Landlord and tenant – Forfeiture – Section 168 of Commonhold and Leasehold Reform Act 2002 – Claimant landlord granting first defendant long lease of premises for use as shop – Defendant converting shop into flats without consent of claimant as required by lease – Claimant purporting to forfeit lease – Lease being assigned to second defendant – Whether claimant entitled to forfeit lease – Whether defendant assignee entitled to relief against forfeiture – Claim allowed – Counterclaim allowed
The claimant landlord owned the freehold of 106/106A Greyhound Lane, Streatham, London, a three-storey building comprising two flats above shop premises. In 2015, it let the ground floor on a 999-year lease to the first defendant. The lease contained a covenant not to use the demised premises other than for shop premises without the written consent of the claimant, such consent not to be unreasonably withheld.
Soon after the lease was granted, the first defendant converted the shop premises into two studio flats without permission. The claimant discovered that the property had been converted before either of the flats had been let and served a notice under section 146 of the Law of Property Act 1925 to terminate the lease for a breach of its terms. When the claimant issued forfeiture proceedings, the first defendant promptly assigned the lease to a third party, which then sold the lease to the second defendant which was unaware of the forfeiture. It was joined as a party to the proceedings. The first defendant was debarred from defending the claim as it failed to comply with an unless order.
The second defendant counterclaimed for relief against forfeiture. It argued that, as the flats were residential, by virtue of section 168 of the Commonhold and Leasehold Reform Act 2002, no section 146 notice could be served until there had been either an admission or a determination of breach of covenant. Alternatively, if the section 146 notice was valid, the claimant could not reasonably withhold consent for residential use.
The claimant argued that section 168 did not apply because there were multiple residential units in the property and the section applied to the “long lease of a dwelling”. In any event, it would have been reasonable for the claimant to withhold consent for residential use, as the change in use would be more onerous for the claimant than originally envisaged.
Held: The claim was allowed. The counterclaim was allowed.
(1) Section 168 of the 2002 Act provided that a section 146 notice could not be served by a landlord “under a long lease of a dwelling” unless there had been an admission of breach, or breach had been determined by a court or tribunal. A “dwelling” was defined as in the Housing Act 1985, which included premises “occupied or intended to be occupied as a separate dwelling”: section 169.
In order to establish that particular premises were intended to be occupied as a separate dwelling, prima facie, it had to be shown that the two parties to the contract had respectively let and taken the premises in question as a separate dwelling. Where the terms of the tenancy provided for or contemplated the use of the premises for some particular purpose, that purpose was the essential factor, not the nature of the premises or the actual use made of them. The key was the purpose of the letting: Wolfe v Hogan [1949] 2 KB 194 followed. Cheryl Investments Ltd v Saldanha [1978] 2 EGLR 54 and Patel v Pirabakaran [2006] EWCA Civ 685; [2006] 3 EGLR 23 considered.
In the present case, that purpose was plainly for use as a shop. The property was laid out as a shop, with a shop front, and there was a covenant preventing user other than as a shop in the absence of any other approved user. That purpose did not change by reason of the residential conversion as there was no consent to such a change of use, whether express or to be inferred.
(2) The reference in section 168 of the 2002 Act to the “long lease of a dwelling” was to a dwelling in the singular so that the present lease, if it was treated as a lease of residential property at all, was not within section 168 because it comprised two flats.
In Horford Investments Ltd v Lambert [1976] Ch 39, on which the claimant relied, the question was whether leases of two houses gave rise to Rent Act protected tenancies where each house was split into residential flats. The Court of Appeal held that there was no protected tenancy of either house because of the plurality of dwellings.
In Oakfern v Ruddy [2006] 3 EGLR 30, on which the defendant relied, the Court of Appeal held that the tenant of a long lease of three residential floors of a building was a “tenant of a dwelling” within section 18(1) of the Landlord and Tenant Act 1985, defined as “a building or part of a building occupied or intended to be occupied as a separate dwelling…”.
The language of section 168 was more akin to that in the Rent Acts considered in Horford than to section 18(1) of the 1985 Act, considered in Oakfern. The key phrase in Horford was “let as a dwelling”, which was very similar to “long lease of a dwelling” in section 168. The focus in each was on the nature of the letting. The question was whether the lease was of a dwelling. The key phrase in Oakfern was “tenant of a dwelling”. The focus was not on the letting but on the tenant. But both section 168 and the Rent Acts were concerned with the security of tenure of homes: Horsford and Oakfern considered.
It followed from the conclusion that section 168 did not apply that the section 146 notice was valid and, breach of covenant being conceded, the lease was forfeit.
(3) The right to forfeit was in the nature of security for the performance of the tenant’s obligations; there was a concern to put the landlord back into the position it would be in but for the breaches of covenant. This was not a case where consent could not reasonably have been refused. The change in use would change the landlord and tenant relationship to be more onerous for the claimant than was envisaged at the time of letting. It would have been reasonable for the claimant to refuse consent.
However, overall, the defendant’s conduct at, and after, purchase was not such as to warrant a refusal of relief. Its claim for relief against forfeiture would be granted on terms that the defendant reinstate the property as a shop and make a payment representing a share of the rent during the period when the flats were let in breach of covenant.
David Peachey (instructed by Direct Access) appeared for the claimant; Alex Shattock (instructed by Teacher Stern LLP) appeared for the defendant.
Eileen O’Grady, barrister
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