Right Of Occupation
In February 2002, Bakewell Ltd, by deed, granted a 15-year lease of a restaurant to Ahmed.
The lease contains, inter alia, the following covenants:
- (i) The tenant covenants to pay a quarterly rent of 1,500, in advance, to the landlord;
- (ii) The tenant covenants not to assign, sub-let or part with or share possession of the premises save with the landlord's prior written consent;
- (iii) The tenant covenants not to use the premises other than as a restaurant." The lease also contains a forfeiture clause, allowing Bakewell to re-enter and terminate the lease in the event of breach of any covenant. It has now come to the Bakewell Ltd's attention that Ahmed has allowed Zoe to occupy a part of the premises, where she is carrying on a courier service. Last week surveyors for Bakewell Ltd mistakenly sent out the next quarter's rent demand, which yesterday arrived at the restaurant, now occupied by Ahmed.
A 1. You are a trainee in the firm of solicitors consulted by Bakewell Ltd.
Your principal has asked you to research and prepare a short report (not more than 1,200 words) outlining the legal principles, and describing any particularly relevant and/or recent cases, as to (i) Whether the right to forfeit has been waived (ii) Whether the breaches are capable of remedy for the purposes of s.146 (1) Law of Property Act 1925 (iii) Whether a claim may be made against Zoe in respect of the wrongful user (iv) Whether Ahmed or Zoe can claim relief from forfeiture You should include in your report a list of all cases (with references) and statutory provisions consulted so that your principal can follow these up and give the appropriate advice.
2. Your principal has also asked you to carry out a separate piece of research to produce a report on cases in the last ten years in which the Landlord and Tenant (Repairs) Act 1938 has been considered or applied.
Report
(1)
In the instant case, Bakewell Ltd is the freehold owner and landlord of the property. Bakewell Ltd have granted Ahmed the right of occupation and use of the property. Ahmed therefore has a leasehold interest in the property and is the tenant. The essential requirements of a lease were propounded by Lord Templeman in Street v Mountford:
To constitute a tenancy the occupier must be granted exclusive possession for a fixed or periodic term certain in consideration of a premium or periodic payments.
The essential requirements for a lease are satisfied in the instant case. Furthermore, the lease has been granted by deed in accordance with section 27(2)(b)(i) of the Land Registration Act 2002 All of the formal requirements have thus been satisfied.
The substantive terms of the lease, determining the rights and obligations of the parties, are known as the covenants of the lease. Three leasehold covenants are attached to the lease and therefore would have been expressly agreed between the parties. These covenants include: the covenant to pay a quarterly rent of 1,500, in advance to the landlord; a covenant not to assign, sublet or part with or share possession of the premises save with the landlord's prior written consent, and; the covenant not to use the premises other than as a restaurant. It is submitted that the tenant has breached the latter two of these covenants.
The tenant, Ahmed, has granted a sub lease to Zoe, thus carving a tenancy out of his own leasehold estate. Although Ahmed is prima facie entitled to grant a sub lease, the lease contains a covenant against sub letting which may be qualified by the landlord's written consent. There is no evidence to suggest that there was written consent. The premises have also be covenanted for use only as a restaurant, which deems a courier service as wrongful use.
Since Ahmed is in breach of the covenants stated in the lease, Bakewell Ltd may be entitled to forfeit it, which will have the effect of bringing Ahmed's interest (and Zoe's) to an end. The procedure for forfeiture is governed by section 146 of the Law of Property Act 1925. Although section 146 allows the lessee to 'remedy the breach within a reasonable time,' the covenant not to assign or sub let is a negative covenant which cannot be remedied, and is therefore not applicable to this condition. Bingham LJ reiterates this point:
A covenant to do something can be substantially performed even if late. A covenant not to do something, once broken, is broken forever. As Lady Macbeth, referring to her breach of the sixth (negative) commandment observed: 'what's done is done.'
However, the courts have recently taken on a more flexible approach in that there are breaches that are 'once and for all,' and cannot be undone, and those that are of a continuing nature which can be stopped and any harm remedied. The question in this case is whether Ahmed's compliance with section 146 notice, coupled with appropriate monetary compensation and written notice of Zoe's occupation and business would 'have effectively remedied the harm which the lessors had suffered or were likely to suffer from the breach.' This point was reiterated in Bass Ltd v Morton Ltd where a breach is only irremediable if the landlord could show 'continuing damage' to himself once the breach had ceased and appropriate compensation been paid. Since a courier service is not an immoral purpose or an illegal purpose and would not cause damage to Bakewell's reputation, a courier service could be seen as a remedial breach.
The landlord forfeits the lease by means of exercising his right to re-entry, which simply means that he retakes possession of the land. Re-entry may involve physical entry of the premises, but service of possession proceedings is equivalent. Forfeiture is effective from the moment of re-entry, rendering the tenant a trespasser. Since the property should theoretically only be permitted for the restaurant, Bakewell does not need to adhere to section 2 of the Protection from Eviction Act 1977 which provides that the landlord cannot retake physical possession of a residential property until court proceedings enforce that right. However, most cases of peaceful re-entry of business premises will have to take place outside working hours. Furthermore, the House of Lords has expressed a dislike of peaceful re-entry, preferring the issue of a writ and reduction of incentives for landlords pursuing 'the dubious and dangerous method of determining the lease by re-entering the premises.' Even where re-entry is available, the landlord must comply with the statutory requirement to serve notice as required by section 146(1) of the Law of Property Act 1925.
However, one significant limitation to the availability of forfeiture is where the landlord has expressly or impliedly waived the tenant's breach of covenant. The general principles of a waiver were explained by Parker J in Matthews v Smallwood:
Waiver of a right of re-entry can only occur where the lessor, with knowledge of the facts upon which his right to re-entry arises, does some unequivocal act recognising the continued existence of the lease. It is not enough that he should do the act which recognises, or appears to recognise, the continued existence of the lease, unless, at the time when the act is done, he has knowledge of the facts under which, or from which, his right of entry arose.
The facts state that Bakewell mistakenly sent out the next quarter's rent demand. It could be argued that this indicates an intention to continue the lease despite the breach. This was found in Central Estates (Belgravia) Ltd v Woolgar (No 2):
If [the landlord] chooses to do something such as demanding or receiving rent which can only be done consistently with the existence of a certain state of affairs, viz, the continuance of the lease or tenancy in operation, he cannot therefore be heard to say that that state of affairs did not then exist.
As Cornillie v Saha suggests, there is no need for the landlord to intend to waive breach. Although a landlord will only be taken to have waived a breach if he had knowledge that it had actually taken place, he is affixed with the knowledge of his agent or employee by virtue of Metropolitan Properties Co Ltd v Cordery. Therefore, even though the demand for the next quarter's rent was 'mistakenly' sent by 'Bakewell's surveyors,' case law suggests that even if the landlord was not aware of the mistake himself, he would still have waived the breach, due to the actions of his surveyors. Nevertheless, despite the existence of the waiver preventing Bakewell from being able to forfeit the lease, Bakewell will still be entitled to claim damages.
However, a waiver will only be effective in relation to the breach to which it relates, as provided in section 148(1) of the Law of Property Act. Thus a waiver cannot protect a tenant against future similar breaches. In the instant case, Greenwich LBC v Discreet Selling Estates Ltd acts as authority to suggest that continuing breach of Zoe living at the premises and existence of the courier business would allow Bakewell to withdraw the waiver and seek forfeiture. If Bakewell has already served the requisite section 146 notice, he will not have to serve another.
Cases and Statutory instruments consulted:
Street v Mountford [1985] AC 809
Bass Ltd v Morton Ltd [1988] Ch 493
Expert Clothing Service and Sales Ltd v Hillgate House Ltd [1986] Ch 340
Bass Ltd v Morton Ltd [1988] Ch 491 at 541
Rugby School Governors v Tannahill [1934] 1 KB 695
Van Haarlam v Kasner (1992) 64 P & CR 214
Bilson v Residential Apartments Ltd [1992] 1 AC 494
Canas Property Co Ltd v KL Television Services Ltd [1970] 2 QB 433
Matthews v Smallwood [1910] 1 Ch 777 at 786, per Parker J
Central Estates (Belgravia) Ltd v Woolgar (No 2) [1972] 1 WLR 1048 at 1054, per Buckley LJ
Cornillie v Saha (1996) 28 HLR 561
Metropolitan Properties Co Ltd v Cordery (1979) 39 P & CR 10
Penton v Barnett [1898] 1 QB 278
Greenwich LBC v Discreet Selling Estates Ltd (1990) 61 P & CR 405
Stephens v Junior Army and Navy Stores Ltd [1914] 2 Ch 516
Section 27(2)(b)(i) Land Registration Act 2002
Section 146 Law of Property Act 1925
Section 2 Protection from Eviction Act 1977
Section 148 Law of Property Act
(2)
Report
The potentially far reaching provisions of the 1938 Leasehold Property Repairs Act, limits a landlord's right to claim damages or forfeiture for disrepair during a tenancy. The Act is essentially designed to prevent landlords from making a profit or imposing pressures on tenants, which hence, is consistent with The Landlord and Tenant Act 1927, section 18, which reads: damages during the lease are limited to 'the amount (if any) by which the value of the reversion is diminished owing to the breach' and that, on termination of the lease, no damages are available if the premises are to be pulled down. More specifically, the Act was passed to protect tenants of small houses under long leases from having to pay heavy bills for dilapidations under the threat of forfeiture for breach of covenant. However, it seems that the provisions of the 1938 Act rarely feature in litigation.
This Act, now extended by the Landlord and Tenant Act 1954, applies to all types of property (except for agricultural holdings) where leases have been granted for a period of more than seven years with a term of at least three years to run. It applies to leases created before or after the Act. It must be noted that the Act applies to covenants to keep or put a property in repair, and not for example, to cleanse premises or lay out insurance monies in the reinstatement of the premises. In the event of breach, the landlord must serve a section 146 notice on the tenant, to inform him that he has a twenty-eight day period in which to serve a counter notice on him claiming protection of the Act, by virtue of sections 1(2), (4) and 3 of the Act. When such a counter-notice has been served the landlord requires leave of the court before enforcing the covenant. However, Lord Denning warned in Sidnell v Wilson that 'in most cases leave will not be given for in most cases the reversion is not diminished much in value by the breach.' However, since this case Associated British Ports v CH Bailey has overruled Sidnell in that the landlord only has to show a prima facie case.
The importance of the requirement of leave was established in Smith v Spaul. It was held in that case that the landlord was not entitled to bring proceedings to enforce the notice without the court's permission. The mortgagee was not entitled to the additional protection afforded under section 1 of the Act, as the relationship of lessor/ lessee was unaffected by the mortgage. Another important case on the subject of leave is that of Landmaster Properties Ltd v Thackeray. In this case, an issue rose as to the correct date for the lessor to establish matters which must be proved pursuant to section 1(5) of the Act, before the Court could grant leave. The question was whether this should be, the date on which the lessor's application for leave has been issued, or the date on which the hearing subsequently takes place before the court. It was held that, due to the use of the present tense throughout section 1(5), the date of the hearing should be the date at which the section 1(5) grounds must be proved, since, if an earlier date had been intended, Parliament would have expressly stated it. The Court can only give the tenant leave to take these proceedings if he proves that one of the four provisions of the Act apply. These provisions are contained in section 5 of the Act. Examples of where these provisions have been applied are explained in the following two cases. In Sidnell v Wilson, Lord Denning held that leave should be granted for the purposes of section 5(a), as 'dry rot has invaded the premises.' In Associated British Ports v CH Bailey PLC, Lord Templeman explained leave in relation to section 5(d).
Research into the Leasehold Property (Repairs) Act 1938 and decided cases in the last ten years was more difficult that presumed at the outset of the enterprise. This was essentially due to the limited application of the Act in recent years, as noted in the article by Stevens-Hoare. Furthermore, there were a limited number of library articles on the subject for this reason and, due to the early enforcement of the Act, many of the library articles did not go back far enough to observe in-depth reasons for, and early commentaries on the Act's enforcement.
The research strategy adopted firstly involved a consultation of relevant primary material; essentially this was reading and understanding the provisions of the Leasehold Property (Repairs) Act 1938 statute. This statute was obtained from Blackstone's Statutes on Property Law. Finding and using this material had its intricacies, although the extent of material is reasonably finite. Therefore, after consulting the raw data from primary sources, it was necessary to research secondary material sources. Halsbury's Laws of England provided a pre-eminent secondary source, which provided an authoritative statement of the law in this area. Other textbooks consulted were of variable quality, since even the more up-to-date books on cases and materials only made reference to cases which were decided more than ten years ago. These textbooks were obtained from the University Law Library in the land law/ property section. The Legal Journals Index was used to obtain journal articles on the Act, but unfortunately yielded no appropriate results. For this reason, an internet search on the popular search engine, 'google', was commenced. A number of useful websites were found amongst an over-retrieval of irrelevant material. Upon researching the Internet, a useful supplement was read: Researching the legal web: a guide to legal resources on the Internet. All of the secondary information and research led me to the case law. The cases were researched and read in full and the doctrine of precedent noted, so that a personal perspective could be obtained. After reading the case law, the text books were re-consulted, as a matter of scholarly debate.
Textbooks:
Harpum, Megarry & Wade, The real law of property, Sweet and Maxwell, 6th edition, 2000
Holborn, Legal Research Guide, Butterworths, 2nd edition, 2001
Holmes & Venables, Researching the legal web: a guide to legal resources on the Internet, 2nd edition, 1999, Butterworths
Maudsley & Burn, Land law: cases and materials, Butterworths, 7th edition, 1998
Smith, Property Law cases and materials, Pearson: Longman, 2nd edition, 2002
Stevens & Pearce, Land law, Sweet and Maxwell, 3rd edition, 2005
Blackstone's Statutes on Property Law, Meryl Thomas
Electronic Sources:
Legal Journals Index
Stevens-Hoare, Blocking damages for disrepair- a 20th century provision to use in the 21stcentury,HardwickeBuilding, at Street v Mountford [1985] AC 809
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