my judgment, other
than in breach of the covenant…
The claimant invites me to construe clause 5(a) in the instant
lease in the same way.
It strikes me that the logic behind such a principle is suspect and
the principle is faintly absurd nowadays, and I am inclined not to follow Trenaman
on this point. Mr
legalistic approach’, and I agree. In any event, it seems to me, on the basis
of first principle (supported also by authority: see Woodfall at para
13.063), that whether the implied duty not to destroy is absolute must depend
on the construction of the lease and that not every alteration of the premises
amounts to a breach of the covenant to repair. In construing the covenant,
regard must be had, in particular, to what the parties to the lease are to be
taken as having contemplated would be permissible. It will be relevant to
consider the existence and terms of any covenant against alterations. The
defendant points out that in the instant lease there is a covenant on the
lessee to repair and a further covenant on him not to make alterations. There
is not, however, such a covenant restricting the lessor from making
alterations. On the contrary, since, in this lease, the lessor has the
entitlement to execute ‘necessary repairs or alterations to or upon any part of
the Building’ (see clause 2(j)) and to execute ‘building operations additions
alterations decorations repairs or improvements to the building’ (clause 9 supra),
aspect past ‘first base’. The claimant says that I should not read clause 9 as
giving the defendant the power to build, make additions or alterations, but merely
as limiting the lessee’s remedies should it do so. I reject this submission. At
the very least, the powers are implicit.
Accordingly, the claimant’s application, in my judgment, must fail.
Application dismissed.
