Landlord and tenant — Application of covenant in 999 years’ lease to company not without lessors’ consent to use or occupy flat otherwise than as a single private residence in one occupation only — Lessee company was in fact the lessee of a number of flats in the block and treated them in the same way, but the present proceedings concerned a particular flat — Lessees granted occupational licences to visitors to reside in the flats in return for payments, the flats being equipped and furnished by the lessees and cleaned by employees — Consent to the granting of the licences was never sought or given and no question as to exact status of licensees was raised in the appeal
This was an
appeal by Alsabahia Inc, the defendant company, lessees inter alia of 4
Carrington House, Hertford Street, London W1, from the order of Scott J, on an
Order 14 application by the plaintiffs, the present respondents, Falgor
Commercial SA, granting an injunction restraining the appellants from using the
flat otherwise than as a private residence without the consent of the
respondents.
Derek Wood QC
and G Bennett (instructed by Gershon Young Finer & Green) appeared on
behalf of the appellants; Gavin Lightman QC, K Farrow and Miss Beverley-Ann
Rogers (instructed by Wright Webb Syrett & Co) represented the respondents.
Giving
judgment, FOX LJ said: This is an appeal by the defendant from an order of
Scott J on an Order 14 application giving summary judgment, by which the
learned judge ordered that the defendant be restrained ‘(whether by its
officers servants or agents or any of them or otherwise howsoever) from using
the leasehold flat known as Flat 4, Carrington House, Hertford Street, London
W1, otherwise than as a single private residence without the consent of the
plaintiff’.
The plaintiff
is the lessor of the block of flats called Carrington House. The defendant is
the lessee of a number of those flats, and this action is brought in respect of
flat no 4 only, which was leased on December 20 1977 for 999 years. The lessee
paid a premium of £23,000, and there is ground rent of £5 per annum plus a
service charge.
Between 1976
and 1982 the defendant acquired the leases of some 23 flats in the block — six
in 1970 and a total of 17 in 1977. It then assigned away four of them, but
retained the rest, including no 4. All the leases are in the same form. Formal
consent to the assignment of flat no 4 to the defendant was given in 1979 —
although apparently it was purchased earlier than that date, but nothing turns
on that and it is not of any consequence.
All the flats
owned by the defendant are treated in the same way, which in the main is by
granting occupational licences to visitors to reside in the flats in return for
a monetary payment. The flats are equipped and furnished by the defendant and
are cleaned daily by an employee of the defendant, but consent to the granting
of licences was neither sought nor given. The leasehold reversion to the
property was acquired by the plaintiff in 1982.
The case is
concerned with the interpretation of one of the lessee’s covenants in the
leases, and the question is whether the defendant is in breach.
The lessee’s
covenants are contained in the third schedule to the lease. Para 3.8 contains a
covenant: ‘Not to assign transfer underlet or part with or share possession of
any part of the flat (as distinct from the whole) in any way whatsoever’ and ‘(ii)
Not to assign transfer underlet or part with possession of the flat as a whole
without the previous consent in writing of the company such consent not to be
unreasonably withheld.’ The matter has
proceeded upon the basis that there have been no sublettings or parting of
possession —— only the grant of licences.
Mr Fakih in
his affidavit on behalf of the defendant sworn on October 22 1984 exhibited a
draft form of licence and indicated that the defendant intended to allow
persons into occupation of flat no 4 — and presumably other flats belonging to
the defendant — on the terms of the licence agreement, and on no other terms.
The learned judge took the view that the terms in fact created a licence and,
having regard to the way in which the case has proceeded, I need not
investigate the correctness of that.
Para 3.26 of
the third schedule is in the following terms:
(a) Not without the company’s consent to use or
occupy the flat otherwise than as a single private residence in one occupation
only so that the total number in residence shall not exceed three persons; (b)
Without prejudice to the general application of subclause(a) hereof not to
carry on in the flat or any part thereof any business as defined by section
23(2) of the Landlord and Tenant Act 1954 or any statute amending or
re-enacting the same.
The defendant
no doubt is making use of the flat for a business purpose in the sense of
making money out of it; but the defendant is not carrying on any business ‘in’
the flat, or any part of it. Para 3.26(b) is therefore not infringed by the
granting of the licences.
Therefore the
question turns, as the judge found, on the effect of para 3.26(a), the question
being whether the defendant is in breach of that; ie, having regard to the
licences, is the defendant occupying or using flat no 4 ‘as a single private
residence in one occupation only’?
The judge
held, first, that the defendant is using the flat; he is using the flat for the
purpose of carrying on the business of granting licences for occupation and,
second, the judge held that the defendant is using the flat otherwise than as a
single private dwelling-house in one occupation only.
The test is
(and as the learned judge found) whether the lessee is using the flat as the
lessee’s private residence. The answer to that in my view is that the lessee is
not. The defendant is not using the flat as the defendant’s private residence
in any sense. It is not a case of a company using property for its directors or
its staff or its own guests. Each of those classes, it seems to me, might have
sufficient nexus with the defendant company as such to justify regarding their
occupation as that of the defendant company itself. But what we have here is a
situation that the defendant company is using the flat, not for any private
residential purpose of its own, but as a residence for such members of the
public as are acceptable to the defendant. In my opinion the judge’s conclusion
is right. This is an undertaking by the lessee not to use the flat otherwise
than as a single private residence in one occupation. The lessee in the present
case is using the flat. But the lessee is not using it as a private residence,
if somebody else (ie the licensee) is using it as a private residence, and the
lessee does not reside there at all. The user as a private residence is not the
lessee’s user; it is that of somebody else altogether. And even if a lessee is
actually residing on the premises, but invites members of the public to live
there as paying lodgers, he is not keeping the house as a private
dwelling-house only — that appears from the decision of the Court of Appeal in Tendler
v Sproule [1947] 1 All ER 193.
In my view,
the defendant’s user is not residence user at all; it is the business of
providing service accommodation, and it seems to me there is no question of the
defendant using it as a residence, much less as a private residence. It is true
that this was a lease granted to a company in expensive premises, and a company
(unlike an individual) may have limited use for such premises unless it can
exploit it for value. Licensing in the manner which has been adopted in this
case is such a method of exploitation.
But, in my
view, the judge’s decision does not mean that the property is frozen in the
defendant’s hands. The defendant can exploit it simply by subletting it, and it
seems to me that it is reasonable enough to suppose that a landlord would, in a
lease of this sort, stipulate for exploitation by subletting rather than by
licensing. The occupancies, in the case of subletting, are likely to be longer
periods, with less comings and goings. The subtenants will probably be more
carefully chosen than would be the case with licensees, and the creating of
subleases requires the consent of the landlord.
The lease in
the present case fairly obviously intended a comprehensive system of control,
which is understandable in a large block of flats. We were referred to
regulation 7(3) of the regulations in the lease, which is in the following
terms:
. . . not to
do or permit to do by himself, his family, servants, agents or visitors, any
act to the damage or annoyance of the company or the tenants of the company or
the occupiers of any part of the building or of any adjoining or neighbouring
premises, or any illegal or immoral act.
That indicates
a concern about the conduct of occupiers and does not, in its terms, appear to
contemplate licensees.
Therefore, in
my view, under the lease there is a system of control by consent to subletting
and by the provisions which I have just read, and also by the provisions of
para 3.26(a) of the third schedule. I conclude that the judge was right on the
construction as to para 3.26(a) and I would dismiss the appeal on that aspect
of the case.
However, the
defendant raises a further point. The defendant’s evidence before the judge was
directed, in part, to a defence of acquiescence or waiver. It was, so we
understand, referred to by counsel before the judge, but the response of the
judge was somewhat discouraging and counsel did not, therefore, pursue it.
However, it is sought to be raised in this court.
Mr Lightman,
for the plaintiff, opposes this, but he does not suggest that his client was
prejudiced by the course which the matter took below. He says, however, that it
is a matter of discretion for the court whether to allow it to be raised or
not, and the court should not exercise that discretion, in the present
circumstances, in favour of the defendant. He referred us to the decision of
the Court of Appeal in Hickman v Kent or Romney Marsh Sheepbreeders’
Association (1920) 37 TLR 163. The Court of Appeal in that case accepted
that it was a matter of discretion whether a point which had been deliberately
not raised below should be allowed to be raised in the Court of Appeal. The
court, in its discretion, declined to permit it. But that was a case where, as
I have said, the matter was deliberately not raised below, and was a case where
there had been a full trial. Since in the present case there is no prejudice to
the plaintiff in consequence of what happened, for myself I would, as a matter
of discretion, permit the point to be raised here. The point was raised in the
evidence and it was mentioned to the judge below.
I come, then,
to the evidence which has been led by the defendant company on this aspect of
the case. In the affidavit of Mr Fakih, sworn on October 22 1984, paras 3 and 4
read thus:
Alsabahia
that is the
defendant
own the
leases of flats
and the
affidavit then gives their numbers
at Carrington
House, London W1 that is to say 16 flats out of a total of the 72 flats at the
block, which are arranged over seven floors and a ground floor. The lease of
each flat is for 999 years with each lease having approximately 990 years to
run. The total liability for service charges and rates for these flats is
approximately £70,000 per annum.
He then refers
to a schedule of flats owned by the defendant and says:
I do not
think it possible that the landlords (whether Alegros Holdings SA or their
successors in title the present plaintiffs, who purchased the freehold of
Carrington House on 4 February 1982), can at any time have thought in the
circumstances that Alsabahia could have wished to acquire so many flats simply
for the use of its own employees/directors. 4. To the best of my knowledge and
belief there have at all material times been other flat owners who have used
their flats for the purpose of occupancies by third parties.
Then he refers
to a letter from Brecher & Co of September 24 1982 ‘written on behalf of
the landlords’.
He continues:
It is my
belief that the landlords have at all times been aware (and well before the
date of this particular letter) that Alsabahia’s flats and those of other flat
owners have been used as accommodation for third parties. I am informed by Mrs
Marcia Green of Central Estates, who has a detailed knowledge of . . .
and he then
mentions a number of flats and adds that they
are all owned
by non-residents and are presently used for this purpose. Flats 506 and 508 are
owned by Bellview Enterprises Inc (a Panamanian company) and are also so used.
The letter of
September 24 1982 from Brecher & Co is in these terms:
Re:
Carrington House. We act for the Landlords of the
above and we have been asked to write to all the tenants by our clients’
Managing Agents, Orbiton Estates, regarding numerous complaints that they have
been receiving concerning nuisances, disturbances and difficulties that are
being caused by certain of the occupants of the flats in the building. We have
been asked to write to all the tenants to remind them of the terms of the
Leases under which the flats are held wherein each and every tenant covenants
to observe and perform the obligations contained in the Third Schedule to the
Lease and in particular to Clause 3.8 of that Schedule which requires the consent
of the Landlord prior to any underletting or assignment and to Clause 3.26
which provides for the flats to be occupied as single private residences for
not more than three people. We are instructed that these covenants are being
disregarded by some tenants which is obviously to the detriment of the building
as a whole and it does perhaps go without saying that our clients cannot allow
this state of affairs to continue.
Then there is
an affidavit of Marcia Green, sworn on October 18 1984, para 2 of which is in
the following terms:
Now produced
and shown to me marked ‘MG1′ is a copy of Mr Beuselinck’s letter of August 4
1982 addressed to Mr Coates of Orbiton Estates (the Landlords’ Agents) and a
copy of the letter sent therewith, the original of which was addressed to me. I
can confirm that these letters were written following an informal meeting which
I had with Mr Beuselinck at my office. Mr Beuselinck had alleged that flats in
Carrington House were being sublet without the authority of the Landlords and
asked me to confirm that this practice would stop. I did not agree that Mr
Beuselinck’s allegation was correct and I told Mr Beuselinck that I proposed to
continue allowing third parties to occupy the flats as before. I appreciated
that Mr Beuselinck was concerned that he should not suffer any disturbance as a
result of such occupation and I told him that I would do my very best to ensure
that no disturbance to him would result. I can confirm that so far as any flats
owned by Alsabahia are concerned, no serious complaint was received by me in
respect of any of them since August 1982 until the time when section 146
Notices were served by the Landlords in August 1984. For completeness, I should
add that on or about August 21 1984 I received a complaint from Mr Beuselinck
about the occupants of Flat 510 Carrington House, which is owned by Alsabahia.
Mr Beuselinck’s complaint was that the occupants of the flat were creating
unacceptable disturbances. On receiving the complaint I immediately took action
and made the occupants leave the flat straightaway.
So far as the
matter of acquiescence or waiver is concerned, there are two possibilities: the
first is that the covenantee had given up his right by acquiescence; second,
that if there was no acquiescence in that sense, there is the question whether
the covenantee has, by his conduct, acted in such a way that, although there
has been no acquiescence in law, the court should not, in its discretion, grant
an injunction. It seems to me that, on the evidence, there is an arguable case
that the landlords knew what was going on as to the user of the flat, and did
not act. I think there is sufficient evidence to say that the facts ought to be
fully investigated at a trial to ascertain the full knowledge of the landlords,
and the consequent legal position of both parties.
If, as is
possible on the evidence, the defendant company was allowed to proceed with the
process of licensing, it may well have reasonably acted to its detriment in
reliance on that. I express no view as to the outcome of the matter, but I
think the defendant has produced sufficient evidence to establish an arguable
case on acquiescence or waiver which ought to be allowed to go to trial.
I would,
therefore, give unconditional leave to the defendant to defend on that issue.
Subject to
that, I would dismiss the appeal.
Agreeing, SIR
ROGER ORMROD said: The covenant which is numbered 3.26 in the third schedule to
the lease in this case is obviously drafted very badly indeed if it were
intended that the lease including it would be used where the lessee is a
company. It is almost impossible to make sense of that covenant, assuming the
lessee to be a company.
It is obvious
to my mind that the clause has been lifted out of a lease designed for use with
private lessees in the ordinary way, and it would make perfectly good sense in
that context, just as regulation 7(3) makes perfectly good sense in that
context and makes nonsense in the context of a company lessee.
That fact,
coupled with the evidence that this lessee company took the leases of no less
than six of these flats simultaneously on December 20 1977, led me to think
that perhaps the learned judge had given a much too strict grammatical
construction to this clause and that it would be proper to construe it, or to
look at it again, in the light of the surrounding circumstances, which were
known to both parties. It is obvious that both parties to this lease knew that
these premises were being used, or were going to be used, for (to use a neutral
word) licensees or tenants (or whatever one likes to call it) and were not intended
to be used, in any sense of the word, by the company as residences or for
occupation by their staff, directors, or guests.
So at first I
thought that the suggested construction put on it by the appellants might be
right. The suggestion was that it should be read in such a way as this: that
the company, on subletting or licensing other parties to occupy the flat, must
so arrange it that those occupants only use the premises as a private residence
for themselves. It would be a somewhat forced construction, but it would make
sense in the context of the case.
However, my
difficulties in this respect were swept away in a sentence by Mr Lightman, who
pointed out that it would be perfectly
in this case, to use these flats as they intended to use them, but by the
method of subletting rather than licensing, with the landlords’ consent to each
subletting. That again would make sense, in that it would give the landlords
some control over the use of these very expensive and prestigious (if that is
the correct word) block of flats.
So my
conclusion is the same as my lord’s, that this clause 3.26 must be construed in
the way the learned judge construed it. That being so, it is obvious that the
lessees in this case cannot possibly be using or occupying this flat as a
single private residence, but are clearly using it for a completely different
purpose, namely, to allow other persons to use it for an appropriate fee.
Therefore, I have no doubt in my mind that the lessees are in breach, as the
learned judge found, of that covenant.
On the second
part of the case, it seems to me that that conclusion, followed as it was by
the learned judge granting an injunction, is an extremely serious threat to the
defendant company. Obviously it would apply to all the other flats which they
own in this block, and it will seriously disrupt their present business methods
in connection with it, and that could represent a major loss to them.
In my view, it
would, therefore, be wrong to shut out the alternative defence which the
defendants have adumbrated in their evidence, namely acquiescence or waiver,
because it is, prima facie at any rate, clear that the landlords in this
case must have been aware of the business practices being carried on by the
defendant company for a long time — certainly since the present landlords took
over in 1982 and presumably their predecessors in title would equally be well
aware of what was going on. Whether that represents an acquiescence or not is a
matter for argument — and about that I express no view — but it would be wrong,
in my view, to shut out the defendant from advancing that case, and therefore I
agree that in this court it was appropriate and right to permit the appellants
to raise that point here. And having raised it, I agree with my lord that there
is sufficient material before us in the evidence to suggest that there is an
arguable case here and consequently, this being Order 14 proceedings, it would
follow that leave to defend should be given.
I agree that
the appeal should be dismissed but that the appellant should be given leave to
defend on the basis indicated.
It was
ordered that the respondent company should have the costs of the appeal, the
cost below to be in cause.
