Are you unintentionally breaching an Absolute Covenant?

On 6 May 2020 the Supreme Court gave judgment in the case of Duval v 11-13 Randolph Crescent Ltd [2020] UKSC 18, finding that a landlord was not entitled to grant a licence for alterations for works because it was in breach of an absolute covenant (i.e. an absolute prohibition against doing something), which was a mutually enforceable covenant (i.e. the landowner must enforce covenants and obligations against all other occupiers). An absolute covenant differs to a qualified covenant, as the latter may permit a certain act with the prior written consent of a landlord, whereas the former prevents any action.

If a landowner grants occupants (i.e. tenants or plot owners) the benefit of a mutual enforceability covenant, they will put themselves in breach of covenant if they give any one of the other occupiers permission to do something that breaches an absolute covenant. This scenario may arise when:

• A developer is selling houses and grants mutually enforceable covenants to each purchaser.
• A landlord of a multi occupant building or area of land granting leases to the occupants e.g. shopping centre, block of flats, or an industrial estate.

Whether there is a breach of an absolute covenant or not will depend on how the land is demised or transferred. Some common examples where developers, landlords and managing agents, may unknowingly be in breach of absolute covenants are as follows (non-exhaustive list):

• In a block of apartments or flats permitting a tenant to carry out works to property without checking the terms of the lease which contains an absolute covenant not to carry out works.
• In a housing development allowing for a house owner to carry out works to a party wall or removal of a fence without consulting the adjoining landowner and the terms of the transfer deed.
• In a shopping centre allowing a tenant of a unit to display advertising on the outside of the unit which is in breach of the centre covenants all tenants are to comply with.

Developers, landlords and managing agents will need to consider the possible consequences should a tenant or plot owner seek licence or consent to do something prohibited by an absolute covenant in the tenant’s lease or a transfer deed. Whilst the Duval case related to alterations, the same principles may be applied to other common absolute covenants such as use and alienation (assignment, underletting etc).

Where consent (such as licence to alter) has already been granted and implemented the consent remains valid regardless of any absolute covenant. There is however a risk that the grantor may face a claim for damages from an aggrieved occupant, within the same development, on the grounds that it has suffered a loss or damage as a result of the grant and subsequent implementation of the consent.

Should you have any concerns in respect of general estate management, especially during these unprecedented times where many work places will be altered to adhere to social distancing measures, please feel free to contact the Commercial Real Estate team at Cleaver Fulton Rankin.

This article has been produced for general information purposes and further advice should be sought from a professional adviser.

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