Landlords beware when granting consent – the danger of contingent obligations

On the 6th May 2020 the Supreme Court gave its judgment in the case of Duval v 11-13 Randolph Crescent Ltd UKSC 18 and the resulting implications for landlords or management companies of blocks of flats and their tenants are significant.

The Supreme Court was asked to consider whether a landlord of a residential block of flats is entitled to grant permission to a tenant in the block to carry out works that would otherwise breach an absolute prohibition in that tenant’s lease, in circumstances where leases of the other tenants in the block are granted on similar terms and require the landlord to enforce the breach of the alterations covenant.

THE DECISION

The Supreme Court held that in granting consent to a tenant to undertake alterations which would otherwise breach an absolute prohibition in the lease, the landlord would be in breach of their obligations to the other tenants in the block.

Importantly, this breach of the landlord’s obligations will also apply where the obligation to enforce covenants is a contingent obligation; namely where under the terms of the lease the landlord is not under any express obligation to take, or refrain from taking any action against a tenant. The contingency (or condition) being that the landlord is requited to take action to enforce the covenant at the request of a complaining tenant and upon the indemnity of the landlord’s costs of undertaking such action by the tenant requesting the enforcement.

The Supreme Court further confirmed that the limitation period for a breach of covenant is 12 years. In practice this means that tenants in a block may challenge past consents and permissions granted by a landlord to neighbouring tenants.

THE FACTS OF THE CASE

The building known as 11-13 Randolph Crescent, previously two mid-terrace houses had been converted into nine flats. The freehold was owned by 11-13 Randolph Crescent Limited, a company of which the tenants were shareholders.

The leases for the tenants were granted on similar terms and in clause 3.19 the landlord covenanted with each tenant that all other flat leases would contain covenants of a similar nature and that at the request of the tenant, and subject to the provision of security for costs, the landlord would enforce the covenants given by other flat owners in their leases.

One tenant at the building, Mrs Winfield, requested consent from the landlord to undertake works which would involve removing a considerable part of a load bearing wall. Mrs Winfield applied to the landlord for a licence consenting to the works, which was granted.

However the proposed works breached clause 2.7 of the lease which contained an absolute covenant prohibiting cutting into walls or ceilings. There was no dispute between the parties as to whether the works were in breach of this provision.

Another tenant, Dr Duval, objected to the granting of the licence on the grounds that in doing so, the landlord had breached its obligations to her under clause 3.19 of the lease and she required that the prohibitive covenant in clause 2.7 be enforced by the landlord against Mrs Winfield.

THE IMPLICATIONS FOR LANDLORDS OR MANAGEMENT COMPANIES

Although the Court of Appeal did briefly discuss potential remedies prior to the Supreme Court ruling, the Supreme Court decision will no doubt have practical consequences for landlords and tenants alike.

Whilst the power wielded by other tenants in the block has increased, the implications of wielding that power against the landlord and other tenants could have far reaching implications:

Whilst the Supreme Court ruling in Duval v 11-13 Randolph Crescent Limited concerned consent for a licence for alterations, the implications of the decision are more far reaching. Any absolute covenant in the lease is subject to the same implications. If a landlord grants permission to a tenant to breach a covenant, regardless of how minor the covenant actually is (such as a prohibition on keeping pets), the landlord will put itself in breach of all other leases.

Another issue to consider arises where there is a qualified covenant in the lease that requires the landlord’s prior consent. Following the logic in Duval, any attempt by the landlord to grant retrospective consent, which is the usual practical remedy, may well place the landlord in breach of a contingent obligation to enforce covenants at the request of tenants.

Finally, where there is a covenant in the lease requiring that all leases be granted on similar terms, the granting of a variation of those terms to individual tenants will also place the landlord in breach of their obligations under the lease. Therefore careful consideration to the terms of the lease and the variation proposed must be given before the landlord considers a variation which is not universally implemented across all leases of a development.

If you would like advice on contingent obligations and remedies to potential breaches of this provision then please contact Laura Gregory in our Property Department: lg@slcsolicitors.com or on 0333 0 300 200.

The Coronavirus Act and The Impact on Payment of Service Charges & Ground Rent

You will have seen the announcement that private and social renters will be protected from eviction for three months under legislation given the Royal Assent on 25th March 2020, The Coronavirus Act 2020, as well as the offer of mortgage repayment holidays for mortgage borrowers.

These measures mean that residential tenancies are protected from eviction as new claims for forfeiture for missed payments of rent cannot be brought until at least the 30th June. This date could still be extended further.

Currently the Act does not include forfeiture of a long lease but enforcement of any possession order is unlikely to be in the interests of justice and recent guidance has advised that the courts will be suspending all ongoing housing possession action until at least the 30th June 2020, and again this could be extended further.

The government guidance on the legislation is that those in a position to make their rental payments continue to do so, while providing a few months grace to those that are struggling. This is not a rental holiday and as mentioned above, technically does not extend to breaches of lease, for example,  failure to pay service charge and insurance.  Where the breach complained of is as a direct result of these challenging times (i.e. financial) the courts are likely to offer relief to the Leaseholder wherever possible.

You will no doubt be faced with leaseholders who are unable to pay their service charges or ground rents, asking to delay payments. Leaseholders may be experiencing severely reduced incomes and the government are therefore encouraging Landlords to have a sympathetic approach  and to collaborate with tenants on devising flexible payment options, in place of the traditional quarterly rent.  The government has offered protection to property owners in the form of a Mortgage Holiday and  put in place a furlough scheme so workers who might otherwise have lost their jobs will be entitled to 80 % of their income which should reduce the financial impact of the crisis for many. SLC have a bespoke vulnerable leaseholder process to identify those financially negatively affected.

If you are a Property Manager, Service charge budgets and accounts and planned works should be reviewed to ensure that any temporary shortfalls can be accommodated, and payment plans can be offered to give tenants breathing space.

The precise terms of any deferment or reduction in costs will need to be decided between you and your clients but of course both discounts and payment holidays will mean lower income and therefore a reduction in services. Due to the directive on home working this is likely to be a time when you will have higher than average occupancy levels, so you will need to carefully decide which services to reduce or cut and how to communicate this to the residents. Fire safety and the supply of heat, light and water are likely to be considered priorities.

As you will appreciate, the situation continues to change on a daily basis and we will provide further guidance as it becomes available from government.

Update on Courts and Tribunals in light of COVID 19

In order to comply with social distancing the work of courts and tribunals will be consolidated into fewer buildings and the courts will be avoiding physical hearings unless absolutely necessary and using remote hearing wherever possible. This is at the discretion of the courts. Where the judiciary has decided it is appropriate for a hearing to take place via teleconference, all parties will receive a notice of hearing containing joining instructions.

There will be 157 priority court and tribunal buildings open for essential face-to-face hearings. In addition, a further 124 court and tribunal buildings will remain closed to the public but open to HM Courts and Tribunal (HMCTS) staff, the judiciary and those from other agencies. These ‘staffed courts’ will support video and telephone hearings, progress cases without hearings and ensure continued access to justice. All remaining courts and tribunals will close temporarily.

Where it is necessary for a physical hearing, social distancing measures will be in place, but if they cannot and a remote hearing is not possible they are adjourning.  Solicitors and advocates are expected to be proactive in this respect but the courts are taking a more flexible approach to applications and agreeing directions. The London First Tier Tribunal has now suspended all hearings until after 29th May 2020.

The Government has also advised that in these recent times that enforcement of any possession orders is unlikely to be in the interests of justice, whilst the Coronavirus Bill does not include forfeiture of a lease, recent guidance has advised that the courts will be suspending all ongoing housing possession action until at least the 30th June 2020, with the right for this to be extended further.

Further information including which courts will remain open and staffed can be found on daily operation summary of the HMCTS on the Government Website (link).

 

Coronavirus (COVID-19) Update 3

The situation with Coronavirus is ever changing but I would like to reassure you that as a business we are doing everything we can to protect our clients, colleagues and communities without compromising on our service levels.

At this time our offices are closed and our employees are currently working from home. We have a robust contingency plan in place for the duration and all our staff can all access our IT systems remotely within a secure data environment. This will ensure “business as usual” and continued service and support to you during this time

We will liaise with the courts and continue to monitor government advice and guidance and keep you fully advised. At present some courts remain open but some hearings and directions are being postponed for 3 months. Hearings that are going ahead are being dealt with remotely by telephone where possible. If court staff or judges are required to self isolate this is likely to result in adjournments.

If you are an existing client, your main contact will continue to support you through your usual communication methods.

If you are a prospective client and require our support, please contact us at info@slcsolicitors.com

Coronavirus (COVID 19) Update 2

In line with new advice from the government  up to 90% of the SLC  team will be working from home as of today, 18th March 2020. We will do our best to maintain all services but response times may be longer than usual and we ask you to bear with us. We will have a skeleton team based in our office unless government advice changes. This arrangement will be reviewed on a weekly basis.

In the meantime, if you need anything please contact us by email rather than phone where possible.

Coronavirus (COVID-19) Update 1

The situation with the coronavirus (COVID-19) is extremely dynamic and we continue to review the facts, science and government advice to make proactive decisions necessary to protect our clients, our colleagues and our communities.

Our offices are open and our teams are currently working as normal.

Our focus is about minimising the spread of the virus and making sure we continue to provide a service to our clients; whilst keeping our clients, our colleagues and our communities safe.

Our business continuity plan is focussed on three key priorities:

1) The health and welfare of all of our colleagues

2) The health and welfare of all of our clients and associates

3) The continued provision of service to our clients 

Our teams are monitoring developments constantly and we have put in place measures to ensure that we are well-prepared to manage any changes and we are able to continue to deliver our service to clients.

Keeping our clients safe

We recognise that many clients might want to minimise their travel and face-to-face appointments and therefore we are facilitating more appointments by telephone and follow up with email (if legally permitted).

We have advised our staff to avoid shaking hands with clients.

Any of our staff that are feeling unwell will be asked to stay at home. Our current policy is clear and states that staff that have flu-like symptoms should remain at home.

Equally, we are asking clients to call and cancel their appointment if they are feeling unwell and have any flu-like symptoms.

Communal and publicly accessed areas are cleaned regularly throughout the day.

Continued provision of service

We wanted to reassure you of our ability to continue to support our clients in all scenarios.

Our teams are able to access our IT systems remotely within a secure data environment, so can work from other offices or from home, if required.

Being a multi-site law firm, means that that we can temporarily relocate work to other sites across the UK if necessary. Phone calls can also be answered by these other UK offices.

The coronavirus (COVID-19) outbreak is constantly evolving and we would like to reassure you that we are taking sensible precautions to minimise the potential impact of coronavirus (COVID-19) on our clients, colleagues and operations while ensuring it is business as usual.

If you have any questions please reach out to your contact in the first instance, or email info@slcsolicitors.com  and stay safe.

Offices open

Following our Shrewsbury offices closure due to flooding earlier in the week, we are pleased to announce that our Shrewsbury offices are open again from 12pm today (Wednesday 26th February). We apologise for any inconvenience caused, and thank you for your patience.

Tuesday 25th February 2020 – Office Closed

Due to the flooding in and around Shrewsbury, we have a limited number of staff in our town centre office today, Tuesday 25th February.

Please use the email info@slcsolicitors.com if your enquiry requires immediate and urgent attention.

We hope to be back in the office as soon as possible, but please bear with us.

Season’s Greetings

All the staff at SLC Solicitors would like to wish you a very Merry Christmas and a Happy New Year.

We would like to thank you all for your support in 2019 and we look forward to working with you all in 2020.

Please note our office will close at 3pm on Tuesday 24th December and reopen at 9am on Thursday 2nd January 2020.

Successful ARMA Conference

The ARMA annual conference 2019 which was held in London on Thursday last, 17th October was yet another resounding success. We thoroughly enjoyed the day and it was wonderful meeting clients and acquaintances, past, present and new.

We would like to thank ARMA for hosting this prestigious event and for providing us all with the opportunity to network and showcase our expertise to the Property Management Sector.  We would also like to thank all those who visited our stand and spent time with us during the course of the day.

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