Forfeiture — Breach of tenant’s covenant — Whether sharing possession same as sharing occupation in context of covenant — Whether landlord entitled to forfeit for breach not specified in section 146 notice — Appeal allowed
The respondent was the landlord and the appellant was the tenant under a lease of commercial premises. The lease contained a tenant’s covenant not to assign, underlet or part with possession of the demised premises, or to share possession of them. It also provided for forfeiture in the event of a breach of covenant.
Shortly after the appellant acquired the lease, a company that prepared and sold takeaway pizzas (the company) began trading from the premises. The respondent served a notice on the appellant, pursuant to section 146 of the Law of Property Act 1925, alleging a breach of covenant consisting of assigning, subletting or parting with possession of the premises without its consent. The notice stated that should the breach not be remedied, the respondents would forfeit the lease by re-entry 14 days from the date of service. In the meantime, the appellant became the sole director of the company. The respondent subsequently re-entered the property.
The appellant brought proceedings seeking reinstatement of the premises. The judge held that, inter alia, the appellant had not parted with possession of the premises, but had breached the covenant by sharing possession with the company. In reaching that conclusion, he held that “possession”, in the context of the covenant against sharing possession, was to be read as meaning “occupation”, and should not be given its strict legal meaning, otherwise the covenant would have no effect. He considered that although the appellant’s breach was not specified in the section 146 notice, the respondent was entitled to rely upon it to justify its re-entry. The appellant appealed.
Held: The appeal was allowed.
1. The difference between possession and occupation, although technical, was well established in landlord and tenant law. In the absence of any strong and clear case for construing it otherwise, the word “possession” was to be given its normal, and technically legally correct, meaning in both the covenant against parting with possession and the covenant against sharing possession. That did not prevent the latter covenant from having legal effect, since it was possible to share possession. As a matter of ordinary language, a lessee that let another party into possession of the demised premises, so that both were in possession, could properly be said to “share” possession. The covenant in the instant case prevented the conversion of a tenancy to a single lessee into what, in practical terms, would amount to a joint tenancy. Although the covenant would have had relatively little value, the court should not give a wide meaning to an absolute covenant: Lam Kee Ying Sdn Bhd v Lam Shes Tong (t/a Lian Joo Co) [1975] AC 247 considered.
2. The company had exercised a degree of control over the premises that amounted to its having possession, and the appellant had in fact shared possession with it. However, the respondent had not been entitled to forfeit on that ground because the section 146 notice had not mentioned it, but had complained only of the parting with possession. It had, therefore, neither informed the appellant of the breach complained of nor indicated to him whether, and if so how, he must remedy any breach. A reasonable recipient could reasonably have taken the view that the respondent was not objecting to any sharing of possession, and, consequently, that no steps needed to be taken: Fox v Jolly [1916] 1 AC 1 applied; Mannai Investments Co Ltd v Eagle Star Assurance Co Ltd [1997] 1 EGLR 57; [1997] 24 EG 122; [1997] 25 EG 138 considered.
Simon Butler and Ali Sinai (instructed by J Garrard & Allen, of Olney) appeared for the appellant; Stephen Lloyd (instructed by Clifford Watts Compton) appeared for the respondent.
Sally Dobson, barrister
