Landlord and tenant — Specially endorsed writ claimed forfeiture of leases — By its defence tenant admitted forfeiture — Whether landlord can thereafter contend that lease has not been forfeited
By two leases
of business premises the first defendant tenant covenanted not to part with
possession without the plaintiff landlord’s consent. Following an application
by the tenant for consent to assign the leases to the fourth defendant, which
was not granted in the
use the premises with others only for the purpose of storage. After the licence
expired, the fourth defendant remained and commenced trading from the premises.
On December 5 1993, and following a notice under section 146 of the Law of
Property Act 1925, the landlord served a specially endorsed writ on the tenant
claiming forfeiture of the leases on the ground that the tenant had allowed the
fourth defendant into possession contrary to the covenant. By its defence the
tenant admitted the forfeiture. The landlord then applied to amend its writ to
avoid the forfeiture. The tenant’s application for a declaration that the
leases had been forfeit was granted by the master. The landlord appealed,
contending that there had been a mistake in believing there had been a breach
of covenant which was induced by the tenant by not revealing the correspondence
and licence terms before they issued the writ and the tenant took advantage of
the mistake when it served the defence.
determines the lease and is not merely an unequivocal election to determine.
The service of the writ by the landlord was the equivalent of the landlord
peaceably re-entering and taking possession. The tenant admitted the breach of
covenant and the forfeiture and at this stage there was an agreement resolving
or obviating any dispute as to the landlord’s entitlement to forfeit. The
forfeiture was no longer open to challenge and the tenant should no longer face
the risk of a change of mind by the landlord. Alternatively, the landlord was
estopped from resiling from its claim to a valid forfeiture. There was no
misrepresentation by the tenant and no ground for avoiding the forfeiture based
on mistake by the landlord as to the true position.
The following
cases are referred to in this report.
Associated
Deliveries Ltd v Harrison (1984) 50 P&CR
91; [1984] EGD 511; 272 EG 321, CA
Baglarbasi v Deedmethod Ltd [1991] 2 EGLR 71; [1991] 29 EG 137
Billson v Residential Apartments Ltd [1992] 1 AC 494; [1992] 2 WLR
15; [1992] 1 All ER 141; [1992] 1 EGLR 43; [1992] 01 EG 91, HL
Calabar
Properties Ltd v Seagull Autos Ltd [1969] 1
Ch 451; [1968] 2 WLR 361; [1968] 1 All ER 1
Jones v Carter (1846) 15 M&W 718
Peninsular
Maritime Ltd v Padseal Ltd [1981] EGD 423;
(1981) 259 EG 860
West
Country Cleaners (Falmouth) Ltd v Saly [1966]
1 WLR 1485; [1966] 3 All ER 210, CA
This was a
hearing by consent under Ord 14A and an appeal from a decision of Master
Moncaster, who, on the application of the first defendant, B&Q plc, under
RSC Ord 14 declared two leases forfeit by the writ served by the plaintiff, GS
Fashions Ltd.
David Mayall
(instructed by Edge & Ellison) appeared for the plaintiff; Jonathan Gaunt
QC and Alistair Craig (instructed by Hepherd Winstanley & Pugh) represented
the first defendant; the second and third defendants, directors of the first
defendant, did not appear and were not represented; the fourth defendants,
Kingsway, did not appear and were not represented.
Giving
judgment, Lightman J said:
I have before me an appeal from a decision dated May 19 1994 of Master
Moncaster, who on the first defendant’s application under RSC Ord 14 declared
that two leases in respect of which the plaintiff (‘the landlord’) was the
lessor and the first defendant (‘the tenant’) was the lessee were determined by
service of the specially endorsed writ in this action. The issue raised is: if
a lessor serves a writ electing to claim forfeiture, and the lessee by his
defence accepts the lessor’s entitlement to forfeiture, the lessor can
thereafter challenge that the lease has indeed been forfeited and enforce the
covenants therein against the lessee on the grounds that he was not in fact
entitled to forfeit; and if so, whether the position is affected by reason of
the existence of a mistake on the part of the lessor as to the existence of a
breach at the date of service.
Facts
On this appeal
from the grant of summary judgment, I cannot determine any triable issue of
fact. One such triable issue of fact is whether in fact the tenant committed a
breach of covenant by parting with possession of the premises. This issue
involves a consideration not merely of the licence agreement but also of the
facts on the ground. The parties have agreed that I should determine as an
issue of law under RSC Ord 14A whether the leases have been determined on the
basis of a statement of agreed facts. I shall proceed to set out the facts.
The tenant is
the assignee of two leases of retail premises in Blackburn Road, Leicester
(‘the premises’), and the landlord is the lessor. These leases contain common
form covenants against the lessee assigning, subletting or parting with
possession without the consent of the lessor and a proviso for re-entry in the
event of a breach of covenant. The second and third defendants are directors of
the tenant and they entered into a covenant with the landlord to guarantee
performance of the lessee’s covenants in the leases so long, and only so long,
as the tenant held the leases. In August 1993 the tenant applied for the
consent of the landlord to the assignment of the leases to the fourth defendant
(‘Kingsway’). The landlord was not satisfied with the covenant of Kingsway and
insisted on sureties, a view perhaps justified in the event, for Kingsway has
since gone into liquidation. The tenant tried without success to persuade the
landlord to give consent without insisting on a surety, but in vain. The tenant
gave consideration to suing for a declaration that consent had been
unreasonably withheld or to subletting, for which he had sought the landlord’s
consent. On September 8 1993, in anticipation of conclusion of a contract for
the assignment of the lease to Kingsway, the tenant entered into a licence
agreement (‘the licence’) with Kingsway, which granted to Kingsway the right
(in common with the tenant and all others authorised by the tenant) until (in
the events that happened) September 14 1993 to use the premises, but only for
the purpose of storage of stock in trade. Kingsway, after the stipulated date
expired, started trading from the premises.
In early
October 1993 it became apparent to the landlord that Kingsway was in occupation
of the premises. The landlord by letters dated October 12 and 18 1993
complained to the tenant that the ‘assignee’ (meaning Kingsway) had taken
occupation and was trading without the landlord’s consent, and required that
such trading should cease, with the threat of proceedings in default. By letter
dated October 25 1993, the tenant denied authorising Kingsway to commence
trading and maintained that an ongoing presence on the premises was in
everyone’s interest. By letter dated October 26 1993, the landlord said that it
did not accept these statements and by letter dated October 27 1993 complained
that the tenant had not referred to the fact that it had assigned the leases
without consent. By letter dated October 28 1993 the tenant denied any
assignment or sublease. (The tenant was never asked whether it had parted with
possession and never denied that it had parted with possession.)
By letter
dated October 29 1993, the landlord insisted that the tenant had assigned and
enclosed a notice under section 146 of the Law of Property Act 1925 (‘the
notice’), which specified as the alleged breach of covenant allowing Kingsway
to take occupation of the premises without the landlord’s consent. On December
2 1993 the landlord issued, and on December 5 1993 served on the tenant, a
specially endorsed writ alleging that the tenant had assigned or let or parted
with possession without the landlord’s consent, and that the leases had been
forfeited and seeking against the tenant and second and third defendants
possession and mesne profits from the date of service of the writ. The landlord
joined Kingsway as fourth defendant and sought possession and damages for
trespass against Kingsway.
On receipt of
the writ, the tenant had to decide whether: (a) to accept the forfeiture and
require Kingsway to leave; or (b) to resist the forfeiture and try to progress
an assignment or subletting to Kingsway or find another assignee willing to
provide sureties. The tenant chose (a), with the consequences (if the lease was
forfeit) that: (i) it became liable to pay mesne profits or damages until the
landlord should have
payment for their continuing occupation from Kingsway.
By letter
dated December 15 1993 the tenant gave notice to Kingsway terminating the
licence and requiring Kingsway to vacate. The tenant in its defence dated
December 23 1993 admitted parting with possession by permitting Kingsway into
possession for the purpose of storage only pursuant to the licence, averred
that Kingsway continued in occupation pursuant to the licence after the licence
period specified in the licence had expired, admitted the landlord’s
entitlement to forfeiture and possession, and put in issue (and only put in
issue) the question of damages. By letter dated January 4 1994, the landlord
served notice under RSC Ord 14 r10 requiring the tenant to supply a copy of the
licence. (Previously neither the landlord had requested nor had the tenant
supplied a copy of the document regulating the relationship between the tenant
and Kingsway.) The tenant sent a copy of the licence enclosed with a letter
dated January 4 1994. The landlord took no further action until after receipt
of a letter dated January 24 1994 from the tenant which made clear the tenant’s
position that with forfeiture of the leases the tenant no longer had any
interest in the premises and was no longer bound by the rental covenants. This
prompted the landlord to have second thoughts about the desirability of
obtaining forfeiture and on January 27 1994 to apply for leave to amend the
writ deleting the claim to forfeit. The tenant applied by the summons before me
for a declaration that the leases had been forfeited. The landlord opposed this
summons, challenging the validity of the forfeiture on the grounds that, having
regard in particular to the terms of the licence, the tenant had not parted
with possession, but merely shared occupation.
The landlord
complained that it had made a mistake in thinking that there had been a parting
with possession and that the tenant induced this mistake in particular by not
revealing in the correspondence the true position regarding Kingsway’s
occupation before the date of the writ and took advantage of the landlord’s
mistake when it served the defence. The landlord by summons dated March 17 1994
applied for leave to discontinue. The landlord later appreciated that the
amendment of the writ would not have retrospective effect and accordingly would
not assist the landlord on the tenant’s application and accordingly did not
proceed with it. In a carefully reasoned decision the master made the
determination sought by the tenant and also allowed the landlord to
discontinue. The landlord appeals against this determination that the leases
have been forfeited.
Legal
position
(a) Validity of forfeiture
A lessor who
claims that the lessee has committed a breach of covenant which triggers a
right to forfeit the lease, has served any necessary notice under section 146
of the Law of Property Act 1925 and has not waived the right of forfeiture may:
(1) (subject
to statutory safeguards and limitations) peaceably re-enter in accordance with
the proviso for re-entry, take possession and thereby forfeit the lease;
(2) issue and
serve a writ seeking relief solely on the footing that the lease has come to an
end, electing immediately and unequivocally to forfeit and claim possession;
(3) issue and
serve a writ claiming in the alternative: (a) a determination that the lease
has been forfeited; and (b) enforcement of the covenants in the lease, leaving
over the election between those remedies (if not previously exercised) until
the trial of the action.
In Billson
v Residential Apartments Ltd [1992] 1 AC 494* at pp534 D–F and 535G,
Lord Templeman stated that the legal effect of (1) and (2) above are exactly
the same, namely determination of the lease and not merely an unequivocal
election to determine. (The view to the contrary relied on by the landlord
expressed in Baglarbasi v Deedmethod Ltd [1991] 2 EGLR 71 at p73B
cannot stand.) Service of the writ constitutes a notional re-entry: see Dillon
LJ in Associated Deliveries Ltd v Harrison (1984) 272 EG 321 at
p322. Lord Templeman went on to quote with approval the classic statement of
Parke B in Jones v Carter (1846) 15 M&W 718 at p726:
*Editor’s
note: Also reported at [1992] 1 EGLR 43.
… the
bringing of an ejectment for a forfeiture, and serving it on the lessee in
possession, must be considered as the exercise of the lessor’s option to
determine the lease; and the option must be exercised once for all … for after
such an act, by which the lessor treats the lessee as a trespasser, the lessee
would know that he was no longer to consider himself as holding under the
lease, and bound to perform the covenants contained in it …
Parke B went
on to say:
and it would
be unjust to permit the landlord again to change his mind and hold the tenant
responsible for the breach of duty, after that time.
The words of
Parke B were uttered in the context where the breaches of covenant by the
lessee and the entitlement of the lessor to forfeit was established. The words
and the same principle have been applied in cases where, after the service of
the writ, the lessee has challenged the lessor’s right to forfeit or claimed
relief from forfeiture. In such a situation the validity of the forfeiture must
await to be determined either by the court or agreement of the parties. In the
meantime there is inevitably a twilight period of some uncertainty. During this
period the lessor is, on the principle stated by Parke B, precluded from
treating the terms of the lease or the covenants in the lease as on foot as
against the lessee; but the lessee who has not elected to determine the lease
can seek to rely on and enforce the covenants in the lease against the lessor:
see eg Peninsular Maritime Ltd v Padseal Ltd (1981) 259 EG 860 at
p866 and Associated Deliveries Ltd v Harrison (1984) 272 EG 321.
The
authorities referred to before me do not consider the question before me,
namely whether the principle stated by Parke B likewise precludes the lessor
who has served a writ making an unequivocal election to forfeit from
subsequently setting up the invalidity of his act of forfeiture, and in
particular after the lessee has pleaded his admission of the breach and of the
lessor’s entitlement to forfeit.
In this case,
the landlord by its writ after pleading a breach of the covenant against
parting with possession made the immediate election to forfeit. In law this was
the equivalent of the landlord peaceably re-entering and taking possession.
Thereupon the tenant by its defence admitted and agreed the commission of the
breach and the forfeiture, and the landlord’s right to possession, and made no
claim to relief. It seems to me that at this stage on the pleadings alone there
is agreement resolving or obviating any dispute as to the landlord’s entitlement
to forfeit and the forfeiture effected by service of the writ no longer
remained open to challenge or question by the landlord. The lease is to be
treated as determined by forfeiture, as the parties intended. No question of
surrender arises: there is absent any intention to effect a surrender, which
has different legal consequences for all concerned.
That this is
the correct analysis appears to be confirmed by considerations of principle and
justice. As a matter of principle, if a lessor by peaceable re-entry or by
service of the writ treats the lessee as a trespasser, with such far-reaching
consequences for the lessee, it is surely only right that the lessee can accept
this ‘repudiation’ of the lease and with it the termination of all future
liabilities under the lease, eg for rent. The situation is analogous to that
which arises where one contracting party (‘A’) wrongly purports to treat the
contract as discharged by the breach of the other contracting party (‘B’). ‘B’
is then entitled to treat this contract itself as a wrongful repudiation and
accept it as discharging the contract. As a matter of justice, after the lessor
has made this election and the lessee has accepted the new relationship of
landowner and trespasser thereby created, the lessee should not be required to
face the risk of a change of mind by the lessor justified by second thoughts as
to his entitlement to take the draconian course of forfeiture with such
far-reaching consequences for the lessee by revisiting questions as to the
sufficiency of his section 146 notice or the existence of the breach of
covenant. These were matters to be fully investigated before the writ was
issued, let alone served.
If I am wrong
and the pleadings do not constitute the necessary mutual confirmation of the forfeiture,
I think that on the facts of this case the landlord was estopped on January 27
1994 from resiling from its claim to a valid forfeiture, for it had acquiesced
in the tenant’s acceptance of the validity of the forfeiture since December 23
1993 and since (say) January 5 1994 after receipt of a copy, and with full
knowledge of the contents, of the licence. It should have anticipated that the
tenant would act on the basis of common agreement between the parties that the
leases had been forfeited, and the tenant did so act in the interim, and
accordingly the landlord is debarred by application of the doctrine of estoppel
by convention.
I therefore
reach the conclusion (subject to the questions raised as to misrepresentation
and mistake) that the landlord by service of the writ forfeited the leases and
that after service of the defence no question could be raised by the landlord
as to the existence of the breach any more than the sufficiency of the section
146 notice so as to put in question of its own action in effecting the
forfeiture.
(b) Misrepresentation and
mistake
I turn now to
the questions of misrepresentation and mistake.
(1) The
landlord first complains that it served the writ under the mistaken view that
the tenant had committed a breach of covenant parting with the possession of
the premises to Kingsway and that the tenant induced the mistake and that there
was, or arguably was, no breach of the covenant against parting with
possession. I must accept for the purposes of this application for summary
judgment that the landlord when it issued and served the writ made a mistake in
thinking that the tenant in breach of covenant had parted with possession to
Kingsway. I can find in the statement of facts no basis for any arguable
allegation of misrepresentation, express or implied by the tenant inducing this
mistake. I have set out the relevant correspondence preceding service of the
writ. At most the tenant represented that Kingsway was present on the premises
and it is to be remembered that the complaint in the notice (after which there
was no further relevant correspondence) was allowing Kingsway to take
occupation, not parting with possession. No complaint can be made in respect of
the failure of the tenant to volunteer a statement whether the tenant had
parted with possession. The tenant was never asked whether it had parted with
possession and the relationship of lessor and lessee did not give rise to any
such obligation or indeed any obligation of disclosure beyond such as was
imposed by the leases: see West Country Cleaners (Falmouth) Ltd v Saly
[1966] 1 WLR 1485 at p 1489.
(2) The
landlord goes on to complain that the tenant served its defence fully knowing
that the landlord was acting under a mistaken belief that a breach involving a
parting with possession had been committed. I do not see any basis for the
allegation of such knowledge: the suggestion that such knowledge is to be
inferred from the plea in the defence that Kingsway had taken possession and
remained in occupation pursuant to the licence is unreal. But in any event
there is no reason why such knowledge (if it existed) should preclude service
of the defence accepting a valid forfeiture and assenting to the act of
forfeiture by the landlord having full effect.
(3) Finally,
the landlord contends that the landlord had an election at the date of issue
and service of the writ either to forfeit or to affirm the leases, and that the
election to forfeit the leases does not bind the landlord because made under a
mistake of fact as the existence of the breach of covenant. It would be
remarkable if a lessor might in any case avoid the consequences of an act of
forfeiture by subsequently bringing to light the existence of a mistake
inducing the decision to forfeit. It is well established that a lack of
knowledge or a mistake as to the full facts may preclude a waiver, eg of a
breach of covenant or a right to forfeit; but there is no like requirement of
knowledge or absence of a mistake for a valid and binding decision to exercise
a contractual right, eg to forfeit a lease or exercise any other contractual
option.
(c) Limitations
I should
emphasise certain limitations on the proposition of law on which I have founded
this judgment:
(1) I am
concerned only with the rights inter se as between lessor and lessee. I
am not here concerned with the situation where there is a subtenant or
mortgagee of the lease. Confirmation or validation of a forfeiture by the
lessee alone may not prejudice the entitlement of a sublessee or mortgagee to
challenge the validity of the forfeiture and accordingly to maintain the
continued subsistence of their interests.
(2) I do not
have to consider the position where after service of the writ the lessee in its
defence denies the entitlement to forfeit, and how far it is open to the
parties and in particular the lessor to change his pleadings and position
thereafter. But as it seems to me by parity of reasoning, if the lessee alleges
that the forfeiture was invalid, the lessor should be able to concede and agree
the lessee’s contention and on that basis withdraw his claim to forfeiture.
(3) The lessor
can avoid the situation arising in this case by claiming in the alternative in
his writ forfeiture and relief (eg an injunction restraining or remedying
breaches of covenant) which presupposes the continued existence of the lease,
leaving his election between remedies (unless previously exercised) to the
trial: see Calabar Properties Ltd v Seagull Autos Ltd [1969] 1 Ch
451.
Conclusion
I therefore
dismiss this appeal. In fairness to the present solicitors and counsel for the
landlord, I should make it clear that they were not instructed at the time that
the writ in this action was issued and served.
Declaration
accordingly.
