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Leasehold Covenants Decision Creates New Pitfalls20th May 2020

by Matthew Lewis on 20th May 2020

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Leasehold covenants can sometimes be misconstrued as primarily a matter for tenants to worry about.

They are, after all, rules partly designed to maintain consistency among residents at the block: “Thou shalt not have pets. Thou shalt not play loud music.” And so on…

But a new Supreme Court decision reminds freeholders/landlords that they must be just as careful about residential leasehold covenants – because they can fall foul of them too.

The case of Duval v 11-13 Randolph Crescent Ltd [2020] UKSC 18 centred on whether a landlord could allow one leaseholder to carry alteration works without breaching an implied agreement with other leaseholders in the block.

The Supreme Court decided that:

  • there was an implied term in the leases
  • they should all be consistent
  • the mutual enforceability covenant was evidence of this.

As such the landlord would breach this implied term in granting the tenant/leaseholder a licence to carry out the alterations.

What Are Mutual Enforceability Covenants? Why Do They Matter?

Mutual enforceability covenants appear in most residential leases.

They enable one leaseholder to demand that the freeholder/landlord enforces one or more covenants against another leaseholder.

Example: Leaseholder A is disturbed by leaseholder B playing loud music (which is banned under a covenant in the lease).

Leaseholder A can use a mutual enforceability covenant to oblige the freeholder/landlord to take action to stop Leaseholder B from playing loud music.

Here are two more examples…

  1. Within a mews or town house development, common external parts of the grounds may be retained by a company owned by the mews or town house owners. Sometimes there may be restrictions and regulations surrounding the houses and use of the wider development. 
  2. Within a leasehold development – usually (but not always) a block of flats – there will be restrictions and regulations governing their use and future sale. Those rules may extend to the wider development and common areas.  

What Happened In The Duval v 11-13 Randolph Crescent Ltd Case?

In the Duval v 11-13 Randolph Crescent Ltd case, a clause in the lease stopped a leaseholder from carrying out proposed alteration works.

There was no scope to ask for permission. The clause merely stated the alterations were restricted. And that restriction appeared in all the leases in the development. 

The landlord decided to grant the consent to the leaseholder…but another leaseholder within the development opposed the granting of that consent.

The Supreme Court ruled in favour of the second leaseholder on the basis that there was an implied term within the leases at the block that the landlord must maintain uniformity.

And its decision has much wider implications than whether or not someone can carry out alterations…

Why The Duval v 11-13 Randolph Crescent Ltd Case Is So Important

The Supreme Court’s decision sets a precedent: it may apply to all restrictions and regulations – not just alterations. So the wording of the mutual enforceability clause should be checked carefully.

And this may not be limited to landlord and tenant leasehold arrangements. It may also be relevant to mews or town house developments that contain similar contracts. 

In circumstances where mutual enforceability provisions exist within leases, the Supreme Court’s decision may force landlords to consider other matters carefully:

  • Landlords may have to take enforcement action on breaches of restrictions where previously they may not have done so. 
  • Landlords may have to refuse requests for any deeds of variation that would disturb the uniformity of the rules. This could make properties harder to sell.
  • Full cooperation (or an application to the tribunal) may be needed when modernising or varying leases.
  • Existing developments where consents have been granted (or where there are inconsistent lease terms due to historic variations) may need uniformed variations by agreement or through a tribunal process. 

From a landlord’s perspective, it has always been good advice to review lease wording and seek legal (and surveyors’) advice before granting any consent to a leaseholder.

After all, the Duval v 11-13 Randolph Crescent Ltd case shows just how easy it can be to wander into a legal minefield.

And how the road into that minefield is paved with good intentions…

By saying ‘yes’ to one leaseholder, the freeholder/landlord unwittingly sparked a sequence of events that could have significant consequences for freeholders and leaseholders across the country.

Get Expert Legal Advice On Residential Leases

For more information about leases and covenants, contact Coles Miller Partner Matthew Lewis, head of the Residential Leasehold Department.