Skip to main content
Article

Covenant enforcement: Another complication for landlords

Risk & Analytics
N/A

By Rudi Hare | November 24, 2020

The outcome of the recent Duval v 11-13 Randolph Crescent Limited case has a number of implications for landlords. In this article, we discuss those considerations.

The case

Duval v 11-13 Randolph Crescent Limited

The Duval v 11-13 Randolph Crescent Limited case involved a block of 9 flats in which one tenant requested consent from the landlord (a company owned by the tenants) to internal structural works which were prohibited by the lease. Another tenant (Dr Duval) objected, claiming that the landlord had an obligation to enforce the tenant’s covenants and so could not give the consent.

The court agreed with Dr Duval.

The Supreme Court judgement in Duval v 11-13 Randolph Crescent Limited1 will have far-reaching consequences for certain classes of landlord.

The case concluded with the court in agreement with the tenant (Duval) who had appealed against the landlord’s breach of the covenants in consenting to prohibited works to the building.

The covenants in the leases would be pointless if the landlord could modify or permit breaches as it pleased. There must be an implied covenant by the landlord in all such leases which prevents it giving consent to something that would be a breach of the tenant’s covenants.

It is not uncommon for a landlord to grant consent for an action which is absolutely prohibited under a lease (as opposed to prohibited without the prior consent of the landlord). But the court’s judgement means that any landlord that does give consent could be in breach of its obligation to enforce. This case involved a prohibition against structural alterations, but the case may apply to other absolute covenants.

For example, could actions be brought in respect of historic works? In theory they could, but it would be for the claimant tenant to show that they had suffered loss from the grant of consent.

In such scenarios the key circumstances are as follows :

  • Multiple leases
  • Landlord covenants that all leases will be on substantially the same terms
  • Obligation on the landlord to enforce those terms
  • Tenant requests consent to an action which is absolutely prohibited under the lease
  • Another tenant objects on the grounds that the landlord is under a duty to enforce the prohibition

If a tenant approaches a landlord asking for consent to an action that is prohibited under their lease, the landlord could seek consent from all the other leaseholders. This could be challenging depending on the number of leaseholders and it only takes one to object to prevent the landlord granting a licence.

Alternatively, the landlord could proceed anyway, with an indemnity from the tenant on the basis that granting the consent is unlikely to cause the other tenants any loss.


A potential solution?

To help landlords manage the risks that could arise in these scenarios, Willis Towers Watson has worked with several insurers to develop a policy to provide cover for landlords in the event that:

  1. A landlord is challenged for granting a licence for works (and incurs costs and/or losses as a result) and/or
  2. The leaseholder fails to comply with the indemnity and/or reinstatement provisions contained in a licence.

Such losses could include, but are not limited to:

  • Damages
  • Compensation
  • Costs and/or expenses awarded against the insured by order of a court or a similar body
  • The cost of any settlement made out of court
  • Costs and expenses incurred by the landlord in taking or defending any action at law or otherwise.

Additionally, subject to individual circumstances, insurers may also be able to provide cover in the event that the leaseholder cannot meet the financial obligations of reinstatement contained within the indemnity provided with the licence for works; giving even more comfort to a landlord when granting consent for an action that is otherwise prohibited.

Cover can be offered on a block policy ‘coverall’ basis (subject to criteria) or on a bespoke basis, covering the specific works the licence is granting permission for.

If you are a landlord and believe you may be impacted by the decision in the Duval case, please get in touch and we’ll be happy to work with you to find a solution.

Footnote

1 https://www.tanfieldchambers.co.uk/2020/05/06/beware-of-absolute-covenants-supreme-court-gives-decision-in-duval-v-11-13-randolph-crescent-ltd/

Author

Divisional Director, Real Estate Practice

Related content tags, list of links Article Risk & Analytics Real Estate

Related Capabilities

Contact Us