Subtenancy granted by tenant in breach of covenant — Landlord becoming aware of breach — Possession order granted — Relief against forfeiture on condition that tenant pay landlord’s costs — Mortgagee building society likely to pay costs — Appeal to Court of Appeal to set aside order for possession — Appeal allowed
The plaintiff and her husband purchased a long leasehold interest in a flat at 19 Stanhope Court, East End Road, London N3. Stanhope Court was a purpose-built block of four flats and no 19 one of two ground-floor flats. S, the first defendant, was the leaseholder of no 18. In 1993 the plaintiff purchased the freehold reversion of the block and became S’s landlord. The plaintiff suspected flat 18 was being sublet contrary to the terms of the lease and sought possession. The judge found that the lease had been forfeited by the tenant’s breach of covenant against underletting or parting with possession of part. The judge gave the tenant relief from forfeiture on terms which included a condition that the tenant should pay the landlord’s costs.
To ensure that relief was obtained and its security preserved, it seemed likely that the building society (the second defendant) as mortgagee, would have to pay the landlord’s costs as well as its own. The value of the lease was already less than the debt owed to the building society. The negative equity would be further increased by the liability to pay costs which would fall upon the society if the order stood. Therefore, the building society appealed seeking an order that the plaintiff’s claim to possession of the flat be dismissed.
Held The appeal was allowed.
1. The only issue on the appeal was whether the landlord had sufficient knowledge of the breach of covenant that she waived the right to forfeit the lease before she purported to forfeit it.
2. For there to be a waiver the landlord did not need to know all the facts — only sufficient to show that: there had been a breach of covenant; or which pointed to a breach of covenant; or which should put the landlord on inquiry as to the nature of the breach: see Metropolitan Properties Co Ltd v Cordery [1979] 2 EGLR 78.
3. Further, the landlord must do some positive act which unequivocally recognised the continuance of the lease. The landlord need only know the basic facts needed to establish the breach in question. In the case of a covenant against subletting or parting with possession of part, the landlord need know only that there had been a subletting or parting with possession; not the name of the subtenant or the length of the subterm nor the rent payable under the subtenancy.
4. In this case there was evidence to support a finding that the landlord had waived the right to forfeit.
5. Had the judgment of the Court of Appeal in Cordery been cited to the judge he might have approached the question of waiver differently.
Michael Driscoll QC (instructed by Hammond Suddards, of Leeds) appeared for the appellant building society; Hugh Jackson (instructed by Cornillie & Co) appeared for respondent plaintiff.
