A recent decision potentially has far-reaching consequences for leaseholders and their ability to renovate their properties
Key points
■ Where an obligor undertakes a contingent or conditional obligation, they are under an obligation not to prevent the contingency from occurring or from putting it outside of their power to comply with the obligation if the contingency arises
■ A landlord cannot license or waive a breach of covenant if another lessee requests enforcement of an absolute covenant in the lease
It is not uncommon for a residential lease to contain absolute covenants prohibiting a lessee from carrying out certain works.
The ordinary mechanism for enforcing such covenants is a covenant obliging a landlord to ensure that the leases of every other residential premises in the building contain similar absolute covenants that may be enforced at the request of other lessees.
Where such covenants exist, can a landlord license or waive a breach of covenant if another lessee requests enforcement of the absolute covenant? This was the thorny issue at the heart of the appeal in Duval v 11-13 Randolph Crescent Ltd [2018] EWCA Civ 2298; [2018] PLSCS 177.
The covenants
Mrs Winfield and Dr Duval were the long lessee of flats situated in a building located at 11-13 Randolph Crescent in Maida Vale. The freehold reversioner was the landlord, 11-13 Randolph Crescent Ltd.
The leases contained clauses that were drafted in similar terms. Clause 2.7 was an absolute covenant. It provided that the lessee would not “commit or permit or suffer any destruction in or upon the Demised Premises nor cut maim or injure or suffer to be cut maimed or injured any… wall… within or enclosing the Demised Premises”.
Clause 3.19 was a covenant by the landlord. It provided that “every lease of a residential unit in the Building hereafter granted by the Landlord at a premium shall contain… covenants of a similar nature to those contained in Clauses 2 and 3 of this Lease…”
Mrs Winfield sought permission to carry out improvement work to her flat, including the removal of part of a load-bearing wall at basement level. This element of the work was in breach of clause 2.7 of her lease.
Mrs Winfield applied to the landlord for a licence to alter. It was willing to grant consent, but Dr Duval objected. She argued that 11-13 Randolph Crescent Ltd was prohibited from granting a licence by virtue of clause 3.19.
In the County Court, DDJ Chambers found in favour of Dr Duval. On appeal, HHJ Parfitt reversed the decision.
The dispute
On appeal to the Court of Appeal, Dr Duval argued that clause 2.7 of Mrs Winfield’s lease contained an absolute prohibition on the cutting of a wall which enclosed her flat.
By virtue of clause 3.19, the landlord had covenanted to enforce clause 2.7 if so requested by another tenant. If it licensed or waived Mrs Winfield’s breach of clause 2.7, it would have negated its power to comply with clause 3.19.
Accordingly, it was implicit in clause 3.19 that the landlord would not abrogate its power to comply with that covenant.
The landlord focused on the wording of clause 3.19. It argued that clause 3.19 did not expressly state that it was precluded from granting a licence for what would amount to a breach of tenant covenant.
Further, as clause 3.19 had retrospective operation once a breach had occurred, if advance consent to an activity was granted to a lessee, it would not amount to a breach of covenant and accordingly there would be nothing to enforce.
The landlord also highlighted the adverse effect that a lessee’s “veto” on its right to consent to works in breach of covenant would have on the practicalities of managing a residential building.
Compliance with an obligation
Allowing Dr Duval’s appeal, the Court of Appeal reiterated that the starting point of any contractual interpretation was the contract itself.
Although the practicalities of block management and commercial common sense were relevant to interpretation, they did not displace the primacy of the wording of the contract.
It was correct that the wording of clause 3.19 did not expressly preclude the landlord from licensing a breach of tenant covenant.
Yet, the question was whether this could be implied from the manner in which the covenant had been drafted. In light of Marks & Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2015] UKSC 72; [2016] EGLR 8, a further question to be answered was whether the implication was necessary to give practical or commercial coherence to the contract.
The courts have consistently found that where an obligor undertakes a contingent or conditional obligation, they are under an obligation not to prevent the contingency from occurring, or from putting it outside of their power to comply with the obligation if the contingency arose.
Dr Duval was entitled to require the landlord to enforce clause 2.7 in the face of a threatened breach. Clause 2.7 and 3.19 would be devoid of any practical or commercial content if the landlord had “carte blanche” to vary or modify the covenants or to authorise what would amount to a breach of the same.
If it granted Mrs Winfield a licence to alter or waived a breach of covenant, it would be in breach of clause 3.19 of the lease.
The Court of Appeal highlighted that if clause 2.7 had been drafted as a qualified covenant – namely, not to do the prohibited act without the landlord’s consent – it would have arrived at a different conclusion.
The landlord also argued that the Court of Appeal’s interpretation of clause 3.19 would give rise to every lessee having a veto over its ability to license work that would be prohibited by the lease. Lord Justice Lewison reiterated that there was no requirement for a landlord to give lessees advance warning of what they proposed to do.
However, if a landlord had granted a licence in breach of covenant, and that licence had been acted on, the landlord would be open to a claim for damages for breach of covenant.
Given the public importance of this decision, the landlord has applied for permission to appeal to the Supreme Court.
Elizabeth Dwomoh is a barrister at Lamb Chambers
