The End of Leaseholder Alterations?: The Supreme Court Decision in Duval

Those in the leasehold world have been waiting with bated breath for the Supreme Court's Decision in Duval v 11-13 Randolph Crescent Ltd. [2020] UKSC 18 (6 May 2020) ("Duval") to provide guidance on a landlord's liability when granting consent to leaseholders to carry out structural alterations.

In Duval the Supreme Court held that where a lease contains landlord covenants for all leases to be in substantially the same form and an obligation on the landlord to enforce leaseholder covenants upon the request of another leaseholder, a landlord will be in breach if it gives consent to a leaseholder to carry out works in breach of an absolute covenant.

Absolute and Qualified Covenants

In order to understand the ramifications of this decision, it is first necessary to consider the difference between a qualified or absolute leasehold covenant:

1. Qualified covenants: in most residential long leases, there will be a covenant for the leaseholder not to undertake works to their own premises without permission from their landlord. In accordance with section 19(2) of the Landlord and Tenant Act 1927, such consent cannot be unreasonably withheld.
2. Absolute covenants: residential long leases will also often contain a covenant prohibiting the leaseholder from undertaking any work to the structural elements of the building or any other areas which fall outside of their demise. Such a clause will not provide for the landlord to allow these works by consent. However, landlords will often give consent to leaseholders for such works, in exchange for a premium.

The Decision in Duval

The facts of Duval will seem familiar to many as this case arose from a fairly common set of circumstances. The block in question is a terraced house which had been converted into nine flats. Mrs Winfield was a leaseholder of one of those flats and applied for permission from the landlord to carry out works to her flat, including the removal of a substantial part of a load bearing wall at basement level. It was agreed by the parties that the works proposed would amount to a breach of clause 2.7 of the leases, which contained an absolute covenant against structural alterations. Upon learning of these plans, another leaseholder in the building, Dr Duval, objected. This ultimately led to Dr Duval issuing proceedings against the landlord for a declaration that the landlord was not permitted to give consent to the works.

Dr Duval relied on clause 3.19 of the leases, which contained a covenant on the landlord to ensure that each lease contained similar covenants and stated that the landlord would enforce any leaseholder covenants at the request of another leaseholder, subject to that complainant leaseholder indemnifying the landlord's costs.

The Supreme Court decided that clause 3.19 did not expressly state that the landlord was prevented from giving Mrs Winfield permission to carry out the structural work but such a prohibition must be implied into the clause. In his Judgment, Lord Kitchin stated that clause 3.19 would have no practical effect if the landlord was able to authorise a breach of the covenant and thereby prevent the complainant leaseholder from asking the landlord to enforce the breach.

Is it still Possible for a Landlord to Grant Consent for Works?

If works are contemplated for a leasehold flat, it is clear that the landlord and leaseholder will now need to carefully consider whether Duval applies.

In light of Duval, a landlord will be in breach if consent to works is given in the following circumstances:

1. The works are prohibited by an absolute covenant;
2. The leases contain a clause that all leases will contain similar covenants; and
3. The landlord has covenanted to enforce leaseholder covenants at the request of another leaseholder.

It will clearly be necessary to consider carefully exactly what is proposed and this could lead to potentially difficult questions about the extent of a leaseholder's demise. It is clear that Lord Kitchin thought that leaseholders should be able to prevent works which "go beyond routine alterations and improvements and are intrinsically such that they may be damaging to or destructive of the building". However, it seems that the decision may prevent fairly routine alterations and improvements.

What happens if a leaseholder wishes to knock down a non-structural wall in their flat but an absolute covenant in their lease prevents such works? This type of work does not appear to be what the Supreme Court sought to prevent but arguably it would not be possible for a landlord to consent to the same without finding themselves in breach.

It is possible for the landlord to obtain consent from all of the leaseholders to the proposed works before providing consent themselves. This may be simple in smaller blocks and where the landlord is a leaseholder entity. However, this will clearly present difficulties in larger blocks or in blocks where there is one or more leaseholders that objects to the proposals.

Finally, a brave landlord may continue to provide consents for works where Duval applies on the basis that any breach would result in little or no loss to the leaseholders. If this approach is taken, it would seem sensible to seek an indemnity from the leaseholder asking to carry out the works for any claims that may be brought by an aggrieved leaseholder.

This is probably not the end of leaseholder attempts to carry out alterations but careful consideration will clearly be necessary and we recommend that advice is obtained.

If you require further clarification or advice please contact Lucy Zaremba of Forsters LLP.