Archive for the ‘Land Covenants’ Category

Can landlord of block of flats authorise a tenant to make structural alterations in breach of absolute covenant?

May 9, 2020

Introduction

In England, the usual arrangement for blocks of flats is for a landlord to retain ownership and control of common parts such as the structure and exterior of the building. Owners are granted long leases of their flats.

This use of leases allows the burden of positive covenants (such as the covenant to contribute to the costs of maintaining, insuring and renewing the building) to be transmitted to the owners of the flats from time to time.

Hong Kong does not need to resort to this device because of section 41 of the Conveyancing and Property Ordinance.

The landlord of the block is then expected to manage the building on behalf of all the tenants and to recover the costs of doing so through a service charge.  The landlord (or its agent) will be entitled by the leases to impose a service charge for this management service.

The leases may contain tenants’ covenants not to do certain things either (a) without the landlord’s consent (a qualified covenant) or (b) not to do them at all (an absolute covenant).

There may be qualified and / or absolute covenants, for example, against carrying out certain types of work.

Qualified covenants envisage that tenants wishing to do work covered by the covenant will apply to the landlord for consent. This allows the landlord to exercise oversight and control in the interests of the proper management of the building.

Absolute covenants envisage that there are certain types of work that tenants will never have any right to carry out.

The lease covenants allow the landlord to manage the building for the benefit of all the tenants. The lease might go further and, for example, require the landlord to enforce the lease covenants at the request of a tenant.

Duval v 11 – 13 Randolph Crescent

The facts in Duval

In Duval v 11 – 13 Randolph Crescent ([2020] UKSC 18) the leases of all flats in the building required the landlord: (a) to impose similar covenants in all leases; and (b) (in clause 3.19) to enforce any breach of covenant by one tenant if asked to do so by another (at the cost of the tenant making the request).

A tenant (‘W’) wanted to carry out works which would involve the removal of part of a load-bearing wall. This would be in breach of an absolute covenant (‘clause 2.7’) not to do work of this nature.

The landlord was, nevertheless, willing to grant the tenant a licence to carry out these works. Another tenant (‘D’) objected and sought a declaration that the landlord did not have the power to waive the absolute covenant in clause 2.7.

The question in Duval

Lord Kitchin (with whom the other members of the UK Supreme Court agreed) framed the question thus:

‘whether the landlord of a block of flats is entitled, without breach of covenant, to grant a licence to a lessee to carry out work which, but for the licence, would breach a covenant in the lease of his or her flat, where the leases of the other flats require the landlord to enforce such covenants at the request and cost of any one of the other lessees.’ ([1]).

Accepted that the landlord could do so in the absence of an obligation owed to other tenants to enforce the covenant

The parties, and the court, agreed that, in the absence of a covenant to enforce clause 2.7 the landlord could grant a licence to carry out works in what would otherwise be a breach of it. This was so even though clause 2.7 was an absolute covenant ([11]).

The crucial additional facts were that the landlord covenanted to impose a restriction similar to clause 2.7 in all leases and, in clause 3.19, to enforce them at the request and cost of any tenant. These facts made all the difference.

Implied covenant

The court set out its interpretation of the express terms of clause 2.7. It then decided that there was an implied term that the landlord promised ‘not to put it out of its power to enforce clause 2.7 in the leases of other lessees by licensing what would otherwise be a breach of it’ ([52]).

The decision: the landlord could not grant a licence to carry out the work

The UK Supreme Court upheld the Court of Appeal’s decision to grant the declaration sought by D. The landlord could not grant a licence to carry out these works:

‘In my view it necessarily follows that the landlord will not put it out of its power to enforce clause 2.7 in the lease of the offending lessee by licensing the activity that would otherwise be a breach of that clause. The clause is an absolute covenant and, under clause 3.19, the complainant lessee is entitled, on provision of security, to require the landlord to enforce it as an absolute covenant. As Lewison LJ said at para 27 of his judgment, it would not give practical content to the obligation if the landlord had the right to vary or modify the absolute covenant or to authorise what would otherwise be a breach of it.’ ([55]).

Michael Lower

 

Clear words needed for a general waiver

November 30, 2012

Real Honest Investment Ltd v Attorney-General ([1997] 2 HKC 436, PC) concerned a restrictive covenant in a 1923 Government Lease that prohibited the erection of any building exceeding 35 feet in height. In 1948, the site had been redeveloped and the Government had waived the height restriction. Now RHI proposed a further redevelopment and argued that the 1948 waiver had been a general waiver and that the height restriction no longer applied. This failed. The 1948 waiver had been a waiver in respect of the particular development then proposed. Clear words are needed to express an intention to grant a general waiver (Lord Clyde at 440) and they were not present in the 1948 waiver.

Covenant only to build domestic houses

November 29, 2012

Expressluck Development Ltd v Secretary for Justice ([2007] HKEC 1352, CFI) concerned land on which houses had been built. The Conditions of Exchange under which the land was held provided that “The lessee will not be allowed to erect any buildings on the lots except domestic houses.” From the 1940s onwards, the ground floors of the houses had been used for commercial purposes without the Government taking any formal action in respect of the breaches of covenant. Where, however, other major changes of use had been proposed, consent had been sought by the owners. Expressluck now intended to build a block of residential units but with the ground floor being used for commercial purposes. It did not want to apply for a variation or release of the covenant. Instead it sought, inter alia, declarations to the effect that the proposed development did not amount to a breach of covenant, that the covenant had been abandoned or waived (because of the long history of tolerating commercial use) or that the Government’s demand for rent based on commercial use of the ground floor of the development gave rise to an estoppel. Expressluck failed in all respects.

First, there was a breach. The covenant did not affect only the type of building that could be built but also its subsequent use. Second, although the Government may have waived breaches of the covenant, it had not waived the covenant itself:

’81. What I glean from the authorities is that waiver of a covenant cannot be lightly inferred. It can be, but only where acquiescence by the grantor is sufficiently clear and unambiguous that it would be inherently unfair for him to be permitted to go back on his word, either actually spoken or derived from his conduct.
82. Further, it is important to distinguish between waiver of a breach of a covenant and the covenant itself.
83. Acquiescence will not amount to a waiver of the covenant unless in the particular circumstances, there was a clear intention to do so for all time.’ (Deputy Judge Gill)

Finally, there was no estoppel the Commissioner for Rating and Valuation had issued the demand but this did not bind the relevant department of Government (the Director of Lands).

Building schemes

November 28, 2012

In Elliston v Reacher ([1908] 2 Ch 665, CA (Eng)) a building society bought land. A deed was prepared in which the building society and the purchasers were said to covenant with each other not to use any plot of land on the estate as a hotel (unless the building society’s consent was obtained). This was stamped but was not executed by the building society or any of the purchasers. The sales materials for the first sale of the plots identified the estate and the plots to be sold and stated that each purchaser would covenant with every other to observe the restriction on building a hotel without consent. The first conveyance of each plot expressed an intention that the purchaser and his successors in title would be bound by the restrictions in the deed of covenant. It identified the plot and the estate. It was held that this created an effective building scheme so that the restriction against building a hotel could be enforced by a successor in title against a successor in title. Every lot was purchased subject to the understanding that it had the benefit and burden of the restrictions.

Tulk v Moxhay explained: purchasers with notice only take subject to restrictive covenants

November 21, 2012

In Haywood v The Brunswick Permanent Building Society ((1881 – 82) L.R. 8 Q.B.D. 403, CA (Eng)) E covenanted with C that E would keep in repair the houses on the land conveyed to him. The building society and H were the successors in title of E and C respectively. H brought proceedings against the building society for breach of the repairing covenant. These failed. The equity referred to in Tulk v Moxhay only arose where the covenants in question were restrictive covenants and the purchaser took with notice of them.

Halsall v Brizell: benefit and burden

November 16, 2012

In Halsall v Brizell ([1957] Ch 169) O and J bought a large area of land near Liverpool and built a housing estate on it. They retained ownership of common parts including the roads and the sewers under them. No easements were granted over these common parts but they were held on express trust for the use and enjoyment of the owners and occupiers of the houses on the estate. The owners covenanted to contribute to the maintenance and repair of the common parts. Decades later, F became the owner of one of the houses. The question was whether, as a successor in title, he was obliged to contribute to the cost of maintenance and repair. Clearly, the burden of this positive covenant had not passed to successors-in-title of the original covenantor. Upjohn J. pointed, out that, ‘it is ancient law that a man cannot take benefit under a deed without subscribing to the obligations thereunder.’ (at p. 182). F clearly wanted to carry on using the estate roads and so he would have to make the contributions.

Squatter of land subject to a DMC takes subject to DMC covenant not to convert common parts to private use

October 15, 2012

In Mountain View (IO) v Heart Cuisine [2012] 4 HKLRD 628, CA) S was a former owner of a shop in a building covered by a DMC. There was a service lane next to the shop which was a common part of the building. S sold the shop but retained possession of the service lane. The IO brought proceedings to enforce the covenant not to convert common parts to private use (implied into the DMC by s.34I of the Building Management Ordinance). The practical effect was that S would have to give up possession. The IO succeeded; S’s possessory title was subject to the implied covenant (section 41(3) of the Conveyancing and Property Ordinance and the general law on restrictive covenants as applied to possessory title in Re Nisbet and Potts’ Contract[1906] 1 Ch 386). The Limitation Ordinance did not apply since this was not an action to recover possession but an action to enforce the covenant. The Lands Tribunal’s jurisdiction to deal with matters of this nature was confirmed by the Court of Appeal.

Scope of CPO s.26

August 12, 2011

CPO s.26 only applies to land. It does not allow third parties (who are not a party to the contract) to enforce it.

In Beswick v Beswick ([1968] AC 58, HL) B had agreed to sell his business to N. N agreed that after B’s death he would pay B’s widow a weekly annuity of five pounds. B died but N did not make the payments. B’s widow was adminstratrix of B’s estate. In this capacity she was granted specific performance of the promise (enforcing the promise as part of B’s estate giving her personally the benefit of receiving the money). This shows that specific performance is available to compel the payment of money. She also tried to sue in her personal capacity relying on the English equivalent of CPO s.26. This failed because the section only applies to interests in land (not as obvious on the wording of the English legislation as it is in s.26) and because s.26 does not allow third parties to enforce contractual promises.

Solus agreement: does it touch and concern land?

November 22, 2010

In Caerns Motor Services Ltd v Texaco Ltd ([1994] 1 WLR 1249) a petrol supply company (Texaco) had granted leases of petrol stations. The tenants covenanted to sell ‘such brands and grades of motor fuel as shall be marketed by the landlord from time to time’. The tenants also covenanted not to sell motor fuel supplied by any other fuel supplier. Texaco sold its reversionary interest in the properties to Save (another petrol supply company). Could Save enforce these covenants? Judge Paul Baker held that the covenants did touch and concern the land. They affected the mode of use of the property and, on the facts of the case, they were not expressed or intended to be purely personal covenants. Thus, the benefit of the covenants passed to Save under the English equivalent of CPO, s. 31 (s. 141 of the Law of Property Act 1925).

White v Bijou Mansions: CPO s.26

November 19, 2010

White v Bijou Mansions Ltd ([1938] Ch 351) CA (Eng) concerned an estate in London that was to be developed as houses. Fellows (White’s predecessor in title) bought number 16 Palace Court. Nicholson bought number 18 Palace Court. Nicholson’s successor-in-title granted a 28 year lease of 18 Palace Court. Bijou Mansions took an assignment of this lease. The sale of number 18 to Nicholson had included a restrictive covenant only to use the property as a private residence. Bijou Mansions planned to convert it into a series of ‘flatlets’. White sought to enforce the restrictive covenant. Did White have the benefit of it? The primary argument was that the Shaftesbury House Estate was subject to a building scheme and that this scheme gave White the benefit of the covenant. The English Court of Appeal found that there was no evidence of a building scheme in this case. Could the English equivalent of CPO s.26 (s. 56 of the Law of Property Act 1925) give White the benefit of the covenant? It did not because the Court of Appeal found that  the covenant had not been made with the owner of 16 Palace Court. It is not enough to say that the benefit of the covenant would be useful to you. It must be possible to show that White is a person who falls within ‘the scope and benefit’ of the covenant according to the true construction of the document in question’ (per Sir Wilfred Greene MR at 365).