Leasehold enfranchisement — Leasehold Reform, Housing and Urban Development Act 1993 — New extended lease — Live/work unit — Application for new extended lease — Whether unit occupied under business lease — Whether permitted use under leases determined — Whether unit a flat — Whether unit occupied for business purposes — Whether residential use breach of lease — Whether tenant entitled to benefit from alleged breach of covenant
The claimant landlord was the freeholder of a building that had been converted into a number of live/work units. The defendant tenant held the sub-underlease of one of the units. The user clause in the headlease, owing to an agreed variation, permitted the use of defined parts of the building (including the defendant’s unit) as live/work units. The underlease had not been amended and was in the form of the original headlease, namely that the building could not, without written consent, be used for any purpose other than as a factory and/or office premises. The user clause in the defendant’s sub-underlease prohibited uses “other than live/work artists/design/crafts studios or with the prior consent of the Lessor [for any other B1 purpose]”. The defendant occupied the unit principally for living, using only a small area for his work as a technology analyst. He gave the claimant notice, under section 42 of the Leasehold Reform, Housing and Urban Development Act 1993 (the Act), claiming a new extended lease. The claimant served a counternotice stating that it did not admit the claim on two grounds, namely that: (i) the sub-underlease was a business tenancy for the purposes of section 5(2) of the Act; and (ii) the unit did not qualify as a separate flat. In challenging the validity of the defendant’s claim, the claimant contended that the defendant was not entitled to rely upon his actual residential use of the unit because this constituted a breach of the user covenants, and the Act does not confer rights on persons who qualify only on their own breaches of covenant. The defendant submitted that the claimant could not challenge the validity of his claim |page:58| by relying upon grounds that were not contained in the claimant’s counternotice.
Held: The claim was dismissed; the defendant was entitled to a new extended lease. The purpose of a landlord’s counternotice under section 45 of the Act was to define the basic issues. A landlord was not entitled to depart from these or to rely upon other issues in later proceedings; the arguments advanced by the claimant were within the issues contained in the counternotice. The user clause in the sub-underlease meant that either residential or working user, or the two together, was permitted; the tenant had not breached the user covenants in either the headlease or the sub-underlease. The definition of a separate flat, as set out in section 101 of the Act, was satisfied. The unit could be regarded as having been constructed for residential purposes, but even if the use of the unit solely for residential purposes constituted a breach of the user clause, the physical purpose was directed at users that could be concurrent. The user covenant did not require the defendant to use the unit as business premises, and a failure to use them or that purpose did not therefore constitute a breach. If the defendant was using the unit in breach of covenant, the rule that a person cannot benefit from a breach of contract did not apply to the Act. The Act made exhaustive provisions for circumstances where a qualifying tenant could not make a claim, and the common law rule was not among these.
The following cases are referred to in this report.
Alghussein Establishment v Eton College [1988] 1 WLR 587; [1991] 1 All ER 267, HL
Amax International Ltd v Custodian Holdings Ltd [1986] 2 EGLR 111; (1986) 279 EG 762
Doe d Bute (Marquis of Bute) v Guest (1846) 15 M&W 160
Henry Smith’s Charity Trustees v Wagle [1990] 1 QB 42; [1989] WLR 669; [1989] 1 EGLR 124; [1989] 11 EG 75; (1989) 21 HLR 177, CA
London Celluloid Co, Re (1888) LR 39 ChD 190
Nye Ltd (CL), Re [1971] Ch 442; [1970] 3 WLR 158; [1970] 3 All ER 1061
Skillion v Keltec Industrial Research [1992] 1 EGLR 123; [1992] 05 EG 162
This was the hearing of a claim by the claimant landlord, The Bishopsgate Foundation, under section 46 of the Leasehold Reform, Housing and Urban Development Act 1993, to determine the validity of a claim by the defendant tenant, Mr Curtis, to a new extended lease.
Timothy Morshead (instructed by Farrer & Co) appeared for the claimant; Anthony Radevsky (instructed by Forsters LLP) represented the defendant.
Giving judgment,
Preliminary
[1] This case arises out of a tenant’s desire to enfranchise his tenancy by way of claiming a new and extended lease under the Leasehold Reform, Housing and Urban Development Act 1993 (the Act). The claimant landlord applies under section 46 of the Act for a declaration that, on the relevant date, the tenant had no right to a new lease. This apparently straightforward claim raises issues, on one side at least, of considerable complexity, and the helpful and comprehensive submissions of counsel reveal a marked difference of approach.
Property and background facts
[2] The defendant, Mr Curtis, is the leaseholder of premises on the third floor of 8-10 Nile Street, London N1, under a long sub-underlease, of which he is the assignee for a term expiring on 10 June 2053. He lives there as his home. The claimant is the freeholder and the successor in title of a freeholder that, in 1956, had created a tenancy, in favour of Midland Bank Trust Co, of the group of properties known as 4-10 Nile Street, of which the subject property forms part. A number of intermediate interests were created at various times, and, in the upshot for the purposes of section 40 of the Act, it is common ground that the claimant is the landlord. However, the user covenants that are of relevance to this case are not direct covenants between the landlord and the tenant. The relevant user covenants are: (i) a covenant in the headlease that has been varied by a later agreement, but which, since it is in form and substance a restrictive covenant, is contended by the landlord to be binding in equity on the tenant; and (ii) a covenant in the sub-underlease.
[3] The buildings appear to have been old industrial and commercial buildings in origin set in a run-down neighbourhood. The relevant events really started in around 1994 and can be fairly shortly summarised.
(a) Originally, a group of artists was formed who considered approaching the landlord with a view to refurbishing the building and using it for artists studios.
(b) In the event, most of the artists dropped out. A group of interested parties, Mr Michael Grossbard (who gave evidence before me) and three others purchased the term of 4-10 Nile Street from the then leaseholder, Union Square Ltd, which had purchased it from Midland Bank. A purchasing group of prospective tenants was formed, and it became Nile Street Studios Ltd. Then, in February 1994, underleases were created. Number 4-6 was demised to Spitting Image Productions Ltd and no 8-10 to Nile Street Studios Ltd (this term will expire on 17 June 2053). That company in turn granted the sub-underlease now held by the tenant.
[4](a) The original user covenant under the headlease had been not, without consent, to use for any purpose other than a factory and/or office premises (at that date, the present use).
(b) Prior to its acquisition of the underlease, Nile Street Studios had obtained planning permission, on 5 November 1993, for the use of the ground and basement floors for B1 purposes, and the first, second, third and fourth floors as “live/work units”. This is the first occasion upon which this expression, which is central to the present case, appears.
(c) Union Square approached the landlord (the present claimant by now) for permission to change the user clause in the headlease. Following negotiations, a change was agreed on or around 17 February 1994. The relevant terms as to no 8-10 read:
from factory and/or office premises to use for all or any of the purposes set out in Class B1… On the ground and basement floors and for use as live/work units on the first second and third floors.
(d) The user clause in the underlease to Nile Street Studios, dated February 1994, was in the form of the unamended user clause in the headlease, namely factory and office use subject to consent.
(e) In the sub-underlease, which the tenant now holds, the user clause took a slightly elaborated form:
[prohibition from user] other than as live/work artists/design/crafts studios or with the prior written consent of the Lessor [for any other B1 purpose].
(f) In contemporary and subsequent correspondence, it is apparent that the landlord and various advisers and other parties had in mind the question of the Act, but, in general, all these people were of the view that the permitted user was not such as to bring the premises within the mischief of the Act, although, by 1998, the foundation had been advised by its valuers to the effect that “live/work” is a grey area, and it took certain steps as a result. The claimant’s knowledge and conduct affect the issue of waiver/acquiescence that has been raised and to which I will return later.
[5] Historically, it would seem that the original group were artists and craftspeople who wanted studios and ancillary residential use. But later purchasers, of whom the defendant is undoubtedly one, were not people of that kind. He and others like him have acquired these premises primarily as their homes. He himself is not an artist; he has worked in the technology field. In 2001, when the landlord was feeling concern (for Act purposes) as to what the occupation actually was, and as to what rights the tenants might have, it made enquiries of the occupiers as to how they split their “living and working” activities. The reply that it received from the defendant, of 20 July 2001, was: “Presently I use 90% of the floor space for living and 10% for working as a Technology Analyst” (emphasis added). Whatever may be the effect of that statement, it is clear that he was neither an artist nor a craftsman. |page:59|
Procedures
[6] On 6 January 2003, the defendant gave a section 42 notice claiming a new lease of the premises under the Act. On 18 March, the claimant gave a counternotice under section 45. That notice stated that the claimant did not admit the claim on two grounds, namely that: (i) the lease was a business lease, for the purposes of section 5(2) of the Act; and (ii) the premises did not qualify as a separate flat. On 16 May 2003, the present proceedings began.
Arguments
[7] I shall have to go into the arguments in considerable detail, but it is helpful, at the start, to set them out fairly briefly so as to demonstrate the complete difference of approach.
[8] For the tenant, Mr Anthony Radevsky adopted a position of attractive simplicity. He said that there is nothing in either point:
(a) To be a business lease (and therefore not to qualify), there has to be actual occupation for the purposes of a business carried on by the tenant. Here there is none. The tenant lives there as his home. Any use of his computer (which is what it comes to) when he brings work home is simply ancillary to domestic use. The user clause is immaterial, but even if it were material, properly construed, the defendant is not in breach of it, nor would it require him to occupy for business use.
(b) Physically, the premises are plainly a flat for the purposes of the relevant section (namely section 101(1)), being a separate set of premises that have been adapted for use for the purpose of a dwelling, and they are laid out and used as a separate residential flat. If the purely physical test is what is germane, nobody could or does doubt that it is satisfied. Although I declined an invitation for a site visit, photographs and plans were plain enough. Visually, it is plainly what anyone (even without the statute in front of them) would call a flat (although rather larger and fitting well with the alternative informal expression of a “loft”).
(c) He said, further, that if, contrary to his submissions, the issue as to the breach of the user covenant were relevant, there is, on the true construction of either covenant, no breach.
(d) If necessary, assuming that: (i) there is a breach, and (ii) that breach is relevant, there has, on the facts, been a waiver of the breach because of the claimant’s inaction in the face of knowledge that the premises have been used as residential premises only.
[9] Mr Timothy Morshead, for the landlord, adopted a much more complex approach.
(a) He does not accept that the landlord is limited to the matters alleged in his counternotice.
(b) He accepted, in his closing submissions, that, on the evidence as given by the defendant, he cannot show that the sub-underlease was a “business lease” at the time of the section 42 notice. This concession is, in my judgment, plainly properly made: the defendant’s incidental user of a space in the flat for his home computer that includes work he brings home is plainly incidental. He also accepted that if the physical test put forward by Mr Radevsky is the only relevant test, the premises are a flat. However, he said that that is only the beginning of the argument.
(c) There is, he said, an overarching principle that because, as he asserted, the occupation for residential purposes only is a breach of the two user clauses, the tenant cannot succeed because he must show that his present occupation is lawful, and that he cannot do. The Act does not confer a right to claim a new lease on people who qualify only by relying upon their own breaches of covenant. If the law were otherwise, he said, the landlord would be put in the invidious position of being forced to grant a new lease and then proceeding to forfeit that lease, that would have been granted on the basis of a non-business use in breach of covenant, because of the breach of covenant that founded the jurisdiction to grant it.
(d) “Live/work”, properly construed, means user that includes both elements. The covenant cannot be complied with by residential occupation alone.
(e) The statutory test of whether premises are a flat, while prima facie satisfied by the physical test, can be fully satisfied only if, at the time of construction/adaptation, they were constructed/adapted for the qualifying use. It will not do that they were constructed/adapted for two uses and that one use has subsequently ceased.
(f) On the facts, there can be no waiver/acquiescence.
[10] I have set out the arguments, which were developed fully, both orally and in written submissions, with deliberate brevity at this stage. Some of them will require detailed elucidation. A number of these arguments have a “sudden death” effect; if I decide the argument in a particular way, that is the end of the case. I am, however, very conscious that this is a case of serious importance to those concerned, not only to Mr Curtis himself but also for landlords in respect of other properties and for other tenants who may be considering doing what Mr Curtis has done. It is unlikely that it will end before me. I therefore propose to examine all the main arguments and reach a conclusion on them.
Issues
Is the landlord entitled to go outside his counternotice?
[11] Mr Radevsky submitted not. Section 45 requires the landlord to give a counternotice within the specified time, which must be at least two months from the tenant’s notice, and, for present purposes, it must state that, for reasons given in the counternotice, the landlord does not admit the tenant’s right to a new lease. Section 46 then effectively puts the onus upon the landlord that has given such a counternotice to go to the court for such a declaration as is sought in this case. If the landlord does not do this within the specified time, it is treated as not having given a counternotice. If no counternotice is given, the tenant can go to the court for an order for a new tenancy, but, for present purposes, the court will not make an order unless it is satisfied that, on the relevant date, the tenant had the right to a new lease.
[12] Mr Radevsky’s submissions relied very much upon the mandatory language of what the notice must contain. The landlord is given time and facilities by the section to investigate and prepare its position before it is obliged to state its grounds. It would follow from that that the entire scheme of this fasciculus of provisions is designed to define and limit the issues before the landlord makes its application. The way in which, generally, such statutory applications proceed is by means of the statutory procedure, and one should not go outside it. Mr Morshead pointed to section 49. The tenant is required to prove its right to the satisfaction of the court in proceedings that, of their nature, must be bipartisan, so it would be absurd if the landlord could not take all points that went to show that the right could not be proved. If it can do it there, why not here?
[13] I accept that, on the face of it, section 49 produces a curious result. Why indeed, if the landlord can raise all points under section 49, does one have a counternotice/section 46 procedure at all? Indeed, the landlord might be thought to be entitled to have two “bites at the cherry”: it loses under section 46 – not having taken the right points – it must then serve another counternotice. If it does not do so, it is treated for section 49 purposes as never having given a counternotice. Then, in proceedings under section 49, it can think up a whole lot more points. At the least, it seems highly unsatisfactory. The answer under section 49 might be that, although the tenant has to prove its right, the landlord is not to be heard to make a positive case (questions of issue estoppel might arise). Fortunately, I do not have to decide what section 49 does or does not mean. I am, however, plainly of the view that if a landlord gives a counternotice and starts proceedings under section 46, it is to be treated as making that application on the basis of the grounds set out in its counternotice (for which there is no machinery for amendment), and not on any other grounds. The whole purpose, as it seems to me, is to define the basic issues (and, indeed, thereby give the tenant the opportunity to consider/reconsider its position) before proceedings start, and the landlord should not be entitled then to depart from that position and keep other matters “up its sleeve”.
[14] So, in my judgment, Mr Radevsky was right in principle. However, I do not think that it actually did him much good in this case. The section requires the reasons to be stated, but not that they be elaborated or that particulars be given. Mr Morshead has two reasons: (i) this is a business lease; and (ii) this is not a flat. On their face, both are straightforward, and it is not surprising that Mr Radevsky sought to |page:60| meet them in a straightforward way. But the complex and interesting arguments raised by Mr Morshead have, as their projected end result, the establishment (and if only in the case of ground (i) by a process of “deeming”) of both grounds. It is not a particularly conventional way of setting out grounds of opposition. However, in my judgment, at a pinch it will do, and Mr Morshead was to be allowed to raise the arguments that he sought to raise.
Is the use of the premises for residential purposes alone a breach of the sub-underlease/a breach of the covenant in the headlease?
[15] To recap for a moment. (a) The relevant user in the headlease is “as live/work units”. The defendant is not a party to the headlease, but since the user covenant is negative in form, the head landlord can enforce it directly as a restrictive covenant by way of injunction, but not by way of forfeiture (although it could forfeit the headlease if that was what it really wanted to do). (b) In the sub-underlease, which is what directly binds the defendant and which could be forfeited (by his immediate landlord should he have a mind to it), the relevant user is “as live/work artists/design/crafts studios”. The two covenants are actually not quite the same (wording apart), the headlease covenant would permit any kind of work as the “work element”, including even, should the tenant wish to do it, one of the classical offensive trades. The sub-underlease covenant limits the work element in the manner set out.
[16] A good deal of evidence (documentary in the main; on the landlord’s side oral; principally the evidence of Mr Grossbard, one of the original four assignees of Union Square Ltd, on the tenant’s side) was given as to what everybody thought and said at the time. It can be fairly briefly summarised thus:
(i) The expression “live/work”, which is not a “term of art” as everyone agrees, originates from the planning authority. It is not, so far as any evidence goes, a defined or established planning category.
(ii) As a matter of practical fact, the sort of thing that the planners had in mind were units in which artists/craftspeople both lived and worked. It is also clear that the planners wished to encourage a “work” element in the regeneration of the properties.
(iii) Mr Grossbard’s oral evidence: The planners at the time of the permission did not designate any specific area for work; now they tend to designate specific working areas. So, it would follow, he considered, that, as a matter of planning regulation, 100% of one or other use or a mixture would all be permitted.
(iv) It is more debatable (see Mr Grossbard) as to whether the planners really were concerned with the substance, as opposed to the appearance of the user of the upper levels, provided that they retained commercial/industrial user of the ground floor.
(v) At the time that the headlease covenant was varied, the claimant, in its correspondence with Union Square and its professional adviser, was concerned about the application of the Act. The consensus reached was that the Act would have no application and that the occupation was “not solely for residential purposes”.
(vi) Mr Grossbard, in his dealings with the planners, was told by the head of the planning department that “live/work” was “residential by another name”.
[17] I accept everything that I have set out in [16] as fact, in the sense that, where it is evidence of what people have said, they said it and that it represented their opinion at the time: (i) to (iv) inclusive are, for whatever weight they have, part of the “factual matrix” and are of some aid to construction: (v) and (vi), which really represent people’s opinions, are either irrelevant, simply because of this, or at best direct evidence of intention that is not part of the factual matrix and is no aid to construction. In any event, they are irreconcilable; they are what people said (as in a Shakespearean drama) in “another room in the castle”.
[18] The primary point is that “live/work” is an informal planning term of whose established use there is no evidence. I accept Mr Radevsky’s submission that it is vague and arguably ambiguous. Undoubtedly, you could read the oblique stroke as being conjunctive. Applying this to the headlease it would work: you must live there and work at something. In the sub-underlease, a consistent use of the oblique stroke as conjunctive produces an absurd result: you must live there and at the same time work as an artist and a designer and a craftsperson. Nobody can have meant that. So then (Mr Morshead attempted this), you say that it is conjunctive (that is, “and”) as regards “live/work” and alternative (that is, “and/or”) as regards the working activities. I suppose that it could, but it would make it a most inconsistent piece of drafting. Much better sense and consistency is achieved by reading the oblique stroke as meaning “and/or” all through.
[19] I could probably stop at that point because, in my judgment, “and/or” makes the best sense. However, there are other supporting grounds for saying so. Thus:
(a) Looking at such factual matrix as there is, there must be a strong suggestion that the object of such a provision (a form of planning permission in origin) is the public purpose of allowing people to live, to work and, if they want to, live where they work and work where they live (so as to preserve both uses), rather than to compel mixed use and nothing but mixed use, which is a very narrow category to insist upon in an area where, the evidence was, there was a good deal of change, but a policy element to preserve work user where one could.
(b) It should be remembered that the user clause (or the planning permission) is something whose breach has dire consequences: enforcement notice in planning terms; injunction or forfeiture in the landlord and tenant relationship; essentially penal sanctions in both cases. People need to know when they have done wrong. This, in my judgment, should encourage the court to adopt a wider, rather than a narrower, construction
(c) Mr Radevsky argued that, if it comes to it, there is a case for construing the clause contra proferentem, a Latin phrase that seems still to have survived into the modem law without a well-defined English successor. He said that this means that it should be construed against the landlord. In support of this, he cites Skillion v Keltec Industrial Research [1992] 05 EG 162*, a decision of Knox J. As Mr Morshead rightly said, counsel in that case treated it as common ground that the rule applied against the landlord. Therefore, he said, it is of no use as an authority. If that was all it said, I would agree with him. But, in fact, Knox J added something of his own, at p126A-B. He said:
The contra proferentem rule does not mean that one has got to decide the case, if one possibly can, against the landlord’s interest in every particular circumstance. The contra proferentem rule is that in approaching the construction of a clause, in this case in a lease, one construes the clause in its context against the interest of the person who put it forward and had it included in the lease.
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* Editor’s note: Also reported at [1992] 1 EGLR 123
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That is, in my judgment, a plain statement of the rule. In many cases, it may readily be seen that it is against the landlords that it applies, but not always or inevitably. Mr Morshead took me to Amax International Ltd v Custodian Holdings Ltd (1986) 279 EG 762†. There, Hoffman J said:
[the rule] has its uses, perhaps as a canon of construction of last resort, but I do not think it can carry much weight in the of a lease. Its effect would in most cases be entirely arbitrary. At any rate, the fact that the tenant is the covenantor and, therefore, technically the proferens is not… sufficient to displace the inferences which I have already drawn…
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† Editor’s note: Also reported at [1986] 2 EGLR 111
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Both of these are first-instance judgments, and neither disapproves the other. Knox J’s decision was plainly an expression of his own view, not merely of a concession. There will be cases, Amax on its fact was one, where the rule does not assist and where, indeed, in other than a purely technical sense, one cannot say who, in truth, is the proferens.
[20] In my judgment, when one is construing a user clause, and the more so a user clause drafted such as these in terms prohibiting all user except the specified user, there is a strong argument for saying that it is the landlord that is putting the clause forward. If there were no clause, the tenant could use the property for any purpose at all; the |page:61| clause restricts him to the permitted user or no user at all. In those circumstances, it seems to me that one should take the landlord as the person putting forward the restriction and the restriction, if there is ambiguity, should be construed against him.
[21] My decision on the contra proferentem issue is supportive of my overall conclusion, but I can reach the conclusion without it. In my judgment, the clause should be read so that either residential or working user or the two together is permitted, and that, accordingly, there is no breach by the tenant of either the headlease covenant or the sub-underlease covenant. I turn now to the other issues.
Mr Morshead’s issues
[22] In his skeleton argument when he opened the case, Mr Morshead identified four issues, all closely related. Inevitably, as argument and evidence developed, the points taken have tended to reformulate. Inevitably, my findings in the last section of this judgment will have an effect upon how they are decided, but for the reason that I have already mentioned I propose to look at them in the alternative, namely that: (i) I am right about the user clause; and (ii) I might not be.
Issue one: Are the demised premises: (1) a separate set of premises and (2) constructed or adapted for use as a dwelling?
[23] The statutory definition of “flat”, so as to qualify, requires a separate set of premises constructed or adapted for use as a dwelling. As a starting point, Mr Morshead took three points:
(i) the purpose for which the premises were constructed is conceptually distinct from the use to which they were actually put. I would accept this, observing, as I pass, that the two will often factually be the same;
(ii) the relevant time for the test cannot be the moment at which the notice is served, because the tenant must own the “flat for two years prior to that”. I agree that the premises must satisfy the test throughout the relevant historical period; and
(iii) the purposes for which the relevant tenant becomes tenant cannot sufficiently answer the question “for what purposes”; one still needs to look at what the purposes were for which it was constructed or adapted. I agree with this too.
[24] This led Mr Morshead (correctly, as I follow him so far) to ask the question “by reference to matters as they stood at the date of construction/adaptation what were the purposes?” He added that the restriction that those purposes are the landlord’s purposes and, if during the tenancy, those purposes are shared by the tenant. He then went on to say that premises constructed or adapted for a composite use do not become construed or adapted for only one of the elements of the composite use just because the other elements cease. For this proposition, he relied upon Henry Smith’s Charity Trustees v Wagle [1990] 1 QB 42*.
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* Editor’s note: Also reported at [1989] 1 EGLR 124
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[25] To deal with Wagle first. This was a case where premises were let for a composite residential and business use. The business use ceased, so the protection under the Landlord and Tenant Act 1954 ceased too. The question for the court was whether, in the circumstances, the tenancy (now residential only) attracted the protection of the Rent Acts. The Court of Appeal held that it did not. Central to the discussion was the historic classification of a “Rent Act tenancy”, viz that the property was “let as a separate dwelling”, and the essential finding was that absent any new arrangements after the business user ceased, the premises were never let as a separate dwelling. I have the following observations on this case:
(i) it turns on a provision of the Rent Acts: that provision does not apply to this case;
(ii) nothing in that case suggests that, upon the business use ceasing, those premises were not let and occupied for residential purposes. Plainly they were, but that was not the point of the case;
(iii) there is no parity of reasoning in the Act. Mr Morshead sought in effect to write such reasoning into the definition of a “flat” in section 101. He approached it in this way:
(a) the cesser of all but one element of composite use has no bearing on the purpose for which the premises were constructed/adapted;
(b) the Act subsumes a comparable requirement to the Rent Acts, viz that the premises must have been constructed/adapted for the purpose of a separate dwelling.
Now, first of all, this is a gloss on the words of section 101, where the actual words are “constructed… for the purposes of a dwelling”. Mr Radevsky pointed out that there are no words comparable to the Rent Acts. Essentially, the test is:
(i) is the “flat” occupied as a separate dwelling? This is the definition of a “dwelling” in the Act; and
(ii) parliament does not say that the flat has to be let as a separate dwelling, and therefore it does not incorporate the Wagle test.
I agree with these submissions. In my judgment, Wagle, and any test based upon it, has nothing to do with this case, nor is there any justification for reading into the Act words that are not there.
[26] Absent anything relevant to be got from Wagle, I would therefore go on and say this. In my judgment, on the actual facts (I have seen photographs and plans), the premises, as constructed, were suitable both for residential use and for part-residential/part-work use. All that has happened by way of the tenant’s adaptation is that he has added a bedroom. Otherwise, it is as it was. There is nothing that would lead me to find that part only of the premises were capable of being residential or constructed for that purpose. Therefore, the worst that can be said against the tenant is that the premises were constructed for both purposes, but that the residential purpose applies to the entire dwelling. The consequences, as I see them, are:
(1) Given my finding that residential use alone is not a breach of covenant, the purpose of constructing something capable of joint use but put solely to residential use is a proper purpose, as is any purpose that allows the premises to be regarded as constructed for the purposes of a dwelling.
(2) If, contrary to my construction of the user clause, the use for residential purposes alone would be a breach of covenant, then, none the less given that the physical purpose is directed at users that can be concurrent, section 101 is still satisfied.
Issue two: On the assumption that the defendant’s use is in accordance with the landlord’s construction of his lease, would such user constitute a business tenancy subject to Part II of the 1954 Act?
[27] The point arises only if my construction is wrong. In those circumstances, the answer to the question would depend upon the actual “work” user. In most cases, obviously, the “work” user would be a business user. However, not all artists carry on a business. A quite extensive “hobby” use by an amateur artist would not necessarily be a business use. But in the absence of such rather unusual use, the answer to the question would generally be “yes”.
Issue three: Is the defendant’s use of the property in fact a use authorised by his lease of the property?
[28] Now that the defendant has given evidence, there is less in this point than there was. It is now accepted that the defendant does not occupy for any business purpose. So if my construction of the user clause is right, he occupied in conformity with his covenant. If I am wrong, he is in breach.
Issue four: Is the defendant entitled to rely upon his unauthorised use of the property as a basis for acquiring rights against the landlord under the Act?
[29] This is Mr Morshead’s most interesting and perhaps most promising point. It arises, of course, only if my construction is wrong. Put shortly, the way in which he approached it was to say that the Act makes the assumption that: (i) the flat is used solely for residential purposes; and (ii) such use is lawful in the sense of being compliant with the user covenant. He pointed out the considerable difficulties that would arise if this were not the case: |page:62|
(a) As against his immediate landlord, Mr Curtis is exposed to a risk of forfeiture, but this risk is effectively closed off in most cases by para 6 of Schedule 12 (factually, this is correct). However, in the instant case (although possibly pre-hypothetical), there is nothing to stop the claimant from forfeiting the headlease at once. I think that this is a better proposition than (2), which follows below, because it puts landlords into the position that they would have to go through all the hoops before being able to forfeit (but, of course, they would then have the purchase price in their pocket – it does have to be remembered that enfranchisement is not “for free”).
(b) As against his superior landlord, Mr Curtis is exposed to the risk of an injunction to restrain the breach. Such an injunction would not cause the tenant’s notice to cease to have effect. Thus, a tenant that is unable to use the premises for solely residential purposes is nevertheless entitled to a long lease, which he cannot (given the risk of an injunction) use for solely residential purposes: “This is preposterous and Parliament cannot have intended it.”(sic). The factual basis of this submission is, so far as it goes, uncontroversial. However, there might be a little more to it, thus: (i) the user covenant can be complied with by leaving the flat empty and by not using it at all; Doe d Bute v Guest (1846) 15 M&W 160; and (ii) the tenant has got to pay a substantial sum for his new lease. If he is prepared to spend this money and leave the flat empty, hoping perhaps that times might change, it may be a surprising action on his part, but it does not harm the landlord.
[30] In effect, what Mr Morshead was asking the court to do was to construe the Act by doing one of the following:
(i) deeming the permitted use to be the actual use: thus to treat a tenancy where the permitted use is combined living and business as actually occupied for business purposes; or
(ii) (his actual argument) construing the Act by inserting an implied assumption that the use is lawful.
In my judgment, neither is a legitimate construction. The Act makes verbal sense perfectly well without either insertion and:
(a) it is quite specific about what will qualify and what will not. If parliament intended insertions of this kind, one would have expected it to say so;
(b) there are no ambiguities;
(c) the Act actually works on the basis of: (a) whether there is business user; and (b) the purposes for which the flat had been constructed/adapted. Both are essentially factual question that can be answered in a factual way;
(d) Mr Morshead had very much argued this point on the basis of inconvenience to the landlord. But, as I have mentioned above, the greater risk falls on the tenant. If the tenant ultimately gets to the stage of a new lease that he effectively cannot use, and that has been acquired at the expense of many thousand of pounds paid to the landlord, it is he (who chose to start the whole process off) who is in greater trouble than the landlord.
[31] Mr Morshead had one more shot in his locker. He said that this is one of those cases where the old maxim that a man cannot take advantage of his own wrong applies: Chitty on Contracts (29th ed), at para 12-082, Bennion on Statutory Construction (3rd ed) at paragraphs 327-331, and Alghussein Establishment v Eton College [1988] 1 WLR 587. The important proposition in Bennion is that statutes do not exist in a vacuum, but, presumptively, the ordinary law applies as establishing the matrix within which the statute operates, thus, for this purpose especially, the law of contract is assumed to apply. Alghussein is an authority for the proposition that a party to a contract cannot rely upon its own breach of contract to repudiate the contract. I drew the attention of counsel to Re CL Nye Ltd [1970] 3 WLR 158, at p169B, quoting Bowen LJ in Re London Celluloid Co (1888) LR 39 ChD 190. The particular passage is:
the first question is, has the right to demand payment in cash been acquired through the breach of contract in question?
In my judgment:
(i) If one applies that last test, it seems to me that the answer to the question as to whether the premises are not used for business purposes stems from the (presupposed) breach of covenant is answered by saying that the covenant does not require the tenant to do anything at all so that a failure to carry on business is no breach.
(ii) I agree with Mr Radevsky (really repeating submissions referred to earlier) that the circumstances when a qualifying tenant cannot make a claim are fully and exhaustively set out in the statute. Breach of covenant is a common enough concept in a landlord and tenant statute, and, indeed, where the draftsman needs to refer to it he does so. To that extent the presumption that the law of ordinary contract applies will abate.
For all these reasons, I reject Mr Morshead’s arguments.
Waiver/acquiescence
[32] Mr Radevsky’s ultimate fall-back position, which, on my conclusions, he need not have reached, is that, given the history, if the claimant sought to forfeit the headlease, either a defence of waiver/acquiescence would succeed or the defendant would be granted relief against forfeiture without having to change his use. The facts that he relies upon are:
(i) On 29 September 1994 (so, almost 10 years ago), a letter was written to the claimant (for the attention of Mr Andrew Fuller) by Mr Grossbard. In that letter, Mr Grossbard told Mr Fuller about the occupancy. He referred to there being a mixed live and work permission, but he made it clear that the upper floors were essentially residences.
(ii) Despite this letter, the claimant, who had been worried about the effect of the Act, did nothing. Although it could not have directly taken possession proceedings, it could have applied for an injunction.
(iii) The occupancy has been the same from that day to this.
I find all those as facts.
However the landlord also relied upon the following:
(a) Mr Fuller, although now the senior man in the administration, was a junior officer in 1994. His superior (it was a two-man office) was a Mr Doyle. (Mr Fuller gave evidence before me. Mr Doyle did not.)
(b) Mr Fuller had no knowledge of the terms of the headlease.
(c) The letter was written primarily with an eye on insurance.
(d) Mr Fuller’s oral evidence was that, thereafter, he had not become aware of the purposes for which the premises were being used.
I find those facts also, but subject to this. I am not convinced that, in this case, where the entire administration of this substantial charity fell upon two people, that it would be right to regard Mr Fuller, even 10 years ago, as being no more than a clerk. The obvious inference was that he had administrative functions but that he was the more junior man. It seems to me that I ought to find the facts, in case this case goes further and this issue becomes relevant, that because of my earlier findings it is presently not. I am not, in any event, persuaded that this argument is a relevant answer to the landlord’s case, rather than an indication of something that might happen next. I am also concerned that if I make detailed findings about this now and the issue arises in later proceedings, there might be unnecessary complications by way of issue estoppel. If the parties wish me to make any further findings on this issue, I am, of course, prepared to listen to any such application.
Conclusion
[33] It follows that the landlords’ claim fails and the tenant is entitled to seek the relief provided for in section 46(4) of the Act.
Claim dismissed.
