Property Law UK

Denying title

Denial by pleading?

Crisp v Eastaugh
[2007] EWCA Civ 638

The landlord in this case argued that he was entitled to forfeit the lease because the tenant had denied his title in the pleadings. May LJ had this to say about that suggestion:

Abidogun v Frolam Healthcare Limited

Section 146 notice necessary

Abidogun v Frolan Health Care Ltd
[2001] EWCA Civ 1821.

Where the landlord seeks to forfeit on the basis that the tenant has denied his title to the land it is necessary to serve a s146 notice. (See para 48).

Disrepair

1938 Act

Landmaster Properties Ltd v Thackeray Property Services
[2003] EWHC 959; [2003] 35 EG 83.
(Beware the headnote to the case in the Estates Gazette, which is not correct).

When deciding whether or not the landlord has established one of the grounds set out in s1(5) of the Leasehold Property (Repairs) Act 1938 the relevant date is the date that the application for leave to bring the forfeiture proceedings is heard - not the date upon which the application is issued. The following passage in Dilapidations, The Modern Law and Practice was approved:

".. the wording of the grounds in section 1(5) of the Act suggests that the relevant date is the date when the court considers the matter, i.e. the date of the hearing. It is thought that this is the better view. The policy of the Act would certainly seem to support this being the correct date. Any injustice to the landlord which results from a change in circumstances since the issue of the application can be dealt with by an appropriate costs order. Where some or all of the grounds (a) to (d) existed at the date of the application but ceased to exist by the date of the hearing, then it may be that in appropriate circumstances the court would still be able to grant leave under ground (e)."
Immoral user

Capable of remedy – relief

CB Patel & PC Patel v K&J Restaurants Ltd
[2010] EWCA Civ 1211

Summary

A tenant was in breach of the covenant in the lease not to use the premises for immoral purpose, and not to underlet without consent, but was granted relief from forfeiture on terms.

Facts

The first defendants are the tenants (T) of premises under the terms of a 20-year lease granted in December 2004. Mr & Mrs Patel (L) were the freeholders. The premises consisted of restaurant premises on the ground and basement floors and a flat on each of the 1st, 2nd & 3rd floors. The restaurant was run by the second defendant MPC under a number of agreements with T.

The lease contained the following covenants on the part of the tenant:

The key dates were as follows:

13 May 2007, T and MPC enter into agreements under which MPC will manage the restaurant until 24 December 2009.

Early November 2007 T notified by police that flat being used as brothel.

Early February 2008, the police served notices on L & T that they had evidence that one of the flats was being used as a brothel.

End February 2008, L served notice on T under s146 of the Law of Property Act 1925 alleging breach of the covenant against immoral user stating that the breach was incapable of remedy and advising that L intended to enforce its rights 7 days later.

Early March 2008 T evicted the tenant of the flat used as a brothel.

Mid March 2008 T applies for relief.

End March 2008 L commences possession proceedings.

End March 2008 T changes the locks thus excluding MPC.

April 2008, L served s146 notice on T alleging breach of the alienation and immoral user covenants, requiring them to be remedied insofar as they were capable of being remedied.

May 2008 L commences possession proceedings re: April s146

Issues

The questions before the court were:

Was the February s146 notice valid?

Was the immoral user capable of remedy?

Had the agreements with MPC breached the alienation covenant?

Should relief be granted?

Decision

Section 146 notice and immoral user: The court referred to and reviewed the cases looking at the distinction between immoral user by a tenant which is irremediable and immoral user by a sub-tenant which may be remediable by the tenant where the tenant takes steps promptly on finding out about the use to end it. Where the tenant "shuts his eyes" to the true state of affairs, then he may not have taken the required prompt steps to remedy the breach and avoid forfeiture.

At first instance, the judge had held that T was entitled to wait for a letter from the police confirming the immoral user and in so doing had not “turned a blind eye” to the use. The Court of Appeal disagreed. While there was a range of options open to T to investigate, it was nonetheless clear that it was “incumbent on him, from the point of view of his obligations under the lease, to take some action to check the position and to do so promptly” following the November notification; he “needed to do something or to see that something was done, and soon”.

“To do nothing, as he did, was not consistent with his duties under his lease. It may be unfair to compare Mr Albright with Lord Nelson, putting his telescope to his blind eye in order not to see the signal that he did not wish to see. He may have been motivated by inertia or embarrassment rather than by not wanting to be told that which he really knew was happening. Even on that less culpable basis, his failure in this respect allowed the prostitution and the breach of covenant to continue for some three months or so.” (para 31)The 3-month delay by T in taking steps to ascertain whether there was indeed a breach of covenant and to deal with it, meant that the breach was indeed irremediable and that the February s146 notice was valid.

“It follows from this that the first section 146 notice was valid, because the breach was not capable of remedy. [T] had by then failed for a significant period to take any reasonable steps to investigate or check despite having reasonable grounds for suspecting that a brothel was being conducted in flat 2 in breach of the headlease, and, no doubt, of the terms of the sublease under which the flat had been let ...” (para 33) The first instance decision was overturned.

However, the Court of Appeal then looked at the question of relief from forfeiture. The judge at first instance had also looked at this in case his decision as to the validity of the s146 notice was wrong. The judge had found:

"The nature of Tottenham Court Road is well known. It is not a road where such a stigma could easily attach to particular premises." And he referred to the re-letting of the flat, and there being no suggestion that the new tenant has been pestered by clients of the former prostitute tenant. He added that the breach had indeed been remedied by the eviction of the flat tenant thus complying with:

"the essential rule ... that the applicant should remedy any breaches or pay compensation if they are remediable and where there is a breach of a negative covenant undertake to observe the covenant in the future."The Court of Appeal considered this to be a finding of fact with which it would not interfere as falling within the parameters of the judge’s discretion.

Alienation: T had entered into a number of different agreements with MPC, which managed the restaurant business: a consultancy agreement, a hire agreement and an option agreement. The Court of Appeal agreed with the judge at first instance that none of these documents created a sub-tenancy, but held that the management agreement breached the covenant against sharing occupation as it provided that, unless the agreement was terminated, T could not exclude MPC from the premises.

“MPC was not just entitled but obliged to run the business for the stipulated period, subject to the possibility of the agreement being brought to an end on either side. In order to do so, it had to have access to the premises. Unless the agreements had been terminated, [T] was not entitled to exclude MPC from access to the premises. While MPC was using the premises, it did so for its own profit and benefit. In those circumstances, [T] had brought about a position in which, although it had not excluded itself from the premises, it had given MPC an enforceable right to use the premises, and to do so for its benefit, not just as agent for [T]. Accordingly it had shared occupation of the premises with MPC. That was a breach of covenant.” (para 60)This breach had not been remedied, the Court of Appeal found, by the time of the second s146 notice, as MPC (following its exclusion in March) had successfully applied to court to be allowed back into the premises.

On the question of relief from forfeiture, the Court of Appeal disagreed with the judge at first instance – the breach had not been remedied. It would, the appeal judges held, have been appropriate for the court to make a conditional order for relief given that the judge at first instance had held that the breach was not wilful and that refusing relief would give L a financial advantage “and would subject [T] to a corresponding financial disadvantage, out of all proportion to the breaches or to any damage resulting from them, there being no lasting damage to [L]” (para 89)

The court held that conditional relief from forfeiture would have been the appropriate order providing for:

T to ‘remedy’ the breach by securing MPC’s departure from the premises (although in fact MPC had vacated by the date of the appeal hearing)

T to pay L’s costs on an indemnity basis

T to give suitable undertakings to L not to commit any further breaches of the either covenant

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