Flat leaseholders face controversial Court of Appeal decision

Long leaseholders of residential flats across England and Wales could face significant difficulties in what they are permitted to do with their properties as a result of a controversial Court of Appeal judgment. The ruling, which has generated substantial commotion in the property world, has the potential to thwart residential flat owners in their ability to install LED lights and Wi-Fi points, lay wooden flooring, remove walls, widen doorways,  or carry out any structural alterations to their property (large or small) simply by virtue of the fact that another tenant in the building objects.

The property owner may have obtained all the necessary surveys and engineers reports and taken every necessary precaution, but that may not stop another tenant from, in effect, “vetoing” what they want to do. For this to apply, the residential block would need to employ a particular form of lease, but there are 2.9 million leasehold flats in England alone and vast numbers of these will contain that form of lease.

In the case (Julia Duval v 11-13 Randolph Crescent Ltd) Lord Justice Lewison of the Court of Appeal ruled that a long leaseholder in Maida Vale in West London who requested consent from the landlord to remove a structural wall in her property was prevented from doing so because another tenant objected. The ruling hinged on the interpretation of the “enforcement” clause under the other tenant’s lease and will apply to all leases across the country with the same clause.

The solicitors for the landlord, Ashfords LLP, have applied for the ruling to be challenged at the Supreme Court on behalf of their client.  They hope that the Supreme Court will recognise the public importance of the Court of Appeal ruling and grant permission for the case to be heard by the Supreme Court.

Alison Oates, pictured above, an associate in Ashfords’ Property Litigation team said, “Many landlords are likely to now be very cautious when it comes to granting licences for certain types of building works, regardless of whether the right precautions have been taken and surveys commissioned. They will likely want to get consent from every leaseholder in the block before allowing such works to go ahead, to ensure they are not opening themselves up to a claim for breach from those other leaseholders. Many of these blocks have dozens of tenants and this would prove to be a bureaucratic and time-consuming exercise even assuming all leaseholders are available and willing to engage with the landlord simply because, for example, a ground floor neighbour wants to install wooden flooring.”

“After this judgment, leaseholders may apply for an injunction against their landlord, to attempt to prevent them from granting a licence for their neighbours’ works.  The Court of Appeal has said that if there are “bad reasons” or “no reason at all” for bringing the injunction, that would be a powerful factor against granting an injunction. But it remains to be seen what the Court will consider a “bad reason”.

“There is an argument that this ruling gives litigious leaseholders enormous scope to be a thorn in the side of other leaseholders who want to renovate their properties, however cautiously and reasonably they are going about it.”

“We suspect there will be many residential flats out there where building works have already taken place but where the landlord did not get the consent from all of the other leaseholders before granting permission for those works. Technically these landlords are now in breach of their covenants to these other leaseholders and it remains to be seen if these leaseholders will take action against their landlord for this breach.”

It is thought that this ruling will have the most significant impact in situations where residential flat owners want to carry out structural building works to their property, although it could be far more wide-reaching.

The ruling means a vast number of flats now have the potential to get stuck in a home improvement time warp as landlords may shy away from granting a licence for simple works, like LED light installations, let alone more complex projects, like modern and open plan living environments, as to do so would now open themselves up to risks of litigation.

Worryingly for the England and Wales property market, the ruling has the potential to affect flat valuations when leaseholders come to sell. If works cannot be carried out without the consent of everyone in the block, a purchaser may think twice before buying or pay less for the property.

Please see below the legal details of the case:

• In this case, the Claimant was the tenant of two flats at 11-13 Randolph Crescent.  The Defendant, 11-13 Randolph Crescent Limited, was the freehold owner of the building.  There were nine other flats in the building and each tenant had a share in the freehold company. All leases in the building were in a standard form and contained two covenants that are commonly found in buildings of this type;
• Clause 2.7 is an absolute prohibition from cutting into any structure, wall or ceiling.  Clause 3.19 is a similar covenants provision, i.e. that all leases in the building (granted at a premium) would contain similar covenants and that at the request of a tenant, subject to them providing security for costs, the freehold company would enforce the covenants given by another tenant;
• In July 2015, the tenant of flat 13 approached the freehold company for consent to carry out various alterations to her property, including structural alterations such as widening a door way.  The freehold company was minded to grant consent to these works, but for various reasons the Claimant did not wish consent to be granted.  She contended that pursuant to clause 3.19, the freehold company was obliged to enforce covenants in other tenant’s leases, subject to an appropriate indemnity being given.  She said that if the freehold company were to licence an activity which would otherwise be a breach of the lease (in this case, structural works), it would have put it out of its power to comply with clause 3.19 with regard to the licence of waiver, and that its implicit in the covenant that the freehold company could not do this;
• The freehold company disagreed and argued that a landlord has the right to do as it wishes with its own property and is free to consent to what otherwise might be a breach of the lease and waive breaches of the lease if it chooses to do so.  They argued that clause 3.19 does not prevent a landlord from doing so and that if a licence has been granted, no breach of the lease has taken place, so there is nothing to enforce.
• At first instance the Court found for the Claimant, Dr Duval, but on appeal to the County Court at Central London, the Court found for the freehold company.
• The Court of Appeal have now handed down their ruling which is a middle ground between the two parties.  LJ Lewison has ruled that the freehold company does have the power to licence what would otherwise be a breach of covenant, but in doing so, it commits a breach of clause 3.19 of the other leases.  If another tenant wishes to enforce clause 3.19 against the freehold company, they have a right of action.  If the licence has already been granted and acted upon, the freehold company will not be able to enforce the covenant, and the other tenant’s only remedy will be in damages for breach of covenant. If the licence has not yet been granted, the other tenant could apply for injunctive relief to prevent it being granted, but before deciding whether to grant the remedy the Court would have to examine what the tenant’s objections were to the grant of the licence.

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