Landlords - granting consent could lead to a breach of your covenants

In our recent webinar on the future of real estate and sustainability, we talked about absolute prohibitions on alterations in leases and how a landlord could find itself in breach of these.

On 6 May 2020, the Supreme Court handed down its decision in Duval v 11-13 Randolph Crescent Ltd.

What did the Supreme Court decide in the Duval case?

The Duval case concerned a block of flats, let to tenants on long leases. Each flat lease contained an absolute prohibition on the tenant cutting into any roofs, walls, ceilings or service media.

One tenant requested landlord’s consent to remove a substantial part of a load-bearing wall. The landlord decided to grant a licence to carry out the works. Dr Duval brought proceedings on the basis that the landlord, who had an obligation to enforce certain lease covenants (including the absolute prohibition mentioned above), could not grant the tenant licence to breach its lease. To do so would be a breach of the landlord’s covenant. The only way that works that were absolutely prohibited in the lease could be permitted would be by obtaining the consent of all other leaseholders in the block.

How could the decision affect commercial properties?

Whilst the Duval case concerned residential leases, commercial landlords should also take note of it. If there is an absolute prohibition in a lease, and there are similar provisions in the landlord’s other leases, the landlord could find itself in breach if it permits one tenant to carry out works that go against that absolute prohibition. This could happen in a shopping centre, for example, where all of the leases contain the same alterations clauses and the landlord has a covenant to impose similar covenants on each tenant.

Landlords should consider the issue at both the point of lease drafting and also when they receive applications for consent from tenants. If an absolute prohibition is not required, don’t include it – it could come back to bite the landlord if it relaxes its position for one tenant.

TLT has extensive experience in strategic portfolio management, advising both landlords and tenants. If you would like to discuss your requirements, get in touch.

Contributor: Alexandra Holsgrove Jones

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at May 2020. Specific advice should be sought for specific cases. For more information see our terms & conditions.