Jonathan Seitler QC and Miriam Seitler debate moot points in property law – this time, tenants’ alterations.
Question: Can a landlord really object to tenant’s alterations?
NO: Jonathan Seitler QC, barrister at Wilberforce Chambers, argues that the landlord’s scope for objection when a tenant wishes to carry out alterations is pretty narrow. This is for five reasons:
The landlord’s scope for objection when a tenant wishes to carry out alterations is pretty narrow. This is for five reasons:
1. The default position – in the absence of provisions to the contrary and subject to the (rather obscure) tortious liability for waste – and the position for (i) certain public sector residential tenancies, by reason of section 97(1) of the Housing Act 1985 and (ii) most protected and statutory private sector tenancies under the Rent Act 1977 by reason of section 81 of the Housing Act 1980 (in each case there being implied into such tenancy a term that the tenant will not make any improvement without the landlord’s written consent), is that a tenant is entirely free to alter the demised premises in any way that it seeks.
This means that a restriction on alterations is only as good as the wording deployed to constrain them. Any loopholes in the wording will lead to a permissive rather than restrictive outcome.
2. The potential loopholes in this area are legion because restrictions on alterations are liable to be construed against the landlord (Gresham Life Assurance Society Ltd v Ranger [1899] 15 TLR 454 CA).
Furthermore, in construing the scope of any such covenant, the court will have regard to what the parties would have contemplated when the lease was granted. In Bickmore v Dimmer [1903] 1 Ch 158, the alterations clause was held to apply only to alterations “which would affect the form and structure of the premises” and the holes in the wall made by the tenant in that case were not regarded as a change in form or structure. It was also treated, in that case, as wrong to construe the covenant so as “to prevent a tenant… from doing those acts which are convenient and usual for a tradesman to do in the ordinary conduct of his business”.
3. The effect of section 19(2) of the Landlord and Tenant Act 1927 (the 1927 Act) is that a clause which restricts “improvements” and which refer to the landlord’s consent, must be taken to have the fully qualifying phrase “such consent not to be unreasonably withheld” statutorily implied.
This has wide scope in limiting a landlord’s ability to object to tenant’s alterations because it has been clear since Balls Bros Ltd v Sinclair [1931] 2 Ch 325 that as a matter of statutory construction, whether an item is an improvement must be viewed largely from the tenant’s point of view: see also F W Woolworth & Co Ltd v Lambert [1936] 1 All ER 333 and Lambert v F W Woolworth & Co Ltd (No 2) [1937] 3 All ER 334.
The result is that the works proposed by the tenant will be improvements from its point of view (and that will be the case in most, if not all cases: why else would the tenant be doing the works?) and the landlord will be required to be reasonable in objecting to proposed alterations.
4. Section 19(2) also has another important effect: it indicates that damage to or diminution of the value of the premises or any neighbouring premises of the landlord does not justify an absolute refusal of consent – it only justifies attaching an appropriate condition to the consent. This means that a landlord cannot refuse consent to a tenant’s application to carry out alterations on grounds of pecuniary loss alone. The proper course for the landlord to adopt in such circumstances is to ask for a compensatory payment.
5. If the landlord tries to push back too hard against a tenant’s application for consent to alterations, there are two statutory routes that a tenant can take to sidestep the landlord’s intransigence. These routes inevitably constrain a landlord from insisting too rigorously on its rights to refuse consent to alterations.
The first is to seek to vary or modify the restriction under section 84 of the Law of Property Act 1925 (the principles are the same as are referred to in the previous Moot Point: www.egi.co.uk/legal/moot-point-challenging-covenants/).
The second, available in the case of business premises, is by seeking certification of an improvement as a “proper improvement” pursuant to the somewhat underused section 3 of the 1927 Act. This involves proving that the improvement (i) is calculated to add to the letting value of the holding at the end of the term; (ii) is reasonable and suitable to the character of the premises; and (iii) will not diminish the value of any other property of the landlord or a superior landlord. The end result of that process, as well as the possibility of compensation at the end of the lease, is the tenant’s entitlement to execute the improvement, “anything in any lease of the premises to the contrary notwithstanding”.
YES: Miriam Seitler, barrister at Landmark Chambers, offers five reasons which go to show that a landlord does have scope for objection when a tenant wishes to carry out alterations:
1. A landlord may not be able to refuse consent to alterations under the law relating to alterations, but there is other law.
The most important is that relating to trespass. Where, therefore, works necessarily entail trespassing on property retained by the landlord, all the permissiveness in the world under the law of alterations will not be able to force the landlord into granting consent. An Englishman’s retained land is his castle.
2. The ability of the tenant to seek certification of an improvement under section 3 of the 1927 Act is hugely undercut by the fact that the 1927 Act contains no definition of the word “improvements”. The question what constitutes an improvement is fraught with uncertainty.
To say that it must all be looked at from the point of view of the tenant does not stop the landlord relying on the other terms of the lease to say that, taken in the round, even from the point of view of the tenant, the need to reinstate and repair, etc, makes the works less than optimally beneficial.
There is a reason that the 1927 Act is not much used.
3. In the context of a fully qualified (or, because of section 19(2) of the 1927 Act, a qualified) covenant against alterations, the landlord can refuse consent to a tenant who wishes to carry out alterations as long as the reasons it provides are reasonable. In other words, the “no” arguments set out above are all very well, but if a landlord has a good reason to refuse consent, that refusal will be defensible.
The principles relating to the basis on which a landlord can refuse consent to an assignment or sub-letting, that Balcombe LJ distilled in International Drilling Fluids Ltd v Louisville Investments (Uxbridge) Ltd [1986] 1 EGLR 39, were adapted by Peter Gibson LJ for the purposes of a covenant against alterations in Iqbal v Thakrar [2004] 3 EGLR 21.
In essence, the purpose of a covenant restricting the tenant carrying out alterations is to protect the landlord from alterations and additions which actually or potentially damage the landlord’s property interests. As long as the landlord is protecting its own property interests then it is on safe ground to refuse consent. And it will be for the tenant to show that the landlord has unreasonably withheld consent.
4. From that it can be seen that, even where a landlord may struggle to justify a refusal of consent, it still has considerable leverage in (i) asking for a compensatory payment for damage to the reversion; and (ii) imposing conditions on its grant of consent to alterations.
The second point is particularly important because section 19(2) itself specifies that certain types of condition will, in principle, be considered reasonable. They are: (i) the payment of a reasonable sum in respect of damage to or diminution in the value of the premises or any neighbouring premises (and in this respect it is for the tenant to establish that the sum demanded is unreasonable) (see Woolworth); (ii) the payment of a reasonable sum in respect of any legal or other expenses properly incurred in connection with the licence; (iii) where the improvement does not add to the letting value of the premises and such a requirement would be reasonable, an undertaking to reinstate the premises in the condition in which they were before the improvement was executed.
These three conditions are therefore “free shots” for a landlord in any event.
5. Two rules of litigation in this area favour the landlord.
The first is that the landlord only has to show that it is being reasonable, not that it is right in every respect. It is not necessary for the landlord to prove that the conclusions which led him to refuse consent were justified, if they were conclusions which might be reached by a reasonable landlord in the particular circumstances.
The second is that a tenant will not have one of the main weapons to incentivise a landlord back into line. Unless the fully qualified alteration covenant is drafted in the form of a positive covenant by the landlord not to unreasonably withhold consent (which it practically never is) the tenant will have no remedy in damages for an unreasonable refusal of consent to alterations.
The tenant’s remedies are therefore limited to seeking a declaration in court (slow and expensive); seeking an injunction (which, if it is to be swift, will need to be on the basis of interim relief, and will usually require the tenant to give a cross-undertaking in damages); and going ahead with the work despite a refusal (which will create a risk of forfeiture). The most favoured point of leverage against a heavy-handed, over-confident landlord – a claim for damages – is rarely available to the tenant in the case of an unreasonable refusal of consent to the tenant carrying out alterations. This is because the Landlord and Tenant Act 1988 does not apply to alterations.
That is why, in real and practical terms, a landlord can get away with objecting to a tenant’s refusal of consent even where perhaps it is not strictly entitled to do so. Tenants do not have all the weaponry that they would necessarily need.
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Competition is getting fierce – after Miriam raced into a 2-0 lead, Jonathan has tied the scores at 2-2. Who will nose in front this time?
