Supreme Court judgment considers leaseholder rights when the landlord consents to a breach of the lease

29th May, 2020

By Simon Tye – Solicitor

A recent decision of the Supreme Court has implications for landlord`s and leaseholders, where a landlord is considering giving consent to a leaseholder’s actions. In this case (Duval v.11-13 Randolph Crescent Limited [6^th May 2020] UKSC 18 ), it concerned alterations involving a load bearing wall, which would otherwise be prohibited by the lease.

The Facts

The case involved a converted building, formerly two terraced houses, containing nine flats. The freehold was owned by a management company owned by the flat owners, Randolph Crescent Limited (RCL), and Ms Duval owned two  of the flats.

First, the leases of each flat banned the leaseholder from cutting into any roof, wall, ceiling, or service media in this way:

“Not to commit or permit or suffer any waste spoil or destruction in or upon the Demised Premises nor cut maim or injure or suffer to be cut maimed or injured any roof wall or ceiling within or enclosing the Demised Premises…”

Secondly, the leases required  RCL’s prior written consent before making any alteration or improvement in, or addition to, the property. Unlike a complete ban on alterations, the law intervenes in cases where consent is needed by requiring that consent for the improvement(s) is not unreasonably withheld.

Lastly, the lease required RCL to enforce breaches of the lease committed by  other leaseholders in this way:

“…at the request of the Tenant and subject to payment by the Tenant of (and provision beforehand of security for) the costs of the Landlord on a complete indemnity basis to enforce any covenants entered into with the Landlord by a tenant of any residential unit in the Building of a similar nature to those contained in clause 2 of this Lease.”

One of the other leaseholders contacted RCL for consent to do works that would include the removal of a substantial part of a load bearing wall at basement level. RCL eventually agreed to this, even though it was accepted that this would breach the first clause mentioned above banning leaseholders  from cutting into any roofs, walls, ceilings, or service media.

Dr Duval commenced an ultimately  successful legal action asking the court to declare that RCL did not have the power to grant a consent that effectively permitted the other leaseholder to breach the lease.At first  RCL succeeded  in the County Court, but Dr Duval appealed and succeeded in the Court of Appeal.  The Court of Appeal agreed with Dr Duval that RCL’s consent to the works would amount to it breaching the lease as regards the third clause mentioned above.

The Appeal to the Supreme Court

RCL appealed to the Supreme Court, but it upheld the decision of the Court of Appeal. The court ruled that the two clauses above were for different types of activities. The one where the RCL could give consent to alterations (the second clause above) is concerned with routine improvements and alterations that all leaseholders would expect to be able to carry out subject to that consent; the other (the first clause above) where the work would go beyond routine alterations or improvements and involve “more fundamental works”  that may be damaging or destructive to the building. The work proposed in this case fell within the latter.

The court went on to find that there was an implied term that the landlord should not give consent which, effectively, prevents it from honouring the obligation to other leaseholders to enforce breaches of covenant (the third clause above).

Takeaways of the decision

1. Clauses like the third clause are widespread, so landlords will need to give careful consideration to any request by a leaseholder for consent to do something that would be prohibited by the lease, and not just a prohibition against structural alterations as was the case here. For example, prohibitions on sub-letting or restrictions on the way the property is used.
2. Although in this case the landlord was a company owned and controlled by the leaseholders, the principle would apply to any landlord with similar covenants in the lease.
3. The remedy for a leaseholder, where the landlord proposes to grant consent for a matter prohibited by the lease, would be to (a) seek an injunction from the court to prevent it. But ideally, this would be a last resort ; ; and (b) potentially seeking damages (compensation ) from the landlord, if the complainant leaseholder can show loss.