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01 May 2019

Landlord’s consent? Absolutely not!

The Court of Appeal decision in the case of Duval v 11 – 13 Randolph Crescent Limited [2018] EWCA Civ 2298 has, arguably, turned leasehold law on its head with far reaching consequences for the unwary landlord. Permission to appeal was granted by the Supreme Court in March 2019.

The facts

The Claimant, Julia Duval (Duval), was the long leaseholder of two flats at 11 – 13 Randolph Crescent, London. The Defendant, 11 – 13 Randolph Crescent Limited (the landlord), was the freehold owner of the building, which comprised 11 flats in total including those belonging to Duval. Each of the leaseholders held shares in the freehold company. All of the leases were in similar terms and contained the types of covenants commonly found in long residential leases.

Under the terms of the leases, tenants were expressly prohibited from carrying out certain actions. In this particular case, the prohibition related to the carrying out of improvement works which would involve cutting into walls. The underlying issue in this case was that the tenant of flat 13 wanted to carry out improvement works to her property and she approached the Landlord asking for consent. Even though the improvement works constituted a breach of her lease, the landlord was, nevertheless, inclined to allow the works.

Duval objected and argued that the landlord was not entitled to consent to the works as it would be a breach of the landlord’s covenants in the lease. In broad terms, the landlord, in all of the leases, promised that all of them would be on similar terms and that it would enforce a tenant’s covenants if requested by another tenant (and subject to the complaining tenant indemnifying the landlord for its costs).

It was Duval’s position that the landlord was precluded from granting consent as this would then prevent it from complying with its obligation to enforce breaches of tenant covenants.

The landlord disagreed. It argued that it was free to deal with its own building as it saw fit. Its position was that if it granted consent to something, it could no longer be considered a breach and therefore there was nothing to enforce against.

The claim was won by Duval in the first instance, it was then appealed to the County Court, which found in favour of the landlord. That decision was then appealed to the Court of Appeal.

The Court of Appeal handed down its judgment and appeared to have tried to find a middle ground, albeit not an entirely satisfactory one.

The Court of Appeal held that a landlord is free to grant consent to something that would ordinarily be a breach of the terms of the lease. However, the Court also held that by doing so, the landlord was in breach of its own covenant that all the leases be in similar terms and that it would enforce covenants on behalf of other tenants. That breach therefore opens up the landlord to a damages claim by tenants.

The implications so far

The decision in Duval does not apply solely to tenant covenants relating to improvement works but to all breaches of absolute covenants (ie where a certain act is absolutely prohibited under the terms of a lease).

Of particular concern to many landlords of long leasehold residential buildings will be tenant covenants relating to pets and carpeting of floors. As property lawyers, these are among the most common bones of contention we see between tenants of residential buildings.

A requirement to keep all floors (other than the kitchen and bathroom) carpeted in flats is almost universal in residential leases. However, many landlords routinely grant consent to allow wooden floors, subject to suitable sound deadening materials being used.

Landlords are, for now, much less likely to grant consent to wooden floors being installed, in order to avoid the risk of a potentially costly damages claim from another tenant in the building. While this may be music to the ears of those suffering from the effects of inconsiderate noisy neighbours, it might not be quite the time to break open the champagne.

A possible unintended consequence of this decision is that some tenants (as already happens far too frequently) will simply install wooden floors as they see fit but the landlord will have had no control or oversight as to the materials used or the standard of installation. If a noise nuisance is the consequence of that installation, yes, the suffering leaseholder has recourse to the landlord to require it to enforce the terms of the lease. However, she will also have to pay the costs of such enforcement and will have no control over the progression of the claim. It really is a lose / lose scenario for both landlord and tenant.

Similarly, many leaseholders have pets in breach of the terms of their lease. Landlords are potentially at risk of claims from other tenants objecting to the keeping of those pets. Even if no formal consent was sought or given, the risk exists if it can be shown that the landlord has even tacitly consented to the keeping of a pet.

No sensible landlord is going to risk exposure to a claim for damages. Even if the value of the claim may be nominal, the landlord would still have to incur the costs of defending it. The more likely outcome of the Duval decision as it is now is that freeholders will start taking a much harder line on both consent and enforcement, with the concomitant deterioration in landlord and tenant relationships.

Commercial landlords need not rest on their laurels either. This decision is likely to have an impact on them too, particularly for landlords of shopping centres, and multi-occupancy and multiuse spaces where the landlord covenants to enforce breaches committed by other tenants in the centre or scheme.

Solutions?

Let’s see what the Supreme Court decides. While it could be said that this is a very troubling decision so far, not all leases of residential buildings (or commercial centres) will contain clauses drafted in exactly the same way as in this case.

A first step for landlords might be to review their leases and their procedures relating to the granting of consent. One lease I have recently reviewed only required the landlord to enforce breaches if it was, in the landlord’s opinion, ‘reasonable’ to do so. While that is not necessarily a ‘get out of jail free card’, it at least adds in a test of reasonableness if the complaining tenant is merely being capricious, although of course that then begs the question; what is ‘reasonable’?

For now, however, landlords are stuck with the leases they have until they come up for renewal. Their only real option while Duval remains good law is to refuse consent to all requests where there is an absolute prohibition in the lease and to take decisive action in respect of breaches so that it cannot be seen to have tacitly consented to a breach. Cue lots of unhappy pet owners…

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