Lee v Courtenay Gate

 

The Message

Tenants may be able to free themselves from obsolete Lease restrictions.

The Case

The Upper Tribunal had determined a rare application to remove a covenant against sub-letting in a residential tenancy.

Mr Lee owns a long Lease in Courtenay Gate, a block of 31 flats on the seafront in Hove. In 2009, he moved to Australia to work there for a substantial period of time but he wished to retain his flat and return to live there in due course. Unfortunately for him, his Lease contains an absolute covenant against sub-letting his flat. All Leases had originally been granted on that basis in accordance with the obligation for all Leases to be granted on the same terms.

Unknown to most tenants, and many lawyers, S.84 (12) of the Law of Property Act 1925 entitles certain tenants to apply to the Upper Tribunal to discharge or modify any restriction on the use or development of their property in the same way a freehold owner can apply to discharge a restrictive covenant.

To qualify, a tenant has to have a tenancy for over 40 years of which more than 25 years have expired. The tenant then has to establish the restriction is obsolete and/or no longer of any practical advantage.

Mr Lee qualified to apply to discharge the covenant against sub-letting his flat and he duly did so on the basis that a number of other leases in the block had been varied to allow sub-letting and there was no real advantage to be gained by stopping him also being able to underlet. He relied also on the fact that the Residents Association had initially been in favour of permitting him to do so.

The landlord, a company owned by all the tenants, objected on the basis that the vast majority of other leases did also prevent sub-letting and this restriction was of substantial value as it ensured that flats were occupied by their owners and that there was a good and supportive community within the building. For example, owners who occupy are more ready to fund repairs.

Pending determination of his application to the Tribunal, Mr Lee underlet his flat under an assured shorthold tenancy.

The Tribunal first considered the other leases where the sub-letting restriction had been released or modified and it concluded that this only applied to 5 other flats and that, accordingly, the restriction still applied to more than 80% of the leases. In fact, there was only one flat that was underlet.

The Tribunal then considered whether the restriction was of real practical benefit. It concluded that it clearly was beneficial to have flats occupied by their owners and that there was a clear nad still current scheme to maintain this. Accordingly, the Tribunal was not minded to allow Mr Lee’s application and he will be in breach of covenant if he continued to underlet his flat and liable to have his lease forfeited.

The Tribunal, in fact, highlighted that it always has a discretion as to whether to grant any modification or discharge of a covenant and the conduct of the applicant can be very relevant as to how this discretion is exercised. Given his clear breach of covenant in sub-letting before his application was decided, it indicated that it would have been minded to refuse his application anyway.

Although Mr Lee failed, this case should highlight to other tenants that they may be able to free themselves from lease restrictions that are no longer relevant or have been superseded or undermined and that it is relevant when buying any flat to determine what scheme or schemes are still in operation and which have been superseded.