Compromise of lessor’s proceedings for forfeiture – Terms discontinuing action and transferring lease to lessor – Lease merging with reversion – Whether sureties liable for rent accruing after date of issue of proceedings and before assignment of lease to lessor
By a lease dated October 30 1981 between the then landlord, four named sureties and IL Ltd as tenant, premises in Princes House and Princes Arcade, Piccadilly, London W1, were demised to IL Ltd for a term of 26 years. The lease provided, inter alia, for forfeiture should the tenant fail to observe its covenants, including a covenant not to assign, and for re-entry by the landlord in the event (among other things) that the tenant should “suffer a receiver to be appointed”. The landlord gave IL Ltd licence to assign the lease to Capital City Leisure Ltd and an additional surety was joined. Capital City was registered as the proprietor of the lease. In July 1985 Capital City executed a debenture in favour of Lloyds Bank plc. On April 25 1991 Ivory Gate Ltd was registered as the freehold proprietor of the premises. At all material times the reversion was vested in Ivory Gate and the lease in Capital City, the tenant.
In June 1993 Lloyds Bank plc, acting under the terms of the debenture, appointed administrative receivers over the tenant and a notice under section 146 of the Law of Property Act 1925 was served. A writ claiming forfeiture was issued on July 13. On August 24 the tenant, acting by its receivers, served a defence and counterclaim for relief following which various meetings were held with a view to reaching a compromise. On September 13 the rent for the current period was determined at £175,000. Shortly thereafter an order was made by consent adding Lloyds Bank as a defendant to the forfeiture action.
Negotiations took place for the settlement of the issues raised resulting in the execution of a deed dated February 18 1994 between (1) Ivory Gate, (2) the receivers, (3) the tenant and (4) Lloyds Bank. The deed, having recited that the bank had on the same day transferred the demised premises to Ivory Gate, provided that Ivory Gate would: (a) take no steps to enforce its rights under the lease against the other parties to the deed; and (b) would retain all its rights and remedies against the sureties. On the same day notice of discontinuation of the forfeiture action was given to the court. On July 25 1994 Ivory Gate issued a writ claiming from the sureties arrears of rent, insurance premiums and service charges due from the tenant up to February 18 1994. The judge concluded (see [1996] PLSCS 90) that Ivory Gate’s claim against the sureties failed and Ivory Gate appealed.
Held The appeal was allowed.
1. The service of a writ claiming forfeiture and possession of demised premises did not by itself bring the lease to an end (dictum of Lord Templeman in Billson v Residential Apartments Ltd [1992] 1 AC 494 at p535 explained). It operated as an unequivocal election by the landlord to rely on a breach of covenant or condition as a forfeiture: see Driscoll v Church Commissioners for England [1957] 1 QB 330 per Lord Denning at p340. In the instant case there was no doubt that the lease was not forfeited; it came to an end only by merger when it was acquired by the plaintiff.
2. The deed executed on February 18 1994, discontinuing the forfeiture action and transferring the lease, free from the claim for forfeiture, to the plaintiff had the effect of ensuring that the liabilities of the sureties, and the additional surety to the plaintiff up to February 18 1994, remained unaffected.
Stephen Jourdan (instructed by Olswang) appeared for the appellant; Michael Roberts (instructed by Stephen Mitchell & Co) appeared for the second respondent; the first respondent did not appear and was not represented.
