Covenant restricts Underletting; what does it mean?

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    Covenant restricts Underletting; what does it mean?

    Dear Forum

    Your advice would be gratefully appreciated.

    I recently inherited a property in a warden controlled complex run by a national company [the freeholder]. I want to rent the flat out to appropriately qualified people, but the freeholder is using the following term in the lease to prevent this:


    (9) (a) not to underlet or part with possession of the demised premises or any part thereof and not to assign the whole of the demised premises except either
    (i) to a qualifying person approved by the Association (such approval not to be unreasonably withheld or delayed) or

    (ii) to any person intending to purchase this lease for the purpose of allowing a third party who is a qualifying person approved by the association (such approval not to be unreasonably withheld or delayed) to occupy the Demised Premises SUBJECT TO such person or persons entering into a Deed of Covenant in the form set out in the Appendix hereto


    I interpret this as explicitly permitting 'underletting' since it is a single clause in the lease agreement. I have received advice from a lawyer that my interpretation is correct however the freeholder has decided to continue with their perverse interpretation that their are two elements to the clause, i.e. one relating to subletting and the second only relating to sale of the property.

    I would appreciate any thoughts on
    (a) whether my interpretation is correct;
    (b) how I should proceed from here; and
    (c) whether I am looking at a compensation issue since a prospective tenant has withdrawn due to the delays incurred.


    Grateful for any thoughts on this,

    HA

    +++++++++++++++

    #2
    Hmm, interesting.

    On first glance I can see how the argument could be made both ways. What does the rest of clause 9 say?

    Preston

    Comment


      #3
      Originally posted by Preston View Post
      Hmm, interesting.

      On first glance I can see how the argument could be made both ways. What does the rest of clause 9 say?

      Preston
      sub para (b) deals with notifying the freeholder if the leaseholder wishes to assign the whole of the demised premises.

      sub para (c) deals with payment on completion of the any assignment.


      I would also add that [taking a logical interpretation] if the lease clause is interpreted as per the freeholder then under 9 (a) (ii) the property could still be sublet but only if I sold it first and only by the new owner! Thus my comment that I consider it a perverse interpretation.


      Thanks for your initial thoughts. Happy to provide any further information.


      HA

      Comment


        #4
        Hi

        I do you see your point about 9 (a) ii, but technically it would be possible for someone to purchase the dwelling for a third party without themselves giving up possession - as you probably know, subletting by definition involves the giving of possession to someone else. To illustrate by example, if one of the qualifying conditions is that the flat is occupied by someone over 60, it might be bought by a person who is under 60 who lives with someone who is over that age.

        Anyway, I do think you make some good points and on balance I would certainly lean in your favour - namely that sub clauses (i) and (ii) appear to apply to the whole of (a) and not just to part of it. At best though, its not very well drafted!

        In my day job I have dealt with a number of these schemes over the years and prohibitions against sub letting are not uncommon, so the intention in this agreement is not unusual, even though I dont think they have put it into effect very well.

        So, coming back to your questions (b) and (c) my view would be:

        (b) use their formal complaints procedure to challenge their decision, in addition to any legal action you may wish to take (but the former should be relatively quick). As a housing associaton their procedure will be published and should have fairly tight timescales.
        (c) if you win the point, then compensation could certainly become an issue, although your biggest task will be proving that you have indeed lost a sale and that it would have been for greater value than you have now or will be able to achieve.

        Good luck!

        Preston

        Preston

        Comment


          #5
          It is as if the lease were drafted as follows:

          1.1 In this clause:

          1.1.1 "Qualifying Person" means a person approved by the Association (such approval not to be unreasonably withheld or delayed)

          1.1.2 "Another Person" means a person intending to purchase this lease for the purpose of allowing a third party who is a Qualifying Person to occupy the Demised Premises

          1.2 Not to underlet or part with possession of the demised premises or any part thereof and not to assign the whole of the demised premises except either to a Qualifying Person or Another Person

          Comment


            #6
            hmm.... its an interesting thread I must say. Well.... I just want to say this Christmas may all your wishes get fulfilled. Merry Christmas and Happy New Year!

            Comment


              #7
              underletting dispute

              Preston,

              Thank you for your thoughts on this. If I may add one of my own on your first

              Originally posted by Preston View Post
              Hi

              I do you see your point about 9 (a) ii, but technically it would be possible for someone to purchase the dwelling for a third party without themselves giving up possession - as you probably know, subletting by definition involves the giving of possession to someone else.
              The point of logic that I am making here is that under 9 (a) (ii) a "new" owner would be allowed to underlet - I don't think the matter of consideration is relevant, i.e. it can be for a rent or rent free - provided the appropriate covenant is signed (this ensures the lessees 'tenant' is a qualifying person). It is therefore perverse not to allow a "current" owner to underlet.

              Also IMHO, as a point of legal drafting, the freeholders assertion that the sub-paras (i) & (ii) only apply to the 'second element' of the main body of the clause [9 (a)] would rather fall down if there were three elements in the clause rather than two. It is for this reason that only a single issue should be dealt with in a single paragraph - in this case the conditions jointly attached to underletting or sale. Do you have a view?

              On the point of loss, I had a qualifying tenant who was ready to move in at the beginning of December. Therefore the loss can be readily ascertained.


              Have a good Christmas,

              HA

              Comment


                #8
                underletting dispute

                Originally posted by Lawcruncher View Post
                It is as if the lease were drafted as follows:

                1.1 In this clause:

                1.1.1 "Qualifying Person" means a person approved by the Association (such approval not to be unreasonably withheld or delayed)

                1.1.2 "Another Person" means a person intending to purchase this lease for the purpose of allowing a third party who is a Qualifying Person to occupy the Demised Premises

                1.2 Not to underlet or part with possession of the demised premises or any part thereof and not to assign the whole of the demised premises except either to a Qualifying Person or Another Person

                Lawcruncher

                This is the interpretation being put on the clause by the freeholder. I feel there is an internal inconsistency in this interpretation, since it allows a "new leaseholder" to underlet but not the "current leaseholder".

                Also see my comments to Preston on the application of multiple clauses in legal documents.

                Let me know if this argument changes your opinion?


                Thanks for your thoughts,


                HA

                Comment


                  #9
                  Originally posted by Heretic Auditor View Post

                  The point of logic that I am making here is that under 9 (a) (ii) a "new" owner would be allowed to underlet - I don't think the matter of consideration is relevant, i.e. it can be for a rent or rent free - provided the appropriate covenant is signed (this ensures the lessees 'tenant' is a qualifying person). It is therefore perverse not to allow a "current" owner to underlet.

                  Also IMHO, as a point of legal drafting, the freeholders assertion that the sub-paras (i) & (ii) only apply to the 'second element' of the main body of the clause [9 (a)] would rather fall down if there were three elements in the clause rather than two. It is for this reason that only a single issue should be dealt with in a single paragraph - in this case the conditions jointly attached to underletting or sale. Do you have a view?

                  Hi

                  On the issue of 9 (a) (ii), I may be missing your point (in which case please say!), but my point was that this particular sub clause refers to occupation and not to underleting. A letting is a tenancy, which by definition involves the tenant having exclusive possession and paying a rent. So - and dont forget I lean in favour of your interpretation of the clause as a whole - it could be argued that this particular sub clause was intended to deal with certain kinds of licence, such as the example I gave in my earlier post.

                  With regard to your second paragraph quoted above, not sure I quite follow the argument why would three elements in the clause make a difference? Wouldnt it depend how the clause was drafted?

                  By the way, I probably should have asked you to give a bit more detail about the deed of covenant. What does it say?

                  Merry Christmas to you too.

                  Preston

                  Comment


                    #10
                    Preston

                    please don't think I am arguing against your POV here. I'm only rehersing arguments that might be applied to challenge the Freeholder.

                    I am very grateful that you take the time to consider my issue and all its nuances.


                    HA.

                    Comment


                      #11
                      Hi,

                      and dont worry about that, please do put alternative views, its half the fun. I'm fairly new to this site (minor op recently so lots of time on my hands!) but I dont think you will find a single regular contributor who gets things right every time - or at least who hasnt been challenged by others as to their accuracy. In fact, very often there isnt a right answer at all, or at least not until a matter has been decided by the courts.

                      And by the way, I could be wrong, but I think Lawcruncher is agreeing with your interpretation too isnt he? Only ask because you seemed to assume otherwise in one of your earlier posts?

                      Preston

                      Comment


                        #12
                        I am not sure I follow you. My interpretation allows you to sublet to a qualifying person.

                        To go back to the original wording:

                        (9) (a) not to underlet or part with possession of the demised premises or any part thereof and not to assign the whole of the demised premises except either

                        (i) to a qualifying person approved by the Association (such approval not to be unreasonably withheld or delayed) or

                        (ii) to any person intending to purchase this lease for the purpose of allowing a third party who is a qualifying person approved by the association (such approval not to be unreasonably withheld or delayed) to occupy the Demised Premises SUBJECT TO such person or persons entering into a Deed of Covenant in the form set out in the Appendix hereto


                        Just follow the red.

                        The clause is not very well drafted but it prohibits:

                        A. underletting

                        B. parting with possession

                        C. assigning

                        except to

                        1. an approved qualified person; or

                        2. any person intending to purchase to allow an approved qualified person to occupy

                        Some possibilties that are allowed are clearly nonsensical. Follow the red again:

                        (9) (a) not to underlet or part with possession of the demised premises or any part thereof and not to assign the whole of the demised premises except either

                        (i) to a qualifying person approved by the Association (such approval not to be unreasonably withheld or delayed) or

                        (ii) to any person intending to purchase this lease for the purpose of allowing a third party who is a qualifying person approved by the association (such approval not to be unreasonably withheld or delayed) to occupy the Demised Premises SUBJECT TO such person or persons entering into a Deed of Covenant in the form set out in the Appendix hereto


                        The whole clause operates like this ("dealing" includes subletting, parting with possession and assigning):

                        a) it says no dealings are allowed except
                        b) dealings with specified persons who are:
                        i) approved qualified persons, and,
                        ii) someone buying to allow an approved qualified person to occupy

                        Clause 9 (a) (ii) does not directly deal with underletting, it just specifies a class of person to whom the lease may be assigned (as well as underlet!). The point you are making about new and current tenants does not therefore arise.

                        It would have been much better drafting if it had said:

                        1. Not to assign the premises except to an approved qualified person or to a person who intends to allow the premises to be occupied by an approved qualified person

                        2. Not underlet or part with possession of the premises except to an approved qualified person


                        which is what I think they meant

                        Comment


                          #13
                          Lawcruncher

                          Thank you very much for your clarification. I did misinterpret your original post.

                          As someone who was previously involved in drafting primary legislation I would never have allowed such a poorly drafted clause to go forward. We always attempted to ensure one clause dealt with one issue. In this case one clause should deal with underletting and one clause with assignment as per your final section.

                          Historically I suspect what has happened here is that the original freeholder (the builder) was content to allow subletting, but this disagreed with current freeholder's general poicy of not subletting and they have applied this somewhat perverse interpretation in order to maintain that policy.

                          Once again thank you for your effort (and clarity) in interpreting this clause.


                          Have a good New Year,

                          HA

                          Comment

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