Q&A: A covenant quandary, post Duval
I am the freeholder of a Victorian townhouse with four flats. I have been approached by the tenant of the first-floor flat requesting my consent to convert the flat roof over a rear extension into a terrace. The rear extension forms part of the premises demised to the tenant of the ground floor flat. The leases of both flats exclude the structure and exterior walls from the demised premises and contain covenants absolutely prohibiting structural alterations. I am concerned that use of the flat roof as a terrace by the upper tenant may cause nuisance to the lower tenant. What are my obligations and must I grant consent?
If the leases contain a mutual enforceability covenant there is a risk that you will be in breach of your obligations under the leases with the risk of a damages claim against you if you grant consent to the upper tenant. If the leases do not contain such a covenant, you may still be at risk of a breach of the covenant for quiet enjoyment.
Your lease may contain a mutual enforceability covenant, which is a promise by you that you will enforce the terms of the leases against other leaseholders in the building, if requested to do so by one of the tenants, usually on payment of the landlord’s costs of enforcement action.
In Duval v 11-13 Randolph Crescent Ltd  UKSC 18;  EGLR 17, the Supreme Court implied a term into a lease that the landlord promised not to put it out of its power to comply with the mutual enforceability clause. If it granted consent to a leaseholder to carry out structural alterations, which were absolutely prohibited, the Supreme Court held that it would breach the mutual enforceability covenant, giving rise to a claim for damages from another leaseholder in the building.
According to Duval, if you grant consent to the upper tenant to carry out the works, you will breach the mutual enforceability covenant because you will effectively have “put it out of your power” to enforce the absolute bar against structural alterations against that leaseholder and will be at risk of a damages claim from any leaseholder in the building.
The Supreme Court, in interpreting the lease terms, decided that absolute covenants must be read together with any relevant qualified covenants. A qualified covenant usually requires a tenant to seek the landlord’s consent before carrying out certain specified alterations and it can be an express term or one implied by statute that the landlord must not unreasonably withhold its consent. The Supreme Court determined that if works fall within a qualified covenant they are not within the scope of an absolute covenant. This is an important distinction and you will need to check the plans accompanying the application for consent carefully to confirm which elements fall within any qualified covenant and those which fall within the absolute covenant. The latter will be subject to the Duval principles.