Do you own a long lease and want to alter your property, perhaps by an extension or basement conversion? Or are you a landlord who has been approached by a leaseholder who wants to carry out similar works?
Beware: you may be liable for breach of covenant following the further articulation of the law in this area in the Supreme Court judgment in Duval v 11-13 Randolph Crescent Ltd.
This note provides an overview of the legalities of leasehold alterations, with particular focus on the fall-out from the Duval appeal judgment, a copy of which is here.
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Covenants in leases
As many owners of leasehold property may already know, you cannot deal freely with your property. Instead, your ownership and ongoing occupation of a leasehold property is subject to contractual obligations, most often set out in a lease, but sometimes in other forms of agreement.
Leases contain promises made by leaseholders to other parties to deal with the property in a certain way, to behave in a particular manner and to do and not to do certain things. Equally, landlords also make promises, for example to provide services, insure buildings and related matters. All of these promises are known as covenants.
It is common for leases to contain covenants regarding the terms of which alterations are permitted, if they are permitted at all, and to set out the manner in which leaseholders and landlords deal with the issue.
Enforcing broken promises/breaches of covenant
When a leaseholder breaks a promise to do or not to do something – i.e. breaches a covenant – there are different ways in which this breach can be enforced. To give three examples, referring expressly to alterations covenants:
- The landlord can take action where the covenant for alterations prevents leaseholders from making any alterations to a property without obtaining the landlord’s consent if the leaseholder carries out works without the landlord’s consent.
- Leaseholders can take action directly against fellow leaseholders who breach alterations covenants where there is a letting scheme. In a letting scheme, a leaseholder promises to all other leaseholders and their successors not to do something to a specific piece of land (usually their own property) such as cutting into structural walls, removing the landlord’s fixtures and so on. If any leaseholder then performs a prohibited act, any (and all) other leaseholders can enforce them without involving the landlord.
- In other leases, provision is made for leaseholders to ask landlords to enforce breaches of covenant against a leaseholder upon the complaining leaseholder meeting certain conditions precedent. Conditions precedent are most commonly that the complaining leaseholder pays the landlord’s costs of enforcement.
The Duval Case
In the Duval case, a leaseholder – Mrs Winfield – wanted to convert her basement; this meant she needed to cut into and remove load-bearing walls. One clause in her lease absolutely prohibited making these structural alterations under any circumstances.
However, another clause allowed for routine alterations provided that the consent of the landlord was obtained. The landlord in this case therefore believed that it could grant a licence for structural alterations to Mrs Winfield despite the absolute covenant.
Dr Duval, a neighbour of Mrs Winfield and the claimant in the claim, objected. She alleged:
- The landlord could not grant permission without breaching its covenant to ensure that each of the leases of properties in the building contained covenants of a similar nature; and
- The landlord was obliged to enforce covenants in the other leases on Dr Duval’s request (and at her cost).
On Dr Duval’s case, it was simply not possible for the landlord to grant permission for Mrs Winfield’s alterations given the absolute prohibition in her lease; any permission given would amount to breach of the landlord’s obligations and should never have been given. The landlord should have refused consent, and instead enforced the absolute covenant against Mrs Winfield structurally altering her property had she gone ahead with the works regardless.
After a first appeal to the Court of the Appeal (which had already agreed with Dr Duval), the Supreme Court agreed with Dr Duval, stating that the Landlord had exceeded its powers. The landlord could not waive a provision in the lease without the agreement of all the other leaseholders in the building given its obligation to ensure covenants of a similar nature in all leases.
How does this affect you?
The answer to that question depends on two preliminary questions: first, does your lease contain covenants comparable to those in Duval? If it does not, Duval may not affect you. If the answer is yes, however, then a second question arises – are you a leaseholder or a landlord?
Having carefully ascertained whether Duval applies – and we recommend you take advice on this – then taking each in turn:
If you are a landlord:
A licence you provide to a leaseholder may be affected if:
- The alterations are absolutely prohibited by the lease; in that case you should consider whether to refuse applications for consent as a matter of policy;
- The landlord covenanted in the lease to grant all leases on similar terms;
- Leaseholders find out about the alterations and ask the landlord to prevent the works from proceeding, or challenge the landlord’s capacity to give consent in the first place.
If you have provided a licence in the past, that licence may still be open to challenge. Please be aware that there is a period of 12 years to bring an action for breach of covenant. Therefore, leaseholders in your block may challenge the grant of past licences, or permissions given, to their neighbours a number of years ago.
You are a Leaseholder or prospective leasehold buyer:
- If the landlord has promised to enforce covenants against other leaseholders, it may then be held to that promise;
- If you are hoping to add value to your property by means of extension, undertaking basement conversions or by knocking through any interior walls, please be cautious as to your lease provisions and consider whether consent from other leaseholders would be prudent;
- If you are a leaseholder with a share of freehold, then you may also be deemed to have acted in the capacity of landlord in permitting your own works. You are therefore also open to the risk for breach of covenant if you had not sought permission from the other leaseholders for your alterations;
- If you find out fellow leaseholders in neighbouring properties have carried out works, and you oppose them, seek legal advice as to what rights and remedies (if any) you may have.
Practical Next Steps
- If you are a landlord, then you may wish to vary all of the leases to allow for alterations. All leaseholders will however need to agree to this. This could provide difficulties as some of the leaseholders, may not wish to give up an absolute prohibition on alterations, because it may have a monetary value;
- Legal advice should be sought if you, as a landlord, are in any doubt whether you should provide a license to a leaseholder for alterations; or
- Whether you are a landlord or leaseholder, consider whether to obtain consent from all leaseholders in the building, or seek agreement from all parties not to sue for breach if you proceed with your works.
Streathers Solicitors LLP
14 January 2021
To discuss how we can provide advice, please call our office on 020 7034 4200 and ask to speak to a member of the Dispute Resolution team.
*The Briefing Note reflects the position as at the date of publication. The information in this Briefing Note is not intended to amount to legal advice to any person on a specific matter or case. You are advised to obtain specific, personal advice from us about your case or matter and not rely on this Briefing Note.