Lease of premises – Respondent tenant covenanting to pay appellant landlord any fees, costs and expenses incurred or charged in connection with proceedings under section 146 of Law of Property Act 1925 or Leasehold Property (Repairs) Act 1938 – Appellant serving section 146 notice alleging disrepair – Respondent serving counter-notice under 1938 Act such that leave of court required for proceedings against it – Such proceedings not brought – Whether costs subsequently incurred by appellant recoverable under covenant – Appeal dismissed
In November 2001, the appellant granted a 29-year lease to the respondent of premises that the latter was to repair and refurbish before subletting them as flats. The demise included the roof and roof space. The appellant retained much of the ground floor, which was fitted out as shop units that were let to commercial tenants. Clause 9.3 of the respondent’s lease contained an obligation to pay the appellant on an indemnity basis any fees, costs and expenses incurred by it or charged to it in connection with any steps taken “in contemplation of, or in relation to” proceedings under section 146 or 147 of the Law of Property Act 1925 or the Leasehold Property (Repairs) Act 1938.
A dispute arose between the parties over the condition of the roof, for which the respondent was responsible under a repairing covenant in its lease. In February 2003, the appellant served a notice on the respondent, under section 146 of the 1925 Act, attaching a schedule of the alleged items of disrepair. The respondent served a counter-notice, claiming the benefit of the 1938 Act, with the effect that, by section 1(3), the leave of the court was required for the appellant to bring any proceedings for forfeiture or damages. Following negotiations, the respondent carried out the works of repair, which were completed in July 2005.
The appellant claimed more than £30,000 from the respondent under clause 9.3 of the lease, including solicitor’s and surveyor’s costs and the cost of various items of building work. The respondent contended that the appellant was precluded from recovering most of the items, so far as they related to matters arising after the service of the counter-notice, since it had not sought the necessary leave of the court for proceedings to forfeit the lease or to claim damages and there had therefore never been any proceedings either under section 146 of the 1925 Act or under the 1938 Act to which the costs or charges could relate.
The appellant appealed. It contended that the covenant should be interpreted in a commercial way to include all of the costs that it had incurred from the time it decided to serve a section 146 notice up to when that process ended, such that the costs it sought to recover had been incurred “in relation to” section 146 proceedings.
Held: The appeal was dismissed.
Where there was a professionally drawn document, it was legitimate to assume that the lawyers acting for the parties had chosen their words with care. It was reasonable to assume that clause 9.3 had been drafted with the provisions of section 146 of the 1925 Act, and those of the 1938 Act, in mind. Section 146 was concerned only with the forfeiture of the lease and applied where the landlord was “proceeding by action or otherwise” to enforce a right of re-entry. No such proceedings had taken place in the instant case, nor could they have been taken without the leave of the court under the 1938 Act, for which the appellant had not applied. Accordingly, the work done by the appellant’s solicitor and surveyor between February 2003 and July 2005, in pursuing the respondent in correspondence to do the repairs and supervising and reporting on the works carried out, could not have involved a step taken in such proceedings. However widely the covenant was construed, the charges and expenses claimed had to relate to proceedings under section 146 of the 1925 Act or the 1938 Act and they could not do so where no such proceedings were in existence or in contemplation at the relevant time. Although the consensual process by which the respondent had ultimately carried out the repairs might have been a direct alternative to forfeiture proceedings, and due in part to the threat of such proceedings, that was insufficient to make the work carried out by the solicitor and the surveyor to be regarded as steps in contemplation of, or in relation to, proceedings under section 146; the qualifying steps had to be linked in a real way to forfeiture proceedings as described in section 146.
Robert Sterling (instructed by Hutchinson & Buchanan, of Ripon) appeared for the appellant; Bruce Walker (instructed by Rollits, of York) appeared for the respondent.
Sally Dobson, barrister
