Duval v 11-13 Randolph Crescent Ltd

The issue on this appeal is whether the landlord of a block of flats is entitled, without breach of covenant, to grant a licence to a lessee to carry out work which would breach an absolute covenant contained in a lease of her flat, where the leases of other flats require him to enforce covenants at the request of a lessee of one of those other flats. DDJ Chambers answered that question “no”; but HHJ Parfitt disagreed with him and answered it “yes”. Covenants in this form are common in residential leases; and so the question raised by this appeal is an important one.

The property in question is 11-13 Randolph Crescent in Maida Vale. It originally consisted of two houses; but they have been converted into nine flats each of which is held under a long lease. Mrs Winfield is the lessee of Flat 13; and Dr Duval is the lessee of flats 11G and 11H. Each lease was granted for a term of 125 years. The reversion to both leases is held by 11-13 Randolph Crescent Ltd, which is a company owned by all the lessees. In 2015 Mrs Winfield approached the landlord asking for permission to carry out improvement works to Flat 13. The landlord was willing to grant consent. But Dr Duval said that the terms of the lease prevented it from doing so.

What is comprised in the lease of Flat 13 includes internal walls, other than non-load-bearing internal dividing walls. As regards walls of that description only half the thickness of the wall is demised. Load-bearing walls are specifically excluded from the demise. Clause 2 of the lease contains a series of lessee’s covenants. They are a mix of positive covenants (e.g. to pay the rent, to carry out works required by statute and to keep the demised property in repair) and negative covenants (e.g. not to use the demised property except as a self-contained residential unit in the occupation of one family, and not to contravene the Planning Acts). The fifth schedule to the lease contains a number of detailed regulations about the use of the flat with which the lessee must comply. These include prohibitions of playing musical instruments or singing except at specified times of the day, placing window boxes on any external window sill, and not to park cars in any yard, garden or driveway.

The two relevant lessee’s covenants for present purposes are clauses 2.6 and 2.7. The first of these provides:

A covenant prohibiting the making of improvements without the landlord’s consent is subject to an implied proviso that consent is not to be unreasonably withheld: Landlord and Tenant Act 1927 s. 19 (2).

The second of the two covenants provides:

This is what is usually called an absolute covenant, which means that the lease does not contemplate that consent might be given to do that which the covenant forbids.

The works that Mrs Winfield wished to carry out included the removal of about seven metres width of load-bearing wall at basement level. It is common ground that this would have amounted to a breach of clause 2.7 of the lease. The works would also have extended beyond the current demise.

Dr Duval relies on clause 3.19 of the lease. That is a covenant by the landlord in the following terms:

Mr Mawrey QC’s argument for Dr Duval is a simple one. Clause 2.7 of the lease contains an absolute prohibition on cutting a wall which encloses the demise of Flat 13. By clause 3.19 the landlord has covenanted to enforce that covenant if the tenant of another flat so requests. If the landlord had the right to license what would otherwise be a breach of clause 2.7 or to waive compliance with clause 2.7, it would have put it out of its power to comply with clause 3.19 as regards that licence or waiver. It is necessarily implicit in a covenant like clause 3.19 that the landlord will not put it out of its power to comply with it when the time comes.

Mr Johnson QC, for the landlord, says that it is not that simple. He emphasises the landlord’s right to do as he pleases with his own property. In the normal course of events a landlord is free to consent to what might otherwise be a breach of a tenant’s covenant; and in some circumstances he might be in the unfortunate position of having inadvertently waived a breach or being estopped from relying on a breach. It could not have been intended that in such circumstances the landlord himself would be in breach of covenant. Moreover, clause 3.19 does not in terms say that the landlord is precluded from granting a licence for what would otherwise be a breach of covenant. In his written argument Mr Johnson submitted that the covenant has retrospective operation once a breach has taken place. But if the landlord consents in advance to some activity on the part of a lessee that activity will not amount to a breach of covenant, so that there will be nothing to enforce. Thus, by the grant of a licence, the landlord may nullify what would otherwise have been the effect of clause 3.19. In oral argument he accepted that clause 3.19 could apply to a threatened breach of covenant, but even in that situation he argued either that the landlord could authorise the breach at any time; or at least that he could do so before the tenant had made the request for enforcement and provided the security required by clause 3.19. In addition, even if the landlord does authorise what would otherwise be a breach, Mr Johnson submitted that it is only the particular breach that is authorised. The covenant itself remains intact and enforceable for the future.

Mr Johnson made a number of points which went to his client’s perception of the relevant merits of each side’s case. They were designed, at least in part, to paint Dr Duval as adopting a “dog in the manger” attitude to the work that Mrs Winfield wished to carry out. But that can play no part in the interpretation of the lease. He also submitted that if any single lessee of a flat had what he called a “veto” over work proposed by another lessee that was a recipe for conflict, and no way to manage a residential block of flats. The practicalities of management, and the commercial common sense of one interpretation over another, do have a part to play in contractual interpretation. But the starting point must be the words of the contract itself.

The first express promise that the landlord made in clause 3.19 is that every lease of a residential unit in the building granted at a premium would contain covenants similar to those in clauses 2 and 3. That promise applies only to something that can be described as a “residential unit”; so it might not apply to, say, the demise of what had been common parts by way of extension to an existing residential unit. The promise is that each lease will contain similar covenants. A covenant is not simply a form of words on a printed page: it is a legally binding obligation. Thus the promise was that each lease would contain similar legally binding obligations on each lessee. This was, in my judgment, a promise designed to have practical effect; namely that each lessee would be bound to observe similar legal obligations. As Dankwerts J put it in Levermore v Jobey [1956] 1 WLR 697, 708:

In the context of the present case, however, it is important to note the two-fold limb of the promise. It is not only a promise that the lease of a residential unit would contain a covenant similar to clause 2.7 (i.e. an absolute covenant not to cut walls etc) but also a covenant similar to clause 3.19 (i.e. a covenant to enforce such covenants). Thus each lessee would have known that the landlord had covenanted (or would covenant) with every other lessee to enforce the obligations contained in the lease.

The second express promise that the landlord made was to enforce the covenants at the tenant’s request and expense. That is a contingent obligation: the relevant contingency being the tenant’s request and the provision of security. If the contingency arises, then the landlord’s obligation is triggered. It was in dispute in our case whether the contingency had arisen on the facts. We cannot resolve that dispute, but I will proceed on the assumption that it had not.

From the perspective of a lessee who is paying a premium for the grant of a long lease, the combination of these two promises would be taken to mean that the lessee could be sure that upon request (and the provision of security) the landlord would enforce the covenants by which each lessee had agreed to be bound. Those covenants would be in the form in which they appear in the leases as granted; and would have the practical effect that their appearance in that form was designed to have.

It was common ground between the parties that the leases of the various flats in the building did not amount to a letting scheme. Under such a scheme each lessee is entitled to enforce directly the restrictive covenants contained in each of the other leases. Here by contrast, the power of enforcement is vested in the landlord; but the landlord covenants to exercise that power on request. It may well be that this choice of enforcement machinery was designed to overcome any possible problem that there might have been in enforcing positive covenants under a letting scheme (see Arnold v Britton [2015] UKSC 36, [2015] AC 1619 at [51]). Be that as it may, as Mr Mawrey put it in his skeleton argument: each individual lessee is given the right to compel the landlord to enforce the covenants in the lease whether it wishes to or not. That is the basic policing mechanism of the block.

Does that mean that the landlord cannot license in advance what would otherwise be a breach of clause 2.7? I have posed the question in imprecise language; but in order to deal with the real issue it is necessary to be more precise. As Mr Johnson pointed out, as a matter of property law, the only person who can enforce the covenants in a given lease is the landlord. As between himself and the lessee the landlord has the power to license what would otherwise be a breach of covenant. What I mean by that is that if the landlord does grant a licence permitting what would otherwise be a breach of covenant, the licence will be effective to preclude a subsequent action by the landlord for breach of covenant. However, it does not follow from that that the grant of the licence will not amount to a breach of the collateral contract as between the landlord and the lessee of another flat who has the benefit of clause 3.19. It is no different in principle from the case of a lessee who assigns his lease in breach of a covenant against assignment. The assignment is effective in the sense that the lease will have been transferred to the assignee, but the transfer will amount to a breach of covenant. In that sense the lessee has the power to transfer the lease, but that does not preclude the exercise of that power from being a breach of covenant. The deputy district judge declared that the landlord had no power to waive covenants or to grant licences without the consent of all other lessees. This was, in my judgment, erroneous, although in fairness to the deputy judge this particular point was not explored before him. The real question, as it seems to me is: if the landlord does grant a licence to a tenant permitting what would otherwise be a breach of an absolute covenant in the lease does he commit a breach of clause 3.19?

I agree with Mr Johnson that clause 3.19 does not in terms say that. The question, as it seems to me, is whether that is necessarily implicit in the way that the obligation has been drafted. This, in turn, requires an answer to the question: is the implication necessary to give commercial or practical coherence to the contract: Marks & Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2015] UKSC 72, [2016] AC 742 at [21].

There is a long line of authority in which the courts have consistently held that where an obligor undertakes a contingent or conditional obligation, he is under an obligation not to prevent the contingency from occurring; or from putting it out of his power to comply with the obligation if and when the contingency arises.

In Short v Stone (1846) 8 QB 358 Mr Stone had promised to marry Miss Short within a reasonable time after request by her. However, before she had made her request, Mr Short married another woman. The court of Queen’s Bench held that since Mr Stone had put it out of his power to comply with the request if it were made, no request was necessary. It further held that by marrying the third party, Mr Stone was in breach of his contract with Miss Short. In other words, it was an immediate breach of contract for Mr Short to have put it out of his power to comply with his contingent obligation. As Coleridge J put it:

Caines v Smith (1847) 15 M & W was a similar breach of promise case. The plaintiff alleged that the defendant had agreed to marry her but had married another. The defence was that she had not asked to defendant to marry her. The aggrieved woman won. Pollock CB put it this way:

In Ogdens Ltd v Nelson [1903] 2 KB 287 Lord Alverstone CJ put the point more generally. He said:

In Southern Foundries 1926 Ltd v Shirlaw [1940] AC 701 Lord Atkin preferred not to characterise this as an implied term but as “a positive rule of the law of contract that conduct of either promisor or promisee which can be said to amount to himself "of his own motion" bringing about the impossibility of performance is in itself a breach.” Although the taxonomy does not matter in the present case, if the principle is a rule of law rather than an implied term, it may not have to satisfy the test laid down in Marks & Spencer.

In Berkeley Community Villages Ltd v Pullen [2007] EWHC 1330 (Ch); [2007] 3 EGLR 101 Morgan J held at [117] that an implied term not to prevent performance might be appropriate where the obligation in question was a contingent obligation. This is entirely consistent with the two breach of promise cases.

To forestall an anticipated breach of covenant is, to my mind, enforcing the covenant. Any action for an injunction before the commission of a threatened breach would, of course, have to satisfy the principles upon which quia timet injunctions are granted. Contrary to Mr Johnson’s more extreme position, I consider that once a lessee has made a request for enforcement and has provided the necessary security, it would be a plain breach of covenant for the landlord to license the breach of which the lessee complains. To hold otherwise would defeat the whole purpose of the covenant. Mr Johnson argued (and the judge agreed) that one possible use of the covenant would be in a case in which the landlord did not think the breach of covenant significant enough to warrant taking action, but the lessee disagreed. But in that scenario it must necessarily be the case that (in reliance on its own view that the breach was not significant) the landlord could not, consistently with its obligations under clause 3.19, license the breach; otherwise that covenant would be easily defeated.

If, as I consider to be the case, a lessee would be entitled to require the landlord to enforce clause 2.7 of the lease in the face of a threatened breach, it seems to me to follow that the landlord cannot put it out of its power to do so by licensing what would otherwise be a breach of covenant. To put it another way, it would not give practical or commercial content to the obligation if the landlord had carte blanche to vary or modify the covenants; or to authorise what would otherwise be a breach of them.

Mr Johnson also referred us to the statement of principle by Cockburn CJ in Stirling v Maitland (1864) 5 B & S 841, 852:

What, he asked, was the “existing state of circumstances” which was to be continued? In my judgment the answer is: the set of circumstances prevailing at the date of grant of the leases; namely that each lessee was subject to similar legally binding obligations. If one lessee is released from his obligation either in whole or in part, I consider that the existing state of circumstances has been disturbed. Although I accept, as Mr Johnson submitted, that in those circumstances the covenant itself has not been waived (see Law of Property Act 1925 s 148); it seems to me that the practical effect of the covenant has been varied, in that it no longer forbids that which was once forbidden. Clause 3.19 is concerned with the practical effect of the obligations; not merely the words on the page.

I do not consider that the fact that the contingency (lessee’s request and provision of security) has not arisen affects the analysis. The cases to which I have referred themselves concerned contingent obligations where the time for performance had not yet arrived. Yet in those cases it was held to be a breach of contract for the obligee to disable himself from performance if and when the contingency arose. Once the landlord has granted a licence permitting what would otherwise be a breach of covenant, a lessee cannot make the request for enforcement effectually. Thus the need to make the request is dispensed with; and the landlord has broken his own contract because he is no longer able to fulfil the request.

Mr Johnson stressed the inconvenience that would result from this interpretation of the lease. If a lessee wished to install recessed lights in the ceiling of a flat, or to rewire it, that would on the face of it be a breach of clause 2.7 which prohibits cutting any ceiling or cutting any wire. That is undoubtedly so. But in my judgment the vice lies not in clause 3.19, but in the fact that clause 2.7 is drawn as an absolute covenant. If it had been drawn as a qualified covenant (i.e. not to do the prohibited acts without the landlord’s consent) then, as Mr Mawrey accepted, the landlord would not commit a breach of clause 3.19 by granting consent.

In principle, therefore, I consider that Mr Mawrey’s interpretation of clause 3.19 is correct. If the landlord grants a licence to a lessee to do something which would otherwise be a breach of the lease, he commits a breach of clause 3.19. I consider that that is the case not only where the lessee has already made the request and provided the required security, but also where the obligation under clause 3.19 to enforce remains contingent.

Mr Johnson argued that if this interpretation were correct then every lessee would have a veto over the grant by the landlord of a licence to do something otherwise prohibited by the lease. A lessee could exercise that veto for good reason, bad reason, or no reason at all. Moreover, this interpretation allows a lessee to bypass the requirement for a request and for the provision of security which are integral parts of clause 3.19. In my judgment this exaggerates the effect of clause 3.19. As I have said, the landlord has power to license what would otherwise be a breach of covenant; but commits a breach of clause 3.19 in doing so. The landlord has no obligation to inform the body of lessees in advance of what it proposes to do. If a lessee wishes to enforce clause 3.19 against the landlord she has a right of action. If the landlord has already granted the licence and it has been acted upon then the landlord will be unable to enforce the covenant (whether by injunction, forfeiture or damages) as regards what has been licensed. In that event the lessee’s only remedy against the landlord under clause 3.19 will be in damages for breach of that covenant. In the sort of cases postulated by Mr Johnson it seems unlikely that the damages would be substantial. Where the licence has not been granted, or if granted has not been acted upon, it is possible that the court might grant an injunction either preventing the grant, or requiring the licence to be undone. But before deciding whether to grant that remedy the court would have to consider what the lessee’s objections were to the grant of the licence. If they were bad reasons, or no reasons at all, that would be a powerful factor militating against the grant of an injunction.

It was common ground that if we decided (as I consider we should) that the appeal should be allowed, then we should grant declaratory relief only. Whether Dr Duval is entitled to any (and if so what) further remedy would be remitted to the county court. I would grant a declaration to the effect that the waiver by the landlord of a breach of covenant by a lessee or the grant of a licence to commit what would otherwise be a breach of covenant would amount to a breach of clause 3.19 of the lease. I would remit all further questions of remedy to the county court.

To the extent that I have indicated, I would allow the appeal.

I agree.

I also agree.