Landlord and tenant — Appeal by tenants against judge’s order granting landlords possession of premises and dismissing tenants’ claim for relief against forfeiture — Premises previously used for clothing manufacture on which appellants had originally wished to set up a gymnasium and health club — There had been litigation in the county court which had been compromised, resulting in a consent order in the ‘Tomlin’ form staying the proceedings on the terms of a schedule which recorded agreed variations of the lease — A deed of variation had been engrossed but not executed — By these varied terms the tenants were placed under an obligation to reconstruct the demised premises either as offices or as a gymnasium or health club and to complete the reconstruction by a certain date — Tenants got into financial difficulties and failed even to begin the reconstruction by the due date — Landlords served a notice under section 146(1) of the Law of Property Act 1925 alleging failures to reconstruct the premises by the due date and to give notice of a bank charge, and asserting that the breaches were incapable of remedy — In the subsequent action before Judge Paul Baker QC, sitting as a deputy High Court judge, the judge held (1) that the main breach alleged (the failure to reconstruct) was incapable of remedy, although the lesser breach of failing to notify a bank charge was so capable; (2) that the landlords had not waived their right to forfeit the lease by proffering documents which on their face treated the lease as subsisting; and (3) that the tenants should not be given relief from forfeiture — The tenants appealed — Held by the Court of Appeal, allowing the appeal, that both the breaches were capable of remedy, the breach of obligation to reconstruct being capable of remedy within a reasonable time, and that the landlords’ notice under section 146(1) was wholly bad as not requiring the breaches to be remedied — This was enough to dispose of the appeal but, having been invited to express an opinion on the issue of waiver, the court agreed with the judge below that in all the circumstances the proffering by the landlords of the unexecuted engrossment of the deed of variation was not an unequivocal recognition of the subsistence of the lease, so that there was no waiver — Questions of relief from forfeiture did not arise in view of the court’s decision that the landlords’ notice under section 146(1) was invalid — A number of authorities were analysed and some matters of importance in regard to the distinction between breaches capable and breaches not capable of remedy discussed — For example, it was not true without qualification that the breach of a negative covenant was never capable of remedy nor that a once-and-for-all breach of a positive covenant was never so capable — There was, however, authority for the proposition that the breach of a negative covenant not to assign, underlet or part with possession was never capable of remedy — The breach of a positive covenant was ordinarily, but not invariably, capable of remedy — Per O’Connor LJ, commenting on intricate reasoning in Scala House & District Property Co Ltd v Forbes, ‘It seems to me that it cannot be right to describe a breach which has been remedied as a breach which is incapable of remedy, and thereafter to say that it was incapable of remedy before it was remedied’
This was an
appeal by the two defendants, Hillgate House Ltd, the tenants, and David
Booth-Jones, the surety, from an order of Judge Paul Baker QC, sitting as a
deputy High Court judge, granting to the plaintiffs, the present respondents,
Expert Clothing Service & Sales Ltd, possession of Hillgate House, 13 Hillgate
Street, London W8, and dismissing the defendant company’s counterclaim for
relief against forfeiture.
David
Neuberger (instructed by Rubinstein Callingham) appeared on behalf of the
appellants; P Collins (instructed by Brecher & Co) represented the
respondents.
Giving the
first judgment at the invitation of O’Connor LJ, SLADE LJ said: This is an
appeal by the two defendants in an action, Hillgate House Ltd and Mr David
Booth-Jones, from an order of His Honour Judge Paul Baker QC, sitting as a
deputy High Court judge, made on April 2 1984. He ordered that the plaintiffs
in the action, Expert Clothing Service & Sales Ltd, should recover
possession against the defendant company of certain premises known as Hillgate
House, 13 Hillgate Street, London W8 (‘the premises’). He further dismissed a
counterclaim of the defendant company for relief from forfeiture in respect of
a lease of the premises dated January 23 1978 (‘the lease’). At the trial it
was conceded that there had been breaches of covenant by the defendant company
consisting of the failure to reconstruct the premises by a stated date, and to
give notice of a charge on the premises.
Substantially,
three questions fell to be decided by the learned judge:
(1) Were the breaches capable of remedy?
(2) Had the plaintiffs waived their right to
forfeit the lease on account of the breaches?
(3) If questions (1) and (2) were answered in the
negative, should the defendant company be given relief from forfeiture?
The learned
judge answered all three questions in the negative. The defendants now appeal,
submitting that all of them should have been answered in the affirmative.
The director
of the plaintiff company effectively managing its affairs was at all material
times Mr Samuel Standig. The defendant company is, to use the judge’s words,
the ‘alter ego’ of Mr Booth-Jones. From March 1976 onwards discussions took
place between Mr Standig and Mr Booth-Jones with regard to a proposal that Mr
Booth-Jones, or his company, should take a lease of the premises, which had previously
been used by the plaintiffs for the manufacture of clothing, and convert them
into a gymnasium and health club. In August 1976 Mr Booth-Jones obtained the
appropriate planning permission, but there was a long delay before the lease
was actually granted on January 23 1978. It was granted by the plaintiffs as
lessors in favour of the defendant company (then called Grailwise Ltd) as
lessees, with Mr Booth-Jones joining in as surety. It was for a term of 25
years from September 29 1977. The rent for the first year of the term was a
peppercorn, and for each of the next four years £5,000. Thereafter it was to be
reviewable.
Clause 2, so
far as material, read as follows:
The Landlord
hereby grants unto the Tenant full licence and permission to demolish and
reconstruct the interior and roof of the demised premises (the said premises
when reconstructed being hereinafter referred to as ‘the reconstructed
premises’) PROVIDED THAT . . . (d) the Tenant shall commence the said works of
demolition and reconstruction within a period of three years from the
commencement date.
Somewhat
surprisingly, therefore, the lease imposed no obligation on the defendant
company to reconstruct the premises. All it did was to give it a licence to
reconstruct, subject to certain conditions. No less surprisingly, the repairing
covenant, which followed in clause 3(3), was only expressed to operate in
respect of ‘the reconstructed premises’.
Clause 3
contained a number of other covenants, of which I need only refer to the
following. Clause 3 (12) read:
(a) Not to assign charge underlet or part with or
share the possession or occupation of part only of the demised premises.
(b) Not to part with or share the possession or
occupation of the whole of the demised premises, other than by way of
assignment or underletting.
Clause 3 (13),
so far as material, read:
Not to assign
the demised premises as a whole without the previous written consent of the
Landlord (such consent not to be unreasonably withheld). . . .
Clause 3 (14),
so far as material, read:
Within one
month of every . . . charge . . . of or relating to the demised premises . . .
to give notice thereof in writing with particulars thereof to the Solicitors .
. . of the Landlord. . . .
Clause 3 (25)
contained a restriction on further material development. Clause 4 set out the
rent review provisions which were to be applied at the expiration of each
period of five years of the term. For present purposes nothing turns on the
precise form of the rent review provisions, save that the assessment was to be
made ‘as if the demised premises had not been reconstructed’, so that,
effectively, the tenant would not have to pay for its own improvements by way
of increased rent.
Clause 6(1)
contained a common form proviso for re-entry which was expressed to operate if,
inter alia, ‘any covenant on the Tenant’s part herein contained shall
not be performed. . .’.
Clause 8 set
out the obligations of Mr Booth-Jones as surety. Clause 10 contained a
purported ‘no waiver’ provision for the benefit of the landlord, but it is
common ground that this provision was legally ineffective and it was not relied
on in this court or in the court below.
In the summer
of 1978, as the judge found, the defendant company carried out works to the
premises of a fairly substantial nature, involving the expenditure of a
substantial sum, though he made no finding as to its precise amount. However,
by March 1979 Mr Booth-Jones had reluctantly decided that the premises were not
going to be large enough for a health club and he wrote to Mr Standig to tell
him so. During the summer, negotiations proceeded for the disposal of the lease
and/or shares in the defendant company, but the plaintiff landlords withheld
their consent to the assignment of the lease and the negotiations came to
nothing. In June 1979 the instalment of quarterly rent was not duly paid. On
August 30 1979 the plaintiffs re-entered the premises in reliance on this
non-payment. The defendant company then brought proceedings in the West London
County Court seeking repossession of the premises, on the grounds that the
particular forfeiture had been waived and that in any event relief against
forfeiture should be granted.
On March 14
1981 planning permission was granted for a change of use of the premises from
‘light industrial’ to ‘restricted class II offices’. On June 29 1981 the action
came on for hearing before the West London County Court and was compromised.
The consent order took what is commonly known as the ‘Tomlin’ form and, so far
as material, read as follows (Hillgate House Ltd being referred to as ‘the
Plaintiff’ and Expert Clothing Service & Sales Ltd as ‘the Defendant’):
IT IS
ORDERED BY CONSENT
I) That the Plaintiff is entitled to
possession of the premises the subject of this action, namely Hillgate House,
13 Hillgate Street, London W8 forthwith.
II) That there be no order as to costs.
III) That all further proceedings be stayed save
for the enforcement of the terms contained in the schedule hereto, with liberty
to apply.
SCHEDULE
I) The Plaintiff to pay within 14 days hereof
£11,250, being all the rent due under the Lease . . . up to and including the
rent due on the 24th day of June 1981.
II) The Lease to be varied to give effect to the
following provisions with all necessary or consequential amendments.
A) Clause 2 to be wholly replaced by a clause
to the following effect:
(i) The Defendant to give licence to the
Plaintiff to reconstruct the demised premises either as three floors of offices
or as a gymnasium and health club.
(ii) The Plaintiff to covenant to reconstruct the
demised premises either as three floors of offices or as a gymnasium and health
club, and that such reconstruction shall be:
(a) Substantially completed and ready for
occupation by or before the 28th day of September 1982 and fully completed as
soon as reasonably possible thereafter.
(b) Effected to a good standard, and in
accordance with the planning permission dated the 14th day of March 1981 or
dated the 6th day of August 1976 as the case may be.
(c) Open to inspection by the Defendant, its
servants and agents up to its completion.
B) The Plaintiff to covenant to inform the
Defendant in writing of its election whether to reconstruct offices or as a
gymnasium and health club as soon as it has decided and in any event on or
before the 28th day of September 1982.
C) In clause 3 (8) ‘Reconstructed’ to be
replaced by ‘demised’.
D) Clause 3(12 and/or) to be amended so that
the Plaintiff, if, but only if, it elects and has notified the Defendant of its
election to reconstruct as offices, and has completed that reconstruction all
pursuant to Clause 2, as substituted, may, with, but only with, the Defendants
prior consent in writing (such consent not to be unreasonably withheld) to each
subletting, sublet the reconstructed premises to not more than three separate
subtenants.
E) In clause 3(13) the Plaintiff to covenant in
addition not in any event to assign the lease until completion of the
reconstruction in accordance with the provisions of clause 2, as substituted.
There then
followed in (F) and (G) proposed variations of clauses 3(16) and 3 (25) of the
Lease.
H) Clause 4 to be amended so that the Defendant
should have a further option as to basis of reviewing the rent, namely:
i) On the 1982 and 1987 rent reviews, 15% of
the fair rack market annual rental value as at the appropriate review date of
the premises as reconstructed pursuant to Clause 2 as substituted.
. . .
As the learned
judge himself pointed out, two particular points are to be observed in relation
to the form of this order. First, though no obligations to the court
were owed by the parties in this respect, the agreed scheduled terms clearly
contemplated that they would execute a further document to give effect to the
proposed variations to the lease (see, for example, clause II and the opening
words of clause IIA of the schedule). The schedule clearly operated as an
agreement by the parties to enter into an appropriate deed. Second, the
defendant company was for the first time placed under a contractual obligation
to reconstruct the premises. It had the right to elect whether to reconstruct
them as offices or as a gymnasium and health club, but it had to notify the
plaintiffs of its election on or before September 28 1982, and was obliged
substantially to complete the works and make the premises ready for occupation
‘by or before that date and fully completed as soon as reasonably possible
thereafter’.
The stated
date, September 28 1982, gave the defendants about 15 months to effect the
works of reconstruction. Both of them, however, were clearly very short of the
necessary available funds for this purpose. During the next six months or so,
Mr Booth-Jones set about trying to acquire the freehold of the premises, but
this came to nothing, since Mr Standig was not willing to sell it. From January
1982 onwards he pursued negotiations for the possible sale of the lease or of
the shares in the defendant company, but no steps were taken effectively to
begin the reconstruction of the premises.
On April 7
1982 Bennetts & Partners (‘Bennetts’), who were the solicitors acting for
the plaintiffs in this connection, wrote to Stitt & Co (‘Stitts’), who were
the solicitors acting for the defendants, enclosing a draft deed of variation
of the lease; they said that they did so ‘pursuant to the Court Order’. I pause
to explain that Bennetts, who had acted for the landlords in the county court
proceedings, continued to act on their behalf in connection with the
negotiation and preparation of the proposed deed of variation. On the other
hand, Brecher & Co (‘Brechers’) were in due course instructed by the
plaintiffs to act for them when seeking to enforce their rights against the
defendants following the defendants’ failure to reconstruct the premises. This
dual representation seems to have led to some confusion as will appear
hereafter.
I should refer
briefly to the form of the draft deed of variation enclosed with the letter of
April 7 1982. The proposed parties to the deed were the plaintiffs, the
defendant company and Mr Booth-Jones. Recital 1 stated that the deed was
supplemental to the lease. Recitals 2 and 3 read as follows:
2 The benefit of the Lease and the term
thereby created is now vested in the Tenant.
3 By an Order of the West London County
Court dated June 29 1981 it was ordered that the terms of the Lease be altered
in manner hereinafter appearing.
Recital 3 was
not in fact accurate, since the provisions for variation of the lease contained
in the schedule to the order were not themselves part of the order; they were
merely part of the agreed terms upon which the proceedings were being stayed.
The body of the draft deed contained a number of provisions varying or
replacing clauses of the lease. Most of these provisions precisely followed the
corresponding provisions of the schedule to the order. One or two of them,
however, went a little further than that. For example, an entirely new proposed
clause 3 (12) of the lease was incorporated in the draft, which was in much
fuller form than clause II (D) of the schedule to the order; clause II of the
schedule had expressly contemplated that the proposed deed should include the
scheduled provisions ‘with all necessary or consequential amendments’. Clause 8
of the draft, to which the defendants attach importance in the context of
waiver, provided: ‘Save as hereby modified the Lease shall continue in full
force and effect in all respects.’
On August 18
1982 Stitts wrote to Bennetts saying that they approved the draft deed as
drawn.
By September
28 1982 no works of conversion had even been begun pursuant to the terms of the
agreed compromise. The premises, I understand, are now in much the same
condition as they were at the time of the county court hearing, though subject
to some deterioration. Under cover of a letter of October 7 1982, Mr
Booth-Jones proffered the quarter’s rent due on September 29 1982. However,
this rent was not accepted. On October 8 1982 Brechers wrote to the defendant
company a letter before action, enclosing a notice pursuant to section 146 of
the Law of Property Act 1925. Clause 4 of this notice asserted:
The covenants
contained in the said Lease as varied by the Agreement contained in the Order
of the 29th June 1981 have been broken and the particular breaches complained
of are:
(I) That the Tenant, Hillgate House Ltd, has
failed to reconstruct the demised premises either as three floors of offices or
as a Gymnasium and Health Club.
(II) That such reconstruction has not been
substantially completed and ready for occupation by or before the 28th day of
September 1982 and fully completed as soon as reasonably possible thereafter.
(III) As a result the remaining covenants under the
said clause have not been complied with.
The second
complaint related to clause 3 (14) of the lease concerning the giving of
notices of charges. Para 6 of the notice stated:
In breach of
the said covenant the Tenant charged the demised premises to Lloyds Bank Ltd,
which charge was dated 24th November 1981 and registered under the Companies’
Acts on the 5th December 1981, but the Tenant did not give any notice thereof
or produce such Charge.
The notice
concluded with the following paragraphs:
7. The breaches herein before set out are
incapable of remedy.
8. Expert Clothing Service & Sales Ltd
intend to re-enter upon the said premises in exercise of the power of re-entry
contained in the said Lease and claim damages for the said breaches of
covenant.
9. We therefore on behalf of the said Expert
Clothing Service & Sales Ltd require you to quit and deliver up the said
premises to them forthwith and to make compensation to them in money for the
said breaches.
To complete
the history of the matter, on October 12 1982 Brechers wrote to Bennetts,
enclosing a copy of the section 146 notice served upon the defendant company
and informing them that they had returned the cheque which had been proffered
for the current quarter’s rent. They said: ‘We are making you aware of all
these matters to avoid any possibility that anything which you may be asked to
do by the other side might be construed as being inconsistent with the steps we
are taking.’ Also on October 12 1982
Stitts wrote to Brechers informing them that they had received instructions on
behalf of the defendant company to make an application for relief from
forfeiture. They said that terms had been agreed, subject to contract, for the
sale by Mr Booth-Jones of his shares in the defendant company to parties who
were willing and able to complete the conversion of the premises. They asked
for an assurance that a reasonable period might be allowed to the new
shareholders to complete the conversion.
On October 14
1982 a summons was issued on behalf of the defendant company claiming relief
from forfeiture. On October 18 1982 Brechers wrote to Stitts saying: ‘We have
obtained our clients’ instructions and would inform you that they are not
prepared to agree to the proposals suggested. Any application for relief from
forfeiture will be strenuously resisted.’
In the light
of that last mentioned letter, Stitts may have been somewhat surprised to
receive from Bennetts a letter dated October 22 1982, which read as follows:
Further to
our correspondence herein we now enclose the engrossment of the Counterpart
Deed of Variation relating to the lease of the above mentioned property for
sealing by your Client and execution by the guarantor and return. We are
arranging for the sealing of the original document by the Landlords.
This is the
letter which is the linchpin of the defendants’ submissions based on waiver.
On October 26
1982 the plaintiffs issued proceedings against the two defendants, referring to
the breaches of covenant and to the section 146 notice and claiming possession
of the premises, rent and mesne profits and damages. These proceedings and the
defendants’ application for relief from forfeiture were then consolidated by an
order of February 15 1983. The consolidated actions in due course came before
Judge Baker, who made the order described at the beginning of this judgment.
The breaches
complained of in the section 146 notice had not been admitted in the
defendants’ pleadings, but they were admitted at the Bar before him and they
have been admitted in this court. In these circumstances the first question
which fell to be considered by him and falls to be considered by us is whether
those breaches are ‘capable of remedy’ within the meaning of section 146(1) of
the Law of Property Act 1925. This is a question of crucial importance, for it
is common ground that, if they are both capable of remedy in this sense, the
section 146 notice, which asserted that they were irremediable and gave the
defendant company no opportunity to remedy them, must have been a wholly
invalid notice.
Were the
breaches capable of remedy?
Section 146(1)
of the Law of Property Act 1925 provides:
A right of
re-entry or forfeiture under any proviso or stipulation in a lease for a breach
of any covenant or condition in the lease shall not be enforceable, by action or
otherwise, unless and until the lessor serves on the lessee a notice —
(a) specifying the particular breach complained
of; and
(b) if the breach is capable of remedy,
requiring the lessee to remedy the breach; and
(c) in any case, requiring the lessee to make
compensation in money for the breach;
and the
lessee 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 lessor, for the breach.
Section 146
(2) provides that:
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 goes on to
specify the powers of the court on any such application.
In a case
where the breach is ‘capable of remedy’ within the meaning of the section, the
principal object of the notice procedure provided for by section 146(1), as I
read it, is to afford the lessee two opportunities before the lessor actually
proceeds to enforce his right of re-entry, namely (1) the opportunity to remedy
the breach within a reasonable time after service of the notice, and (2) the
opportunity to apply to the court for relief from forfeiture. In a case where
the breach is not ‘capable of remedy’, there is clearly no point in affording
the first of these two opportunities; the object of the notice procedure is
thus simply to give the lessee the opportunity to apply for relief.
Unfortunately
the authorities give only limited guidance as to what breaches are ‘capable of
remedy’ within the meaning of the section. As Harman J pointed out in Hoffman
v Fineberg [1949] Ch 245 at p 253:
In one sense,
no breach can ever be remedied because there must always, ex concessis,
be a time in which there has not been compliance with the covenant, but the
section clearly involves the view that some breaches are remediable and
therefore it cannot mean that.
MacKinnon J in
Rugby School (Governors) v Tannahill [1934] 1 KB 695 drew an
important distinction in this context between positive and negative covenants.
He said (at p 701):
A promise to
do a thing, if broken, can be remedied by the thing being done. But breach of a
promise not to do a thing cannot in any true sense be remedied; that which was
done cannot be undone. There cannot truly be a remedy; there can only be
abstention, perhaps accompanied with apology.
From this
MacKinnon J concluded that the breach of a negative covenant of this sort was
not one ‘capable of remedy’ within the section, though the lessee was not
necessarily left at the lessor’s mercy, since the power to grant relief
remained.
The relevant
breach in the Rugby School case consisted of the breach of a covenant
not to use premises for illegal or immoral purposes. On appeal ([1935] 1 KB
87), the Court of Appeal, while affirming the decision of MacKinnon J that the
particular breach was not capable of remedy, did not accept without
qualification the broader test suggested by him for distinguishing remediable
and unremediable breaches.
Greer LJ said
this (at pp 90-91):
I think
perhaps he went further than was really necessary for the decision of this case
in holding that a breach of any negative covenant — the doing of that which is
forbidden — can never be capable of remedy. It is unnecessary to decide the
point on this appeal; but in some cases with the immediate ceasing of that
which is complained of, together with an undertaking against any further
breach, it might be said that the breach was capable of remedy. This particular
breach, however — conducting the premises, or permitting them to be conducted,
as a house of ill-fame — is one which in my judgment was not remedied by merely
stopping this user. I cannot conceive how a breach of this kind can be
remedied. The result of committing the breach would be known all over the
neighbourhood and seriously affect the value of the premises. Even a money
payment together with the cessation of the improper use of the house could not
be a remedy.
Maugham LJ,
having referred to certain authorities, said (at p 93):
A reasonable
construction has thus been put upon the section, the object being to allow the
lessee to remedy the breach or to make compensation before action is brought
against him. From that two things seem to me to follow: first, the remedy which
is spoken of in the section must be a complete remedy. A partial remedy is not
within the section, the concluding words of subsection (1) being: ‘and the
lessee 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 lessor, for the breach’. The second thing to be gathered
from the section is that the breach must be capable of remedy within a
reasonable time. The lessor is not to be kept out of his right of action for an
unreasonable time. If, for example, the breach is of such a character that many
months or perhaps years must elapse before the breach can be remedied to the
satisfaction of the lessor, such a case would not be as regards remedy within
the section at all.
In the present
case the learned judge accepted that the second breach relied on by the
plaintiffs was capable of remedy. As he put it:
Not much
argument has been devoted to the second breach, that is to say failure to give
notice of the charge, quite rightly in my judgment. Although it is a covenant
to give notice within one month, the rule is not, as I understand it, that once
the stated period in the lease has gone by the covenant thereafter becomes
incapable of remedy. That in itself is not sufficient to render a breach
incapable of remedy, and in this case it is quite clear no damage was done to
the landlord by the giving of late notice or failing to give it and the landlord
finding out by other means. Accordingly, if that were the only matter on the
notice then I would be quite clearly of the opinion that the breach was capable
of remedy and the notice would be defective.
The plaintiffs
have not sought by a respondent’s notice or in argument to challenge this part
of the judge’s decision. However, he regarded the other breach relied on by the
plaintiffs relating to the failure to reconstruct the premises as being of a
different order. Having cited part of the passage from the judgment of Maugham
LJ, cited above, he concluded:
That I take
as guidance to the proper approach in this case, and it seems to me — and I
have no real hesitation about this — that this is not such a breach, having
regard to the facts as I have outlined them, as to be capable of remedy within
a reasonable time. It is going to take, according to the evidence, at the very
least nine months to do the necessary works. Also there is the point that was
taken — and I think it is valid — that the rent review provisions are linked to
the reconstructed premises and there is no ready way in which the landlord can
be reinstated in that position so that at 1982 he was obtaining a rent or
assenting to a rent from reconstructed premises. It seems to me that this
breach lies in the area of breaches which are incapable of remedy within a
reasonable time.
The nine-month
period thus referred to was, I understand, the period requested by the
defendants in their application for relief, so as to enable them to do the
necessary works.
In supporting
the learned judge’s conclusion that the breach relating to reconstruction of
the premises was irremediable, Mr Collins, on behalf of the plaintiffs, has
submitted to us three principal arguments. First, he pointed out that (as is
common ground) the defendant company’s failure to build by September 28 1982
was a ‘once-and-for-all’ breach of the relevant covenant, and not a continuing
breach (see, for example, Stephens v Junior Army & Navy Stores
[1914] 2 Ch 516 at p 523 per Lord Cozens-Hardy MR). He submitted that the
breach of a covenant such as this, which can only be broken once, is ex
hypothesi in no case capable of remedy.
Some
superficial support for this conclusion is perhaps to be found in the judgments
in Scala House Ltd v Forbes [1974] 1 QB 575, in which the Court
of Appeal held that the breach of a covenant not to assign, underlet or part
with possession, was not a breach capable of remedy within the meaning of
section 146 (1). In the course of his judgment, Russell LJ, having referred to
the relevant breach, said (at p 585):
If it is
capable of remedy, and is remedied in reasonable time, the lessor is unable to
prove that a condition precedent to his ability to seek to forfeit by action or
otherwise has been fulfilled. Here at once is a problem. An unlawful subletting
is a breach once and for all. The subterm has been created.
Russell LJ
then turned to the authorities, including the Rugby School case, as to
which he made these comments (at p 585):
. . . this
court expressed the view that breach of negative covenants might be capable of
remedy, but not this one, on the ground that the stigma attaching to the
premises would not be removed by mere cesser of immoral user. I observe that it
does not appear to have been considered whether the breach in that case was
incapable of remedy on another ground viz: that the wrongful user had ceased
before the section 146 notice.
After his
review of the authorities, Russell LJ continued (at p 588):
In summary
upon the cases we have therefore a number of cases of user of premises in
breach of covenant in which the decision that the breach is not capable of
remedy has gone upon the ‘stigma’ point, without considering whether a short
answer might be — if the user had ceased before the section 146 notice — that
it was ex hypothesi incapable of remedy, leaving the lessee only with
the ability to seek relief from forfeiture and the writ unchallengeable as
such. If a user in breach has ceased before the section 146 notice (quite apart
from the stigma cases) then either it is incapable of remedy and after notice
there is nothing in the way of a writ: or the cesser of use has somehow
deprived the lessor of his ability to seek to forfeit though he has done nothing
to waive the breach, a situation in law which I find extremely difficult to
spell out of section 146.
But whatever
might be the position in user breach cases, Russell LJ concluded that a breach
by an unlawful subletting is not capable of remedy at all. As he put it (at p
588):
. . . the
introduction of such breaches into the relevant section for the first time by
section 146 of the Act of 1925 operates only to confer a statutory ability to
relieve the lessee from forfeiture on that ground. The subterm has been
effectively created subject only to risks of forfeiture: it is a complete
breach once and for all: it is not in any sense a continuing breach. If the law
were otherwise a lessee, when a subtenancy is current at the time of the
section 146 notice, would have a chance of remedying the situation without
having to apply for relief. But if the unlawful subletting had determined
before the notice, the lessee could only seek relief from forfeiture.
It might well
be regarded as anomalous if the once-and-for-all breach of a negative covenant
not to sublet were to be regarded as
was still current at the date of the section 146 notice, but (as Russell LJ
considered) were not to be regarded as ‘capable of remedy’ if the unlawful
subtenancy had been determined at that date. Russell LJ and James LJ who agreed
with his reasoning (see particularly at p 591 C-D) were clearly much influenced
by this anomaly in reaching the conclusion that the breach of a covenant
against underletting is never capable of remedy.
However, in
the Scala House case this court was addressing its mind solely to the
once-and-for-all breach of a negative covenant. No corresponding anomaly arises
if the once-and-for-all breach of a positive covenant is treated as capable of
remedy. While the Scala House decision is, of course, authority binding
on this court for the proposition that the breach of a negative covenant not to
assign, underlet or part with possession is never ‘capable of remedy’, it is
not, in my judgment, authority for the proposition that the once-and-for-all
breach of a positive covenant is never capable of remedy.
Mr Neuberger,
on behalf of the defendants, did not feel able to go so far as to support the
view of MacKinnon J that the breach of a positive covenant is always
capable of remedy. He accepted, for example, that the breach of a covenant to
insure might be incapable of remedy at a time when the premises had already
been burnt down. Another example might be the breach of a positive covenant
which in the event would be only capable of being fully performed, if at all,
after the expiration of the relevant term.
Nevertheless,
I would, for my part, accept Mr Neuberger’s submission that the breach of a
positive covenant (whether it be a continuing breach or a once-and-for-all
breach) will ordinarily be capable of remedy. As Bristow J pointed out in the
course of argument, the concept of capability of remedy for the purpose of
section 146 must surely be directed to the question whether the harm that has
been done to the landlord by the relevant breach is for practical purposes
capable of being retrieved. In the ordinary case, the breach of a promise to do
something by a certain time can for practical purposes be remedied by the thing
being done, even out of time. For these reasons I reject the plaintiffs’
argument that the breach of the covenant to reconstruct by September 28 1982
was not capable of remedy merely because it was not a continuing breach.
I would add
this point. If this breach was, on these grounds alone, not capable of remedy,
the very same grounds would appear to render the breach of the lessees’
covenant to give notice of the charge in favour of Lloyds Bank likewise
incapable of remedy. But Mr Collins has not attempted to maintain the latter
proposition, which would have been very difficult to sustain having regard to
what one may suppose was the intention of the legislature in enacting section
146(1).
As his second
main line of argument in this context, he submitted that the breach of the
covenant to reconstruct was not capable of remedy because of the operation of
the new rent review provisions incorporated in the lease by the schedule to the
order of June 29 1981. He pointed out that under these provisions the
landlords, on a rent review, would have an option, which they would clearly
wish to exercise, to review the rent on the basis of the premises as
reconstructed. He submitted that there was no ready way in which the plaintiffs
could be effectively restored to the same position under the rent review clause
as that in which they would have found themselves if the premises had been
reconstructed by the due date.
Respectfully
differing from the learned judge on this point, I do not think that this
submission is well founded. When the rent review clause comes to be applied,
the tenant cannot rely on its own wrong (consisting of the failure to
reconstruct) to reduce the rent which would otherwise have been payable as from
the review date. The proper approach must be to assume for the purpose of the
assessment that the required reconstruction has taken place. As Mr Neuberger
pointed out, surveyors are quite accustomed to this kind of artificial
assumption in rent review valuations. With the appropriate expert advice there
would be little difficulty in ascertaining the rent to which the plaintiffs
would have been entitled on the first rent review, and indeed on any subsequent
rent review, if the defendants had complied with their building obligations in
due time. While Mr Collins pointed out that, if this had been done, the
premises might have been sublet by the rent review date and this would itself
have facilitated the ascertainment of a fair rack market annual rental value,
there is no certainty whatever that any such subletting would have taken place.
In the context of the rent review clause, any damage resulting from the
relevant breach of covenant was, in my opinion, capable of being remedied
simply by the payment by the defendants of an appropriate sum of money.
I therefore
turn to the third, and by far the most important, point relied on by Mr Collins
in support of the decision of the court below. His submissions in this context
were to the following effect. The judgment of Maugham LJ in the Rugby School
case (supra) at p 93 and other judicial dicta indicate that if a breach
is to be ‘capable of remedy’ at all within the meaning of section 146, it must
be capable of remedy within a ‘reasonable time’. As was observed by Lord
Herschell LC in Hick v Raymond & Reid [1893] AC 22 at p 29:
‘. . . there is of course no such thing as a reasonable time in the abstract.
It must always depend upon circumstances’. In the present case, it was
submitted, what was a reasonable time was a question of fact. In deciding that
the breach of the covenant to reconstruct was not capable of remedy within a
reasonable time, the learned judge expressed himself as ‘having regard to the
facts as I have found them’.
Mr Collins
drew attention to some of his particular earlier findings of fact. The
plaintiffs and Mr Booth-Jones had first come into contact in early 1976. Mr
Booth-Jones had obtained his planning permission in August 1976. The defendant
company had obtained possession of the premises in anticipation of the contemplated
lease in the summer of 1977. The lease had been granted in January 1978.
However, by the autumn of 1978 the defendants had abandoned their health club
project and in March 1979 they so informed the plaintiffs. After that date
nothing of practical value had been effected towards the conversion of the
premises. The defendants, in their application for relief, had asked the judge
for nine months to enable them to do the work. Having regard to this history of
default on their part, there was, in Mr Collins’ submission, ample material on
which the court below could properly find that, at the date of service of the
section 146 notice, nine months was not a reasonable time and that accordingly
the relevant breach was not capable of remedy within a reasonable time.
Furthermore, he suggested, the defendants had neither the financial resources
nor the will to do the work.
Though the
learned judge did not spell them out in this manner, I infer that these were
essentially the points which led him to conclude that the relevant breach was
not capable of remedy within a reasonable time. With great respect to him I
have reached a different conclusion on this point for reasons which I will now
attempt to explain.
While the
words ‘within a reasonable time’ do not appear in subparagraph (b) of section
146(1), I accept that a section 146 notice need not require the tenant to
remedy the breach if it is not capable of remedy within a reasonable time after
service of the notice (see, for example, the Rugby School case [1935] 1
KB 87 at p 93 and Egerton v Esplanade Hotels (London) Ltd [1947]
2 All ER 88 at p 91 per Morris J). This appears to be the proper inference from
the concluding words of section 146(1) which leave the lessor at liberty to
enforce his right of re-entry ‘if the lessee fails within a reasonable time
thereafter to remedy the breach’; a requirement to remedy within a reasonable
time is pointless in a case where remedy within a reasonable time from the
service of the notice is impossible.
However, in my
opinion, in considering whether or not remedy within a reasonable time is
possible, a crucial distinction (which I infer from the judgment did not
feature prominently in argument before the learned judge) falls to be drawn
between breaches of negative user covenants, such as those under consideration
in the Rugby School and the Esplanade Hotels cases, and breaches
of positive covenants. In the two last-mentioned cases, where the relevant
breaches consisted of allowing premises to be used as a brothel, even full
compliance with the covenant within a reasonable time and for a reasonable time
would not have remedied the breach. As Maugham LJ pointed out in the Rugby
School case (at p 94): ‘Merely ceasing for a reasonable time, perhaps a few
weeks or a month, to use the premises for an immoral purpose would be no remedy
for the breach of covenant which had been committed over a long period.’ On the facts of cases such as those, mere
cesser by the tenant of the offending use within a reasonable period and for a
reasonable period of time could not have remedied the breaches because it would
not have removed the stigma which they had caused to attach to the premises.
The harm had been irretrievably done. In such cases, as Harman J pointed out in
Hoffman v Fineberg [1949] Ch 245 at p 257, mere cesser will not
enable the tenant to ‘make his record clean, as he could by complying, though
out of time, with a failure to lay on the prescribed number of coats of paint’.
In contrast
with breaches of negative user covenants, the breach of a positive covenant to
do something (such as to decorate or build) can ordinarily, for practical
purposes, be remedied by the thing being actually done if a reasonable time for
its performance (running from the service of the section 146 notice) is duly
allowed by the landlord following such service and the tenant duly does it
within such time.
In the present
case there is no question of the breach of the covenant to reconstruct having
given rise to any ‘stigma’ against the lessors or the premises. Significantly,
the lease in 1982 still had 20 years to run. Mr Collins has, I think, been able
to suggest no convincing reasons why the plaintiffs would still have suffered
irremediable damage if (i) the section 146 notice had required the lessee to
remedy the breach and (ii) the lessors had then allowed a reasonable time to
elapse sufficient to enable the lessee to comply with the relevant covenant,
and (iii) the lessee had complied with the covenant in such reasonable time and
had paid any appropriate monetary compensation. Though he has submitted that a
requirement, directed to the defendants, to remedy the breach would have been
purposeless, on the grounds that they had neither the financial means nor the
will to do the necessary work, these are matters which, in my opinion, a
landlord is not entitled to prejudge in drafting his notice. An important
purpose of the section 146 procedure is to give even tenants who have hitherto
lacked the will or the means to comply with their obligations one last chance
to summon up that will or find the necessary means before the landlord
re-enters. In considering what ‘reasonable time’ to allow the defendants, the
plaintiffs, in serving their section 146 notice, would, in my opinion, have
been entitled to take into account the fact that the defendants had already
enjoyed 15 months in which to fulfil their contractual obligations to
reconstruct and to subject the defendants to a correspondingly tight timetable
running from the date of service of the notice, though, at the same time,
always bearing in mind that the contractual obligation to reconstruct did not
even arise until June 29 1981, and that as at October 8 1982 the defendants had
been in actual breach of it for only some 10 days. However, I think they were
not entitled to say, in effect: ‘We are not going to allow you any time at all
to remedy the breach, because you have had so long to do the work already.’
In my
judgment, on the remediability issue, the ultimate question for the court was
this: If the section 146 notice had required the lessee to remedy the breach
and the lessors had then allowed a reasonable time to elapse to enable the
lessee fully to comply with the relevant covenant, would such compliance,
coupled with the payment of any appropriate monetary compensation, have
effectively remedied the harm which the lessors had suffered or were likely to
suffer from the breach? If, but only if,
the answer to this question was ‘no’, would the failure of the section 146
notice to require remedy of the breach have been justifiable? In the Rugby School, Esplanade and Hoffman
cases, the answer to this question plainly would have been ‘no’. In the present
case, however, for the reasons already stated, I think the answer to it must
have been ‘yes’.
My conclusion,
therefore, is that the breach of the covenant to reconstruct, no less than the
breach of the covenant to give notice of charges, was ‘capable of remedy’. In
reaching this conclusion, I find it reassuring that no reported case has been
brought to our attention in which the breach of a positive covenant has been
held incapable of remedy, though I do not suggest that cases of this nature,
albeit perhaps rarely, could not arise.
Have the
plaintiffs waived their right to forfeit the lease?
If the
conclusion that the breaches were capable of remedy is correct, it must follow
that this appeal should be allowed. However, we have been invited in any event
to express a conclusion on the issue of waiver, since it would be relevant to
any forfeiture proceedings brought by the plaintiffs on any subsequent section
146 notice.
On this issue
the defendants’ case is that, by virtue of the plaintiffs’ solicitors’,
Bennetts’, letter of October 22 1982, together with the enclosed engrossment of
a proposed deed of variation, the plaintiffs elected unequivocally to treat the
lease as still subsisting and so waived the right to forfeit it. The learned
judge rejected this argument essentially on two grounds. First, he observed
that the letter and proposed deed were not ‘intended to have legal
consequences’, but were merely part and parcel of ‘discussions and statements
in negotiations’. He pointed out that the deed had not been executed by the
plaintiffs and that until they had executed it, they would, on ordinary
principles of the law of contract, have been at liberty to resile from their
proposal that a deed should be executed in that particular form.
Second, and in
any event, he considered that the draft was merely required to carry out the
terms of the county court order. He said: ‘. . . the landlord could have
required it for that purpose and the act is to that extent equivocal and
referable to a period before the occurrence and not solely referable to a
period after it’.
If, as
occurred in the present case, a tenant commits a breach of covenant which
entitles the landlord to forfeit the lease, the landlord has a right to elect
whether to treat the lease as forfeited or as remaining in force. He cannot
retract his election once made (see Scarf v Jardine (1882) 7 App
Cas 345 at p 360, per Lord Blackburn).
One typical
act of waiver, illustrated by a number of reported cases, is the acceptance of
rent. It is well settled that this will constitute a waiver of a landlord’s
right to forfeit on account of any breaches of the tenant’s covenants of which
he is aware at the date of the acceptance. Furthermore, a landlord cannot
prevent the acceptance of rent from operating as a waiver merely by stating
that he accepts it without prejudice to his right to forfeit (see Central
Estates (Belgravia) v Woolgar (No2) [1972] 1 WLR 1048 at p 1054 per
Buckley LJ). Though we have been referred to no authority binding on this court
to this effect, I am also content for present purposes to assume, without
finally deciding, that (as was held by Sachs J in Segal Securities Ltd v
Thoseby [1963] 1 QB 887) Mr Neuberger is right in submitting that a
demand for rent will, by itself, have the like effect. He submitted that, just
as a demand for rent will give rise to a waiver, even though it is expressed to
be made without prejudice to the landlord’s right to forfeit, correspondingly,
the sending of the letter of October 22 1982 and the proffering of the enclosed
draft, though technically acts by way of negotiation, were capable of giving
rise to waiver, and did have this effect.
He relied
heavily on the following passage from the judgment of Buckley LJ in Central
Estates (Belgravia) v Woolgar (No2) (supra) (at p 1054):
If the
landlord by word or deed manifests to the tenant by an unequivocal act a
concluded decision to elect in a particular manner, he will be bound by such an
election. If he chooses to do something such as demanding or receiving rent
which can only be done consistently with the existence of a certain state of
affairs, viz the continuance of the lease or tenancy in operation, he cannot
thereafter be heard to say that that state of affairs did not then exist.
He submitted
that by the letter and the proffering of the draft the plaintiffs had
manifested, by unequivocal acts, a concluded decision that the lease should
continue. He pointed out that the draft, which the plaintiffs’ solicitors were
inviting the defendants to execute, stated in terms (in recital 2) that the
term created by the lease was vested in the defendant company and (in clause 8)
that save as modified the lease should ‘continue in full force and effect’.
He referred us
to Bader Properties Ltd v Linley Property Investments Ltd (1968)
19 P & CR 620, where Roskill J at p 641 expressed the opinion, albeit
obiter, that an offer by landlords, albeit subject to contract, to purchase the
interest of tenants in premises was an unequivocal affirmation of the existence
of the lease with knowledge of the breach, since he did not think that such
offer could be made ‘save on the basis that the interest was a subsisting
interest and was no longer liable to forfeiture’. A clear offer to vary a
lease, in his submission, must amount to an unequivocal recognition that the
lease is still in being.
It is, in my
view, quite clear that neither the plaintiffs nor Bennetts would have actually
intended to waive the relevant breaches of the covenant by the letter of
October 22 1982 and its enclosure. However, this particular point does not
avail the plaintiffs. As Buckley LJ pointed out in the Central Estates
case [1972] 1 WLR 1048 at p 1054, the legal effect of an act relied on as
constituting a waiver of a right of forfeiture must be considered objectively,
without regard to the motive or intention of the landlord or the actual
understanding or belief of the tenant. The doctrine of waiver is thus quite
capable in some instances of operating harshly, most particularly where there
has been an acceptance of rent by the landlord.
However, I
think that Mr Collins is right in submitting that cases where there has been an
acceptance of rent fall into a special category. In such cases the established
legal effect of such acceptance is so clear that, whatever the particular
circumstances of the case, it is probably not open to the landlord to submit
that he has not waived the relevant breach. In the present case, where no
acceptance of rent (or demand for rent) is involved, the court is, I think,
free to look at all the circumstances of the case to consider whether
the act of the
and the engrossment enclosed) was so unequivocal that, when considered
objectively, it could only be regarded as having been done consistently with
the continued existence of a tenancy as at October 22 1982.
In the light
of Roskill J’s observations in the Bader Properties case I would accept
Mr Neuberger’s submission that, on the particular facts of some cases, the
proffering of a mere negotiating document may be capable of amounting to an unequivocal
recognition of the existence of a presently subsisting tenancy. However, with
the possible exception of cases where a demand or acceptance of rent is
involved, I think that each such case has to be looked at against the
background of the particular circumstances in which the act relied on as a
waiver took place.
What then were
the relevant circumstances at the date when the plaintiffs’ solicitors sent the
letter of October 22 1982? Only 14 days
before (on October 8 1982) the plaintiffs had served on the defendants their
section 146 notice. Only eight days before (on October 14 1982) the defendants
had issued their summons for relief from forfeiture. Only four days before, on
October 18, Brechers, on behalf of the plaintiffs, were not prepared to agree
to the extension of time for the completion of the conversion works requested
in Stitts’ letter of October 12 1982, and had told them that any application
for relief from forfeiture would be ‘strenuously resisted’. The engrossment
proffered by Bennetts on October 22 1982 had clearly been drafted by Bennetts
on the assumption, whether correct or incorrect, that the court order of June
29 1981 placed a legal obligation on the parties to execute the new deed. Thus,
recital 3 of the draft stated that by that court order ‘it was ordered that the
terms of the Lease be altered in manner hereinafter appearing’. Moreover, the
draft submitted for execution by the defendants on October 22 1982 was clearly
intended to have retrospective effect back to the date of the court order, as
is shown by the form of the proposed clause 2 which would have placed a
contractual obligation on the defendants to complete the works of
reconstruction by September 28 1982.
Mr Collins
submitted that, so far from Bennetts’ letter of October 22 1982 giving rise to
a waiver, Brechers’ letter of October 12 1982 had amounted to the communication
of an election on the part of the landlords to forfeit the lease, which
election would, on ordinary principles, have been irretractible. I do not think
it necessary to consider whether this submission is well founded. In the end I
have come to the conclusion that, against the background of the circumstances
outlined in the preceding paragraph, the sending of the letter of October 22
1982 and accompanying draft could not, on any fair objective consideration,
have been reasonably understood by the defendants or anyone else as
unequivocally indicating the landlords’ intention to treat the lease as
subsisting on that date. If it is necessary to distinguish the sending of these
documents from a demand for rent, a distinction is readily to be found in the
speech of Lord Blackburn in Scarf v Jardine (1882) 7 App Cas 345
at p 361, where he defined an unequivocal act as meaning ‘an act which would be
justifiable if it had elected one way and would not be justifiable if it had
elected the other way’. A landlord’s demand for current rent is justifiable
only on the basis that the tenancy is still subsisting. The request that the
defendants should execute the deed of variation would have been justifiable
simply on the ground that, under the agreed compromise, the parties had
contracted to execute a deed of this nature.
I incline to
the view that, even if the plaintiffs had executed the deed of variation before
it was sent to the defendants’ solicitors on October 22 1982, it would not in
all the circumstances have amounted to the unequivocal recognition of the
existence of a presently subsisting tenancy as at that date. However, I
feel no doubt that the submission by the plaintiffs of the unexecuted
engrossment did not in all the circumstances amount to such an unequivocal
recognition. At very most the plaintiffs, against the background of proceedings
already begun by the defendants for relief against forfeiture, were thereby
implicitly recognising that the defendants had arguable grounds for asserting
either that their tenancy was still subsisting or that they should be given
relief.
On the issue
of waiver, therefore, I am in full agreement with the conclusion of the learned
judge, for much the same reasons as his.
Conclusions
In the result,
I would allow this appeal on the basis that, while the defendants have
established no waiver, the plaintiffs’ section 146 notice was invalid because
the relevant breaches were capable of remedy. In the circumstances questions of
relief from forfeiture do not arise.
Finally, I
would express my gratitude for the very helpful arguments of counsel on both
sides, in what I for my part have found a difficult case.
Agreeing,
O’CONNOR LJ said: I only add a few words of my own as we are differing from the
learned judge.
The first
question is ‘was the section 146 notice valid?’
Free from authority I do not think that section 146(1) presents any
great difficulty. A lessor’s right to forfeit for breach of ‘any covenant’ is
not enforceable unless and until a notice is served on the tenant. ‘Any
covenant’ is unambiguous, so it matters not whether the covenant is positive or
negative, nor does it matter whether a breach of the covenant will be a once-and-for-all
breach or a continuing breach.
The notice
must (a) specify the particular breach complained of; and (b) if the breach is
capable of remedy, require the lessee to remedy the breach; and (c) in any case
require the lessee to make compensation in money for the breach. Thereafter if
the lessee 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 lessor, for the breach’, the lessor is free to enforce
his right of re-entry or forfeiture.
The section
quite clearly contemplates that there are some breaches of covenant which are
not capable of remedy. How are such breaches to be identified? Looking at section 146 (1) as a whole, I
would say that the question must be examined at the date of the notice. Once a
breach of covenant has been committed, the fact that there has been a breach
cannot be expunged, so that to remedy a breach must mean to do what is
necessary to put the lessor back into the position he would have been in had no
breach been committed. If this cannot be done within a reasonable time or at
all, the breach is not capable of remedy; if it can, it is.
To stop doing
what is forbidden by a negative covenant may or may not remedy the breach even
if accompanied by compensation in money. Thus to remove the window boxes and
pay for the repair of any damage done will remedy the breach, but to stop using
the house as a brothel will not, because the taint lingers on and will not
dissipate within a reasonable time. So far I have authority on my side (see the
Rugby School case and the passages cited by Slade LJ).
So I would say
that if cesser is a sufficient remedy, subject to compensation, then if cesser
has taken place before the notice, the notice need not make any requirement
under section 146 (1)(b), for the only issue outstanding at the date of the
notice will be compensation under paragraph (c). As at present advised I can
think of no positive covenant which is not capable of remedy if that which
ought to have been done can be done within a reasonable time during the
subsistence of the term.
As regards
breach of a covenant not to sublet, there is a binding authority in this court
that such a breach is not capable of remedy: Scala House & District
Property Co Ltd v Forbes [1974] QB 575. In that case the premises
had been sublet in breach of covenant. The lessors gave a section 146 notice
calling upon the lessee to remedy the breach, and 14 days later issued their
writ. Nield J dismissed the action, holding that the breach was capable of
remedy and that 14 days was not a reasonable time to enable the lessee to
remedy the breach. The Court of Appeal reversed that decision and held that the
breach was not capable of remedy. Russell LJ (as he then was) gave two reasons
for holding that the breach was not capable of remedy: first, that this was a
once-and-for-all breach as opposed to a continuing breach and, second, that if
the subletting had ceased before the notice, the breach would, ex hypothesi,
not be capable of remedy, and I think apparent from the passage in his judgment
that I am about to cite he considered the second to be the paramount reason for
his decision.
He said at p
588:
In summary
upon the cases we have therefore a number of cases of user of premises in
breach of covenant in which the decision that the breach is not capable of
remedy has gone upon the ‘stigma’ point, without considering whether a short
answer might be — if the user had ceased before the section 146 notice — that
it was ex hypothesi incapable of remedy, leaving the lessee only with
the ability to seek relief from forfeiture and the writ unchallengeable as
such. If a user in breach has ceased before the section 146 notice (quite apart
from the stigma cases) then either it is incapable of remedy and after notice
there is nothing in the way of a writ; or the cesser of use has somehow
deprived the lessor of his ability to seek to forfeit though he has done nothing
to waive the breach, a situation in law which I find extremely difficult to
spell out of
of a continuing nature, there is no authority, other than that of Capital
& Counties Property Co Ltd v Mills, to suggest that the creation
of a subterm in breach of covenant is capable of remedy. I would make two
particular comments on that decision as reported. First, I find it difficult to
see how a breach is said to be capable of remedy because the lessor can waive
the breach, which would be involved in the suggestion that he could post hoc
consent to the subletting. Second, I do not see how a breach by unlawful
subletting can be said to be remedied by the lessee when he does nothing except
wait for the subterm to come to an end by effluxion of time.
After this
review of the cases I come to the conclusion that breach by an unlawful
subletting is not capable of remedy at all. In my judgment the introduction of
such breaches into the relevant section for the first time by section 146 of
the Act of 1925 operates only to confer a statutory ability to relieve the
lessee from forfeiture on that ground. The subterm has been effectively created
subject only to risks of forfeiture; it is a complete breach once-and-for-all;
it is not in any sense a continuing breach. If the law were otherwise a lessee,
when a subtenancy is current at the time of the section 146 notice, would have
a chance of remedying the situation without having to apply for relief. But if
the unlawful subletting had determined before the notice, the lessee could only
seek relief from forfeiture. The only escape from that wholly unsatisfactory
difference would be to hold that in the second example by some analogy the
lessor was disabled from issuing a writ for possession. But I can find nothing
in the section to justify that limitation on the common law right of re-entry,
bearing especially in mind that a lessor might discover a whole series of past
expired unlawful sublettings which might well justify a refusal to grant relief
in forfeiture proceedings.
I stress
again that where there has been an unlawful subletting which has determined
(and which has not been waived) there has been a breach which at common law
entitles the lessor to re-enter: nothing can be done to remedy that breach: the
expiry of the subterm has not annulled or remedied the breach: in such case the
lessor plainly need not, in his section 146 notice, call upon the lessee to
remedy the breach which is not capable of remedy, and is free to issue his writ
for possession, the possibility of relief remaining. Can it possibly be that,
while that is the situation in such cases, it is otherwise if the lessee has
failed to get rid of the subterm until after a notice served? Is the lessee then in a stronger position and
the lessor in a weaker position? In my
judgment not so. These problems and questions arise only if such a breach is
capable of remedy, which in my judgment it is not.
With great
respect, I find this reasoning unsatisfactory, for it seems to me that it
cannot be right to describe a breach which has been remedied as a breach which
is incapable of remedy, and thereafter to say that it was incapable of remedy
before it was remedied. To my mind a breach which has been remedied has been
demonstrated to have been a breach which was ab initio capable of
remedy. In my judgment the contrary view leads inexorably to the result that
there are no breaches of covenant capable of remedy, and I am quite sure that
Russell LJ cannot be taken as so deciding.
James LJ, in a
short judgment in which he said that he had entertained considerable doubts,
said at p 591:
I have felt
it right to express my doubts. I cannot escape, however, from the illogical
situation which results from a conclusion that the facts of each case determine
whether or not a breach of covenant not to assign is capable of remedy. I am
persuaded finally that the difficulties which arise — and which have been
demonstrated in the judgment of Russell LJ — from a conclusion that a breach of
such a covenant may be capable of remedy are such as demonstrate that that
conclusion is erroneous. The breach of this class of covenant is a
once-and-for-all breach; whatever events follow the breach they cannot wipe the
slate clean, the breach remains. I conclude that a breach of this covenant is
incapable of remedy and would allow the appeal.
The third
member of the court, Plowman J, agreed with both judgments. In the result it is
impossible to say that this reason did not form a ratio for the decision of the
court, and we are bound by it. I would, however, limit it to being part of the
reasoning why a once-and-for-all breach of a negative covenant not to sublet
was held incapable of remedy. I do not think that Scala is authority for
any wider proposition.
In the present
case I am quite sure that the breach of the positive covenant to reconstruct
the premises was a breach which was capable of remedy within a reasonable time,
and it follows that the section 146 notice was invalid.
As to waiver,
I agree with Slade LJ and do not wish to add anything. I would allow this
appeal.
The appeal
was allowed with costs in the court below, no order for costs being made on the
appeal. Leave to appeal to the House of Lords was refused.
