Supreme Court decision on the granting of licences for alterations for structural alterations

In Duval (Respondent) v 11-13 Randolph Crescent Ltd (Appellant) [2020] UKSC 18 the Supreme Court has ruled unanimously in favour of a lessee’s challenge to a freeholder looking to grant a licence for structural alterations carried out by another flat owner. Many residential leasehold properties up and down the country contain similar clauses prohibiting structural alterations and allowing lessees to ask the freeholder to enforce the lease obligations. The ruling in Duval clarifies that the freeholders may not grant a licence for alterations if this breaches its obligations to other lessees.

Case Background

When a lessee wishes to make structural alterations to their flat, the lease will almost certainly contain covenants, prohibitions, rights and restrictions to govern the process. Those considered by the Supreme Court in Duval are commonplace: the lessee was permitted to make alterations within the ’demise’ of the four walls of the flat, but no further. This means no structural alterations so no ‘cutting’ into walls or, as in the Duval case, no basement works. Additionally, the lease promised that the same covenants would be included in all the leases in the building, and the freeholder would, at the flat owner’s request and expense, enforce the covenants against the other lessees in the building.

The prohibition against structural alterations being made is commonly overcome by way of a licence for alterations, in which the lessee will set out a schedule of works which the freeholder will permit subject, usually, to various protections being in place and the lessee paying all costs. Following the Supreme Court judgment, this may now be scuppered by any single lessee.

In Duval, a licence for alterations was granted by the freeholder for basement works, despite the objections of one lessee. The objecting lessee wanted to rely upon the covenant that the freeholder would enforce the covenant against structural alterations to prevent the works going ahead. Such is the importance of the question that it has been appealed up to the Supreme Court who have sided with the objecting lessee.

Is the interpretation of my lease affected by this ruling?

Whether or not the Duval judgment affects a lease depends on the drafting of several clauses in the lease. A prospective licence for alterations may be affected if:

  • The works are outside of the demise of the flat as described in the lease;
  • The alterations are not allowed (nor allowable with the freeholder’s consent); and
  • There are covenants by the freeholder that say:
    • all the leases in the building are granted on similar terms; and
    • the freeholder will enforce the covenants regarding alterations at the request of a lessee.

What might this mean for lessees and buyers of leasehold property?

The headline news is that if the freeholder has promised in the lease to enforce a covenant against the other lessees, it may be held to that promise. You should take professional advice if you are unsure what the terms of any lease may mean in practice as the consent of all lessees in the building may be required before a licence for alterations will be granted.

This may mean that the larger the number of flats in the building, the more time-consuming and expensive the process for obtaining a licence for alterations will become. This is bad news for lessees making alterations where the lease prohibits them so doing; and good news for lessees wishing to scupper their neighbour’s disruptive building works.

Buyers may wish to pay closer attention to the lease provisions on a purchase, especially if they are hoping to add value during their ownership by means of an extension, undertaking basement conversions, or by knocking through interior walls.

Further, depending on the drafting of the lease, teasing out what sort of works will and won’t require the consent of all the lessees may be a difficult job, and if the works are minor, obtaining the consent of all lessees may be a disproportionate undertaking.

What might this mean for freeholders?

Freeholders should proactively check their leases and take legal advice as to how their obligations may be affected. The spotlight will be on the freeholder considering future requests for a licence for alterations. If the freeholder owes its lessees an obligation to enforce an absolute prohibition, the Supreme Court has made clear that all lessees should give their consent first.

As above, careful determination may have to be made as to whether all lessees’ consent is required for each licence. Checking whether lessees are content with the works to go ahead, and leaving a window for objections, may be simpler course of action, but may not prevent a challenge to the grant of licence. A better option from the freeholder’s perspective would be to obtain expert legal advice at the lessee’s expense before a licence is granted.

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