A way to deal with delinquent lessors?

A not infrequent problem for leaseholders is a landlord who takes a lackadaisical approach to enforcing leasehold covenants, or worse yet allows or waives breaches of covenants by certain leaseholders.

It is a very rare lease that will allow direct enforcement of covenants by leaseholders against other leaseholders, so those suffering from the activities of the errant leaseholder are effectively wholly in the hands of the freeholder/head lessor. If they don’t do anything, or worse, collaborate in the breaches, the suffering leaseholders are stuck.

Or perhaps not always…

Duval v 11-13 Randolph Crescent Ltd [2018] EWCA Civ 2298

This was a Court of Appeal judgment on the issue of the effect of a ‘enforcement’ clause in Ms Duval’s lease.

The building was two houses converted into 9 flats under long leases. The freehold was held by a freehold management company, of which all the leaseholders were shareholders. The leases included a couple of clauses on alterations. A conditional clause:

“Not without the previous written consent of the Landlord to erect any structure pipe partition wire or post upon the Demised Premises nor make or suffer to be made any alteration or improvement in or addition to the Demised Premises.”

And an absolute prohibition

“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 or any sewers drains pipes radiators ventilators wires and cables therein …”

Flat 13 wished to carry out alterations, including

the removal of about seven metres width of load-bearing wall at basement level. It is common ground that this would have amounted to a breach of clause 2.7 of the lease (the absolute clause). The works would also have extended beyond the current demise.

The FMC proposed to approve these works. Ms D said that they could not, relying on an ‘enforcement’ clause, of a not untypical type at 3.19.

“That every lease of a residential unit in the Building hereafter granted by the Landlord at a premium shall contain … covenants of a similar nature to those contained in Clauses 2 and 3 of this Lease AND 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.”

Ms D argued that

the landlord has covenanted to enforce (the absolute) covenant if the tenant of another flat so requests. If the landlord had the right to license what would otherwise be a breach of (the absolute covenant) or to waive compliance with (the absolute covenant), it would have put it out of its power to comply with clause 3.19 as regards that licence or waiver. It is necessarily implicit in a covenant like clause 3.19 that the landlord will not put it out of its power to comply with it when the time comes.

After hearing substantial argument from the FMC on the practicalities of situations, and how such an interpretation would stop even installation of recessed lights, and so on, the Court of Appeal decided

The ‘enforceability’ covenant was two-fold, both that there would be identical covenants in all leases, both the absolute prohibition and the same enforceability clause. So each lessee would know that the landlord had entered the same covenants with the other lessees, and covenanted to enforce covenants.

From the perspective of a lessee who is paying a premium for the grant of a long lease, the combination of these two promises would be taken to mean that the lessee could be sure that upon request (and the provision of security) the landlord would enforce the covenants by which each lessee had agreed to be bound. Those covenants would be in the form in which they appear in the leases as granted; and would have the practical effect that their appearance in that form was designed to have.

Actual enforcement might be contingent on payment of the indemnity by the complaining lessee, but that did not restrict its application, in the sense that it did not only become operational when the indemnity for costs was made.

Nor was it is question of whether the landlord would have the power to grant a licence to do something in breach of the absolute covenant. The landlord would certainly have to power to do so, but that would not prevent ot from being a breach of lease.

The issue was, in fact, whether if the lessor did grant a licence to a tenant permitting what would otherwise be a breach of an absolute covenant in the lease that would that be a breach of the ‘enforceability’ covenant.

Where a party undertakes a contingent obligation, there was substantial case law to say that they were under an obligation not to prevent that contingency from occuring. (The case law appears to be largely 19th century marriage promise cases, but there we are).

In the context of these lease clauses:

If, as I consider to be the case, a lessee would be entitled to require the landlord to enforce (the absolute prohibition clause) of the lease in the face of a threatened breach, it seems to me to follow that the landlord cannot put it out of its power to do so by licensing what would otherwise be a breach of covenant. To put it another way, it would not give practical or commercial content to the obligation if the landlord had carte blanche to vary or modify the covenants; or to authorise what would otherwise be a breach of them.

This situation was not reliant on the leaseholder actually having made a request for enforcement and providing the costs indemnity.

So, a landlord granting, or even prospectively granting a licence for something that would be a breach of an absolute covenant may amount to a breach of the ‘enforceability’ covenant by the landlord. And this would be potentially actionable by the offended leaseholder.

Quite what form that action might take, and the remedy available is not entirely clear, and would depend on the circumstances.

Once the landlord has granted a licence permitting what would otherwise be a breach of covenant, a lessee cannot make the request for enforcement effectually. Thus the need to make the request is dispensed with; and the landlord has broken his own contract because he is no longer able to fulfil the request.

But in such circumstances

the landlord has power to license what would otherwise be a breach of covenant; but commits a breach of clause 3.19 in doing so. The landlord has no obligation to inform the body of lessees in advance of what it proposes to do. If a lessee wishes to enforce clause 3.19 against the landlord she has a right of action. If the landlord has already granted the licence and it has been acted upon then the landlord will be unable to enforce the covenant (whether by injunction, forfeiture or damages) as regards what has been licensed. In that event the lessee’s only remedy against the landlord under clause 3.19 will be in damages for breach of that covenant.

On the other hand

Where the licence has not been granted, or if granted has not been acted upon, it is possible that the court might grant an injunction either preventing the grant, or requiring the licence to be undone. But before deciding whether to grant that remedy the court would have to consider what the lessee’s objections were to the grant of the licence. If they were bad reasons, or no reasons at all, that would be a powerful factor militating against the grant of an injunction.

Appealed granted in part (though the decision appealed is not set out). The issue of remedy remitted to the County Court.

Comment

This is very interesting indeed. Such ‘enforceability’ clauses, promising equivalent clauses in all leases and for the landlord to enforce them at lessee’s request (with or without an indemnity for costs) are not uncommon. But they have, in general, been regarded of very limited use if a freeholder simply refused or ignored such a request.

Now this judgment suggests that for absolute prohibition clauses (such as limited user clauses, for example), a landlord either licensing a breach, prospectively licensing a breach or – more commonly – effectively waiving a breach by not doing anything – the landlord may well be in breach of the enforceability clause and the leaseholder(s) who object to the breach may be able to take action on that breach.

On waiver, the Court of Appeal judgment ended:

I would grant a declaration to the effect that the waiver by the landlord of a breach of covenant by a lessee or the grant of a licence to commit what would otherwise be a breach of covenant would amount to a breach of (the ‘enforceability’) of the lease.

Some immediate uses of this spring to mind, in particular, where the landlord has failed to take action or permitted short let/airbnb use of a leasehold flat, in breach of a restricted user clause, and ignored the other leaseholders’ protests. Where there is such an ‘enforceability’ clause, the offended leaseholders may well have a cause of action against the landlord.

Quite how this plays out in extent, and the nature of remedies possible, we will have to see. But the potential is very, very interesting.

About Giles Peaker

Giles Peaker is a solicitor and partner in the Housing and Public Law team at Anthony Gold Solicitors in South London. You can find him on Linkedin and on Twitter. Known as NL round these parts, and still is Nearly Legal on Google +.
Posted in Housing law - All, Leasehold and shared ownership and tagged , , .

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