Posts Tagged ‘absolute covenants’

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