Covenants, Consent & Caution: Commenting on Duval v 11-13 Randolph Crescent Ltd [2020]

As you may be aware, the Supreme Court recently handed down its decision on the high profile and long running case of Duval (Respondent) v 11-13 Randolph Crescent Ltd (Appellant) [2020], which arose from an appeal by the landlord and freehold owner of the building. The appeal considered whether, on the construction of the clauses in the lease, the landlord was 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, where the leases of the other flats required the landlord to enforce such covenants at the request and cost of any one of the other lessees. There has been considerable comment already made on the decision, and we thought we would share a balanced perspective on the case and its implications.

The Case in Context:

At the heart of the case was the issue of breach of covenant. A leaseholder had sought a licence from the landlord to carry out works to a flat, which involved removal of a substantial part of a load bearing wall. Each of the flat leases for the block included:

1. a covenant against making improvements to the demised premises without previous written consent;
2. an absolute covenant against cutting any wall within or enclosing the demised premises;
3. a covenant that each other flat lease would contain like covenants, and that the landlord would enforce those other covenants at the request of the lessee, subject to payment of, and security for, its costs.

Following objection from another leaseholder (Duval), the licence was refused, but the landlord subsequently reconsidered the matter and granted a licence. Duval consequently issued proceedings against the landlord seeking, amongst other things, a declaration that the landlord did not have the power to licence the works, which were in breach of the lease, specifically an absolute covenant, which prevented lessees from cutting into any roofs, walls, ceilings or service media. It was agreed by all parties that the works would breach the covenant. The initial decision found that the landlord had no power to waive any of the covenants without the prior consent of all of the lessees of the flats in the building – a decision that was appealed by the landlord.

The appeal, in 2017, then found that the landlord had the power to license works that would otherwise amount to a breach of a clause within the lease and that, once licensed, such works could not be the subject of enforcement action.

In response, a further appeal was filed by Duval in October 2018, in which the Court of Appeal declared that in granting a licence, the landlord would be in breach of Duval’s lease, thereby finding in Duval’s favour. The landlord consequently appealed to the Supreme Court.

The Recent Decision at the Supreme Court:

The decision on the 6^th May dismissed the landlord’s appeal, holding that the complainant lessee was entitled, on provision of security, to require the landlord to enforce it as an absolute covenant. In essence, this decision held that the landlord could not give its consent without breaching Duval’s lease.

In Consideration of the Decision:

There has been considerable discussion on the impact of the decision for landlords over the last two weeks. Some commentators have highlighted the extreme importance of the decision, noting that it will have a serious impact on how landlords manage their estates going forward and challenge existing practices for issuing retrospective or prospective licenses of consents.

The Practical Implications of the Case:

In our experience, landlords often already provide careful consideration on requests for permission against the covenants within a lease. There is also a question of balance - as to whether, as seen in many breach of covenant claims, a lessee would have to suffer a loss to claim any damages? Does a request for license significantly impact or impede the other leaseholders in a significant way? Theoretically, it could argued that many alterations actually improve a building.

Advice:

In many regards, the case does offer a cautionary note to landlords in reiterating the need to be vigilant in the drafting and consideration of lease covenants and licensing consent – specifically noting the need to be clear and specific regarding absolute covenants and mutual enforceability – however, in practical terms it may well that be the impact of such breaches will continue to be minimal and the majority of breach of covenant matters continue to follow form. We will watch with interest the level of influence the decision provides.