Landlord and tenant – Covenant for quiet enjoyment – Scheme of management under Leasehold Reform Act 1967 – Respondent manager of scheme giving consent for basement extension to house governed by scheme – Appellant holding another property on long lease from respondent as landlord – Appellant objecting to works on grounds of potential damage to its property from ground water movement – Whether grant of consent potentially breaching covenant for quiet enjoyment in lease – Appeal dismissed
The respondent trust was the manager under a scheme of management made and approved by the High Court, under the Leasehold Reform Act 1967, in respect of numerous properties in Hampstead Garden Suburb that had been enfranchised pursuant to that Act. The scheme regulated the rights of the property owners in various respects and, in particular, required the prior written consent of the respondent to be obtained for certain types of alterations. The appellant held one of the remaining unenfranchised properties on a 999-year lease, from 1931, under which the respondent was the current landlord.
In June 2011, the respondent received an application for consent to carry out extensive alteration works to one of the enfranchised properties, including the construction of a substantial basement containing a swimming pool. The appellant expressed concerns that the works might affect the movement of ground water so as adversely to affect its property downhill from the application property. The respondent considered that the proposed extensions were acceptable for a house in that location and, after obtaining reports on the ground water issue, decided to grant consent subject to conditions.
The appellant applied for an injunction to restrain the respondent from granting consent without first obtaining a basement impact assessment. It contended that the grant of permission for the works would potentially breach the covenant for quiet enjoyment in its lease.
Dismissing the claim, the judge held that the respondent did not have to require a basement impact assessment in order to comply with its obligations under the scheme but could legitimately decide that such issues would be better left for consideration by the local planning authority. He further held that the respondent was acting as a custodian of the public interest when it decided whether to grant consent and that the covenant for quiet enjoyment could not be relied on to prevent or hinder the discharge of that duty: see [2013] EWHC 948 (Ch); [2013] EGILR 30; [2013] 02 EGLR 76. The appellant appealed.
Held: The appeal was dismissed.
A covenant for quiet enjoyment was a covenant that a tenant’s lawful possession of the property would not be substantially interfered with by the acts of the lessor or those lawfully claiming under it. It was prospective in nature and its scope fell to be construed in accordance with ordinary contractual principles of interpretation. When interpreting the covenant, it might be helpful to consider what obligations on the part of the lessor could fairly be regarded as necessarily implicit in the grant. In that regard, the covenant was similar to the obligation of a grantor not to derogate from the grant: Southwark London Borough Council v Mills [2001] 1 AC 1; [1999] 3 EGLR 35; [1999] 45 EG 179 and Johnston & Sons Ltd v Holland [1988] 1 EGLR 264 applied. Although the agreement had to be interpreted in light of the circumstances pertaining at the time when it was made, that did not mean that, if a particular factual situation later arose which the parties had not anticipated, the agreement did not apply to that situation. The question would be what reasonable parties should be taken to have intended by the words used in the agreement in relation to the unforeseen event: Bromarin AB v IMD Investments Ltd [1999] STC 301 applied.
The scheme of management was operated by the respondent for the purpose of maintaining and preserving the character and amenities of the suburb and not for the purpose of furthering any private interest. To that extent, the respondent fulfilled a public function, which had its foundation in the statutory scheme embodied in section 19 of the 1967 Act: Zenios v Hampstead Garden Suburb Trust Ltd [2011] EWCA Civ 1645 applied. The appellant did not allege that the respondent had failed to perform its duties and obligations under the scheme in a proper, bona fide and reasonable manner. Nor did it allege that, in dealing with the appellant’s application in the way it had, the respondent had failed to act fairly, rationally or consistently with other public law principles.
Reasonable parties would not have thought that the proper and bona fide performance by the respondent of its duties under an arrangement such as the scheme could amount to a breach of the covenant for quiet enjoyment. The proper performance by the respondent of its public duties under the scheme did not amount to taking away with one hand what had been given to the appellant with the other, or to a substantial derogation from grant or substantial interference with the appellant’s rights under the lease. The performance of the respondent’s duty to preserve the character and amenities of the suburb was consistent with the agreement set out in the lease. It was implicit in the bargain embodied in the lease that the respondent should be able properly to perform its duties under the scheme. It therefore made no difference that the 1967 Act, on which the scheme was based, post-dated the lease.
Any other conclusion would fetter the respondent’s exercise of its powers under the scheme by permitting a leaseholder, but not a freeholder, to contend that a particular development would substantially interfere with the quiet enjoyment of its property, irrespective of whether that development was in the wider public interest: Manchester, Sheffield & Lincolnshire Railway Co v Anderson [1898] 2 Ch 394, Commissioners of Crown Lands v Page [1960] 2 QB 274; (1960) 175 EG 1303 and Molton Builders Ltd v Westminster City Council (1975) 30 P&CR 182; [1976] 1 EGLR 150; (1975) 238 EG 411 considered. The parties should not be taken to have intended, by the words of the covenant, that it could be applied to prevent or fetter the proper and bona fide exercise by the trust, for the public good, of its powers under a statutory scheme approved by the High Court.
Jonathan Seitler QC (instructed by Berwin Leighton Paisner LLP) appeared for the appellant; Tom Weekes (instructed by Lee Bolton Monier-Williams) appeared for the respondent.
Sally Dobson, barrister
