Mortgage — Mortgage of leasehold interest — Mortgagee in possession — Landlord and tenant — Forfeiture — Relief — Terms of relief — Whether mortgagee in possession entitled to serve counternotice under section 1 of Leasehold Property (Repairs) Act 1938 — Whether landlord estopped from relying on time-limit for relief from forfeiture under section 139 of the County Courts Act 1984
The
applicant mortgagee held a charge by way of a legal mortgage over a 99-year
lease of a maisonette, the reversion to which was owned by the respondent
landlord. The lease had been granted in 1986 at a premium of £150,000 and the
mortgagee had loaned £135,000 to the lessee. In 1990 the mortgagee obtained a
possession order against the lessee for arrears of mortgage instalments; the
mortgagee finally obtained possession in October 1996 of part of the premises
and in October 1997 of the remaining part. On 5 March 1997 the landlord’s
solicitor served a notice under section 146 of the Law of Property Act 1925
requiring repairs to be carried out. On 11 March 1997 the mortgagee’s solicitor
served a counternotice under section 1 of the Leasehold (Repairs) Act 1938. The
landlord failed to provide keys to the outer door of the premises despite
requests on behalf of the mortgagee from April 1997. In February 1998 the
landlord claimed to have forfeited the lease by peaceable re-entry in May 1997,
relying on a failure to pay ground rent and service charges and to comply with
the section 146 notice. At the hearing of the application for relief, the
mortgagee accepted that the landlord was entitled to forfeit for the failure to
pay a half year’s ground rent, and that it should pay the service charge
arrears as a condition of obtaining relief from forfeiture, but contended that
the counternotice under the 1938 Act was effective to prevent a forfeiture in
respect of the disrepairs.
was entitled to relief from forfeiture upon payment of the arrears of rent and
service charges. The landlord was not entitled to forfeit the lease for the
disrepairs for the following alternative reasons: (1) Where a mortgagee has
taken possession of leasehold premises, service of a section 146 notice on the
lessee would be pointless because he could not lawfully enter the premises and
do anything to remedy the breach. The only person who can remedy, and hence the
only person the landlord can require to remedy, the breach is the mortgagee in
possession. The mortgagee had an interest in receiving the section 146 notice
and taking the benefit of the 1938 Act; the counternotice under section 1 of
the 1938 Act was effective: Church Commissioners for England v Ve-Ri-Best
Manufacturing Co Ltd [1957] 1 QB 238 distinguished as in that case the
mortgagee was out of possession. (2) Because the landlord had failed to provide
the mortgagee with a key to the outer door of the premises, a reasonable time
for effecting the repairs had not elapsed by May 1997. If the forfeiture for
the failure to carry out the repairs had been lawful, the mortgagee would not
have been required, as a condition of obtaining relief, to do the works in the
section 146 notice. The time-limits under section 139 of the County Courts Act
1984 were procedural and the landlord was estopped from relying on these for
the purposes of relief from forfeiture in respect of the arrears of rent.
Gary Webber
(instructed by Mizler Wright) appeared for the claimant; Kenneth Munro
(instructed by Finers) represented the defendant.
Giving judgment, JUDGE COWELL said: This is an application by a mortgagee
of a leasehold interest against the freehold owner or landlord seeking
declarations in relation to whether the leasehold was forfeited by the
landlord, and, to the extent that it was, it is an application for relief.
The respondent landlord is Iza Ltd. It became the
freeholder fairly recently, in December 1996, of 47
Notting Hill, W1. The respondent’s predecessor granted a 99-year lease, 99
years from 24
rent, at any rate until 2019, is £75 a year. It goes up to £150 and then to
£300 in later years. The £75 a year is payable twice yearly on 24 June and 25
December in advance.
The lease was granted to one Mohammed Ahmed
Halhoul. He was a director of the grantor company, but at all material times he
was the leaseholder.
The lease is dated 10 November 1986, which was
when it was granted. It refers clearly to the property as being the first and
second floor maisonettes. In fact, I think geographically the demised property
is on the first floor and on an intermediate floor at the back extension
between the first and second floors. In the lease the entire property is
referred to as flat B, but the demised premises have at all times comprised
what, on the ground or in the building, are known as flat B and flat C. I
should add that there are four other flats in 47 Pembridge Villas, making five
or six in all, depending upon whether one regards the leasehold property as one
flat or two.
In a valuation that was obtained shortly before
the grant of the lease, which is dated 8 October 1986, the property is
described as follows:
Currently the property is divided into two units
but can easily be reformed into one unit by knocking through the door opening.
On the same day as the lease was granted, in the
usual manner, Mr Halhoul charged the leasehold term by way of legal mortgage to
Target Home Loans Ltd, which is the applicant, because the applicant had lent
to Mr
The respondent landlord claims to have forfeited
the lease by peaceable re-entry, under the usual forfeiture clause in the
lease. The applicant disputed any forfeiture and sought a declaration that the
purported forfeiture was invalid; alternatively, if valid, the applicant seeks
relief.
At the start of the trial the applicant conceded
that, by reason of non-payment of one sum of £37.50, the respondent was
entitled to forfeit at the date of the alleged forfeiture, but the applicant
disputed the two other grounds of forfeiture. These were the failure to pay a
service charge. In practice, nothing turns upon the service charge element,
because it is reserved as rent and the applicant made it quite clear that, when
it comes to relief, it would pay whatever is owing. Though the applicant says
that, at the time, the appropriate procedures for certification of the service
charge had not been gone through, I think the applicant is right that it does
not make any difference in the long run.
The other ground of forfeiture was a failure to
comply with a notice served under section 146 of the Law of Property Act 1925
requiring repairs to be done ‘within a reasonable time’. That notice was dated
5 March 1997 and receipt of that notice by the mortgagee was acknowledged by a
letter dated 11 March, which was a Tuesday. Apart from mentioning the date of
the notice, I have deliberately assigned no dates to the events that I have
mentioned because it is important, in my judgment, to see those events, for
reasons that will become apparent, as the applicant mortgagee saw them,
particularly through its agents and solicitor.
The events go along these lines. The mortgagee
obtained an order for possession against Mr Halhoul, because of his arrears in
paying the mortgage, on 27
call a typical history of attempts by the mortgagee to obtain possession under
a warrant of execution and repeated applications by Mr Halhoul to suspend the
warrant. A warrant was, for example, to be executed in December 1990, but Mr
Halhoul claimed that he was about to exchange contracts and the mortgagee
agreed that the warrant should be suspended.
Mrs Wright, the solicitor for the applicant, has
very helpfully sketched out over three pages a history that I have no doubt is
perfectly accurate, and I am simply choosing certain parts of it to highlight
the general progress. There was a further agreement to suspend in August 1991
upon the immediate payment of £10,000, which was paid. Various arrangements
were made and various payments were received between 1992 and 1995. An appointment
was eventually set for the execution of a new warrant for June 1996, but again
there was an application to suspend on the ground that there was to be a
contract for sale. Finally, an application was refused in October 1996, the day
before the warrant was eventually enforced on 30 October 1996. I have no doubt
at all that the mortgagee did everything it could to obtain possession during
that period.
Despite the default that Mr Halhoul was in during
that period, he became the freeholder of the property on 15 November 1994. I do
not know how he did that, but he remained the freeholder until December 1996,
when the freehold was assigned to the respondent.
I mention, in short, the history between the
obtaining of the possession order on 27 October 1990 and the execution on 30
October 1996 because, at one stage of the argument, the respondent was critical
of the delay on the part of the mortgagee, but it seems to me that no proper
criticism can be levelled at the mortgagee on the ground of delay, because the
mortgagee was doing all it could against the determined opposition of Mr
Halhoul.
On 5 March 1997, as I have indicated, a letter was
written by Finers, the respondent’s solicitor, to the mortgagee enclosing a
notice under section 146. The notice referred, as it had to, to the 1938 Act,
which I will come to in a moment. On 11 March the mortgagee by its solicitor,
Mrs Wright, gave what I call the counternotice, claiming the benefit of the
Leasehold Property Repairs Act 1938. It is the effect of that notice that is
hotly in dispute and that I will come to in detail fairly soon, after I have
dealt with the more detailed history of the events.
On 7 March the first letter in a long series of
correspondence was written about the mortgagee being supplied with the front
door key to the premises at 47
Just before I deal with the detailed history, I
should explain one of the problems that Mrs Wright, the solicitor for the
mortgagee, had despite the enforcement of the warrant on 30 October 1996.
Because of the description of the property in the lease as comprising flat B,
when the warrant was executed it was executed over part of the leasehold
property, understandably flat B. No possession had been obtained of flat C, to
which the mortgagee was entitled. Flat C remained in the possession of a Mrs
Miller, who had been there, according to a witness, a Mr Cohen, whose evidence
I accept, since 1994. It is perfectly clear that she was a subtenant of Mr
Halhoul. Since the warrant had been executed in 1996, flat B had been vacant
but locked; flat C was occupied by Mrs Miller.
Mrs Wright’s task was to gather together evidence
to put before the court to have a further warrant reissued. Many of her letters
deal with this particular matter, seeking evidence to put before the court to
the effect that the lease comprised flat C, at the same time as her letters
make clear that she was seeking the front door keys of the property because the
leasehold property was on the first floor, and to some extent the second floor,
within it.
Mrs Wright herself attempted to visit the property
in February 1997, but was unable to obtain access because the new landlord had
changed the locks and the new landlord had not supplied the locks to anybody on
behalf of the mortgagee — hence the request in the letter of 7 March 1997,
which I do not read in full, but it is there to be read.
The answer given by the respondent’s solicitor was
that it had no instructions. That prompted a letter on 25
Mrs Wright asking for keys again, to be delivered within seven days. On about 1
April there was a visit by Mrs Wright. She was on that occasion let in by Mrs
Miller, but she still did not have the keys.
On 3 April there is a letter in which she seeks a
plan of flat B. There is a letter on 3 April by the respondent’s solicitor, the
gist of that being that the locks had been changed for security purposes ‘and
if you require sets of keys, our client suggests you make application to its
managing agents, the Avenue Agency’.
On 10 April Mrs Wright duly wrote a letter to the
Avenue Agency, the agent, asking for keys. At the same time she wrote a letter
to the respondent’s solicitor saying it was its duty to provide keys.
On 11 April Avenue Agency wrote saying:
We do not hold keys for the property and have
contacted our client, who is out of the country at present.
The response to that by Mrs Wright was: How can it
manage the property if it cannot get inside it?
On 14 April the respondent’s solicitor says it is
taking instructions.
On 23 April Mrs Wright points out that:
your clients do not purport to rely on their
section 146 notice over the period when they are effectively denying our
clients access.
That seems to me to be a fair point.
On 30 April the respondent’s solicitor says:
We are seeking instructions and hope to be able
to revert to you shortly. We understand that our client’s representative has
been abroad for a while and inevitably this has led to a delay.
It is particularly important to attend to the
terms of the letters written thereafter by both parties, for a reason that I
will come to in due course.
On 15 May the respondent’s solicitor says that it
has reviewed its papers. It says that the original counterpart lease was not
handed over. It says that the lessee plan was not included within the copy. It
cannot assist. By ‘assisting’ I am referring to the efforts being made by Mrs
Wright to obtain evidence to put before the court. It suggests that she obtain
a copy of the lease plan from the Land Registry.
On 29 May Mrs Wright writes asking for a
substantive answer to her requests for keys to the premises and a reminder that
the matter is still outstanding and has not been dealt with.
Another letter is written to the respondent’s
solicitor on 30 May dealing with the mortgagee’s entitlements to have
information under the Landlord and Tenant Act 1985 and about entitlement to
serve certain notices thereunder.
No answer is given by the respondent’s solicitor
to that.
In July 1997 Mrs Wright prepares her affidavit in
the possession proceedings, which is sworn on 29 July, having gathered together
as much information as she can in the way of evidence about the extent of the
flat.
On 27 August 1997 Avenue Agency, the agent that
said it did not have keys, wrote a letter to an agent of the mortgagee asking
for payment of the service charges ‘in accordance with your lease’, and details
were given. It was followed on 25 September with a further service charge
demand. As I have said, there was no answer given about the keys, but on the
strength of the July affidavit, Mrs Wright was able to obtain a further
warrant. This was executed in relation to flat C, as a result of which Mrs
Miller went on 7 October 1997. Incidentally, I should point out that the
bailiffs got in because another tenant in the house opened the front door. So
from that date the mortgagee obtained possession of flat C as well, and the
locks of the two flats were changed by the bailiffs.
A further request for the keys was made on 25
October by Mrs Wright of the Avenue Agency. Ten days later, on 31 October, Mrs
Wright wrote to the respondent’s solicitor again, saying that it was perfectly
clear that the agent had the keys to number 47.
At this time, having received a demand for the
service charge, Mrs Wright checked with her client about the payment of such
matters and about the rent and realised that rent had not been paid in the
total sum of £75 in respect of the two payments due on 25 December 1996 and 24
June 1997. So she sent a cheque to the Avenue Agency on 31 October 1997. That
was returned by the Avenue Agency under cover of a letter of 4 November. In
that letter it says:
We refer to your letter of 31 October, which we
are instructed to return to you with the commentary that any correspondence on
this matter should be conducted through Finers Solicitors, attention
Mr
So on 17 November Mrs Wright sent, under cover of
a letter of 17 November — this does not appear from the terms of the letter
itself, but this is what I accept she clearly did do — the cheque for £75 to
Finers.
On 24 November Finers wrote saying:
We are seeking instructions and hope to be able
to revert to you in due course.
Reminder letters were written by Mrs Wright on 12
December, 12 January and 6 February.
On 10 February Finers, the respondent’s solicitor,
wrote saying:
It is now quite unnecessary to deal with the deed
of variation or indeed to provide you with a key to the front door. Our client
forfeited the lease by peaceable re-entry and recovered possession of the
premises in May 1997.
That, understandably, brought forth a very full
response by Mrs Wright dated 27 February, and I understand the indignation that
she felt, in that she had had no knowledge whatever of that forfeiture, which
had, according to the respondent, occurred about nine months previously.
In fact, unknown to the mortgagee, a Mr Abel, a
locksmith, and a Mr Ritchie, of the landlord, had gone to the property and had
changed the locks of the flats, B and C, in early May. Mr Cohen, who gave
evidence, was around at the time. He says, and I accept, that this was in early
May. That is the only bit of evidence in the entire case that has sought to
pinpoint the day on which the forfeiture took place.
On 13 March 1998 an application was made to the
court. On 8 April 1998 the respondent landlord let the property for twelve
months to Mr Cohen under a trading name. Mr Cohen had been shown the schedule
of dilapidations, which had been served in March 1997. He negotiated a rent
upon the basis that what would be taken into account would be his costs of
making the flats habitable. He did not do all the work set out in the schedule,
but he did sufficient of the work, which he says cost about £2,000, in order to
make the flat habitable. It has been inhabited under assured shorthold
tenancies granted by Mr Cohen since April 1998.
In case it matters, I should just point out that
it is by clause 4.4 of the lease that the tenant covenanted to pay the service
charge at the times and in the manner provided in the fifth schedule, both such
charges, that is the service charge and interim charge, to be recoverable in
default as rent in arrear. The proportion that the leaseholder had to pay in
this case was 35% of the total expenditure, and a certificate, which had to be
provided at the end of the accounting year, is dealt with at para 6 of the
fifth schedule.
As I say, the mortgagee accepts that, by reason of
the non-payment by May 1997 of the £37.50 due on 25
landlord was entitled to forfeit the lease by peaceable re-entry. The mortgagee
does not accept that the service charge was due at that time, but, since it is
to be treated as rent, is agreeable to pay whatever is asked after due
certification.
All that can be considered under the heading of
non-payment of rent, a ground that is established. The only dispute arising out
of that is how the relief should operate, as I shall explain.
But I shall first consider the most hotly disputed
question, whether the landlord was entitled to forfeit on the ground of breach
of covenant, that is a ground otherwise than for non-payment of rent. The
breach of covenant alleged was failure to repair in accordance with the
covenant to do so, which required, as a precondition of the forfeiture under
section 146(1), the service of a notice. That notice, as I have said, was dated
5 March. It was addressed to practically everybody who might be interested. It
was addressed to: 1) Mohammed Ahmed Halhoul; 2) the tenant, first floor flat,
47 Pembridge Villas; 3) to whom it may concern, first and second floor flat, 47
Pembridge Villas; 4) Target Home Loans Ltd. What is in dispute is the effect of
the counternotice given by the mortgagee a few days later on 11 March.
The landlord’s solicitor served the section 146
notice, dated 5 March 1997, on the mortgagee’s solicitor. The notice, as I say,
was also addressed to, amongst others, the lessee, Mr Halhoul. It contained the
obligatory notification that:
You are entitled within 28 days of the service
upon you to serve on your said landlords a counternotice claiming the benefit
of the Leasehold Property Repairs Act 1938 as amended…
The mortgagee’s solicitor, by the letter of 11
March 1997, gave notice claiming the benefit of that Act (and I will refer to
that as the counternotice).
The landlord’s solicitor took the point on 12
March 1997 that the mortgagee was ‘not the tenant, for the purposes of the Act,
empowered to give such counternotice’.
It was a bad point in so far as it suggested that
the mortgagee was not a ‘lessee’ because of the meaning given to the expression
‘lessee’ by section 7(1) of the 1938 Act.
The mortgagee’s solicitor then, by a letter of 1
April 1997, gave a notice ‘on behalf of’ the tenant Mr
Gary Webber, who appeared on behalf of the mortgagee, has not sought to argue
that his client was entitled to do that. Mr Webber’s argument is simply that,
the counternotice having been given by his client, the mortgagee, the landlord
cannot, without leave of the court, which has not been had, take any
proceedings ‘by action or otherwise for the enforcement of any right of
re-entry or forfeiture under any proviso or stipulation in the lease for breach
of the covenant or for damages for breach thereof’, as is stated in section
1(3) of the 1938 Act.
The expression ‘lessee’ has, by section 7(1), the
meaning assigned to it by section 146 of the Law of Property Act 1925 (with an
exception), so that it ‘includes an original or derivative under lessee and the
persons deriving title under a lessee’. The mortgagee is in this case a lessee
within that definition. So, says Mr
counternotice, the prohibition of section 1(3) of the 1938 Act operates to
prevent forfeiture.
In answer to that, Mr Kenneth Munro, on behalf of
the landlord, relies upon the case of Church Commissioners for England v
Ve-Ri-Best Manufacturing Co Ltd [1957] 1 QB 238. In that case, as in
this, it was the mortgagee that gave the counternotice after receiving the
section 146 notice. The lessee, that is, the person in whom the leasehold term
was vested and who was in possession, had given no such counternotice. In the
action brought for forfeiture against the lessee it was held that the lessee
could not rely upon the prohibition contained in section 1(3). It had not
served the counternotice but could have done so, and the mortgagee was not a
person on whom the landlord had been obliged to serve any notice. Mr
pointed out, correctly in my judgment, that it makes no difference that the
landlord chose in this case to effect a peaceable re-entry, whereas in that
case the landlord brought an action against the lessee. I consider that correct
because the prohibition in section 1(3) is against proceeding ‘by action or
otherwise’.
The text in Woodfall at para 17.128 states
that the requirements of section 146(1) of the Law of Property Act 1925 are
satisfied by the service of one notice upon the lessee in possession or who has
a subsisting lease at the time the notice comes to be served, and cites in
support of that, in a footnote, a trilogy of cases: the Ve-Ri-Best case;
Cusack-Smith v Gold [1958] 2 All ER 361; and Kanda v Church
Commissioners for England [1958] 1 QB 332. In Kanda, the person (Kanda)
in whom the term was then vested was served, and he gave a counternotice. It
was held that the prohibition in section 1(3) applied so as to preclude the
landlord from taking action against his assignee, the term having been
transferred to his assignee, and the only leave from the court having been to
take action against Kanda. The key, in my judgment, to an understanding of
those cases lies in the passage in the judgment of Pilcher J at pp364H-365B of Cusack-Smith,
where he states:
a reading of the whole of s. 1 of the Act of 1938
leads to the conclusion that throughout the section wherever the words ‘a
lessee’ or ‘the lessee’ are used, they must be given the same meaning as they
have in s. 146 of the Act of 1925. The effect of s. 1 of the Act of 1938 is… to
require that the leave of the court be obtained before proceedings for
re-entry, forfeiture or for damages for breach of covenant are brought by a
landlord against [and I emphasise the next passage] the same category of person
on whom the appropriate notice had to be served by the landlord before he took
proceedings for re-entry or forfeiture under s. 146 of the Act of 1925.
After a reference to section 1(5) of the 1938 Act,
Pilcher
the protection afforded by the Act of 1938 was
intended to be confined to lessees in possession or lessees having a present
estate or interest in the premises.
At p365F he appeared to regard the case of Kanda
as authority for the conclusion that a lessee who is entitled to be served with
a section 146 notice and who gives a counternotice brings the prohibition of
section 1(3) into operation.
Who, then, is the lessee under section 146(1)? The
starting point must therefore be to determine who is the lessee within the
meaning of section 146(1), who is entitled to be served. Innumerable persons,
such as subtenants, may qualify as a lessee within the statutory definition of
the word, but the Ve-Ri-Best case makes it clear that that is not the
test of who has to be served. The mortgagee in that case was served, but he was
not entitled to be. The question who is entitled to be served must, in my
judgment, involve considering the practical purpose of the requirement of
service in section 146(1). A landlord may have one aim: to forfeit and to
obtain what is a windfall, if he has received a premium up front and the term
is to be cut very short. But the law leans against forfeiture and supposes that
the landlord’s primary aim is to see that the leasehold covenants are performed
and, for instance, wants of repair are done.
The purpose underlying the requirement in section
146(1) of service of notice on the lessee is the practical one that the lessor
wants something done and that the lessee served may choose to do what is
required of him to be done by the notice and so avoid forfeiture. The lessee in
possession is ordinarily the person best able to do what is required. Being the
person required in practice to comply with the notice, he is the person
entitled to choose the protection of the 1938 Act, particularly if he considers
that the landlord is guilty of the kind of abuse that the 1938 Act was designed
to prevent and that the landlord is not likely to obtain the leave of the court
under section 1(5). Put another way, the person entitled to be served is ‘the
person who is interested in getting the notice so that he can make up his mind
what if anything he can do about avoiding forfeiture’, as Lord Russell of
Killowen said in Old Grovebury Manor Farm Ltd v W Seymour Plant Sales
& Hire Ltd (No 2) [1979]
3 All ER 504* at pp505-506, where it was held that a notice served on a former
leaseholder who had assigned the term was invalid because the assignee, the
present leaseholder, was interested in receiving the notice, in the absence of
which forfeiture could not be had.
*Editor’s note: Also reported at [1979] 2 EGLR
52; (1979) 252 EG 1103
If the mortgagor has lost possession of the
leasehold property because the mortgagee has taken possession, so that any
retaking of possession would be a trespass (it might even be a contempt of
court if possession had been given to the mortgagee by a warrant having been
executed), service of a section 146 notice on the mortgagor would be pointless
because he cannot lawfully do anything to remedy the breach. The landlord
cannot forfeit without serving a notice. In such a case it must follow that the
only person who could remedy, and hence the only person the landlord can
require to remedy, the breach is the mortgagee in possession. True it is, in
such a case, the mortgagor retains an estate in the term, but he has no
possession of the property. Even the estate is under the control of the
mortgagee, and, in the absence of redemption, can be assigned away by the
mortgagee in exercise of the mortgagee’s statutory power to sell it. In such a
case, the mortgagee has both an estate or interest in the term, or the
equivalent if he is a legal chargee, and possession of the property. He also
has control over the mortgagor’s estate.
The decision in the Ve-Ri-Best case is
based on the facts that the mortgagee
had no right to receive any notice (see the observations of Lord Goddard CJ at
p241 and pp245-246) and that the action had been brought against the lessee in
possession (see p246), the leasehold term being vested in the defendant who was
in possession.
I now turn to this case. It seems to me that the
crucial distinction between the Ve-Ri-Best case and this case is that
the mortgagee was in that case out of possession. In his successful argument in
that case, Mr Megarry QC (as he then was) said at pp242-243:
It is agreed that notice may have to be served on
a mortgagee in possession, but there is no need to serve it on a mortgagee out
of possession.
(whether ‘may have’ or ‘must’ was immaterial for
the purposes of that argument); and at p243:
The right to take advantage of section 1 of the
Act of 1938 is therefore confined to those who are entitled to have a notice
served on them.
That proposition is echoed by Pilcher J in the
passage mentioned above in Cusack-Smith at p364I, in which he mentions
the same category of person on whom the appropriate notice had to be served by
the landlord before he took proceedings for re-entry or forfeiture under section
146.
The lessee in possession in this case in March
1997 was, in respect of part of the leasehold property, flat B, the mortgagee.
Mr Halhoul was only in possession of the other part, flat C, by his receipt of
rent from Mrs Miller (which I assume), but in view of the possession order of
27 October 1990, he had no entitlement to possession, for the mortgagee was
entitled to possession, and the possession that he had but to which he had no
entitlement was to be extinguished as soon as the steps being taken by the
mortgagee to obtain execution of a further warrant achieved their aim. The
mortgagee was in possession of part and entitled to possession of the remainder
under an order of the court. In my judgment, the mortgagee, being the only
lessee in possession of part and the only lessee entitled to possession of the
rest of the leasehold property, having an estate or interest of its own, and
having control over Mr Halhoul’s estate, was ‘the lessee’ within the meaning of
section 146(1), the person on whom the landlord had to serve notice, as it did,
and the only person who could do the works required by the notice, and thus the
person interested in receiving the notice and taking the benefit of the 1938
Act.
For the reasons I have attempted to express above,
I consider this case to be the contrast of the Ve-Ri-Best case and
readily distinguishable. The mortgagee in that case was out of possession but
in this case in possession of flat B or entitled to possession of flat C, while
the person in whom the term was vested was in that case in possession but in
this case out of possession of flat B or had been ordered out of possession of
flat C. It follows in my judgment that, by reason of the counternotice of
11
from forfeiting the lease on the ground of breach of the repairing covenant,
whether by action or by peaceable re-entry.
If I am wrong about that, there is another reason
for holding, as I do, that the landlord was not entitled to forfeit on that
ground. In early May, when this forfeiture was supposedly effected, two months
or less had elapsed for the works to be done since the service of the notice. I
am not purporting to say that there is any particular requirement in the law
about a reasonable time for doing works. What I am saying is that it is
perfectly clear in this case that nobody could in practice sensibly be
instructed to go into the property to view it in the absence of a key to the
front door. In February Mrs Wright had not been able to get in. As she
explained, it was invariably the case that the mortgagee, when served with a
notice, would send a surveyor in to ascertain whether the repairs might be
done, whether they should be done and generally what should be done about the
notice.
It was put to her that surely the surveyor could
go along and ring the bell and hope that Mrs Miller, who, as I shall come to
mention, was a prostitute, or some other tenant of the flat might open the door
— in the first case perhaps thinking that the surveyor was after her services.
But it seems to me to be wholly impractical and a waste of time to instruct
professional men to go to a property if the key to the property cannot be
provided to them. There was therefore no reasonable opportunity for the surveyor
to go in. Accordingly, it seems to me that a reasonable time for the doing of
the works, which was what the notice required — I stress the words reasonable
time — had not elapsed and so the forfeiture was invalid on that ground as
well.
Even if I am wrong about the first two points and
the landlord was entitled, when it came to relief I should not have required as
a condition of the relief the doing of the works specified in the schedule for
the following reasons. First of all, the failure to provide keys to the front
door meant that the surveyor was not instructed, perfectly reasonably, to go in
on behalf of the mortgagee and did not have any opportunity of assessing the
schedule. The surveyor has had had no opportunity to consider the matter at all.
Second, even were the surveyor to go in now, the schedule would be to some
extent out of date. Some of the work — the most essential work maybe — was done
by Mr Cohen in order to make the place habitable, so the schedule is out of
date and part of the works have been done. Third, a responsible mortgagee, such
as the applicant in this case, is likely to wish to carry out certain works in
any event in order to sell the leasehold term.
I have mentioned the evidence about prostitution.
It was Mr Cohen’s evidence that at some stage in 1997 he suspected that Mrs
Miller might be a prostitute. In about very early October, and indeed it must
have been within a few days of the warrant being executed in October 1997, he
got into the flat and saw clear signs that prostitution was going on — whether
it was Mrs Miller herself or someone else I do not know, but she was the tenant
of Mr Halhoul. As I say, it seems that she moved in in 1994 as Mr Halhoul’s
tenant. That was during a period when the mortgagee was doing its best to
obtain possession of the property and was thwarted frequently by Mr Halhoul. It
seems to me that the fact that prostitution was going on had nothing whatever
to do with the mortgagee. In any event, Mrs Miller has gone, and that was not
as a result of the landlord’s forfeiture, for he only changed the locks and
left her there, but by the efforts of the mortgagee. It is therefore a little
rich, in my judgment, that the landlord should argue that the mortgagee is
disentitled to relief on the ground of prostitution. I am quite satisfied that
this affords no bar to relief being granted to the mortgagee.
The situation, therefore, is that the only cause
of forfeiture in May 1997 was non-payment of rent. Relief from non-payment of
rent may be had either under section 146(4) of the 1925 Act by the mortgagee
claiming, as underlessee, any estate or interest in the property, and under
that subsection a vesting order is made. That subsection, incidentally,
expressly includes non-payment of rent. The alternative form of relief is under
section 139(2) of the County Courts Act 1984. What happens under the County
Courts Act is that there is effectively a retrospective reinstatement of the
lease as though it had never been forfeited. That is what it was called in the
leading case of United Dominions Trust Ltd v Shellpoint Trustees Ltd [1993] 4 All ER 310* at p316B-C and p320. It
was there called automatic relief, in contrast to what was called the
discretionary relief under subsection (4) of section 146 (see p316B-C). It is
also pointed out that nothing in section 138 or 139 is to be taken to affect
section 146(4). Thus, the difference is that under sections 138 and 139, the
lease is effectively retrospectively reinstated as though it has never been
forfeited.
* Editor’s note: Also reported at [1993] 2 EGLR
85; [1993] 35 EG 121
It is necessary at this stage to consider, first
of all, what the mortgagee did. It seems to me that, first of all, it did not
know of the forfeiture in May 1997, and in that state of absence of knowledge
it did the following things. Through Mrs Wright it continued to ask for the
keys of the property. It continued to prepare for the sale of the term and to
take steps to obtain the warrant for possession. It eventually took that
further possession on 7 October 1997. It sent the rent on 31 October 1997 after
the service charge had been demanded. It sent the rent on 17 November to the
landlord’s solicitor. It can only have done those things in the belief that the
lease continued to subsist.
There was considerable argument as to whether the
mortgagee had some kind of notice or constructive notice of the forfeiture, if
indeed this is a point that matters.
First of all, it is to be observed that the
changing of the locks to the flats’ doors by the landlord in May 1997 was the
only physical alteration that occurred then. At that date flat B remained
empty, as it had been, and flat C continued to be occupied by Mrs Miller, as it
had been. There was no apparent change of possession. But without the front
door keys the mortgagee could not even get in to see what, if anything, had
happened. If it had, as I say, the only difference would have been new locks on
the flat doors. On 7 October 1997, when the warrant was executed by the
mortgagee, new locks were fitted anyway. There was a notice that was put on the
door of flat B by the landlord in May 1997, but again that was not seen by
anyone on behalf of the mortgagee, and it certainly was not seen, I accept the
evidence to this effect, in October. So the forfeiture was certainly not
evident to the mortgagee.
It was said that surely the mortgagee should have
realised when it did not receive the keys that there had been a forfeiture. It
is a remarkable feature that the landlord never said in his letter: ‘You cannot
have the keys because the leasehold has been forfeited.’ It is something that
the landlord studiously avoided saying. Indeed, when the cheque for £75 was sent
to the landlord’s solicitor, it was not thereafter presented, but the fact that
it had not been presented was not drawn to the attention of the mortgagee.
There is also the crucial fact that the landlord’s agent asked for payments of
the service charge.
It is argued that the mortgagee should have
realised from the failure to provide the key that the forfeiture had happened,
but the failure to provide the key was a factor both before and after the
forfeiture. Therefore, that fact alerted the mortgagee to no change of position
in May 1997.
At any rate, whatever may be said on this question
of notice, it seems to me that this is not a question of notice at all. It is a
question, first of all, of the belief on the part of the mortgagee in the
subsistence of the lease. For the reasons I have given, it is perfectly obvious
that the mortgagee believed that the lease subsisted.
It seems to me, next, that the landlord must have
known that the mortgagee was acting in the belief that the lease continued to
subsist, because the mortgagee would not otherwise have continued to ask for
the keys or continued to ask questions about the plans or continued to further
its proceedings for possession and sale, and it attempted to pay the rent.
Indeed, I infer from the fact that the landlord kept quiet about the
forfeiture, as well as the other facts, that the landlord realised that the
mortgagee had not realised that a forfeiture had happened, and that the
mortgagee mistakenly thought that the lease still subsisted. Indeed, the demand
for the service charge only encouraged the mortgagee to continue in the course
that I have mentioned.
It seems to me that the mortgagee was clearly
doing things to its detriment, in that it was doing all those things so as to
sell the leasehold term with vacant possession. It was to its detriment if,
after six months from early May, its time for applying for relief would expire
and retrospective reinstatement would not be possible. It seems to me, for all
those reasons, that the landlord is estopped from asserting that the forfeiture
did occur before 11 February 1998. Perhaps it could be argued that it ceased to
be estopped after the letter of 17
no further response to it, though I would not so find myself.
It also seems to me, if it is necessary to say so,
that the landlord is estopped from asserting that it is entitled to mesne
profits between early May and 11 February 1998. That could become important if
I am wrong about saying the lease is to be retrospectively reinstated and if
the other form of relief is the more appropriate. I have in mind the authority,
which I was referred to, of Viscount Chelsea v Hutchinson†. It seems to
me in this case that in respect of that period from early May to 11 February
the landlord is clearly estopped from claiming mesne profits. It would have to
accept rent and service charge.
† Editor’s note: Reported at [1994] 2 EGLR 61;
[1994] 43 EG 153
The question of law arises whether the landlord is
effectively estopped from relying upon the statute, section 139, which states
that relief has to be applied for within six months. It is the fact that in the
case of many statutes, such as statutes that affect the public interest, it is
not possible for one individual to be estopped for the benefit of another. It
seems to me that the time-limits in this Act are procedural, just as they were
held to be procedural under the 1954 Act between landlord and tenant. I reach
that conclusion on the basis of Lord Diplock’s speech in Kammins Ballrooms
Co Ltd v Zenith Investments (Torquay) Ltd [1971] AC 850 at p881E,
where Lord Diplock says:
Upon the purposive approach to statutory
construction this is the reason why in a statute of this character a procedural
requirement imposed for the benefit or protection of one party alone is
construed as subject to the implied exception that it can be ‘waived’ by the
party for whose benefit it is imposed even though the statute states the
requirement in unqualified and unequivocal words. In this context ‘waived’
means that the party has chosen not to rely upon the non-compliance of the
other party with the requirement, or has disentitled himself from relying upon
it either by agreeing with the other party not to do so or because he has so
conducted himself that it would not be fair to allow him to rely upon the
non-compliance.
So it seems to me that what applies to the 1954
Act equally applies to section 139 of the County Courts Act and section 138.
I should just add that the section 146 notice is
of course entirely irrelevant (should any question of notice be relevant)
because it only alerted the mortgagee to the need (if it alerted him at all) to
seek relief from forfeiture based upon that ground, not upon any ground such as
non-payment of rent.
I should add that I have had regard to a passage
in Woodfall at 22.069 to the effect that reliance and detriment are not
to be assumed. I have been referred to the case of Stevens & Cutting Ltd
v Anderson [1990] 1 EGLR 95*, but I find both those features, the
reliance and the detriment, in the acts done, already mentioned, by the
mortgagee in the belief that the lease continued to subsist, and in the fact
that the landlord not only stood by, knowing that belief from the letters that
it received, and did nothing to correct it, but, by demanding the service
charges, the landlord encouraged that belief. It seems to me that this is a
classic case of estoppel. I am not going to cite the passage, but I have had
occasion to look at Oliver J’s (as he then was) judgment in Taylor Fashion
Ltd v Liverpool Victoria Trustees Co Ltd [1982] QB 133† at
pp146-147G, where he discussed what he called the five probanda in an
earlier case of Willmott v Barber (1880) 15 ChD 96. It seems to
me that this case very neatly fits those five probanda.
* Editor’s note: Also reported at [1990] 11 EG 70
† Editor’s note: Also reported sub nom Taylor
Fashion Ltd v Liverpool Victoria Friendly Society [1979] 2 EGLR 59;
(1979) 251 EG 159
Finally, it is unnecessary, because the lease is
effectively to be reinstated, to consider whether any term ought to be imposed
in relation to the two flats being converted into one. I can deal very shortly
with this aspect of the case by saying that I approve of Mr Webber’s argument,
set out in his written argument. Basically they were two flats, as appears from
the valuation I mentioned of 1986, which existed as such before the lease was
granted. It seems to me that they may as well remain. I would not have imposed
conditions that they should become one and I should not have imposed them had I
been granting relief under section 146(4). For all those reasons, it seems to
me that the mortgagee is entitled to relief upon payment of the arrears of rent
and the service charge and I will hear any further argument about costs.
