Setting aside s84 final orders modifying covenants

Blackhorse Investments (Borough) Limited v The London Borough of Southwark [2024] UKUT 33 (LC)

In October 2021 the leaseholder applied to the Upper Tribunal under section 84(1) / s.84(12) of the Law of Property Act 1925 to modify or discharge covenants in a lease of a pub, of which the London Borough of Southwark (Southwark) was the landlord. Despite substantial prior communications by e-mail, the application was served by hand only at Southwark’s principal offices. It did not come to the attention of the correct department (or anyone). In the result, Southwark did not file a notice of objection, the Tribunal dealt with the matter on the papers and a final order was made without a hearing in the form sought by the leaseholder.

In accordance with current practice, the Tribunal did not serve the order on Southwark, because it was not an objector, and neither did the leaseholder. The leaseholder converted the premises into 2 flats, granted a long lease of each flat and in mid 2023 served an Initial Notice to acquire the freehold under the Leasehold Reform Housing and Urban Development Act 1993.

During that process, Southwark found out about the Order and on 3 November 2023 applied to set aside the Final Order under Rule 54 of the Tribunal Procedure (Upper Tribunal) (Lands Chamber) Rules 2010 or the Tribunal’s inherent jurisdiction.

Rule 54 gives the Tribunal power to set aside a decision which disposes of proceedings, or part of such a decision, and to remake it if the Tribunal considers that it is in the interests of justice to do so and if one or more of the conditions in paragraph (2) of the rule is satisfied. Those conditions are as follows:

(a) that a document relating to the proceedings was not sent or delivered to or was not received at an appropriate time by, a party or a party’s representative;

(b) a document relating to the proceedings was not sent or delivered to the Tribunal at an appropriate time;

(d) there has been some other procedural irregularity in the proceedings.

Under Rule 54(3), an application must be made within 1 month after the date on which the Tribunal sent notice of the decision to the party. Time therefore had not run.

The application was made on a number of grounds, of which the successful ground was want of jurisdiction.

The modifications made by the Final Order included modifying so as to relax a covenant restricting assignment and subletting, and covenants which required that the premises be kept open and used as a public house and obliging the leaseholder to use best endeavours to obtain a liquor licence.

In a decision of wide significance, the Deputy Chamber President Martin Rodger KC reviewed previous decisions as to covenants restricting alienation (paragraphs [59]-[68]). Having done so, he applied his previous decision in Young Camiade’s Application [2023] UKUT 96 and held that a covenant which prohibits the assignment of “any part or parts (as opposed to the whole) of the demised premises”, is not a restriction as to the user of the land. As a result, the tribunal did not have jurisdiction to modify that covenant (paragraphs [70]-[73]).

The final order also purported to modify a number of other covenants, which required the demised premises to be used as a licensed victualling house only and to be kept open as such so long as the necessary licences could be obtained, to use best endeavours to obtain a renewal of all licences, and for so long as the demised premises shall be licensed, to use them as a bona fide refreshment house for supplying food and liquor to the public. Southwark's ground of objection to the modification of those covenants was on the basis that each of these stipulations imposes a positive obligation on the lessee.

The leaseholder argued that in substance the key restriction was that the premises were to be used as a “licensed victualling house only”, which was plainly negative, and that the remainder of the restrictions were “parasitic” on that and should be considered as part of a single composite prohibition on any use other than as licensed premises. The Deputy President rejected this submission and held that the covenants were positive. A keep open covenant is obviously positive: Co-Operative Insurance v Argyll Stores [1998 ] AC 1. As such, the Tribunal had no jurisdiction to modify those covenants under s.84, applying Blyth Corporation’s Application (1962) 14 P&CR 56, Westminster CC v Duke of Westminster [1991] 4 ER 136 and Blumenthal v Church Commissioners [2005] 1 EGLR 78.

As a result, the final order purported to change the parties’ relationship to a greater extent than Parliament has allowed. No question of prejudice to the leaseholder arose as the Tribunal lacked jurisdiction (paragraphs [88]-[89]). Applying Nicholls v Kinsey [1994] QB 600, the order was to that extent “inherently invalid”; it “bore the brand of invalidity on its forehead” and was therefore “always a nullity” (paragraph [90]). Those parts of the order which the Tribunal did not have jurisdiction to make were set aside (paragraph [91]).

The Deputy President indicated that the Tribunal may review its administrative arrangements and directions to applicants in leasehold s.84(12) applications, to avoid any repetition of the situation that a landlord does not know that a s.84 final order has been made (paragraph [93]).

Philip Rainey KC is a barrister at Tanfield Chambers. He was instructed by the objector, the London Borough of Southwark, in this case. If you would like any more information, please contact Alex Southern.