Licences for works: should they always be granted?

Leases contains rafts of obligations that landlords and leaseholders are required to adhere to. They are often a mix of positive covenants (for example to pay rent and service charge, and keep the flat in a good state of repair) and negative covenants (for example not to use the flat other than as a residential unit).

Most well drafted leases contain covenants restricting the ability of a leaseholder to make alterations to their flat. Sometimes leaseholders are permitted to make alterations with the consent of their landlord (which are qualified covenants) and some leases absolutely prohibit the making of alterations (which are absolute prohibitions).

It’s not uncommon in practice for landlords to grant leaseholders permission to carry out alterations to their flat, even where there’s an absolute prohibition.

But is a landlord actually entitled, without breach of covenant, to grant a licence to a leaseholder which would breach an absolute covenant?

This was the question before the Court of Appeal in the matter of Duval v 11-13 Randolph Crescent Limited [2018] EWCA Civ 2298.

 

Terms of the lease

In this case, the lease contained a covenant which prohibited the leaseholder from cutting, maiming or injuring any wall within or enclosing the flat.  There was an absolute prohibition against these kind of alterations.

Most leases contain covenants which require the landlord to ensure that all leases for the flats in the block contain similar covenants. This ensures that all leases are granted in broadly similar terms. In Duval, the lease contained a covenant requiring the landlord to insert in every lease a covenant which prohibited cutting, maiming and injuring any wall.

And in this lease the landlord had also covenanted to enforce any breaches of lease if requested to do so.

 

What happened in Duval?

The leaseholder of flat 13 approached the landlord, and asked for permission to carry out a project of works, which included the removal of around seven metres width of load-bearing wall at basement level.

These works would have amounted to a breach of the clause which prohibited the cutting, maiming or injuring of any wall.

Notwithstanding this, the landlord granted a licence to the leaseholder for the carrying out of these works.

This caused some constellation amongst one of the other leaseholders, who argued that by granting the licence, the landlord was in breach of its covenant to enforce breaches.

 

Issues on appeal

The Court of Appeal began by considering the express promise that the landlord had made that every flat lease would contain covenants prohibiting the cutting, maiming or injuring of walls. The Court recognised that “a covenant is not simply a form of words on a printed page: it is a legally binding obligation”.

The Court them looked at the express promise the landlord had made to enforce covenants that were breached.

From the perspective of a leaseholder, these promises would be taken to mean that the leaseholder could be sure that the landlord would enforce the covenants by which each leaseholder had agreed to be bound.

So if a landlord grants a licence to a leaseholder permitting what would otherwise be a breach of an absolute covenant, does the landlord itself commit a breach of lease?

The Court of Appeal considered various authorities, some stretching back to the 19th century.

Ultimately, the Court agreed with the long leaseholder. In this case, the Court found that the landlord had committed a breach of lease by granting a licence to a leaseholder to do something which would otherwise be a breach of the lease.

 

Commentary

This case probably has quite wide implications. Most leases contain a clause that requires all leases in the block to be in a similar form, and which compel a landlord to take action to enforce any breach on the part of other leaseholders.

Landlords should be cautious when granting a licence that would otherwise be breach of a non-alteration covenant, because they could find themselves on the receiving end of declaratory proceedings and an action for damages on the part of other leaseholders in the block.

 

24 October 2018

Cassandra Zanelli

Widely recognised for her expertise in the industry, and listed among the 100 most influential people in residential leasehold management, Cass heads the team at PM Legal Services. Passionate about education and sharing knowledge, she's a regular speaker at conferences, events and seminars, having worked with leading organisations in the property management industry.

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