Leasehold series – Tenant Covenants

Unseen Hurdles: How Tenant Covenants May Hinder Your Work-from-Home Bliss

How tenant covenants can impact your ability to work from home

Many household names have started from humble beginnings, specifically within  their owner’s homes – Amazon, Apple and Microsoft respectively started in each of their founder’s garage. Their formative days started in their homes, as a base to get their feet off the ground. Imagine an instance whereby these companies never came to be, not from lack of funds, and not because it wasn’t a good idea. But a feature of leaseholds that many conveyancers and real estate property lawyers come across everyday – restrictive covenants.

Key precedents arising throughout 2023 have highlighted the indefinite understanding surrounding those who might use their residential space as a place to develop a business idea or work from home. Making it evermore important for conveyancers and clients to understand and be aware of how restrictive covenants will impact their ability to work from home. This article explores the functionality of restrictive covenants, applying a central focus on the restriction of tenants using leasehold properties as a place of work.

Tenant covenants

Tenant covenants are covenants, obligations and agreements on the part of the tenants in a lease to be observed and performed. They can vary across leases, from restrictions on keeping pets on the premises, to the colour paint used on your front door and restrictions on using the premises as a trade or business.

Tenant covenants offer clarity, and confidence for both landlord and tenant, clearly outlining the scope of accepted and restricted activities under the lease, the relevance of which vary depending on what the tenant’s needs are. Being aware of the tenant covenants that affect a property can avoid confusion and any expensive and arduous legal recourse.

An intersection – tenant covenants and the ability to work from home

There is a very common covenant affecting both leasehold and freehold properties, this puts a restriction on the use of the premises as a “trade or business” and “shall not be used for any other purpose other than as a private dwelling.” Increasing hybrid working trends across most industries, pose major questions on how tenants can work within their homes whilst still abiding by the appropriate confines of enforced tenant covenants of this nature.

Following Covid-19, the ensuing lockdown and work from home guidance from the government, ONS reported that levels peaked from mid-April to mid-June of 2020 with 49%, almost half of working adults working from home. This figure only decreased to 38% in 2022, when work from home guidance from the government was lifted, with around 40% of adults working from home at some point in the last seven days from the period of January to February 2023.

Indubitably this increase of people working from home would lead to new legal issues, that were not a point of contention pre-pandemic. In the case of Hodgson v Cook, the applicant, Mrs Hodgson, was conducting her beauty therapy business from the shed on her property.

Hodgson’s intention was to vary the covenants to permit use of the shed for the purpose of running the beauty therapy business. The Upper Tribunal decided that it could not vary the  covenant as Hodgson exclusively ran the business from home and it did not constitute “relevant tasks that are consistent with ordinary residential use” and undertaken “in connection with a business which is mainly carried on elsewhere.”

The Upper Tribunal’s decision went further on to say that the Estate where the property was located was not designed in mind for continued use of the premises as the density of the development means any noisy or unsightly use of one property is likely to have an impact on the covenant of quiet enjoyment of the neighbouring homes. Additionally, the modification of the covenant would foster uncertainty on what might be permitted in future for other residents wanting to modify the covenants and bringing difficulty to justify enforcement of the restrictions against other residents.

Hodgson v Cook is in regards to a freehold premises, the lesson to discern from the case is, the protection of the interests of neighbours and the people in the vicinity is of utmost importance and should not be disregarded. This sentiment could be applied to leasehold cases too.

The consequence of breaching tenant covenants

The tribunal’s ruling in Hodgson v Cook has emphasised the lack of definitive understanding of what may constitute the appropriate level someone may utilise a private dwelling as a place of work, making it evermore important for both conveyancers and clients to understand these risks early on in the leasehold  transaction. Most importantly, it erodes the certainty and clarity that these mechanisms were created to implement.

This uncertainty should flag to conveyancers considering the risks posed to tenants if they are subject to breach. If tenant covenants are broken or breached during the term of a lease, the Landlord has a right of forfeiture or re-entry. This means that the lease can be terminated.

Forfeiture is often seen as a draconian measure and Parliament has introduced restrictions and pre-conditions before the lease can be forfeited. Therefore, though re-entry is possible for non-payment of sums of money over a certain amount; all other breaches, including breach of tenant’s covenants, require either the tenant to admit to the breach or the Leasehold Valuation Tribunal has determined there has been a breach.

However, some Landlords may not even be aware of a breach of a tenant covenant, but a neighbour may have been. In most leases, there is often a landlord’s covenant that requires [them] to take reasonable steps to enforce any covenant entered into by the tenant or the other tenants in the Building. In practice, this would allow a tenant who is unhappy with a fellow tenant’s (business or other) activities which may be in breach of tenant covenants, to compel the Landlord to enforce the tenant covenants, which they may not have felt the need to previously enforce.

Final Thoughts

The sentiment taken from Hodgson v Cook, is that a person working at home ever so often “alone on a laptop in a spare room” is likely to be treated differently in the context of breach of covenant to the person running a business with customers visiting the property.

Some Landlords have already taken this into consideration, with a residential lease from 2020 containing the tenant covenant:

“3.9.4 Not to use the Property or any part of them for any purpose other than as a private residential dwelling. Provided that home working from the Property which does not adversely affect the amenity of the residential use of the Estate shall not be in breach of this covenant.”

There may be more cases like Hodgson v Cook in the future and this makes it evermore important for conveyancers, legal teams and clients to fully understand the restrictive covenants and how it might impact their ability to work from home.

Akosua Bonsu – Paralegal at Orbital Witness

This article was submitted to be published by Orbital Witness as part of their advertising agreement with Today’s Conveyancer. The views expressed in this article are those of the submitter and not those of Today’s Conveyancer.

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