A change in the balance of power from landlords to tenants: the Supreme Court decision in Duval v 11-13 Randolph Crescent Limited [2020] UKSC 18

June 22, 2020

By Lawrence McDonald

The recent Supreme Court decision in Duval v 11-13 Randolph Crescent Limited will have far reaching consequences for multi-let residential premises such as apartment blocks. The key points resulting from it are:

• A renewed focus on the significance of absolute covenants as against qualified covenants.
• The fact that tenants can effectively veto works or other activities that would be a breach of an absolute covenant.
• That many consequences of the decision will need to be worked out in the future.

11-13 Randolph Crescent is a terrace of properties that had been converted into a block of flats. There were 9 flats in total, each of which was let on a long lease. Each lease had an absolute covenant not to carry out structural alterations (clause 2.7). Each lease also contained a covenant by the landlord to enforce covenants in the other tenants’ leases upon the request of and at the cost the tenant (clause 3.19).

A tenant of one flat, Mrs Winfield, wished to undertake construction works that would require structural alterations. Those works would, unless licensed by the landlord, be a breach of clause 2.7. She sought the landlord’s consent to carry out the works and to breach clause 2.7, which the landlord was prepared to grant subject to Mrs Winfield securing adequate insurance.

Another tenant, Dr Duval, objected to the works being done and issued proceedings seeking a declaration that the landlord had no power to grant such a license without the consent of all the other tenants. The basis of that argument was that to grant such a license to Mrs Winfield would breach the landlord’s obligations to Dr Duval under clause 3.19.

At first instance a deputy district judge granted such a declaration. On appeal the decision was reversed in favour of the landlord. On a second appeal to the Court of Appeal the decision was again reversed and the court found in favour of Dr Duval. The Supreme Court dismissed a further appeal and confirmed the decision in favour of the tenant.

The key point in the Supreme Court’s decision is that the landlord’s obligation in clause 3.19 gave rise to a further implied obligation not to put it out of its power to comply with its obligation.

Clause 3.19 is a contingent obligation upon the landlord to take action if required to do so and if certain conditions were met. If the landlord were to grant a license to Mrs Winfield to act in breach of clause 2.7 then the landlord would put it beyond its power to enforce clause 2.7 against Mrs Winfield if required to do so by Dr Duval or any other tenant under clause 3.19 of their lease. As a result, the landlord could not license Mrs Winfield’s breach of covenant without the express approval of all those entitled to enforce it, namely all the other tenants in the block. As Dr Duval did not consent, the landlord could not grant a license.

A number of interesting points relevant to multi-let blocks arise as a result, including:

• A tenant can object to works or other activities in breach of an absolute covenant and effectively prevent them even without paying the landlord’s costs of taking action as is normally required.
• This applies to any absolute covenant – for example many leases have absolute covenants against keeping pets.
• Further, even without a tenant specifically objecting, no landlord should license such breaches because that would breach their obligations to the other tenants.
• The decision applies not just to future cases but also to past cases where breaches have been licensed.

Many things will have to be worked out in the future which is likely to lead to considerable litigation on these points until the law is clarified:

• To what extent will qualified covenants (where the landlord can give consent not to be unreasonably withheld) be affected? The logical extension of the Duval decision could be argued to affect qualified covenants too.
• What would be the effect of a landlord simply failing to take action to prevent a breach rather than licensing it?
• How will the drafting of long leases change to take account of this decision?
• What impact might there be on the marketability of flats with similar covenants?
• Will tenants seek to litigate past breaches (subject to limitation) and if so will the courts order works to be reversed or merely award damages?
• How will any damages be quantified?
• What steps will landlords seek to take to regain power over their properties from tenants?

Only time will tell what the long-term consequences of this decision will be but, for now at least, it represents a decisive change in the balance of power from landlords to tenants.