Q&A: Duval and consent for alterations

Question

I own a building comprising eight flats. The leases restrict the tenants’ ability to alter the premises: they can carry out non-structural alterations with my consent but are prohibited from carrying out other alterations (including to the layout). The leases also provide that I will enforce covenants in the leases of other flats at the request and expense of the tenant. One tenant has applied for consent to carry out alterations, which include changes to the layout. I have no objection to them. Can I safely grant consent?

Answer

In short, granting consent is risky. Following the Supreme Court decision in Duval, granting a licence in respect of absolutely prohibited works would be a breach of the mutual enforceability covenant under the leases, putting you at risk of a damages claim by the other tenants.

We recommend that you seek legal advice to ascertain whether Duval will apply here. If it does, and you want to grant consent, there are practical steps you could take to reduce the risk, which should be explored carefully with your legal advisers, but they will not remove the risk of a claim.

Explanation

In Duval v 11-13 Randolph Crescent Ltd [2020] UKSC 18; [2020] EGLR 17; [2020] PLSCS 84, the Supreme Court decided that where, like here, there is both an “absolute” prohibition in the lease and a provision that allows a tenant to request that its landlord enforce the lease covenants against other tenants, a landlord will be in breach of its mutual enforceability covenant if it grants a tenant consent to carry out prohibited works.

The risk of a claim for breach of covenant by other tenants has created difficulties for landlords who would like to give consent.

The safest course of action in respect of any prohibited works would be either not to grant consent or get the consent from all of the other tenants first (although where there are a number of tenants this may be impracticable).

Alternatively, you could grant consent on terms that protect you – as much as is possible – against claims by other tenants, eg by requiring an indemnity and granting consent on the condition that the tenant must reinstate the premises if there is a complaint from another tenant or a claim for breach of the mutual enforceability clause. This does not, however, remove the risk of a claim by the other tenants, and it would need to be carefully considered and drafted.

Question

My landlord has refused consent to my application for alterations on the ground that it considers the proposed work to be structural and therefore prohibited under the lease. I do not agree, and think the refusal is unreasonable. My building work is being held up and I am losing money. What can I do?

Answer

Options you could consider, depending on the strength of your case and the level of risk you are willing to take, include: (i) offering your landlord an indemnity against the risk of claims by other tenants; (ii) going ahead regardless; (iii) going to court for a declaration; or (iv) applying to modify the covenant in the lease to allow the work.

Explanation

In light of the decision in Duval, your landlord may be concerned about potential claims by other tenants if the leases contain mutual enforceability covenants and the works are prohibited. You could try and persuade your landlord to consent to the works by offering an indemnity against claims by other tenants.

The second option is to carry out the works anyway. If the works are not within the absolute covenant, then the refusal of consent may be unreasonable, in which case you are entitled to go ahead. Even then, this is a very risky option as the landlord could take enforcement action.

The third option is to apply to court for a declaration that the works are not within the absolute covenant, and that consent has been unreasonably withheld. If you think that this may be the case, then this would be a safer option than just doing the works. As usual with proceedings, you run the risk of being liable for the landlord’s costs if you are unsuccessful.

The fourth option would be to apply to the Upper Tribunal (Lands Chamber) to modify the covenant to allow the work under section 84 of the Law of Property Act 1925. This option is available if your lease was granted for a term of more than 40 years and at least 25 years have expired. The covenant could be modified under ground (c) if to do so would not cause any harm at all, or under ground (aa) if preventing the work would not “secure to persons entitled to the benefit of it any practical benefits of substantial value or advantage to them” and money would be adequate compensation for any loss. This is worth considering where the works would breach an absolute covenant but would not in fact cause any real harm.

Megan Davies is an associate in the real estate disputes team at Charles Russell Speechlys LLP and Tom Jefferies is a barrister at Landmark Chambers.

This article first appeared in Estates Gazette.