Landlord and tenant — Covenant against assignment without landlords’ consent — Notices under section 146 of Law of Property Act 1925 — Effect of assignment made in breach of covenant: Old Grovebury Manor Farm v W Seymour Plant Sales and Hire Ltd (No 2) — Re-entry effected by landlords — Whether lease forfeited — Tenants’ claim succeeds
which gave rise to questions in this case was the lease of a shop with
residential accommodation above in Cheam, Surrey, the term being 20 years from
June 24 1976 — The lease contained covenants restrictive of alienation and user
— The difficulties which arose were concerned with assignments of the whole of
the demised premises, particularly an assignment by a company called J R Graham
Ltd to the present plaintiffs — Grahams agreed to sell the lease to the
plaintiffs for £30,000 and the assignment was completed in April 1988 — It
appears, however, that, although the assignment recited that the landlords’
consent to it had been duly obtained, this was not in fact the case and the
landlords did not become aware of its execution until the following year — As
will be seen, the breach of covenant did not prevent the assignment from
effectively vesting the lease in the plaintiffs — Having become aware of the
breach, the landlords (the present defendants) on February 9 1989 served a
notice under section 146 of the Law of Property Act 1925 complaining of the
breach and requiring that it should be remedied — The notice was, however,
served on Grahams, whose title had by then become vested in the plaintiffs —
Shortly afterwards, on February 24 1989, the landlords decided to exercise
self-help and claimed to forfeit the lease by re-entering the premises and
changing the locks — Only a few days later, on February 28 1989, the landlords
served a second notice under section 146 of the 1925 Act — This time the notice
was correctly served on the assignees, the plaintiffs — The position was,
however, peculiar — The landlords were themselves in possession of the demised
premises after re-entry
assignment from Grahams to the plaintiffs was in breach of covenant, no licence
to assign having been sought or obtained — There were no grounds for concluding
that any retrospective consent to assign had been granted — The landlords were
justified in alleging in the notices under section 146 that a breach of
covenant had taken place — Both notices, however, that of February 9 and that
of February 28, turned out to be ineffective — The earlier notice was invalid
because served on the assignors, Grahams, after the lease had become vested in
the assignees — The later notice was ineffective because served by landlords
already in possession of the demised premises who claimed to have forfeited the
lease by their re-entry — The judge concluded, however, that there had not yet
been an effective forfeiture of the lease — The plaintiff tenants were entitled
to an order restraining the defendant landlords from remaining on the premises
and were entitled to be given keys — They were also entitled to damages for
illegal entry and there would have to be an inquiry into damages
The following cases are referred to in
this report.
Old Grovebury Manor Farm Ltd v W Seymour Plant Sales
& Hire Ltd (No 2) [1979] 1 WLR 1397; [1979] 3 All ER 504; (1979) 39
P&CR 99; [1979] EGD 529; 252 EG 1103, [1979] 2 EGLR 52, CA
Ropemaker Properties Ltd v Noonhaven Ltd [1989]
2 EGLR 50; [1989] 34 EG 39
In this action the plaintiffs, Mark Peter
Fuller and his wife, Joy Carolyn Fuller, claimed against the defendants, Judy
Properties Ltd, (1) an order restraining the defendants from remaining on the
premises at 534 London Road, Cheam, (2) to be supplied with keys to the
premises, relief from forfeiture and other relief.
Miss Alison Potter (instructed by Symons,
of Croydon) appeared on behalf of the plaintiffs; Graham Platford (instructed
by Cohen & Naicker) represented the defendants.
Giving judgment, MERVYN DAVIES J
said: The plaintiffs in this action are Mark Peter Fuller and Joy Carolyn
Fuller, his wife. The defendant is a company called Judy Properties Ltd. Judy
owns a shop with residential accommodation over at 534 London Road, Cheam. In
the circumstances which I will mention, the plaintiffs claim (1) an order
restraining Judy from remaining on those premises, (2) to be supplied with keys
to the premises, (3) damages, (4) relief from forfeiture and other relief.
By a lease dated November 8 1976 Judy let
the premises to Fairdale Fabrics Ltd for 20 years from June 24 1976. The lease
was assigned to J R Graham Ltd. There is a covenant in the lease against
assignment etc, which, so far as now material, is in these terms:
(15)(a) Not (but without prejudice to the
foregoing) to assign transfer charge underlet or part with or share the
possession or occupation of the demised premises or any part thereof or suffer
any person to occupy or use the demised premises or any part thereof as
licensee PROVIDED ALWAYS that the
underletting of the whole of the demised premises.
And there is a user covenant in these
terms:
(16)
Not to use or permit or suffer to be used the demised premises or any
part thereof for any purpose other than as to the ground floor for the retail
sale of drapery and as to the upper floor as residential.
At the end of 1987 Grahams were in
occupation of the shop part of the demised premises and there was a tenant of
theirs above in the residential part. On November 11 1987 Grahams wrote to
Judy’s managing agents a letter informing them that they wished to dispose of the
lease. The managing agents are a firm called Willmotts. On April 6 1988 Grahams
agreed to sell the lease to the Fullers for £30,000. The contract gave April 13
1988 as the completion date. The contract had a special condition as follows:
The vendors will apply for a licence from
the landlords of the premises for a change of user to use as offices or as
Estate Agents and Mortgage Broker’s office, and also a licence to assign and
will pay all fees and expenses in connection with such applications.
The contract of sale between Grahams and
the Fullers was duly completed on April 13. Recital (3) in the assignment
reads: ‘The consent in writing of the landlord to the assignment has been made
and duly obtained’. In fact no formal consent in writing to the assignment had
been obtained.
Judy contend that they became aware of
the execution of this assignment dated April 13 1988 in January 1989 or
thereabouts. In consequence they served a notice on Grahams under section 146
of the Law of Property Act 1925 complaining of a breach of the clause (15) set
out above, the breach being the assignment to the Fullers or a parting with
possession. The notice required Grahams to remedy the breach. There was no
remedying of the breach and on February 24 1989 Judy claimed to forfeit the
lease by re-entering the premises and changing the locks. On February 28 1989
Judy served a second section 146 notice, this notice being served on the
Fullers. It was eventually contended, as I understand, that if the earlier
notice was bad, Judy would nevertheless rely on the later notice.
Against that general background a number
of points were taken before me.
1 Breach of covenant
As I have said, Grahams executed an
assignment in favour of the Fullers on April 13 1988. They did so without
having received from Judy any particular document that can be regarded as a
licence to assign. Despite that fact, Miss Potter, for the Fullers, submitted
(a) that a licence was in principle granted before April 13 1988, albeit by no
formal document, no formal document being necessary for the purpose of clause
15; and (b) that even if there were no licence before April 13 it was clear
from the behaviour of the defendants subsequent to April 13 that they
retrospectively consented to the assignment by reference to a draft licence
that was approved.
To consider this submission one must read
the correspondence. One does so to see if Judy either expressly or impliedly
consented to an assignment to Fuller; or, having been asked for a consent,
unreasonably withheld it; or, after April 13, consented to an assignment in
circumstances which must have waived any failure by Grahams to obtain a consent
before that date.
Correspondence concerning a licence began
with a letter dated January 15 1988 from Baldocks, the solicitors acting for
Grahams, to Willmotts. They said there was to be a formal application for a
licence to assign and they also applied for consent to a change of use —
drapery use to office use. It seems that the Fullers desired to use the
ground-floor premises as an estate agency.
There followed correspondence about the
proposed change of use and then on January 27 Baldocks supplied some references
for the Fullers. On the same day another letter from Baldocks gave an
undertaking to pay the costs etc in connection with the application for a
licence to assign.
On February 1 Willmotts agreed to the
proposed change of use, but in their letter to Baldocks they said they wished
to carry out an inspection ‘before the matter proceeds any further’. They asked
Baldocks to arrange for Grahams to get in touch with them for that purpose.
There was no immediate progress on this matter of inspection, but on February 5
Willmotts informed Baldocks that references (or ‘status’) were satisfactory and
inquired whether their solicitors should draft a licence to assign.
On February 6 Baldocks asked for a draft
licence together with a consent to change of use. It is to be noted that it was
on this day — February 6 — that contracts were exchanged between Grahams and
the Fullers.
It is plain that by this time no licence
to assign had been granted. The parties were in negotiation and the landlord
had indicated that the matter could not proceed without an inspection of the
premises.
Matters remained in this way until April
13 when the Grahams-Fuller contract was completed by the execution of an
assignment bearing that date.
In this situation I can conclude only
that on April 13 the landlord (Judy) and the tenants (Grahams) were in
negotiation concerning a licence to assign — so that no licence had, in fact,
been granted; and that there had been no unreasonable withholding of consent.
Thus the assignment was executed in breach of para 15 of the lease.
It remains to consider whether the
correspondence after April 13 permits of a conclusion that, despite the absence
of a licence on April 13, Judy must be regarded as having granted a
retrospective licence to assign. I do not see how any such conclusion can be
drawn.
On April 14 Willmotts expressly informed
Baldocks:
We hope you will appreciate that until
such time as we have gained access to the premises to carry out an inspection
we cannot advise our clients to complete any licence to assign.
On April 26 Willmotts informed Baldocks
that Baldocks would be receiving a draft licence from their solicitors very
shortly. However, Willmotts again referred to the matter of inspection. They
said:
We still have not heard from your client
(Grahams) in order to arrange access to inspect the premises. We regret that
the assignment cannot proceed until such time as we do carry out our inspection
in order to satisfy ourselves that the lease terms have been complied with.
It will be appreciated that at this time,
and for some time afterwards, Willmotts were not aware of the fact that an
assignment had been executed.
On April 29 Cohen & Naicker, the
solicitors acting for Willmotts, sent a draft licence to assign to Baldocks.
The Fullers now come into the
correspondence with a letter dated May 10, written to Willmotts, desiring
Willmotts to contact them to arrange access. It then appears that Mr Fuller
would make a set of keys available to Willmotts on May 25 with a view to
inspection.
In a letter dated May 24 Willmotts inform
Mr Fuller that the purpose of the inspection was to check the condition of the
premises ‘prior to any licence to assign being granted’. In the event,
Willmotts made an inspection and then wrote to Baldocks on June 20. They sent a
schedule itemising matters of repair and decoration that required attention.
They then said:
Our clients require that the assignees
covenant in the licence to assign to complete the works in the enclosed
schedule within three months from completion of the assignment. Please confirm
that the assignees agree thereto and we will adapt the licence accordingly.
The next matter to mention is a letter
from Symons, the solicitors acting for Fullers. On August 2 they wrote to Cohen
& Naicker indicating that the Fullers would be pleased to carry out the
works set out in the schedule which I have mentioned, and Cohens were asked to
prepare the licence to assign accordingly.
Until this time it had been supposed that
the Fullers were to go into occupation of the premises using them in the course
of their estate agents’ business. However, on September 12 Symons informed
Cohens, in effect, that the Fullers had been unable to get planning consent for
a change of use from shop to office. In their letter dated September 12 Symons
explained that it was now desired that the premises be assigned to another firm
of estate agents — Andrews Estate Agents Ltd. It appears that no planning
difficulties would arise respecting Andrews because they were in a position to
exchange their existing office for a shop use and take over the Grahams’
property for office purposes.
In their letter dated September 12 Symons
said:
To protect our own client’s title to the
property we will obviously need to complete the licence and we return one copy
approved as drawn, save that we have now omitted the change of use which will
obviously not apply, but which can be dealt with in the licence to our client
purchasers.
We have also deleted the provisions with
regard to additional works which the new purchasers will undertake to carry out
and again we presume these can be dealt with in the new licence.
If you are happy to proceed on that basis
perhaps you will so confirm, and we will let you have the formal application
for the new licence as soon as our purchaser’s references are to hand.
It appears that the landlord was willing
to consider favourably the plan of an assignment to the Fullers to be followed
by an assignment
Cohens sent, dated October 5 1988. In that letter Cohens went on to say:
However, if these assurances cannot be
given within seven days then our client’s instructions to us are to serve a
section 146 notice upon the existing tenant and not to permit any licence to
assign to proceed until the work has been completed and the premises put in
order.
The section 146 notice then in mind was
to be based on a failure to repair. No such notice was served. One next sees
that on November 7 1988 Cohens set out the terms on which a licence to assign
would be granted to the Fullers to enable them to assign to Andrews. One of the
terms was that Andrews would covenant to repair within three months. That term
appears not to have been accepted, at any rate expressly.
In the event on January 5 1989 Symons
wrote to Cohens informing them that the Fullers-Andrews transaction had broken
down. In that letter Symons go on to say:
We will therefore have to proceed upon
the basis of our earlier negotiations on the licence with our clients
undertaking as to the schedule of dilapidations. Perhaps you would let us have
an engrossment of that licence, which we have previously approved, and then we
can finalise the matter.
On January 12 Cohens duly sent a
counterpart licence to assign incorporating a change of use provision together
with obligations to carry out repair works. The letter inquired whether
planning consent had been obtained and then stated it was a term of the
negotiations that consent be obtained before completion of the licence.
The next event to record is a letter
dated February 9 to Grahams, sending a section 146 notice based upon a breach
of para 15 of the lease, that is assignment without consent.
Having carefully read all the
correspondence and the written statements, I cannot conclude that there was
after April 13 any situation as between the landlord and Grahams, or as between
the landlord and the Fullers, that can be read as meaning that there was a
retrospective grant of any licence to assign. There was no licence ex post
facto. The parties were always in a state of negotiation. Furthermore,
there was no unreasonable withholding of consent.
Thus it was on February 9 when the
section 146 notice was served that the landlord was justified in alleging a
breach of the covenant not to assign.
2 Was the section 146 notice dated February 9
1989 valid?
The notice served on February 9 was
served on Grahams. In this connection I was referred to Old Grovebury Manor
Farm Ltd v W Seymour Plant Sales & Hire Ltd (No 2) [1979] 1 WLR
1397*. That authority indicates that a section 146 notice in the circumstances
of this case is to be served not on Grahams but on the Fullers. It follows,
with section 146 in mind, that no right of re-entry or forfeiture can be
founded on the notice dated February 9 1989.
*Editor’s note: Also reported at (1979)
252 EG 1103, [1979] 2 EGLR 52.
Mr Platford, for Judy, sought to
distinguish the Grovebury case. He submitted that the Fullers were
estopped from denying that Grahams were the tenant for the purpose of the
service of the notice. The estoppel point was not originally pleaded, but I
allowed an amendment in this respect at a late stage of the trial. There was no
evidence in the witness statements that bears on the matter. The plea refers to
these letters:
|
20th June 1988 |
Cohen to Baldock |
|
5th July 1988 |
Cohen to Baldock |
|
2nd August 1988 |
Symons to Cohen |
|
5th October 1988 |
Cohen to Symons |
|
10th October 1988 |
Symons to Cohen |
|
14th October 1988 |
Symons to Cohen |
|
9th December 1988 |
Cohen to Symons |
|
5th January 1989 |
Symons to Cohen |
|
12th January 1989 |
Cohen to Symons |
The pleading then reads:
12
The said representations were made with the intention that the defendant
should rely thereon and not proceed to forfeit the lease for breach of covenant
in assigning without the defendant’s consent.
13
In reliance on the said representations the defendant did not consider
forfeiture or other action in respect of the plaintiffs’ said breaches of
covenant until February 9 1989.
14
In further reliance on the said representations the defendant served a
notice dated February 9 1989 on J R Graham Ltd as tenant pursuant to section
146 of the Law of Property Act.
15
In the premises the plaintiffs are estopped from denying that J R Graham
Ltd was the tenant for the purposes of service of the said notice.
So, one examined the correspondence to
see whether the plaintiffs, that is the Fullers, made the representations
alleged. In particular, regard must be had to the Symons letters dated August
2, October 10, October 14 and January 5 in the context of the other letters and
to consider what they do say or fail to say.
The letters dated August 2 and October 10
do little to support the plea. The Cohen letter dated December 9 says that
Cohen assume that the assignment to the Fullers was not completed and asks for
‘the exact position’. The Symons reply dated January 5 does not deal with the
question whether the Fuller assignment had been executed. But since it was then
that the Andrews transaction broke down, that is not perhaps surprising. Even
if it is surprising, I think it cannot be inferred that the failure then to
give information about the Fuller assignment was made ‘with the intention that
the defendant should rely thereon and not proceed to forfeit . . .’: see para
12 above.
In my view, the estoppel plea fails. I
cannot suppose that when the section 146 notice was being drafted the
landlord’s advisers were led to serve the notice on Grahams because they read
the correspondence relied on as representing that Grahams were the tenants.
Such a supposition would not fit at all well with the wording of the notice
itself, which in terms alleges against Grahams: ‘You have assigned and/or
parted with possession of the premises to the Fullers.’ Thus the landlord must have had some
information as to assigning or parting with possession.
It is to be noted also that earlier — see
the letter of October 5 1988 — the landlord had in mind a section 146 notice
based on a failure to repair, but the notice as served in February 1989 was
based on breach of covenant not to assign.
Another consideration is that the Fullers
paid the rent of the premises on July 1, September 29 and December 31 1988. No doubt
the rents may have been accepted by inadvertence, but the payments were
accepted.
3 The second section 146 notice
Having served the notice dated February 9
1989, the landlord took possession of the premises on February 24 by changing
the locks. The premises were, it seems, unoccupied save as to the residential
accommodation above.
After the re-entry on February 24, the
landlord decided to serve a second section 146 notice, this time on the
Fullers. The second notice is dated February 28, but it was common ground that
the notice was received by the Fullers on March 3.
The notice is substantially in the same
terms as the earlier notice, alleging that the covenant not to assign had been
broken ‘in so far that Grahams have assigned and/or parted with possession of
the premises to yourselves’. The notice then required the Fullers to remedy the
breach in so far as the same was capable of remedy. On failure to comply with
the notice within seven days, or within a reasonable time, it was the intention
of Judy to commence proceedings to recover possession.
As we know, Judy did not, in fact,
commence proceedings, because on March 8 the Fullers issued their writ.
It was eventually argued before me, as I
understand, that if the first section 146 notice was invalid, nevertheless
forfeiture ensued in consequence of the service of the second notice. No
authorities were referred to in this regard. I can understand that the landlord
would wish to recover from what was perhaps a slip on its part in serving
Grahams and not the Fullers in the first instance, but the precipitate action
of the landlord in taking possession on February 24 — before the date of the
second notice — to my mind makes it very difficult to give any effect to the
second notice.
Looking at section 146, one sees that
there is to be a notice served specifying a breach and requiring remedy of the
breach, with the lessee then given a reasonable time to remedy the breach, if
remediable. But at the time when the second notice was served the landlord was
already in possession, claiming to have forfeited, and the landlord has
throughout maintained a forfeiture based on the first notice.
In these circumstances I find that the
landlord cannot found a forfeiture on the second notice. That notice was
without effect.
In the light of all the foregoing I
conclude that there has been (as yet) no effective forfeiture of the lease. The
plaintiffs are entitled — see the statement of claim — to an order restraining
the defendants from remaining on the premises and are entitled to be given
keys. The
as to damages.
I must add some brief words about relief
against forfeiture because time was taken before me in considering whether the
Fullers were entitled to relief against forfeiture if it should appear that
Judy was entitled to forfeit (in reliance on one or other of the notices).
Guidance on this topic is given in Hill
and Redman, 18th ed, p A984 and following, including the reference to Ropemaker
Properties Ltd v Noonhaven Ltd [1989] 34 EG 39.* I take into account again the history of this
matter as disclosed in the correspondence and the fact that the Fullers paid
£30,000 for the lease.
*Editor’s note: Also reported at [1989] 2
EGLR 50.
With those considerations in mind, had
Judy succeeded in showing it was entitled to forfeit, I should have been of the
opinion that relief ought to be given to the Fullers in the way of allowing the
lease to continue to run on condition that the Fullers paid the Judy costs of
the proceedings within six months. That may be said to be giving the Fullers
relief at no cost, since on the footing now being assumed the Fullers would be
ordered to pay the Judy costs on the basis that Judy, having succeeded in the
action, ie by establishing forfeiture, would be awarded its costs.
I appreciate that that is so.
Nevertheless, I would have granted relief in the terms I have indicated.
