Breach of an absolute covenant warning

A Supreme Court ruling on a breach of an absolute covenant should serve as a warning to landlords.

On 6 May 2020, the Supreme Court passed down their decision in Duval v 11-13 Randolph Crescent Limited [2020] UKSC 18 and upheld the decision of the Court of Appeal on a breach of an absolute covenant.

The decision was that a landlord of a block of flats could not consent to alterations under one lease that would otherwise be a breach of covenant. This was because the remaining leases in the block contained an absolute covenant for the landlord to enforce the covenants of all tenants.

Facts of the case

Julia Duval held a 125 year long lease of two flats in a block of nine where all the leases were on similar terms.

The alteration provisions in each lease contained an absolute prohibition on the tenant carrying out any works that involved cutting into any walls and ceilings. Each lease also contained a covenant for the landlord to enforce the covenants of all the other tenants in the block.

One of the tenants sought consent from the landlord to carry out works to their property which would have been prohibited by the absolute covenant not to carry out such works. On review of the request the landlord agreed to such works.

Subsequently, Duval issued proceedings and argued that the landlord did not have the power to grant consent to something which would result in a breach of the lease. She argued this would put it out of the landlord’s power to enforce the absolute covenant contained in her lease to enforce the tenant covenants of all the other leases in the building.

In response, the landlord argued that his consent was valid as he was entitled to deal with his building however he saw fit.

The judgment

The Supreme Court found in favour of Duval. It held that the landlord could not consent to something which would otherwise be a breach of covenant, as there was an implied covenant in the other leases not to do anything that would prevent the landlord from enforcing the tenants’ covenants in the other leases.

The fact that each lease was a long leasehold that had been acquired for a substantial premium was taken into account in providing the judgment as each party would have been aware that each lease was a readily marketable and extremely valuable asset.

Given the length of the leases, the Court also took into account that the parties would have appreciated that routine improvements and modifications would have been necessary. However it drew a distinction between such routine works and those which went beyond this and may be damaging or destructive to the building.

Implications of the breach of an absolute covenant

Such absolute covenants as are seen in this case are common amongst leases and therefore the judgment in this case provides important clarification. Whilst the facts of this case relate to a block of residential properties, it is likely that the judgment could be applied to multi-let commercial buildings such as shopping centres and offices, which may contain similar absolute covenants.

For existing leases, landlords should consider if there are any qualifications to the absolute covenant to enforce tenant covenants, such as, “only if it is reasonable for the landlord to do so”. In respect of future leases, landlords may consider negotiating with the tenants to include these qualifications. Landlords should also be wary of providing implied consent to any works and should therefore take an active role in managing their buildings.

The only option for tenants that wish to carry out such prohibited works, would be to obtain the consent of all other tenants in the building.