Nice landlords beware!
There are sound reasons why commercial landlords will accommodate good tenants’ requests which go beyond what a lease permits – keeping those good tenants being the main one, of course. However, being nice to one tenant might provoke a nasty response from other tenants and leave you open to a claim. Catrin Mackie shares some advice.
If you’re a commercial landlord, you’ll know how difficult it can be to balance requests from your tenants with the terms of the lease, and to balance one tenant’s requests with another’s. You want to keep a tight rein on what your tenants can do, while being flexible with those who’re particularly important to you.
Tenants often want to put their own stamp on their space or use it in a different way to reflect a change in operations. Most commercial leases are pretty strict and prescriptive of things like alterations and works, permitted uses, ability to share space, and so on. However, if a landlord sees commercial sense in permitting the tenant to do things which are otherwise prohibited under the lease, then they may well permit it – either to foster good relations with a decent tenant, or because the tenant is prepared to pay a good premium in exchange.
A recent case – Duval v. 11-13 Randolph Crescent – highlighted that this approach can be problematic if any other lease includes an obligation on the landlord to enforce tenant covenants in other leases.
In the case – which focused on a residential letting, but which would equally apply in a commercial property context – a building contained nine flats, each with a long residential lease. Every one of the leases provided that:
- Cutting into walls or ceilings was prohibited
- Every lease would be on similar terms
- The landlord would enforce a tenant’s obligations in one lease, if another tenant requested this (provided the upset tenant covered the landlord’s costs).
One of the tenants asked the landlord for consent to cut into walls to create a more open plan set-up. Despite this breaching the specific prohibition in the lease, the landlord agreed – but didn’t formally grant any licence.
Two other tenants objected on the basis that, if the landlord consented, it would be waiving that tenant’s breach of covenant not to cut into walls. In doing so, the landlord would, in turn, be breaching its obligation to enforce any tenant breaches.
What did the court decide?
The Court of Appeal agreed with the other tenants.
Because of the landlord covenants in the leases – that each lease would be on similar terms, and that the landlord would enforce covenants given by other tenants if requested – all the tenants would have a course of action against the landlord if it failed to enforce, or otherwise permitted, what they knew to be a breach.
The Court said that, if the landlord had already granted consent for one tenant do something that was otherwise prohibited under their lease, and that tenant had acted upon that (e.g. started the work), it would be too late to enforce the covenant not to do so. In that case, the only remedy for the other tenants would be for damages.
The Court also said that, if the landlord hadn’t consented, or if it had, but the breach hadn’t commenced (e.g. works not started), the Court could grant an injunction preventing – or undoing – any licence.
Be careful
Clearly, this decision highlights a pitfall for residential landlords, but the same issues will arise in the commercial property arena. Even without a ‘similar leases’ obligation, there are difficulties. Should a landlord have to check every lease to make sure there are no ‘landlord will enforce another tenant’s obligation’ clauses? If nothing else, this case is likely to promote a more cautious approach by landlords when considering requests from their tenants.
