Mortgages of long leases — Relief from forfeiture — Whether mortgagee entitled to relief under section 38 of Supreme Court Act 1981 — Whether mortgagee entitled to relief under section 146(2) of Law of Property Act 1925 — Whether landlord entitled to mesne profits up to date of court order
tenant — Service charge stated to be additional rent and recoverable as rent —
Whether service charge had all the characteristics of rent
Each of the
leases in the conjoined appeals was of a house or flat for a term of 97 or 99
years from a date in 1987 or later at a premium of between £56,500 and £67,000
and at a rent of between £80 and £200 for the first 33 years or more. Each
lease contained covenants by the tenant to pay service charge as well as rent.
In none of them did the reddendum reserve the service charge as rent.
However, in Escalus Properties Ltd v Robinson and Escalus
Properties Ltd v Cooper-Smith the lease contained a provision that
the service charge ‘shall be deemed to be sums due by way of additional rent
and shall be recoverable by the Landlord as such’. Each lease contained a proviso
for re-entry on non-payment of rent and each lease was mortgaged to a building
society. In each case the tenant or tenants defaulted under the mortgage, and
the respective landlords claimed arrears of rent and, in three of the cases,
service charges. The building societies were joined as a defendant in each case
for the purpose of claiming relief from forfeiture. The plaintiff landlords
appealed from the respective decisions below by which it was held that the
building societies were entitled to relief from forfeiture upon payment of
arrears of rent and, where appropriate, service charges; the landlords were not
entitled to recover mesne profits between the date of forfeiture and the
date of the court order.
Whether
the service charges were ‘rent’
In Escalus
Properties Ltd v Robinson and Escalus Properties Ltd v Cooper-Smith
the words in the respective leases, stating that the service charge was
additional rent and recoverable as rent, gave to the service charge the character
and attributes of rent. Accordingly, for the purposes of relief from forfeiture
these two cases, as well as Sinclair Gardens Investments (Kensington) Ltd
v Walsh, involved arrears of rent only.
Section
138(2) of the County Courts Act 1984
In Escalus
Properties Ltd v Robinson the building society had paid into the
county court not less than five days before the return date, all the rent and
service charges in arrear. Accordingly,
Trustees Ltd [1993] 2 EGLR 85 the building society was automatically
entitled to relief from forfeiture under section 138(2) of the County Courts
Act 1984.
Section
138(9A) and (9B) of the County Courts Act 1984
In Sinclair
Gardens Investments (Kensington) Ltd v Walsh the building society
was ordered to pay into the county court the amount of the judgment for arrears
of rent entered against the tenants. In giving relief from forfeiture the
learned recorder must have acted under section 138(9A) and (9B) of the County
Courts Act 1984, which on the authority of United Dominions Trust Ltd v Shellpoint
Trustees empowers the court to give a mortgagee by subdemise retrospective
relief from forfeiture.
Section
38 of the Supreme Court Act 1981
In Escalus
Properties Ltd v Cooper-Smith the building society had paid into the
High Court the arrears of rent and, at the hearing of the claim for relief,
adduced evidence of its inability to trace the tenant. Relief granted to a
mortgagee by subdemise under section 38 was retrospective by the reinstatement
of the lease. In the circumstances the deputy judge was entitled to grant
relief in the absence of the tenant after considering the judgments in Hare
v Elms [1893] 1 QB 604 and Abbey National Building Society v Maybeech
Ltd [1984] 2 EGLR 69.
Section
146(2) of the Law of Property Act 1925
Because the
arrears in Escalus Properties Ltd v Dennis were not rent only,
section 138 of the County Courts Act 1984 did not apply. However, the building
society was entitled to relief from forfeiture under section 146(2) of the 1925
Act. The definition of ‘lessee’ in subsection (5)(b), which includes
‘the persons deriving title under a lessee’, when applied to ‘lessee’ in
subsection (2), means that a mortgagee by way of a subdemise may claim relief from
forfeiture under that subsection or under subsection (4). When, as in this
case, relief is given under subsection (2), it is retrospective and by
reinstatement of the lease upon payment of the arrears of rent and service
charges. If relief were sought and granted under subsection (4), it would be by
the grant of a new lease and upon payment of mesne profits from the date
of the forfeiture to the date of the court order.
The following
cases are referred to in this report.
Abbey
National Building Society v Maybeech Ltd
[1985] Ch 190; [1984] 3 WLR 793; [1984] 3 All ER 262; [1984] 2 EGLR 69; [1984]
EGD 479; (1984) 271 EG 995
Bowser v Colby (1841) 1 Hare 109
Burt v Gray [1891] 2 QB 98
Cadogan v Dimovic [1984] 1 WLR 609; [1984] 2 All ER 168; (1984) 48
P&CR 288; [1984] 1 EGLR 71; [1984] EGD 128; 270 EG 37, CA
Creswell v Davidson (1887) 56 LT 811
Dendy v Evans [1910] 1 KB 263
Doe d
Wyatt v Byron (1845) 1 CB 623
Gray v Bonsall [1904] 1 KB 601
Hare v Elms [1893] 1 QB 604
Nind v Nineteenth Century Building Society [1894] 2 QB 226
Official
Custodian for Charities v Mackey [1985] Ch
168; [1984] 3 WLR 915; [1984] 3 All ER 689
Property
Holding Co Ltd v Clark [1948] 1 KB 630;
[1948] 1 All ER 165; (1948) 64 TLR 76, CA
Street v Mountford [1985] AC 809; [1985] 2 WLR 877; [1985] 2 All ER
289; [1985] 1 EGLR 128; (1985) 274 EG 821, HL
United
Dominions Trust Ltd v Shellpoint Trustees Ltd
[1993] 4 All ER 310; (1993) 67 P&CR 18; [1993] 2 EGLR 85; [1993] 35 EG 121,
CA
This was the
hearing of conjoined appeals by Escalus Properties Ltd and Sinclair Gardens
Investments (Kensington) Ltd from decisions of Judge Willis and Mr Recorder
Bridges-Adams, in the county court, and Judge Fawcus, sitting as a High Court
judge, in the High Court, giving in each case relief from forfeiture upon
applications of the respondents, Abbey National plc and Bristol & West
Building Society, upon payment of arrears of rent and service charges rather
than mesne profits.
David
Neuberger QC and Graham Clark (instructed by Malthouse Chevalier) appeared for
the appellant landlords; Michael Driscoll QC, John McGhee and Timothy Harry
(instructed by Denton Hall, of Milton Keynes) represented the respondent
building societies; the defendant tenants did not appear and were not
represented.
Giving
judgment, NOURSE LJ said: In each of these four appeals a mortgagee by
subdemise seeks relief against forfeiture of a long lease granted for a premium
and at a low rent. The landlord accepts that relief is available. The dispute
is as to its nature and the terms on which it ought to be granted. The
mortgagee says that relief can be granted retrospectively and on terms that it
pays all arrears of rent and service charge and costs. The landlord says that
relief can only be granted as from the date of the order granting it and on
terms that the mortgagee pays all arrears of rent and service charge up to the
date of forfeiture, thereafter mesne profits until the date of the order
and costs. The lease having been granted at a low rent, it is evident that mesne
profits would be far more valuable to the landlord.
Because
different considerations apply depending on whether the landlord takes
proceedings in the county court or the High Court and whether they are based on
non-payment of rent or of sums other than rent, each case must be considered
separately. Although the erstwhile tenants, against all of whom the leases have
been forfeited, have taken no part in the proceedings, the convenient course is
to refer to each case by the name of the first defendant, being the tenant, or
one of them, under the forfeited lease. In Robinson, Dennis and Cooper-Smith
the plaintiff landlord is Escalus Properties Ltd (‘Escalus’) and the mortgagee
is Abbey National plc (‘Abbey’). In Walsh the plaintiff landlord is
Sinclair Gardens Investments (Kensington) Ltd (‘Sinclair’) and the mortgagee is
Bristol & West Building Society (‘Bristol’). In Robinson, Dennis
and Walsh proceedings have been brought in the county court; in Cooper-Smith
in the High Court.
Each of the
leases was of a house or flat in London or Surrey for a term of 97 or 99 years
from a date in 1987 or later at a premium of between £56,500 and £67,000 and at
a rent of between £80 and £200 for the first 33 years or more. Each lease
contained covenants by the tenant to pay service charge as well as rent. In
none of them did the reddendum reserve the service charge as rent.
However, in both Robinson and Cooper-Smith the lease contained a
provision that service charges:
shall be
deemed to be sums due by way of additional rent and shall be recoverable by the
Landlord as such.
The leases in Dennis
and Walsh contained no such provision. Each lease contained a proviso
for re-entry on non-payment of rent. In each case the lease was mortgaged by
the tenant or tenants in favour of Abbey or Bristol as the case might be. In
each case the tenant or tenants defaulted under the mortgage as well as under
the lease.
In Robinson,
Dennis and Cooper-Smith judgment was obtained by Escalus against
the respective tenants on the basis of arrears of both rent and service charge;
in Walsh by Sinclair on the basis of arrears of rent only. In each case
Abbey or Bristol, as appropriate, was joined as a defendant for the purpose of
claiming relief against forfeiture. In each case the judge in the court below
(in Robinson and Dennis Judge Willis, sitting in Croydon County
Court, in Cooper-Smith Judge Fawcus, sitting as a judge of the Queen’s
Bench Division, and in Walsh Mr Recorder Bridges-Adams, sitting in
Woolwich County Court) held that relief could be granted retrospectively and
that it ought to be granted on terms that all arrears owing under the lease and
costs, but not mesne profits, were paid. Against those decisions Escalus
and Sinclair respectively appeal to this court.
Robinson
and Cooper-Smith — was the service charge ‘rent’?
Because the
statutory provisions relating to non-payment of rent differ from those relating
to other breaches of covenant, for example for payment of service charges, the
first point to be decided in Robinson and Cooper-Smith is into
which category the case falls. The
where there were arrears of service charge but the lease contained no provision
deeming them to be sums due by way of additional rent and recoverable as such,
Abbey accepts, correctly, that the service charge cannot be treated as rent. So
the point only arises in Robinson and Cooper-Smith.
The question
is whether a provision that service charges ‘shall be deemed to be sums due by
way of additional rent and shall be recoverable by the landlord as such’
invests the charge with the character of rent, even though it is not reserved
as such by the reddendum. Curiously enough, there appears to be no reported
decision directly in point. Several authorities were cited, for example Property
Holding Co Ltd v Clark [1948] 1 KB 630, but they went rather to the
question whether service charges can be ‘rent’ without any deeming provision
such as that found here. What we have to do is to decide, first, what is meant
by ‘rent’ in the statutory provisions and, second, whether the relevant
provision in each lease had the effect of converting service charges into rent
in that sense.
Seeing that
the current statutory provisions derive from others enacted in the 18th and
19th centuries, I regard it as axiomatic that they refer to rent in its correct
sense being: (1) a periodical sum, (2) paid in return for the occupation of
land, (3) issuing out of the land, and (4) for non-payment of which a distress
is leviable. All those attributes were enjoyed by the rents payable under the
leases in Robinson and Cooper-Smith. Each of those leases, by
providing that service charges should be deemed to be sums due by way of additional
rent, had the effect of conferring the like attributes on the service charge,
an effect confirmed by the further provision that it should be recoverable as
rent. To hold thus is to do no more than give full effect to the agreement
between the parties. That agreement is not defeated or modified by the omission
to reserve the service charge as rent in the reddendum.
The primary
submission of Mr David Neuberger QC, for Escalus and Sinclair, was that service
charges cannot become rent even if reserved as such in the reddendum. I
do not know why that should be so. I can think of no ground in public policy
such as there was, for example, in Street v Mountford [1985] AC
809*, with which Mr Neuberger sought to draw an analogy, for holding that the
parties to a lease are not entitled to treat as rent something which is not
rent. Alternatively, Mr Neuberger submitted that the provision here goes no
further than to treat the service charge as being recoverable as rent. That
submission ignores the first part of the provision, which says that the charge
shall be deemed to be due by way of additional rent; in other words, that it is
to have all the attributes of rent.
*Editor’s
note: Also reported at [1985] 1 EGLR 128.
For these
reasons, I am satisfied that both Robinson and Cooper-Smith are,
like Walsh, to be treated as rent only cases. At this point they must be
realigned, the proceedings in Robinson and Walsh being in the
county court and in Cooper-Smith in the High Court.
Robinson —
section 138(2) of the County Courts Act 1938
In Robinson
Abbey had paid into court, not less than five clear days before the return
date, all the rent and service charge in arrear and also the costs of the
action. Accordingly, Judge Willis, applying the decision of this court in United
Dominions Trust Ltd v Shellpoint Trustees Ltd [1993] 4 All ER 310*,
held that Abbey was automatically entitled to retrospective relief against
forfeiture under section 138(2) of the County Courts Act 1984. I will return to
Shellpoint in due course. At this stage it is enough to say that it is
binding authority on this court so far as the effect of section 138 is
concerned. On that footing the decision of Judge Willis was correct. It follows
that the appeal in Robinson must be dismissed.
*Editor’s
note: Also reported at [1993] 2 EGLR 85.
Walsh —
section 138(9A) and (9B) of the County Courts Act 1984
In Walsh
the proceedings became confused, it being assumed that, as between Sinclair and
the tenants, the case was governed by section 146 of the Law of Property Act
1925. However, given that the only basis for forfeiture was non-payment of
rent, Sinclair accepts that it was in reality governed by section 138 of the
County Courts Act. What happened was that, after an order for possession had
been executed against the tenants, Bristol was added as a defendant and ordered
to pay into court within 14 days the sum of £2,176.03, being the amount of the
judgment already entered against the tenants. It was further ordered that
Bristol ‘will be given [relief] from forfeiture pending the final hearing of
this matter’. Bristol duly paid the money into court. At the final hearing, Mr
Recorder Bridges-Adams made an order granting Bristol’s application for relief.
Sinclair, through Mr Neuberger, accepts that the recorder must be taken to have
acted under section 138(9A) and (9B) of the County Courts Act, which, on the
authority of Shellpoint empowers the court to grant a mortgagee by
subdemise retrospective relief against forfeiture. In the result, Walsh
stands on the same footing as Robinson and the appeal must likewise be
dismissed.
Cooper-Smith
— section 38 of the Supreme Court Act 1981
It is
convenient to deal next with Cooper-Smith, the third rent only case,
which differs from Robinson and Walsh in that the proceedings are
in the High Court. That means that it is governed by section 38 of the Supreme
Court Act 1981:
(1) In any
action in the High Court for the forfeiture of a lease for non-payment of rent,
the court shall have power to grant relief against forfeiture in a summary
manner, and may do so subject to the same terms and conditions as to the
payment of rent, costs or otherwise as could have been imposed by it in such an
action immediately before the commencement of this Act.
(2) Where the
lessee or a person deriving title under him is granted relief under this
section, he shall hold the demised premises in accordance with the terms of the
lease without the necessity for a new lease.
The dates here
may be of some importance. The writ was issued on February 3 1993, an order for
substituted service on the tenant being made on March 10. Abbey applied to be
joined as a defendant and for relief against forfeiture. On March the master
made an order for joinder and adjourned the application for relief. On June 17
1993 judgment for possession was entered against the tenant in default of
notice of intention to defend. Abbey having paid into court more than enough to
satisfy the arrears of rent and service charge and costs, on December 3 1993
the master made an order granting it relief against forfeiture by reinstating
the lease. Escalus’ appeal against the master’s order was dismissed by Judge
Fawcus on January 27 1994.
Having held,
correctly, that the arrears of service charge were to be treated as arrears of
rent, the judge turned to consider relief under section 38, subsection (2) of
which, by referring to ‘a person deriving title under’ the lessee, expressly
contemplates that relief may be granted to an underlessee. Moreover, it appears
to have been accepted on behalf of Escalus that relief, if granted, would be by
way of reinstatement of the lease. The objection taken, based primarily on Hare
v Elms [1893] 1 QB 604, was that such relief could not be granted in the
absence of the tenant. However, the judge, having read passages from the
judgments of Day J in Hare v Elms, at p607, and Nicholls J in Abbey
National Building Society v Maybeech Ltd [1985] Ch 190*, at p206B,
held that there was no absolute rule and that the question was whether, on the
facts before him, Abbey had shown good cause for proceeding in the tenant’s
absence. Having referred to two affidavits of Abbey’s solicitor deposing to the
unsuccessful efforts that had been made to trace the tenant, Judge Fawcus
answered that question in the affirmative, stating that it was difficult to see
what else Abbey could have done. Accordingly, being satisfied that the case
fell under section 38, he dismissed Escalus’ appeal against the master’s order.
*Editor’s
note: Also reported at [1984] 2 EGLR 69.
The original
predecessor of section 38 of the 1981 Act was section 1 of the Common Law
Procedure Act 1860, on which several authorities, besides Hare v Elms,
were cited to us. None of them casts any doubt on the proposition that an
underlessee (including a mortgagee by subdemise) could apply for relief under
that provision
decision in regard to section 38 are, first, whether relief is granted
retrospectively by reinstatement of the lease and, second, whether Judge Fawcus
was entitled to grant Abbey relief in the circumstances of this case.
As to the
first of those questions, Mr Neuberger referred us to a number of authorities
which he claimed supported the proposition that relief granted under section 38
can only be granted as from the date of the order granting it. However, none of
them really dealt with the point and the proposition advanced is inconsistent
with the terms of section 38(2), which provides that the person to whom relief
is granted ‘shall hold the demised premises in accordance with the terms of the
lease without the necessity for a new lease’. That wording is identical to that
of section 138(9B) of the County Courts Act 1984 and there is no reason for
giving it an effect different from that already given to the latter provision
in Walsh.
As to the
second question, I think that Judge Fawcus applied an entirely correct test as
established by the authorities. Moreover, in applying the test, he gave a
decision with which it would be impossible for this court to interfere. The
application of the test was essentially a matter within his discretion. For my
part, I do not see that he could reasonably have given any other decision.
Accordingly, I would also dismiss the appeal in Cooper-Smith.
Dennis —
section 146 of the Law of Property Act 1925
I come finally
to Dennis, which is without doubt the most difficult of the four cases.
It having been accepted by Abbey that it is not a rent only case, it follows
that section 138 of the County Courts Act is not in point and that relief can
only be granted under section 146 of the Law of Property Act 1925, of which the
material provisions are the following. Subsection (1) provides that a right of
re-entry or forfeiture shall not be enforceable unless and until the lessor
serves on the lessee an appropriate notice and the tenant fails, within a
reasonable time thereafter, to remedy the breach, if it is capable of remedy,
and to make reasonable compensation in money to the satisfaction of the
landlord, for the breach.
Subsection (2)
provides:
Where a
lessor is proceeding, by action or otherwise, to enforce such a right of
re-entry or forfeiture, the lessee may, in the lessor’s action, if any, or in
any action brought by himself, apply to the court for relief; and the court may
grant or refuse relief, as the court, having regard to the proceedings and
conduct of the parties under the foregoing provisions of this section, and to
all the other circumstances, thinks fit; and in case of relief may grant it on
such terms, if any, as to costs, expenses, damages, compensation, penalty, or
otherwise, including the granting of an injunction to restrain any like breach
in the future, as the court, in the circumstances of each case, thinks fit.
Subsection (3)
provides for the lessor to recover as a debt due from the lessee all reasonable
costs and expenses properly incurred by the lessor in reference to any breach
which is waived or from which the lessee is relieved.
Subsection (4)
provides:
Where a
lessor is proceeding by action or otherwise to enforce a right of re-entry or
forfeiture under any covenant, proviso, or stipulation in a lease, or for
non-payment of rent, the court may, on application by any person claiming as
under-lessee any estate or interest in the property comprised in the lease or
any part thereof, either in the lessor’s action (if any) or in any action
brought by such person for that purpose, make an order vesting, for the whole
term of the lease or any less term, the property comprised in the lease or any
part thereof in any person entitled as under-lessee to any estate or interest
in such property upon such conditions as to execution of any deed or other
document, payment of rent, costs, expenses, damages, compensation, giving
security, or otherwise, as the court in the circumstances of each case may
think fit, but in no case shall any such under-lessee be entitled to require a
lease to be granted to him for any longer term than he had under his original
sub-lease.
Subsection (5)
provides that for the purposes of the section:
(b)
… ‘Lessee’ includes an original or
derivative under-lessee, and the persons deriving title under a lessee; also a
grantee under any such grant as aforesaid and the persons deriving title under
him …
Subsection (11)
provides:
This section
does not, save as otherwise mentioned, affect the law relating to re-entry or
forfeiture or relief in case of non-payment of rent.
The effect of
subsection (11) is to exclude from subsection (2) proceedings based only on
non-payment of rent. Subsection (4), on the other hand, expressly includes such
proceedings, thus giving effect to the decision of this court in Gray v Bonsall
[1904] 1 KB 601. Since the proceedings in Dennis were based on
arrears of service charge as well as rent, Abbey, provided it is a ‘lessee’
within subsection (5)(b), is prima facie entitled to apply for
relief either under that subsection or under subsection (4).
It is well
established that the effect of an order for relief under section 146(2) is to
restore the lease as if it had never been forfeited, and with it any
underlease: see the decision of this court in Dendy v Evans [1910] 1 KB
263. That is what is meant when it is said that relief is granted
retrospectively. But where relief is granted under section 146(4) it can only
be granted as from the date of the order granting it: see Cadogan v Dimovic
[1984] 1 WLR 609*, at pp613, 616, per Fox and Robert Goff LJJ and the
decision of Scott J in Official Custodian for Charities v Mackey
[1985] Ch 168.
*Editor’s
note: Also reported at [1984] 1 EGLR 71.
The rival
contentions as to section 146(2) and (4) are, shortly stated, as follows.
Relying on the definition of ‘lessee’ in subsection (5)(b) and the
decision in Shellpoint, Abbey contends that it is entitled to apply for
and obtain relief under subsection (2), with the same results as under section
138(9A) and (9B) of the County Courts Act. In answer, Escalus, relying on
authorities not cited in Shellpoint, in particular the decision of this
court in Nind v Nineteenth Century Building Society [1894] 2 QB
226, contends that an underlessee cannot be granted relief under subsection
(2), but only under subsection (4); and that in any event, as a matter of
discretion, Abbey ought to be granted relief under subsection (4). In reply,
Abbey contends that Nind and the other authorities relied on by Escalus
were decided in ignorance of Doe d Wyatt v Byron (1845) 1 CB 623,
on which this court relied in Shellpoint; further or alternatively, that
those authorities, having depended on the narrower definition of ‘lessee’ in
section 14(3) of the Conveyancing and Law of Property Act 1881, have been
overruled by the enactment of section 146(5)(b).
These
contentions make it necessary to consider the earlier legislation with some
care. The original predecessor of section 146(2) was section 14(2) of the 1881
Act, the two subsections being expressed in identical terms. So far as
material, section 14(3) provided that for the purposes of that section:
a lessee
includes an original or derivative under-lessee, and the heirs, executors,
administrators, and assigns of a lessee …
Section 14(8),
like section 146(11), provided that section 14 should not affect the law
relating to re-entry or forfeiture or relief in case of non-payment of rent.
Before the
enactment of section 14 of the 1881 Act relief against forfeiture could only be
granted in respect of non-payment of rent. So section 14 was novel in its
effect. Moreover, the 1881 Act contained no provision equivalent to section
146(4). The original predecessor of that provision, in nearly identical terms,
was section 4 of the Conveyancing and Law of Property Act 1892, whose long
title described it as an Act to amend the 1881 Act. It appears that section 4
was enacted because the view was taken that the definition of ‘lessee’ in
section 14(3) did not include a lessee of a lessee. Thus in Creswell v Davidson
(1887) 56 LT 811, at p812, Kay J, after reading section 14(3), said:
I am not at all
sure, therefore, that it can be said that a lessee includes an under-lessee
from an original lessee. By the words of the 3rd sub-section it includes an
original or derivative under-lessee, but apparently not a lessee of a lessee.
In Burt
v Gray [1891] 2 QB 98 a Queen’s Bench Divisional Court
create any privity as between the original lessor and the underlessee which did
not exist before. They further held that ‘lessee’ in section 14(3) did not
apply to an underlessee of a part of the demised property.
Nind v Nineteenth Century Building Society was a case on section
2(1) of the 1892 Act, the predecessor of section 146(3) (recovery by the
landlord of reasonable costs and expenses properly incurred in relation to
breaches by the tenant). It was held that an underlessee was not, as between
himself and the original lessor, a ‘lessee’. The decision was based on the
wording of section 14(3) of the 1881 Act. Following the views expressed in Creswell
v Davidson and Burt v Gray, this court held that ‘lessee’
in section 2(1) of the 1892 Act did not include a lessee of a lessee, between
whom and the head lessor there was no privity of contract or estate. Thus at
p232, Davey LJ, with whose judgment Lord Esher MR agreed, said:
Now, it has
been held by Kay LJ in Creswell v Davidson, and by a Divisional
Court in Burt v Gray, that the word ‘lessee’ in s14 does not
include the lessee of a lessee between whom and the lessor there is no privity
of contract or tenure, and that the definition clause in subs3, which I need
not read again, is to be construed only so as to make the provisions of the
section applicable as between a derivative lessor and his lessee as well as
between the first or head lessor and his lessee. On the whole, I agree with
those decisions. I do not find any sufficient grounds for holding that by s14
it was intended to create new statutory rights between an original lessor and a
derivative lessee claiming under his lessee, between whom no privity of
contract exists; and I think that the words of subs3 can have full effect given
to them without assuming such an intention on the part of the legislature.
A similar view
was expressed by AL Smith LJ at p231.
As I have
said, Mr Neuberger relied on the decision in Nind for the proposition
that an underlessee (including a mortgagee by subdemise) cannot obtain relief
against forfeiture under section 146(2), but only under section 146(4). In
seeking to controvert that proposition Mr Michael Driscoll QC, for Abbey,
relied not only on the wider definition of ‘lessee’ in section 146(5)(b)
but also on the comments of the editors of successive editions of Wolstenholme
& Cherry’s Conveyancing Statutes. It is convenient to deal with those
comments first.
In the sixth
edition (1891), of which the principal editor was the eminent conveyancer Mr EP
Wolstenholme, the following note appeared under section 14(3) of the 1881 Act:
As to an
under-lessee’s right to relief against the superior landlord, see Burt v
Gray; Creswell v Davidson. The former case, in which the
under-lessee was tenant of part of the property only, decided he had none. But
this seems a narrow construction of the section; and see Doe v Byron
(which was not cited in either Burt v Gray, or Creswell v Davidson),
where it was held that an under-lessee was a ‘tenant’ within the remedial
clause against ejectment for non payment of rent in [the Landlord and Tenant
Act 1730], section 4.
In the eighth
edition (1899), of which the editors included both Mr Wolstenholme and Mr
Benjamin Cherry, the following note appeared under section 14(3) of the 1881
Act:
An
under-lessee has under this section no right to relief against the superior
landlord: Nind v Nineteenth Century Building Society, — approving
Burt v Gray; Creswell v Davidson. In Doe v Byron
(which was not cited in [any] of the three last mentioned cases), it was held
that an under-lessee was a ‘tenant’ within the remedial clause against
ejectment for non payment of rent, in [the Landlord and Tenant Act 1730],
section 4; but see now CA 1892, section 4.
In the 11th ed
(1925), of which Sir Benjamin Cherry, by then the principal draftsman of the
1925 property legislation, was the principal editor, the following note
appeared under section 146(3):
Lessee
(subs(5)(b), inf) includes an original or derivative underlessee,
overruling in this respect Nind v Nineteenth Century Bldg Socy.
It is clear
that the definition of ‘lessee’ in section 146(5)(b) of the 1925 Act is
wider than that in section 14(3) of the 1881 Act. Instead of including merely
an original underlessee, a derivative underlessee and the heirs, executors,
administrators and assigns of a lessee, it now includes ‘the persons deriving title
under a lessee’. Although Mr Neuberger submitted that those words were no more
than an omnibus description of the heirs, executors, administrators and assigns
of a lessee, it is plain that they cannot be so limited. They must include not
only those who acquire the lessee’s own estate but also those who acquire a
lesser estate by way of subdemise. So much indeed is recognised in the
application of section 38 of the Supreme Court Act, subsection (2) of which, by
referring to ‘a person deriving title under’ the lessee allows an underlessee
to obtain relief in the lessor’s action: see under Cooper-Smith above.
If therefore
the definition of ‘lessee’ in subsection (5)(b) is applied to ‘the
lessee’ in subsection (2), it is seen that where a lessor is proceeding to
enforce a right of forfeiture under subsection (1) an underlessee, no less than
the lessee himself, may apply to the court for relief. It is no longer
permissible, as a matter of construction, to restrict the class of applicants
to those who are in privity of contract or estate with the lessor. Such a
construction would fail to give full effect to subsection (5)(b). In
order to arrive at this conclusion it is unnecessary to rely directly either on
Shellpoint or on the view of the editors of the 11th ed of Wolstenholme
& Cherry’s Conveyancing Statutes (1925) that Nind has been
overruled. The conclusion has the incidental merit of producing an identity
among those who can obtain relief under section 146(2), section 38 of the
Supreme Court Act and section 138 of the County Courts Act.
From his very
great experience in these matters Mr Neuberger has told us that it has never
before been suggested than an underlessee can obtain relief under section
146(2). Had I not heard the full and careful arguments on these appeals, I too
would have assumed the suggestion to be ill-founded. But on reflection I do not
think it surprising that Parliament should have brought about the result I now
believe it has.
All relief
against forfeiture stems from that granted by the old Court of Chancery in
cases of non-payment of rent. The practice of the court and the effect of its
decrees are described by Wigram V-C in Bowser v Colby (1841) 1
Hare 109, at pp126, 130, and by Cozens-Hardy MR and Farwell LJ in Dendy
v Evans [1910] 1 KB 263 at pp266–267, 270. In the case where the lessor
had already taken possession at law, the court ordered him to grant a new lease
to the lessee, the effect of which, in the words of Farwell LJ, at p270, was
that:
The
forfeiture is stopped in limine; so that there is no question of any
destruction of an estate which has to be called into existence again.
In such a case
the remedy, the only remedy which could be granted, was the reinstatement of
the lease. Equally, relief was granted to an underlessee by the reinstatement
of the lease and with it the underlease. Against that background it would not
have been surprising if the draftsman of section 14 of the 1881 Act had
intended that an underlessee should be able to apply thereunder for relief in
the lessor’s action. The comments of the editors of the sixth edition of Wolstenholme
& Cherry’s Conveyancing Statutes (1891) suggest that a section of
informed opinion thought that that objective had been achieved. After the
decision in Nind had established that that was not the case, it would
not have been surprising if the draftsman of section 146 of the 1925 Act had
intended to go one better. In my view, he succeeded. I would therefore hold
that in Dennis Abbey is entitled to apply for relief either under
subsection (2) or under subsection (4).
There remains
the question whether Abbey ought to have been granted relief under subsection
(4) instead of subsection (2). That was a question within the discretion of the
judge. Although he dealt with the matter quite briefly, it is clear that Judge
Willis exercised his discretion by deciding to proceed under subsection (2)
and, moreover, that he was entitled to do so. His omission to deal with the
Hare v Elms point does not, in my view, invalidate his decision. The
judge said:
An applicant
for relief has an alternative and in some cases might prefer to proceed under
subsection (4) if he wanted a clear new lease in his own name rather than
taking on the old lease. In my view, therefore, the Dennis case
comes under section 146(2) which in the proper exercise [of] my discretion
involves the payment of the arrears of ground rent and service charges only
with no mesne profits (subject to any argument about costs if these are
not agreed).
As a general
point in cases of this kind, a judge might well think it inequitable that a
landlord who had received a premium should receive in addition mesne
profits vastly exceeding a rent whose minimal rate had been the very means of
his acquiring the premium.
As in the
other three cases, I would also dismiss the appeal in Dennis.
ROCH and HENRY LJJ agreed and did not add anything.
Appeals
dismissed.