Landlord and tenant — Rent arrears — Liability of original tenant — Disclaimer of lease — Payment of rent by related company — Whether leases determined by taking possession following disclaimer — Whether leases determined by forfeiture
By two leases
the defendants were granted 28-year terms of adjoining commercial premises. In
1984 both leases were assigned to CBL. In February 1987 CBL were dissolved under
section 652 of the Companies Act 1985 and the leases became vested in the Crown
as bona vacantia; the plaintiff landlords were unaware of these events.
The leases were disclaimed by the Treasury Solicitor in April 1993. CBTS,
controlled by the same person who controlled CBL and who were tenants in the
same building, paid the rents under the leases from about 1989 (and possibly
from 1987) until September 1990. In due course liquidators were appointed in
respect of CBTS. The landlords’ claims for arrears of rent in the two
consolidated actions, one against the defendants as original tenants, and the
other against the defendants as being liable under an indemnity, were dismissed
by the county court on the ground that the leases had terminated, either by forfeiture
or as a result of the landlords having entered upon their own property. The
landlords appealed.
landlords chose to resume possession by reletting to CBTS shortly after the
dissolution of CBL. The person behind both CBL and CBTS treated CBL as carrying
on business from the premises. The rent demands continued to be addressed to
CBL. The landlords did not take possession upon the disclaimer of the leases so
that the latter ended under the proposition of Lord Nicholls in Hindcastle
Ltd v Barbara Attenborough Associates Ltd [1996] 1
their conduct was not equivocal. There was no constructive re-entry because
there was no evidence that the landlords decided to terminate the leases and
install a new tenant.
The following
cases are referred to in this report.
Ashton v Sobelman [1987] 1 WLR 177; [1987] 1 All ER 755; [1987] 1
EGLR 33; (1987) 281 EG 303
Bayliss v Le Gros (1858) 4 CBNS 537
Hindcastle
Ltd v Barbara Attenborough Associates Ltd
[1997] AC 70; [1996] 2 WLR 262; [1996] 1 All ER 737; [1996] 1 EGLR 94; [1996]
15 EG 103, HL
London
& County (A&D) Ltd v Wilfred Sportsman
Ltd [1971] Ch 764; [1970] 3 WLR 418; [1970] 2 All ER 600; (1970) 21
P&CR 788, CA
This was an
appeal by the plaintiffs, Cromwell Developments Ltd, from a decision of Judge
Paul Clark in Huntingdon County Court, in two consolidated actions in which
they claimed arrears of rent from the defendants, William Hamilton Stewart
Godfrey, Roger Malcolm Keyworth, Steven John Lowe, Barry Lendon Wright, John
Laccohee Bush, David Michael Radford and Kevin Norton Woodthorpe.
John West
(instructed by Blake Lapthorn, London agents for Payne Skillington, of
Coventry) appeared for the appellants; Nicholas Dowding QC (instructed by
Kingsford Stacey, London agents for Leeds Day, of Huntingdon, for the
respondents in the first action, and by Crane & Walton, of Leicester, for
the respondents in the second action) represented the respondents.
Giving the
first judgment, OTTON LJ said: This is an appeal by the plaintiffs in
two consolidated actions against the orders of Judge Paul Clark in Huntingdon
County Court when he dismissed the plaintiffs’ claims.
The actions
were for rent and damages under leases of two suites of offices known as 32A
and 32B Chequers Court, Huntingdon.
By a lease
dated November 20 1978 the defendants acquired a lease of 32A for a term of 28
years from July 1 1973. By a lease dated June 20 1975 there was a lease of 32B
to the defendants in person for 28 years from the same starting date. On August
17 1976 this second lease was assigned to Day & Son. On May 16 1984 there
were assignments of both leases to Chequers Bureau Ltd (CBL).
On February 24
1987 CBL were dissolved under section 652 of the Companies Act 1985 for failure
to make statutory returns. Consequently, by virtue of section 654, the leases
became vested in the Crown as bona vacantia. The fact of the dissolution
was not communicated by the Registrar of Companies to the plaintiffs as
landlords. The Treasury Solicitor did not inform the plaintiffs either of the
dissolution or that the leases had become vested in the Crown. It is
acknowledged by the defendants, and the judge found as a fact, that the plaintiffs
were unaware of these events. The leases remained vested in the Crown until
they were disclaimed by the Treasury Solicitor in April 1993.
A second
company, Chequers Bureau (Technical Services) Ltd (CBTS), were the tenants of
unit 28 in the same building. Notwithstanding the dissolution, CBL continued in
business and CBTS paid the rent of 32A and 32B. It is not certain when this
arrangement began, but the records show that certainly by 1989 the rent for the
two units was being paid regularly by CBTS. CBL and CBTS carried on the
business of management consultants. A Mr Cole was a director of both companies
and the surety for each company. The rent for all three units was paid on this
basis until September 1990. Thereafter, arrears began to arise between September
1990 and December 1992.
The plaintiffs
commenced proceedings against the surety (Mr Cole) of both companies. In August
1991 the plaintiffs obtained judgment, which was unsatisfied in respect of 32A
and 32B. Two months later liquidators were appointed of CBTS. Thereafter, the
plaintiffs called upon the original tenants (the defendants in both actions) to
pay rent and other charges by virtue of their liability as original tenants. In
May 1993 a new lease for 32A was granted by the plaintiffs to another company.
In June 1995 the plaintiffs relet 32B. The plaintiffs then commenced these two
actions claiming £16,400 and £19,120 under the leases, plus unliquidated
damages and interest. The relevant part of the defence in both actions stated:
5. On 24th
February 1987 the said Assignee, Chequers Bureau Limited, was dissolved
whereupon the Plaintiffs became entitled (pursuant to Clause 6 of the Lease
which contained a proviso for re-entry in the usual form) to treat the term
created by the Lease as forfeit.
6. Shortly
thereafter the plaintiffs re-let the premises to a company known as Chequers
Bureau (Technical Services) Limited which thereafter went into possession of
the premises and paid rent to the plaintiffs, which the plaintiffs accepted for
a number of years.
7. By
re-letting the premises as aforesaid and/or by treating Chequers Bureau
(Technical Services) Limited as the tenant thereof, the plaintiffs treated the
term created by the Lease as being forfeited, alternatively as having been surrendered,
and/or acted in a way consistent only with the Lease having been determined and
the plaintiffs thereby having become entitled to possession of the premises.
Thus, the
issue that the judge had to determine was whether the respondents remained
liable to the appellants under the terms of the two leases, where the
appellants were the original landlords and the respondents had (in one case)
been original tenants and (in the other case) were liable under an indemnity
to, and stood in the shoes of, the original tenants. The judge, in essence,
held that the leases had terminated either by forfeiture at common law or as a
result of the appellants having ‘entered upon his own property’. The judge did
not make any findings on the respondents’ further alternative submissions of
surrender or estoppel.
The law
It is common
ground that a lease that has vested in the Crown is not exempt from
determination by forfeiture (eg for non-payment of rent) and that forfeiture
may be effected by physical re-entry, which itself may be constructive.
Forfeiture for
breach of covenant or condition otherwise than for non-payment of rent would
require the service by the landlord upon the Crown of notice under section 146
of the Law of Property Act 1925. Although clause 6 of the tenancy agreement
provides for the landlord’s right of re-entry for breach of covenant, no such
right became exercisable by the landlord as this right did not cover
dissolution (as distinct from liquidation, either voluntary or compulsory).
Section 657 of the Companies Act 1985 deals with the effect of a Crown
disclaimer and provides:
(1) Where
notice of disclaimer is executed under section 656, as respects any property,
that property is deemed not to have vested in the Crown under section 654.
(2) As
regards property in England and Wales, section 178(4) and sections 179 to 182
of the Insolvency Act shall apply as if the property had been disclaimed by the
liquidator under the said section 91 immediately before the dissolution of the
company.
Section 178 of
the Insolvency Act 1986 provides:
(4) A
disclaimer under this section —
(a) operates
so as to determine, as from the date of the disclaimer, the rights, interests
and liabilities of the company in or in respect of the property disclaimed; but
(b) does not,
except so far as is necessary for the purposes of releasing the company from
any liability, affect the rights or liabilities of any other person.
Thus, a deemed
disclaimer in 1987 does not affect the rights and liabilities of any other
person.
Section 178(4)
was recently considered by the House of Lords in Hindcastle Ltd v Barbara
Attenborough Associates Ltd [1997] AC 70*. The plaintiff granted the first
defendant a lease of 20 years. The lease was assigned to the second defendant
pursuant to a licence to assign, which contained a covenant by the second
defendant with the lessor to pay the rent and to observe and perform the
covenants in the lease. The third defendant joined in the licence to assign as
surety in order to guarantee the performance of the obligations undertaken by
the second defendant. Subsequently the second defendant assigned the lease with
consent to a company that went into voluntary liquidation. The liquidator
disclaimed the lease under section 178. The plaintiff claimed arrears of rent
from the three defendants and obtained summary judgment against all the
defendants. The Court of Appeal dismissed the second and third defendants’
appeal. Their appeal was dismissed by the House of Lords, who held that the
disclaimer of the lease by the liquidator did not operate to determine the
liability under the lease of the original lessee or of his surety; and that,
accordingly, since the second defendant by its covenant had placed itself in
the same position, as against the plaintiff, as the original lessee had been,
both the second and third defendants remained liable to the plaintiff.
*Editor’s
note: Also reported at [1996] 1 EGLR 94
Lord Nicholls
of Birkenhead, in his opinion, said at p88G–H:
The statute
provides that a disclaimer operates to determine the interest of the tenant in
the disclaimed property but not so as to affect the rights or liabilities of
any other person. Thus when the lease is disclaimed it is determined and the
reversion accelerated but the rights and liabilities of others, such as
guarantors and original tenants, are to remain as though the lease had
continued and not been determined. In this way the determination of the lease
is not permitted to affect the rights or liabilities of other persons. Statute
has so provided.
(Lord Nicholls’
emphasis.)
And later, at
p89B–E:
If no vesting
order is made and the landlord takes possession, the liabilities of
other persons to pay the rent and perform the tenant’s covenants will come to an
end as far as the future is concerned. If the landlord acts in this way, he is
no longer merely the involuntary recipient of a disclaimed lease. By his own
act of taking possession he has demonstrated that he regards the lease as ended
for all purposes. His conduct is inconsistent with there being a continuing
liability on others to perform the tenant covenants in the lease. He cannot
have possession of the property and, at the same time, claim rent for the
property from others.
(Emphasis
supplied.)
The learned
judge, having considered this decision, came to the conclusion that he was
satisfied that CBL’s lease was to be considered as coming to an end on February
24 1987 on dissolution. He continued:
If I am wrong
about that, I am satisfied that there was an effective re-entry by the
plaintiff, thus causing that lease to be forfeited.
The appeal
Mr John West,
counsel on behalf of the appellants in the first ground of appeal, contends
that the learned judge misdirected himself in the holding that the plaintiffs’
acts amounted to a forfeiture in law of the relevant tenancies. Pursuant to Hindcastle
Ltd he should have directed himself that the sole issue was whether at any
relevant time after the deemed disclaimer on February 24 1987 the plaintiffs
had taken possession of the demised premises so as to discharge the defendants’
liabilities under the relevant leases. He further submits that the allegation
that the appellants’ acts amounted to a forfeiture in law was, in any event,
unsupported by, or alternatively contrary to the weight of, the evidence. The
judge further erred in holding that notwithstanding the lack of any direct
documentary or other evidence of a reletting of the demised premises to CBTS,
and regardless of the plaintiffs’ intentions, he was bound to treat the
plaintiffs as having relet the demised premises to that company and, therefore,
as having effected a constructive re-entry on the premise that, from 1989 (and
by inference from 1987) until September 1990, the rent due under the relevant
leases was paid by that company and not by CBL.
Mr Nicholas
Dowding QC, on behalf of the respondents, submits that there was evidence from
which the judge could infer and find as a fact that there was an effective
re-entry by the plaintiffs. Relying upon the dicta of Lord Nicholls at
p89 (supra), by the landlord’s own act of taking possession, he demonstrated
that he regarded the lease as ended for all purposes. By permitting CBTS to
enter or remain in possession as tenants, and by accepting rent from them, with
knowledge that CBTS were not the tenants, the appellants were constructively
taking possession and their conduct was inconsistent with them looking to the
original tenants to continue to be liable under the terms of the leases.
In the
alternative, leading counsel submits that there was sufficient evidence to
justify a finding by the judge that, although there was no actual physical
re-entry as such by the appellants, it was sufficient if there was constructive
re-entry consisting of some act inconsistent with the continued existence of
the original leases. Granting a new periodical tenancy to CBTS or,
alternatively, allowing them to remain in possession and to pay rent, was
inconsistent with the continuation of the leases.
In support of
their arguments, counsel on both sides cited extensively from previous
decisions. Illuminating as these undoubtedly were, I am content to proceed with
the summary stated in Woodfall on Landlord and Tenant, vol 1 para
17.088:
Manifest
intention to forfeit
As a general
rule, where a breach of covenant or condition has given the landlord the right
to forfeit, he must manifest his intention to forfeit the lease. The act must
be a final and positive act which cannot be retracted, treating a breach of the
covenant by the lessee as constituting a forfeiture.
The act must
be communicated to the tenant or, possibly, to someone in possession with his
consent.
The act must
be accompanied by an intention to forfeit. Where the act relied on is
unequivocal, the requisite intention would no doubt be presumed. However, where
the act is equivocal, the landlord’s actual intention must be considered. Thus
where the tenant absconded leaving arrears of rent and the landlord changed the
locks of the property in order to secure it against trespassers, but did not
intend to forfeit, no forfeiture took place.
Physical
re-entry
At common
law
17.089 At common law, a forfeiture may take place by way of physical
re-entry. This is usually done by changing the locks of the premises in
question. Where there are no locks (eg because the premises consist of
open land) the forfeiture may be manifested in some different way (eg by
stretching a chain across the land). Most forfeiture clauses allow the landlord
to re-enter part of the property in the name of the whole, and consequently
securing part of the premises is sufficient.
A
constructive physical re-entry takes place where the landlord lets into
occupation some third party and maintains him there as tenant or, it seems,
accepts an already occupying sub-tenant as tenant (ie by accepting such
sub-tenant as a tenant under a new tenancy between the forfeiting landlord and
the sub-tenant). But where the landlord intends an existing sub-tenant to
remain in occupation under his existing sub-tenancy, no forfeiture will take
place, since the continuation of an existing sub-tenancy is inconsistent with
the forfeiture of the tenancy out of which it was created. Mere notice to
sub-tenants to pay their rent to the landlord is not enough to amount to a
forfeiture.
The acts
relied on must be unequivocal. Thus, a landlord, who enters merely in order to
secure the premises after a tenant has defaulted with his rent and absconded,
does not forfeit the lease. Similarly, where the landlords were also mortgagees
in possession, it was held that their possession was equivocal and did not
amount to a forfeiture.
Intention
to forfeit
Against this
analysis I turn to consider how the judge reached his conclusion. He said:
So I find
that the plaintiffs chose to ignore the fact that the rents of 32A and 32B were
being paid perhaps for three years by a different company, although they were
well aware of the existence of that company because they were tenants of
another property of theirs. Because Mr Cole was apparently the principal figure
in each company, they chose not to notice or take any steps in consequence of
the change of payer of rent cheques.
Later, he
said:
In my
judgment, in the unusual facts of this case, what matters is whether the
landlord’s acts amount to a forfeiture in law. If the landlord intends to take
rent from and maintain as a tenant somebody other than the original tenant,
then this will amount in law to a forfeiture and a reletting, regardless of the
landlord’s intention to relet. As Lord Diplock said in the Hardwick Game
Farm case, dealing with the incorporation of recent terms into a contract,
‘The task of
ascertaining what the parties to a contract of any kind have agreed … is
accomplished not by determining what each party actually thought those rights
and liabilities would be, but what each party by his words and conduct
reasonably led the other party to believe the acts which he was undertaking and
the legal obligation to perform’.
Or as Russell
LJ held in London & County Ltd v Wilfred Sportsman Ltd [1971]
1 Ch 764 ‘an idle ceremony’ was not required,
‘if the
situation can be referred to a legal basis, I see no reason to go out of the
way to refer it to an unlawful basis’,
(a case where
there was no evidence, I think of a subjective intention on the part of the
landlord to forfeit the tenancy); the Court of Appeal held that an intention to
forfeit could clearly be inferred from the way in which the landlord had
behaved.
Later, he
said:
I am satisfied
that the inference the court should draw here is that a periodical tenancy came
into existence as a result of the plaintiffs allowing Chequers Bureau
(Technical Services) Ltd to occupy the premises and pay rent …
I am
satisfied that the Chequers Bureau Ltd lease is to be considered as coming to
an end on February 24 1987. If I am wrong about that I am satisfied that there
was an effective re-entry by the plaintiffs, thus causing that lease to be
forfeited. By such a finding all future claims by the landlords against the
original tenants are ended, a consequence which I do not consider inequitable
on the facts of this case.
The learned
judge seems to have decided that the plaintiffs’ claims failed either because
the leases are to be considered as coming to an end on February 24 1987, by
reason of the dissolution, or because they were terminated by forfeiture.
Neither party contended that the leases had terminated on that date. The
plaintiffs asserted that the leases survived the dissolution and continued
until terminated on the subsequent relettings in 1993 and 1995. The defendants’
case was that the leases survived the dissolution, but were determined by
forfeiture or surrender ‘shortly thereafter’.
Thus, the
crucial issue for the learned judge was not whether the leases were terminated
by forfeiture, but whether, applying the test propounded by Lord Nicholls (at
p89B–D supra), the plaintiffs chose to resume possession by reletting to
CBTS ‘shortly after’ the dissolution.
There was no
direct evidence of such relettings. The evidence of Mr Walker was that the
plaintiffs neither contemplated nor intended such a transaction. So far as the
plaintiffs knew, both companies were controlled by Mr Cole. He treated CBL at
all relevant times as carrying on a business from premises within the same
building; in the case of CBTS from 28 and CBL from 32A and 32B. The learned
judge seems not to have paid heed to the undisputed fact that the plaintiffs
did not know that the dissolution had occurred or that (at any relevant time)
their right of re-entry under either lease had become exercisable. There was no
documentary or other evidence of a reletting to CBTS.
The
contemporaneous documentary evidence tended to support the plaintiffs’
contentions. The rent demands continued to be addressed by the plaintiffs to
CBL. More significantly, the payments in question were of aggregate sums,
combining the rents for each of the units. The CBTS cheque was accompanied on
March 21 1989 and September 2 1990 by a compliments slip with an endorsement
that the tenants were CBL.
Mr Cole did
not give evidence. He was the ‘alter ego’ of CBL and CBTS and, thus, in the best
position to assert a reletting. He never informed the plaintiffs that CBL had
been dissolved. Moreover, in 1988 he signed a rent review memorandum in the
name of CBL in respect of the rent payable on the demised premises. It is not
without significance that, when sued as the surety of CBL, he did not assert a
reletting, which if it had occurred would have extinguished his liability.
On this
analysis and adopting the approach of Lord Nicholls, I have come to the
conclusion that the evidence did not support the learned judge’s conclusions
that the lease came to an end on February 24 1987, or that the landlords took
possession by reletting. In my judgment, the landlords did not manifest an
intention to forfeit the lease. There was no final or positive act that could
not be retracted. They never treated a breach of the covenant by the lessees as
constituting a forfeiture. Their conduct was not even equivocal.
Adopting the
approach of Lord Nicholls, they did not, by their own act of taking possession,
demonstrate that they regarded the leases to CBL as ended for all purposes.
Their conduct was consistent with there being a continuing liability on others
to perform the tenant covenants in the lease.
Constructive
re-entry
The learned
judge found, in the alternative, ‘that there was an effective re-entry by the
plaintiffs, thus causing the lease to be forfeited’. Both counsel described
this sentence as confusing and I agree: if there was forfeiture it preceded any
re-entry. The learned judge never made a finding that at some time prior to
September 1990 the plaintiffs had chosen to take possession.
Implicit in
the judge’s finding and the manner in which it is expressed is that forfeiture
by constructive physical re-entry is to be inferred where a landlord, possessing
the right to re-enter, accepts rent for the demised premises from a party other
than his tenant who is occupying the premises, whether the landlord knows he is
occupying or not. The learned judge said: ‘In my judgment, the landlords must
be presumed to know the legal position of accepting rent from an occupier‘
(emphasis supplied). I am unable to accept this approach.
The judge,
having cited Bayliss v Le Gros (1858) 4 CBNS 537, correctly
observed that ‘if the landlord intends to take rent and maintain as a tenant
somebody other than the original tenant … this will amount in law to a
forfeiture and a reletting’. Unfortunately he added the words ‘…regardless of
the landlord’s intention to relet’. In so doing I am satisfied he fell into
error and misdirected himself. This phrase is purportedly taken from a dictum
of Lord Diplock in a case that was not cited in argument and that had more to
do with sale of goods than contractual rights of landlords (or tenants).
Moreover, the learned judge appears to have interpreted London & County
(A&D) Ltd v Wilfred Sportsman Ltd [1971] Ch 764 as deciding that
where there was no evidence of a landlord’s intention to forfeit the lease,
such an intention was to be inferred from his acceptance of rent from the third
party. On the contrary: the new reversioner, having become entitled to forfeit,
did so by deciding to keep the existing occupier in occupation as its tenant
under a new tenancy upon the terms of a draft lease previously negotiated and
agreed between the new reversioner and the existing occupier (as explained in Ashton
v Sobelman [1987] 1 WLR 177* at pp184E–185C). Accordingly, Sportsman
does not support the learned judge’s view that the act of forfeiture can ‘be
inferred from the way in which the landlords had behaved … regardless of the
landlords’ intention to relet’.
*Editor’s
note: Also reported at [1987] 1 EGLR 33
It must follow
that in order to conclude that there was a constructive re-entry, there had to
be evidence of, or a finding that, at some time between February 1987 and
September 1990 the plaintiffs decided to terminate the leases to CBL and
install new tenants under a new periodical tenancy. There was no evidence to
found such a finding and, on the facts and in the circumstances, such a
conclusion cannot be justified.
Leading
counsel for the respondents seeks to support the judge’s finding by the
assertions in the skeleton argument (not drafted by him): ‘Possession of the
premises demised by the two leases had thereafter been enjoyed, with the
consent or acquiescence of the appellant, by another company’ (CBTS); later:
‘it was sufficient if there was a constructive re-entry consisting of some act
inconsistent with the continued existence of the original leases,’ and finally:
‘by permitting CBTS to enter or remain in possession as tenants and by
accepting rent from them, with knowledge that that Company was not the tenant,
the Appellant was constructively taking possession and its conduct was
inconsistent with it looking to the original tenants to continue to be liable
under the terms of the leases’. The premises upon which these submissions are
advanced do not stand up to scrutiny. CBTS had never enjoyed possession, still
less with the consent or acquiescence of the appellants. There was no act that
was inconsistent with the continued
in possession as tenants; they did not know CBL had been dissolved and lost
their right to remain as tenants; the landlords’ conduct was not inconsistent
with them looking to the original tenants to continue to be liable under the
terms of the leases. They had merely accepted payments of rent on their behalf
by an associated company.
In my
judgment, the acts relied on to constitute a constructive re-entry were at best
equivocal and did not lead inexorably to the conclusion that the landlords had
let into occupation some third party and maintained them there as tenants.
Consequently,
I have come to the conclusion that the decision at first instance cannot stand
and that the appeal should be allowed. Accordingly, the plaintiffs are entitled
to judgment for the two sums claimed and any further remedy they seek must be
determined by the court below.
Agreeing, SIMON
BROWN LJ said: Otton LJ has already set out the detailed facts of this case
and I need not repeat them. What is at stake here is the rent due under the two
leases from September 1990, when payment ceased to be made, until the
respective premises were relet — 32A in May 1993 and 32B in June 1995 —
together with unliquidated damages for dilapidations over the same period.
The
respondents were the original tenants of 32A and stand in the shoes of the
original tenants of 32B. Their assignees, Chequers Bureau Ltd (CBL), were
dissolved under section 652 of the Companies Act 1985 on February 24 1987. The
leases then became Crown property until determined by disclaimer under section
656 of the 1985 Act on April 15 1993. By virtue, however, of section 657 of the
1985 Act, together with section 178(4) of the Insolvency Act 1986, upon such
disclaimer the leases were deemed retrospectively not to have vested in the
Crown at all, but rather to have been disclaimed by a notional liquidator on
February 24 1987, with the result that CBL’s rights and liabilities thereupon
determined, but not the rights and liabilities of others, including the
original tenants.
On what basis,
then, is it said that the respondents as the original tenants are not liable to
the appellant landlords for the unpaid sums? The respondents’ argument I
understand to run essentially as follows:
1. As from
CBL’s dissolution on February 24 1987, that company cannot themselves have been
in possession of the premises.
2. The company
in possession must therefore have been Chequers Bureau (Technical Services) Ltd
(CBTS).
3. From 1989
at the latest the rent was paid by CBTS.
4. By
permitting CBTS to enter or remain in possession and by accepting rent from
them, the appellants themselves must be taken to have repossessed the premises
and thereby brought to an end any continuing liability on the part of the
respondents as original tenants.
5. That
conclusion is reached either by operation of the law of forfeiture or by
application of the law expounded in Hindcastle Ltd v Barbara
Attenborough Associates Ltd [1997] AC 70. As for forfeiture, there is no
doubt that, as stated in the passage from Woodfall already cited by
Otton LJ:
A
constructive physical re-entry takes place when the landlord lets into
occupation some third-party and maintains him there as tenant …
As for Hindcastle,
the respondents rely upon Lord Nicholls’ speech, at p89:
If no vesting
order is made and the landlord takes possession, the liabilities of other
persons to pay the rent and perform the tenants’ covenants will come to an end
as far as the future is concerned. If the landlord acts in this way, he is no
longer merely the involuntary recipient of a disclaimed lease. By his own act
of taking possession he has demonstrated that he regards the lease as ended for
all purposes. His conduct is inconsistent with there being a continuing
liability to others to perform the tenant covenants in the lease. He cannot
have possession of the property and, at the same time, claim rent for the
property from others.
In my
judgment, however, whether looked at in terms of forfeiture or by reference to Hindcastle
(and frankly I see no material distinction between the two), the entire
argument founders upon the facts, in particular:
1. that until
1992 the appellants had absolutely no knowledge of CBL’s dissolution; and
2. so far as
the payment of rent was concerned, as Otton LJ has clearly demonstrated, the
appellants made no distinction whatever between CBL and CBTS.
As the other
passage quoted by Otton LJ from Woodfall makes plain, whatever act is
relied upon as constituting the ‘final and positive act’ of forfeiture, it
‘must be accompanied by an intention to forfeit’. Here the act relied upon is
the appellants’ acceptance of rent from CBTS in possession. But so far from
that implying any intention to forfeit CBL’s leases, the appellants did not
even know that CBTS, as opposed to CBL, were in possession, let alone care
which of them paid the quarterly rent cheques.
As for the Hindcastle
dictum, this avails the respondents only if it could be said that the
appellants themselves took possession. But this takes one straight back to the
concept of constructive physical re-entry for the purposes of the law of
forfeiture. Unless the appellants were intending to let CBTS into occupation
and maintain them there as tenants, there was no constructive re-entry, no
taking of possession.
The
respondents’ case seems to me to depend ultimately upon the argument that
because the Companies Act artificially and retrospectively deems the leases to
have been disclaimed on February 24 1987, so too the appellants must be deemed
to have known of that at the time. If, of course, they had, then they must
inevitably have realised too that it was CBL’s associate company, CBTS, who
thereafter were in possession, and by accepting rent from them a fresh tenancy
would have been created. They could not have created a new tenancy in this way
without first having made a constructive re-entry. Thus, the respondents’
forfeiture/Hindcastle argument would be made good. This is not, however,
an argument that I can accept. I see no reason to introduce any further fiction
into the facts of the case than is specifically provided for by the statute. In
determining whether or not the appellants made a constructive re-entry upon
these premises, there can be no warrant for imputing to them knowledge or
intentions they never had.
For these reasons,
in addition to those given by Otton LJ, I too would allow this appeal with the
result that he proposes.
SIR
CHRISTOPHER STAUGHTON agreed and did not add
anything.
Appeal
allowed.
