By J
17/07/2012

Discharging leasehold covenants

Restrictive covenants are, in broad terms, contractual restrictions imposed on the current user/owner of land, often imposed by a former owner of the same land (e.g. Mr A sells a field to Mr B, but includes a covenant preventing Mr B from building flats on it). These covenants can, clearly, become onerous or otherwise unnecessary with the passage of time. The Upper Tribunal (Lands Chamber) has a discretionary power (s.84, Law of Property Act 1925) to modify or discharge these covenants in certain circumstances. The most common ground is s.84(1)(aa), which applies if the removal of the covenant would support a reasonable use of the land and any inconvenience can be met by a payment of money.

What is less appreciated is that these powers in s.84 apply both to freehold covenants and leasehold covenants. If you hold a lease for a term of more than 40 years, at least 25 of which have expired, you can apply to the UT(LC) to discharge or modify the covenants in the same manner as freehold owners.

In Lee v Courtenay Gate Lawns Ltd [2012] UKUT 125 (LC) such a leasehold covenant was sought to be modified or discharged. The case concerned a flat in a block of 31 flats. The leases of the majority of the flats prohibited subletting and required the flat to be occupied by the owner. Mr Lee could no longer comply with the user covenant as he was working in Australia. Clearly (and very understandably), he didn’t want the flat to sit empty and neither did he want to sell it. He asked permission to sublet which the landlord refused. He then granted an assured shorthold tenancy in any event.

The freeholder objected and issued proceedings in the LVT under s.168, Commonhold and Leasehold Reform Act 2002, seeking a determination that he was in breach of covenant. Mr Lee resisted that application on the basis (he alleged) that the covenant had been abandoned. The LVT found for the freeholder.

At that stage, Mr Lee then applied to the UT(LC) seeking to modify or discharge the covenant. The freeholder objected. The covenants, it said, were imposed to ensure that the persons responsible for the upkeep, maintenance and decision-making were resident and formed a community. Subletting would prevent this from occurring. Mr Lee replied that some of the leases did permit subletting and the fact that the freeholder had even been minded to consider his application for permission showed that there were circumstances in which it could be permitted.

The President rejected the application. The freeholder had never regarded subletting in general as acceptable, but had considered cases on their own facts. It had, however, always taken action against unauthorised subletting. The evidence for the company as regards the practical benefits of preventing subletting was accepted. It would cause undue prejudice to the landlord if the covenant were modified or removed. Further, whilst not necessary to decide the point, the President was inclined to say that the conduct of Mr Lee (subletting when he knew it was prohibited) would have meant that it was inappropriate to discharge the covenant.

 

J is a barrister. He considers housing law to be the single greatest kind of law known to humankind and finds it very odd that so few people share this view.

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