We look at the impact of community-led housing group's policies on the covenants in its leases - the written obligations between landlord and tenant.
Most mainstream lease covenants have developed over a number of years and the covenants in them been tried and tested in the courts. In addition to court interpretations, there are some covenants which are considered so important that the law steps in and implies certain terms, such as an obligation on a landlord to behave reasonably. Court decisions coupled with statute means that landlords and tenants can usually (although not always, as we will see) be certain that various covenants are enforceable.
Covenants where there is certainty are generally fairly key and also fairly standard – payment of rent, obligations on the transfer of a lease, forfeiture provisions. Less key and less standard covenants are far more open to question.
In practice, this means that a number of the covenants in CLH leases can be up for grabs. CLH lease provisions are far from standard and their covenants can look rather eccentric to an outside observer! Many CLH lease covenants are groundbreaking and untested; this means that landlords and tenants cannot be certain as to their enforceability.
A recent case has thrown some light as to what a court will look at when considering covenants and the decision could be helpful for CLH groups. In a recent case (Victory Place v Kuehn), a fairly standard (but not key) covenant was considered: the tenants were not allowed to keep any "dog, bird, cat or other animals, without consent". The tenants owned a dog, brought it into the property and the landlord obtained an injunction obliging the tenants to remove their dog. The tenants appealed and the court considered the enforceability of the covenant, with particular reference to the landlord's policy about pets and its duty to behave reasonably.
The court held that the landlord could not have a blanket policy preventing pets as this would be unreasonable. However, the landlord could take into account a policy about pets, set by the majority of the tenants provided that there was a reasonable process involved. In this particular case, a reasonable process had been followed and the tenants could not bring their dog into the property.
So, where covenants might be unenforceable on their own, a policy set by a majority of the tenants, may save the validity of the covenants provided there was a reasonable process involved. This probably means that there needs to be a reasonable process in both setting the policy and then making a decision on the basis of it, although the judgment does not go into such detail. CLH groups should ensure that their governance processes are in order, in both setting their policies and in decision-making. This will maximise the chances of a court upholding lease covenants designed to support those policies.
We can guide you as to which is the best route for ensuring affordability in perpetuity.
Community-led housing groups often ask us about how to keep properties affordable in perpetuity. It is not an easy thing to do as English law is designed to encourage and allow people to buy their own homes and then to sell them on, free of restrictions. However, there are options available such as shared ownership schemes, restrictive covenants and mutual home ownership societies. All of these options have their own risks, advantages and disadvantages but we have the experience to advise you on the options.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.