Dewar Hogan Dewar Hogan Dewar Hogan Dewar Hogan Dewar Hogan

Duval – another headache for residential landlords and their managing agents

Duval – another headache for residential landlords and their managing agents

Duval – another headache for residential landlords and their managing agents

150 150 mattd

Sherry parties at numbers 11-13 Randolph Crescent must be fun. Readers may remember the case of Dr Julia Duval of that address (a solicitor) and her determination to prevent a neighbour from carrying out alterations to her flat. That determination led to a Court of Appeal case (Duval v 11-13 Randolph Crescent Management Limited) in which the court declared that a landlord who had covenanted to enforce covenants in other flats could not then put it out of their power to do that. If one tenant wanted a licence to do things that would otherwise be a breach of covenant (for instance, let us say, structural alterations to a flat in breach of an absolute covenant), that couldn’t be lawfully given if the landlord had covenanted with other tenants to enforce the covenants in the leases of flats in the building, because by giving the licence to one tenant the landlord has put it out of his power to comply with his own covenant to the other tenants to make tenant A comply with her covenant not to  make structural alterations.

On the face of it, this shouldn’t have come as too much of a surprise – if I promise someone that I won’t let a tenant breach their covenants, it’s probably not going to be lawful for me to say to the tenant, ‘, ah look, go ahead and breach it; I don’t mind as long as you get some insurance .’.  Rather charmingly, this principle seems first to have been developed in nineteenth century breach of promise cases – if you promise to marry one person, you’re not supposed then to marry someone else instead. However, it’s not too much to say that this decision came as a considerable shock to many practitioners. Landlords have been in the habit of giving such licences for centuries, and not until Dr Duval came along did anyone think to challenge such a practice.

It’s important not to overstate the significance of this decision. One has heard laments that landlords will not be able to grant licences at all. That certainly isn’t going to be true in the case of qualified covenants (i.e. covenants not to do something without consent; common in the case of non-structural alterations where of course the landlord cannot unreasonably  withhold consent), because there the landlord would not be enforcing the covenant if he refused consent, so much as breaching his own side of it. Indeed, it won’t be true in the case of any qualified covenant, whether the landlord has to act reasonably or not. It will only apply to absolute covenants, but that might cause friction enough – a covenant not to keep pets, for instance, suddenly becomes a good deal of a problem if a newcomer to a building wants to take an assignment of a lease and bring that new Labrador puppy with them and it turns out another tenant doesn’t like dogs; a mere letter from the landlord is no longer necessarily going to suffice.

It’s also possible to imagine ways around the decision if landlord and tenant alike really want to carry out some restructuring  – maybe the landlord can’t grant the tenant a licence to do the works, but nothing prevents the landlord from doing them. If a landlord would otherwise be demanding a premium for permitting structural alterations (perhaps not the practice at establishments like 11-13 Randolph Crescent, but not so uncommon in the high-end London residential market) then, if landlord and tenant are committed enough, nothing stops them entering into a contract whereby the tenant surrenders its leases, the landlord agrees to place a building contract in agreed terms with an agreed contractor and grant new leases in a years’ time when the work has been done. It’s complicated and would need trust, but if there was enough money involved it could be done.

In any case, the other residents felt strongly enough to take the matter to the Supreme Court, who recently produced their judgment (in a case which was heard nearly seven months ago, but of course since then the Supreme court has had other things to do). And Dr Duval won again; indeed, the court doesn’t even seem to have regarded this as a difficult decision, giving very few reasons for their unanimous decision other than the fact that the promise to enforce covenants in other leases doesn’t work if the landlord can simply licence breaches in advance.

Like all so-called landmark landlord and tenant decisions, of course, in the end the court is only construing a single agreement reached between two particular parties. One imagines that future leases will contain wording to the effect that nothing in the reciprocal enforcement clause shall prevent landlords from reasonably granting licences to tenants for acts which would otherwise have been a breach of covenant.

The only feature of the court’s judgment of interest related to the particular wording of the covenant against structural alterations; this was in terms which suggested that any cutting of the walls or messing with the radiators would be prohibited. The tenant had argued that this would prevent mere rewiring or upgrades to the heating system, and it couldn’t have been intended that other tenants could prevent those. Quite right, said the court, but that was because it wasn’t intended either that the landlord could prevent them. The absolute covenant had to be construed in the light of what was permitted with consent; if internal alterations were permitted with consent, that had to include necessary wall-cutting and radiator-changing. It’s true that preventing wall-cutting for rewiring purposes can’t have been meant to be caught, but the logic of the last part of this is less than inescapable, as indeed is the commercial reality. It is a common cause of problems in blocks of flats for one tenant to install new mixer taps and power radiators, which have the result of leaving other tenants regularly scalded by boiling water from their taps and/or unable to have a bath because there is no hot water. It’s not at all inconceivable that the parties meant exactly what they said – i.e. that the landlord was to maintain absolute control over the hot water/heating system in the building. Still, that didn’t affect the actual decision.

It’s also worth mentioning that the case features another common misconception among management companies composed of the tenants of the building. Residents often feel that, having acquired the freehold, they are in charge of their own destinies and that anything which happens in the building can be decided by a simple majority. This, of course, is not true – the management company remains bound to individual tenants by the terms of the leases, and a majority no matter how large in favour of acting in breach of a landlord’s responsibilities under the leases will be of no avail if a single tenant wants to enforce the covenants in his own lease. We saw this same delusion at work in the case of Mr Chliaifchtein and his desire that there should at all times be a concierge available to accept deliveries from Mr Chliaifchtein’s fishmonger; even if the other residents unanimously thought a concierge was a waste of their money, the company they were now running had promised to provide one and provide one it was going to have to do.

Like most decisions trumpeted in their time as game-changers no doubt this one won’t change the game as much as all that. But certainly landlords are going to have to be considerably more careful in considering requests for consent.