Landlord and tenant — Forfeiture of head lease — Consequences for underlessees and mortgagees — Underlessees not told of forfeiture — Relief against forfeiture — Law of Property Act 1925, section 146(4) — Equitable estoppel — Unconscionable for freeholders to deny subsistence of underleases — Further stage in the history of a complex litigation
last stage so far in a long-running process, the previous record of which is to
be found in the reports of Official Custodian for Charities v Parway Estates
Development Ltd [1985] Ch 151, (1984) 270 EG 1077, [1984] 1 EGLR 63; Official
Custodian for Charities v Mackey [1985] Ch 168; and Official Custodian for Charities v Mackey (No 2)
[1985] 1 WLR 1308, [1985] 1 EGLR 46 — The present actions followed upon the
forfeiture of a lease for 107 1/2 years granted in 1961 by the Trustees of the
Campden Charities to Parway Estates Development Ltd, a company which was
compulsorily wound up in 1979 — The legal effect of the forfeiture, which had
been the subject of earlier litigation, was that all interests derived
therefrom, such as mortgages and underleases (including the two underleases
granted to the Borough of Hammersmith and Fulham, the present plaintiffs)
ceased to exist as such — However, neither the superior landlords nor the
mortgagees had taken any formal steps to inform the underlessees of the
situation — In fact rents continued to be collected from the underlessees by
receivers appointed by one of the mortgagees, the Royal Bank of Scotland —
There was a period during which the legal position was in doubt pending the
possibility of an appeal on the forfeiture question to the House of Lords; in
the event the House refused leave to appeal — After the forfeiture of the
Parway lease was established some changes took place in the ownership of the
freehold — The result of these transactions was that the land formerly held by
the Trustees of the Campden Charities became divided between the present
defendants, Tops Shop Centres Ltd and Glassgrove Ltd (both of them subsidiaries
of Tops Estates plc)
disputes arose between the defendants and some of the occupiers of the estate,
including the plaintiff council, about the fate of the former underleases —
Throughout the period during which the estate had been managed on behalf of the
receivers, the trustees and the present defendants’ predecessors the
underleases had been treated as subsisting and rents had been demanded and
collected on that footing — The defendants now contended that the plaintiffs
had tenancies only from year to year terminable on six months’ notice, not
tenancies for the original fixed terms — The plaintiffs contested this view and
put their arguments in three ways, (1) that a vesting order in favour of
mortgagees under section 146(4) of the Law of Property Act 1925 had the effect
of automatically reinstating the plaintiffs’ former underleases, (2)
alternatively, that the demanding and receiving of rent and other actions gave
rise to an estoppel precluding the defendants from denying the subsistence of
the underleases, and (3) in the further alternative, that the plaintiffs were
still entitled to apply for relief from forfeiture under section 146(4)
considered the rival contentions in the light of a large number of authorities
and reached the following conclusions — He rejected the submission that a
vesting order under section 146(4) had the automatic effect of reinstating all
derivative interests — He accepted the plaintiffs’ contention based on
equitable estoppel — The plaintiffs had been encouraged, to their detriment, to
assume that the underleases subsisted; it would be unconscionable for the
defendants now to deny that assumption — It was unnecessary to pursue the
plaintiffs’ third argument to its conclusion (although it did point to a
shorter way of reaching substantially the same result) as it had been decided
that the plaintiffs were entitled to succeed on the basis of equitable estoppel
— Declaration in favour of plaintiffs accordingly
The following
cases are referred to in this report.
American Cyanamid Co v Ethicon Ltd [1975]
AC 396; [1975] 2 WLR 316; [1975] 1 All ER 504, HL
Ashton v Sobelman [1987] 1 WLR 177;
[1987] 1 All ER 755; [1987] 1 EGLR 33; (1987) 281 EG 303
Basham, re [1986] 1 WLR 1498; [1987] 1 All ER 405
Cadogan v Dimovic [1984] 1 WLR 609;
[1984] 2 All ER 168; (1984) 48 P&CR 288; [1984] EGD 128; 270 EG 37, [1984]
1 EGLR 71, CA
Central Estates (Belgravia) Ltd v Woolgar (No 2)
[1972] 1 WLR 1048; [1972] 3 All ER 610; (1972) 24 P&CR 103, CA
Chatsworth Properties Ltd v Effiom [1971] 1 WLR
144; [1971] 1 All ER 604: (1971) 22 P&CR 365, CA
Chelsea Estates Investment Trust Co Ltd v Marche [1955] Ch
328; [1955] 2 WLR 139; [1955] 1 All ER 195
Dendy v Evans [1910] 1 KB 263
Egerton v Jones [1939] 2 KB 702
Ewart v Fryer [1901] 1 Ch 499
Greasley v Cooke [1980] 1 WLR 1306; [1980]
3 All ER 710, CA
Habib Bank Ltd v Habib Bank AG Zurich
[1981] 1 WLR 1265; [1981] 2 All ER 650; [1982] RPC 19, CA
Jones d Cowper v Verney (1739) Willes
169
Keith v R Gancia & Co Ltd [1904] 1
Ch 774
Knights v Wiffen (1870) LR 5 QB 660; 40
LJQB 51; 23 LT 610
Lowenthal v Vanhoute [1947] KB 342; [1947]
1 All ER 116; (1947) 63 TLR 54
Moorgate Mercantile Co Ltd v Twitchings [1976] QB
225; [1975] 3 WLR 286; [1975] 3 All ER 314, CA
Official Custodian for Charities v Mackey [1985] Ch
168; [1984] 3 WLR 915; [1984] 3 All ER 689
Official Custodian for Charities v Mackey (No 2) [1985]
1 WLR 1308; [1985] 2 All ER 1016; [1985] 1 EGLR 46; (1985) 274 EG 398
Official Custodian for Charities v Parway Estates
Developments Ltd [1985] Ch 151; [1984] 3 WLR 525; [1984] 3 All ER 679;
(1984) 48 P&CR 125; 270 EG 1077, [1984] 1 EGLR 63, CA
Quilter v Mapleson (1882) 9 QBD 672
Rogers v Rice [1892] 2 Ch 170; (1892) 8
TLR 511
Stroud Building Society v Delamont [1960] 1
WLR 431; [1960] 1 All ER 749
Taylors Fashions Ltd v Liverpool Victoria
Trustees Co Ltd [1981] 2 WLR 576; [1981] 1 All ER 897; [1982] QB 133;
(1979) 251 EG 159, [1979] 2 EGLR 54
In these two
actions the plaintiffs, the London Borough of Hammersmith and Fulham, sought by
originating summonses declarations in their favour as to the continuing
effectiveness of the terms of two underleases granted to them in 1970 by Parway
Estates Developments Ltd and expiring on September 15 2068. The defendants to
the summonses were Tops Shop Centres Ltd and Glassgrove Ltd.
Nigel Hague QC
and D Hochberg (instructed by Mackenzie Mills) appeared on behalf of the
plaintiffs; E G Nugee QC and Miss P Baxendale (instructed by Paisner & Co)
represented the defendants.
Giving
judgment, WARNER LJ said: These two actions were begun by originating summonses
issued on January 7 1988. In each of them the plaintiffs are the Mayor and
Burgesses of the London Borough of Hammersmith and Fulham (‘the council’), and
in each of them the defendant is a subsidiary of Tops Estates plc. In the first
action, that subsidiary is Tops Shop Centres Ltd; in the second action it is
Glassgrove Ltd.
The actions
are about underleases to the council of parts of a substantial development on
the south side of Shepherd’s Bush Green in Hammersmith. That development is on
two sites, one on the eastern side and the other on the western side of Rockley
Road. The eastern site is much the larger of the two.
Omitting
immaterial details (and there are many) the history of those sites and of that
development is this. The two sites together constitute what was at one time
called, and sometimes still is called, the Charecroft Estate. The freehold of
that estate (‘the estate’) was formerly owned by the Trustees of the Campden
Charities (‘the trustees’).
On August 10
1961, the trustees granted a building lease of the estate to Parway Estates
Developments Ltd (‘Parway’). That was a lease for 107 1/2 years from March 25
1961 at a rent (after the first two and a half years) of £15,000 per annum,
subject to provisions for its review. The only review that took place was in
1968, when the rent was increased to £27,500. The lease contained a proviso for
re-entry in common form which was to take effect in, inter alia, the
event of the tenant’s going into liquidation whether compulsorily or
voluntarily, otherwise than for the purpose of reconstruction or amalgamation.
I will call that lease ‘Parway’s lease’.
Pursuant to
that lease, Parway carried out the development in question. On the eastern site
that development consisted (and it consists) of a comparatively small office
block called Atlantic House which fronts on Rockley Road and, on the greater
part of the site, of a shopping centre at ground and basement level, a car park
at first-floor level, the roof of which constitutes what is called an amenity
deck (it is, I understand, a roof garden) and two tower blocks of residential
flats. On the western side there were (and are) two more tower blocks of
residential flats, car parks and a service station fronting on Shepherd’s Bush
Green. The whole development was completed in about 1970. It became known as
the Shepherd’s Bush Centre.
As the
development was completed in successive phases, Parway granted underleases of
the many parts of it to appropriate tenants. In particular, on December 2 1970,
Parway granted two underleases to the council pursuant to the Housing Act 1957.
One was an underlease of the two tower blocks and of the amenity deck on the
eastern site. The other was an underlease of the two tower blocks and of a car
park on the western site. Each of those underleases was expressed to be made in
consideration of the expense incurred by the council in connection with the
erection of the demised buildings, of the rent reserved by the underlease and
of the covenants by the council therein contained. In each case the underlease
was for a term beginning on December 2 1970 and continuing for the residue of
the term of Parway’s lease less the last 10 days thereof. In other words, the
underleases were to continue until September 15 2068.
In each case
the underlease reserved a yearly rent payable quarterly on the usual quarter
days. That rent in the case of the first underlease was £8,000 per annum. In
the case of the second underlease, it was £7,000 per annum. There was no
provision for rent reviews. In each case the covenants by the council included
full repairing covenants and a covenant to insure the demised building.
At various
dates from 1968 to 1974, Parway mortgaged its lease. In the result, that lease
became subject to a first charge in favour of the London & Manchester
Assurance Co Ltd and its subsidiary, London & Manchester (Pensions) Ltd,
jointly (I will call them ‘the London & Manchester companies’); to a second
charge in favour of Slater Walker Ltd; to a third charge in favour of the Royal
Bank of Scotland; and to a fourth charge in favour of Slater Walker Ltd again.
Slater Walker Ltd played no further active part in the story and my references
hereafter to the mortgagees are references to the London & Manchester
companies and the Royal Bank of Scotland.
On October 22
1976, the Royal Bank of Scotland appointed two partners in Ernst & Whinney,
namely Mr Mackey and Mr Hamilton, to be joint receivers in respect of the property
comprised in Parway’s lease. The receivers arranged for agents, J Trevor &
Sons (‘Trevors’), to collect the rents from the underlessees and to manage the
estate. Trevors paid the rent due under Parway’s lease to the trustees.
On February 26
1979 the Companies Court made a compulsory winding-up order against Parway on
the petition of the Commissioners of Inland Revenue. However, Trevors continued
to manage the estate as before. The trustees did not become aware of the
winding-up until July 1981. Thereafter they refused to accept further rent. On
December 10 1981, they applied to the Companies Court for leave to take
proceedings against Parway for forfeiture of its lease. That leave was granted
on June 24 1982. On July 6 1982, the trustees issued a writ claiming forfeiture
of the lease on the ground of Parway’s liquidation and mesne profits until
possession should be delivered up. The only defendant in that action (‘the
forfeiture action’) was Parway. The writ was served on July 19 1982.
Parway
defended the forfeiture action on the ground that the trustees should be held,
for various reasons, to have waived their right to forfeit. Alternatively, it
counterclaimed for relief from forfeiture. That defence and counterclaim were
undertaken by the liquidator at the request of the receivers and on their
indemnity against costs. The Royal Bank of Scotland stood behind the receivers
for the purposes of that indemnity. The liquidator took the view (rightly, as
it turned out) that the charges on the lease exhausted its value and that there
was no equity in it for Parway.
On May 23
1983, before the forfeiture action came on for trial, the mortgagees issued
summonses in that action seeking to be joined as parties to it and, if
necessary, relief under section 146(4) of the Law of Property Act 1925. That
relief would be necessary if the trustees succeeded against Parway in
forfeiting the lease. The summonses were adjourned by the master to the judge
to be heard immediately after the forfeiture action.
The forfeiture
action came on for trial before Mr Vivian Price QC, sitting as a deputy High
Court judge. He gave judgment on July 27 1983. He held that the trustees had
not waived their right to forfeiture. He could not grant Parway relief from
forfeiture under section 146 of the Law of Property Act 1925 because, more than
a year having gone by since Parway went into liquidation, subsection (10) of
that section precluded him from doing so. However, he held that he had power to
grant Parway such relief under the general equitable jurisdiction of the court,
and he did so. That meant that he did not need to deal with the mortgagees’
summonses for relief under section 146(4) and those summonses were not
proceeded with before him.
The judgment
of Mr Price was the subject of an appeal and cross-appeal to the Court of
Appeal. The decision of the Court of Appeal thereon was given on April 18 1984.
It is reported as Official Custodian for Charities v Parway Estates
Developments Ltd (In Liquidation) [1985] Ch 151*. The Court of Appeal affirmed
Mr Price’s judgment in so far as he had held that the trustees had not
waived their right to forfeiture. The Court of Appeal held, however, that Mr
Price had been wrong to grant Parway relief from forfeiture under the general
equitable jurisdiction of the court. They held that the effect of subsections
(9) and (10) of section 146 was to oust any such jurisdiction where a lessor
was enforcing a right to forfeit a lease because of the bankruptcy or
liquidation of the lessee.
*Editor’s note: Also reported at (1984)
270 EG 1077, [1984] 1 EGLR 63.
The
mortgagees’ summonses for relief under section 146(4) were not before the Court
of Appeal, but it was recognised in the Court of Appeal that, as a result of
section 1 of the Law of Property (Amendment) Act 1929, the mortgagees’
applications for such relief would not be subject to the one-year time-limit.
Counsel for the trustees accepted that the mortgagees (or one of them) would be
entitled to relief subject only to consideration of the terms on which such
relief should be granted.
The order of
the Court of Appeal declared that Parway’s lease had been forfeited on July 19
1982, the date of the service of the writ in the forfeiture action. The Court
of Appeal refused Parway leave to appeal to the House of Lords. Parway
petitioned the House of Lords for such leave. The Appeal Committee of the House
of Lords dismissed its petition on June 28 1984.
It is not in
doubt and it is not now disputed that, as a result of the forfeiture of
Parway’s lease, all interests derived therefrom, including the mortgages and
the council’s underleases, ceased to exist. However, neither the trustees nor
the mortgagees took any formal step to apprise the underlessees of the situation.
They acted as though rents were still collectable from the underlessees under
their underleases. While Parway’s petition to the House of Lords was pending, a
dispute arose between the trustees and the mortgagees as to who should manage
the estate and receive those rents. To resolve that dispute the trustees, on
May 18 1984, issued a writ against the receivers and the mortgagees and, on the
same day, launched a motion for interlocutory injunctions in the action begun
by that writ, which I shall call ‘the trustees’ second action’.
The motion
came before Scott J. He gave judgment on it on June 15 1984. His judgment is
reported as Official Custodian for Charities v Mackey [1985] Ch
168. At that time the receivers were still collecting the rents from the former
underlessees and managing the estate through Trevors. The mortgagees’ summonses
for relief under section 146(4) were still pending and, in addition, the
mortgagees had issued writs claiming such relief. However, the mortgagees’
advisers regarded it as inappropriate to proceed with their applications for
relief until it was certain that Parway’s lease would remain forfeited. That
still depended on the outcome of the proceedings in the House of Lords.
The trustees
claimed that, unless and until the House of Lords reversed the decision of the
Court of Appeal or the mortgagees obtained relief under section 146(4), they
were entitled as freeholders to receive the rents and profits of the estate and
to manage it. It was accepted on their behalf (as it had been in the Court of
Appeal) that, if the order of the Court of Appeal stood, the mortgagees would
obtain relief under section 146(4). It was, however, contended on behalf of the
trustees that any relief under section 146(4) could only take the form of an
order vesting in the mortgagees a new lease taking effect from the date of the
order. That was accepted on behalf of the mortgagees, but it was contended on
their behalf that the court making that order would have power to order also
that the rents and profits of the estate accruing between the date of the
forfeiture of Parway’s lease and the date of the order should belong to the
mortgagees. Scott J held that that was not so. He therefore rejected arguments
put forward on behalf of the mortgagees, based on the American Cyanamid case*,
that the balance of convenience lay in favour of maintaining the status quo by
allowing the receivers to go on collecting the rents of the estate and managing
it.
*Editor’s note: This refers to American
Cyanamid Co v Ethicon Ltd [1975] AC 396, a decision on the
principles which should govern the grant of interlocutory injunctions.
He made a
complicated order designed to take account of all possible eventualities. He
granted the trustees an interlocutory injunction restraining the receivers and
the mortgagees from demanding or receiving any moneys or rents payable by
occupiers or sublessees of the estate and, upon an undertaking by the trustees
to instruct Trevors as their agents in respect of the estate, a further
interlocutory injunction restraining the receivers and the mortgagees from
managing or interfering with the management of the estate. He ordered that both
injunctions should be discharged in the event of the House of Lords allowing
Parway’s appeal or in the event of a vesting order being made in favour of any
of the mortgagees under section 146(4). Lastly, upon the receivers’ undertaking
that, in the event of the House of Lords refusing Parway leave to appeal or
dismissing its appeal, they would account to the trustees for all rents and
other moneys received by them from occupiers or sublessees, he suspended both
injunctions until, in effect, the determination by the House of Lords of that
appeal. Scott J also directed that the mortgagees’ actions for relief under
section 146(4) should be consolidated with the trustees’ second action.
In the result,
Trevors continued to manage the estate and to collect the rents and profits of
it but, as from June 28 1984, as agents for the trustees.
In October
1984 the trial of the trustees’ second action took place before Nourse J (as he
then was). During that trial, on October 29 1984, Nourse J made by consent, on
the mortgagees’ agreeing to give such undertakings as the court should think
fit to require as a condition of granting relief from forfeiture, an order that
the estate should vest in the London & Manchester companies jointly for the
residue of the term granted by Parway’s lease, less one day, at such rent and
subject to such covenants, conditions and agreements as should be settled by
the court. On the same day, the London & Manchester companies instructed
Trevors to continue to manage the estate on their behalf.
On December 21
1984, Nourse J gave judgment in the trustees’ second action. There were further
proceedings before him (as Nourse LJ, sitting as an additional judge of the
Chancery Division) on July 30 1985, when he settled the terms of his order. His
judgment and those further proceedings are reported as Official Custodian
for Charities v Mackey (No 2) [1985] 1 WLR 1308.* The main question that he had to deal with
was whether the trustees could recover from the receivers sums paid to them by
occupiers of the estate as rent during the period between the service of the
writ in the forfeiture action and the order of Scott J. Those sums amounted to
about £1m after there had been deducted from them sums that had been received
by the trustees in respect of mesne profits for that period at the rate of
£27,500 per annum. Nourse J held that the trustees could not recover that one
million pounds or thereabouts either as money had and received by the receivers
to their use or in equity or as mesne profits for the receivers’ own trespass.
*Editor’s note: Also reported at [1985] 1
EGLR 46; (1985) 274 EG 398.
He dealt also
with the terms on which the new lease to the London & Manchester companies
should be granted, pursuant to the order he had made on October 29 1984. He
directed that the new lease should be at an initial rent of £27,500 and that it
should otherwise reproduce the terms of Parway’s lease. He required an
undertaking from the London & Manchester companies to use their best
endeavours to execute by January 29 1986 certain works of repair, the details
of which had been agreed during the trial and were set forth in a schedule to
his order. And he required the London & Manchester companies to undertake
to pay the whole of the trustees’ costs of the forfeiture action on the common
fund basis, in so far as those costs should not be recovered in the liquidation
of Parway. His order referred to the draft of a lease which the London &
Manchester companies were to execute, and contained a declaration that that
lease should be, subject to the charges created by Parway during the years 1968
to 1974, in favour of the mortgagees and of Slater Walker Ltd.
On September
23 1985 a lease in the terms ordered by Nourse LJ was executed by the trustees
and by the London & Manchester companies. I will call that lease ‘the
London & Manchester lease’.
The London
& Manchester companies then set about marketing the estate. For that
purpose they instructed Healey & Baker.
On February 28
1986 contracts were exchanged, first, for the sale by the trustees to the
London & Manchester companies of the freehold of the estate for £2.5m and,
second, for the sale by the London & Manchester companies to Tops Estates
plc of both that freehold and the London & Manchester lease for a total of
£6,450,000.
Between October
29 1984 and February 28 1986, the London & Manchester companies had
themselves granted underleases of some of the shops in the shopping centre. The
sale by the London & Manchester companies to Tops Estates plc was expressly
subject to those underleases. As regards the underleases granted earlier by
Parway, including the council’s underleases, the contract for that sale
contained a clause stating that the vendors believed them to have been forfeit,
but that, in so far as they were still subsisting or had been affirmed by the
vendors, the London & Manchester lease was sold subject to and with the
benefit of them.
Completion of
those contracts took place on March 25 1986 by a series of instruments. The
effect of those instruments — I am still omitting immaterial details — was that
(1) the freehold of the eastern site was transferred to Tops Shop Centres Ltd,
(2) the freehold of the western site was transferred to Glassgrove Ltd, and (3)
the London & Manchester lease was surrendered.
I understand
that the net proceeds of sale of the London & Manchester lease were
sufficient to pay off the London & Manchester companies’ first charge,
Slater Walker Ltd’s second charge and part of the Royal Bank of Scotland’s
third charge, but no more.
After
completion, Tops Shop Centres Ltd and Glassgrove Ltd (‘the defendants’)
terminated Trevors’ instructions and instructed other agents to manage the
estate. Thereafter, disputes arose between the defendants and some of the
occupiers of the estate, including the council, about the fate of the latter’s
erstwhile underleases. It was to resolve those disputes, so far as it was
concerned, that the council issued the present originating summonses.
Throughout the
period during which Trevors had managed the estate, successively on behalf of
the receivers, of the trustees and of the London & Manchester companies,
they had done so on the footing that the underleases subsisted. In particular,
they demanded and received rents on that footing. The defendants contend that,
in consequence, the council now has tenancies from year to year terminable on
six months’ notice of the property demised to it by its underleases on the
terms of those underleases so far as applicable to a tenancy from year to year.
However, the defendants say that they have no desire to recover possession from
the council, save of some small pieces of land on the western site which the
council does not need and which Glassgrove Ltd could put to good use.
Otherwise, what the defendants wish to do is to negotiate with the council for
the grant of new leases to the council. Tops Shop Centres Ltd also wishes to
ensure that the council carries out repairs to the amenity deck, which is
admittedly in such a state of disrepair that rainwater is leaking through it
into shops below.
The council
contests the defendants’ view in three ways. First, it contends that the order
of Nourse J vesting the London & Manchester lease in the London &
Manchester companies had the effect of automatically reinstating the council’s
erstwhile underleases as underleases to which that lease was subject. On
well-known principles the subsequent surrender of the London & Manchester
lease did not extinguish those underleases, but left the freehold subject to
them.
Alternatively,
the council contends that the conduct of the trustees and of the London &
Manchester companies in demanding and receiving rent, and in other ways to
which I have not yet referred, gave rise to an estoppel which is binding on the
defendants and precludes them from denying that the council’s underleases are
still subsisting.
In the further
alternative, the council contends that it is still entitled to apply for relief
from forfeiture under section 146(4) of the Law of Property Act 1925. The defendants
contend that the council’s right to apply for such relief came to an end on
June 28 1984 when, as a result of Scott J’s order, the trustees became entitled
to receive the rents and profits of the estate and to manage it. However, the
defendants concede that, if I should reject the council’s first and second
contentions but accept its third, I should grant it relief from forfeiture.
There was
before me a good deal of evidence, much of it oral, directed to the question on
what terms I should in that event grant relief. I did not, however, hear
counsel’s submissions on that evidence because, before they were due to make
them, agreement was reached between the parties as to what (except as regards
costs) those terms should be.
The council’s
first contention raises a point of law on which there appears to be no
authority save dicta of Scott J in the judgment that he delivered on
June 15 1984 — see [1985] Ch 168 at p 188. He there said:
. . . it is clear that a vesting order in
favour of the mortgagees under section 146(4) could not reinstate the various
sub-leases. Such reinstatement would require agreement between sub-lessees and
the relevant lessor although a measure of reinstatement could be effected by
section 146(4) vesting orders made on the application of the sub-lessees.
The point was not, however, argued before
Scott J. I was told by Mr Nugee, who was there, that everyone assumed the law
to be as Scott J stated it, but of course no one was there to argue on behalf
of the underlessees.
Mr Hague on behalf
of the council put forward a most attractive argument to the effect that Scott
J was wrong. He pointed out that where relief is granted to a lessee under
subsection (2) of section 146, the effect is automatically to reinstate all
derivative interests (Dendy v Evans [1910] 1 KB 263). The effect,
he said, should be the same, as far as possible, where relief is granted under
subsection (4). Mr Hague accepted that whereas the grant of relief under
subsection (2) restores the original lease as if there had been no forfeiture,
the grant of relief under subsection (4) creates a new lease as from the date
of the court’s order (Chelsea Estates Investment Trust Co Ltd v Marche
[1955] Ch 328; Cadogan v Dimovic [1984] 1 WLR 609; and per Scott
J [1985] Ch 168 at pp 181-187). He submitted, however, that that new lease was
obtained by the applicant in substitution for his original underlease and
should not give him something materially different. If the new lease were free
from derivative interests to which the original underlease had been subject, it
might be either more valuable or more onerous than that underlease, depending
on the characteristics of those derivative interests. Mr Hague drew my
attention to dicta of Vaughan Williams LJ in Ewart v Fryer [1901]
1 Ch 499 at p 512, where he said that section 4 of the Conveyancing Act 1892
(the ancestor of section 146(4)) only carried a little further the common law
principle that, where a lease was subject to an underlease, no surrender of the
lease or other arrangement between the lessor and lessee could defeat the
interest or estate of the underlessee. Mr Hague also relied strongly on Chelsea
Estates Investment Trust Co Ltd v Marche, where Upjohn J held that
the mortgagee of a lease which had been forfeited held a new lease vested in
him under section 146(4) subject to the equity of redemption of the mortgagor.
Much as I
would like to do so, I find it impossible to extend the principle of Upjohn J’s
decision to the present case. An equity of redemption is, as its name indicates
and as is well known, a creature of equity. Although Upjohn J clearly felt that
the case before him was a difficult one, because his decision could give rise
to anomalies and hardship whichever way it went, there was logic in his holding
that that equity attached to the new lease obtained by the mortgagee. There is
no similar equity here. As Mr Nugee for the defendants submitted, the rights of
the former underlessees depend entirely on common law and statute. If I am to
give effect to Mr Hague’s argument, it can only be by way of interpretation of
section 146(4) itself.
Mr Hague and
Mr Nugee each referred to anomalies that would arise if I decided this question
in the way the other urged me to do. To that extent I am faced with the same
sort of problem as was Upjohn J. The factor that seems to me decisive is this.
As was emphasised in Ewart v Fryer, particularly by Romer LJ,
what is now section 146(4) confers on the court a wide discretion. The court
may not under that subsection vest in the applicant a new lease beginning
before the date of its order or ending later than the original underlease would
have done. But the discretion of the court is otherwise unfettered. In Ewart
v Fryer [1901] 1 Ch 499 at pp 515-516, Romer LJ said:
Now, s.4 of the Act of 1892, in my
opinion, ought not to be cut down or unduly hampered by giving a restricted
meaning to each word that is used in it. The section is to my mind purposely
framed generally, so as to give the utmost liberty to the Court to do what is
just as between the parties. I think that the section gives the most ample
discretion to the Court to say upon what conditions and terms the property
comprised in the original lease should be vested in the underlessee — a
discretion absolutely unfettered by any limitation, except that contained in
the words at the end of the section. That section did not, to my mind, of
necessity contemplate that the terms of the original lease should be kept
alive, either all or any of them, though, no doubt, speaking generally, regard
would be had to them, and most of them probably would be kept alive in the new
lease that had to be fixed as between the original lessor and the underlessee;
but, as a matter of fact, it is not necessary that in the new lease there
should be inserted any term of the original lease. The section is perfectly
general. For example, the Court is not bound to give to the lessee the whole of
the term of his underlease. Probably it generally would do so, but it is not
bound of necessity to do it. It is bound to have regard to the words at the end
of the section, and not to give him a longer term than the term of his
underlease. The terms of the lease with respect to the covenants and so forth
are, in my opinion, left open to be dealt with according to what is thought
just by the Court, having regard to all the circumstances. That is contained in
the provision as to the execution of any deed or other document which the Court
shall think fit. Then, there are these important words — ‘payment of rent,
costs, expenses, damages, compensation, giving security or otherwise’. Does
that mean that the Court is restricted in saying what rent shall be the rent of
the new lease? In my opinion, No. It
does not follow that the rent must of necessity be either the rent fixed by the
original lease or the
between the parties under the circumstances.
Thus the court
may, under section 146(4), order that the new lease should be at a rent
different from that reserved by the original underlease, as it did in Ewart
v Fryer. It may order that the new lease should be for a term ending
sooner than the term granted by the original underlease. It may order that the
new lease should contain different covenants and it may, on my reading of the
subsection, order that the new lease should comprise a lesser part of the
property demised by the forfeited lease than was comprised in the original
underlease.
That being so,
it seems to me impossible to attribute to Parliament, when it enacted section 4
of the Conveyancing Act 1892 or when it reenacted that provision as section
146(4) of the Law of Property Act 1925, an intention implicitly to enact that,
upon the court’s making an order vesting a new lease in a former underlessee,
all interests derived from his original underlease should automatically be
reinstated. Those interests might not fit into the provisions of the new lease
ordered by the court. A subunderlease could be for a term extending beyond the
term of the new lease. It could be at a rent incompatible with that reserved by
the new lease. It could require compliance with covenants different from those
in the new lease and it could comprise property not comprised in the new lease.
Mr Hague
sought to escape from that conclusion in two ways. First, he said that it was
hard to imagine circumstances in which the court would think it right to order
relief on terms inconsistent with any relevant subunderlease. Second, he said
that the wide discretion of the court under section 146(4) would enable it to
adjust the terms of any such subunderlease. The latter submission is
inconsistent with the concept of automatic reinstatement and involves implying
even more provisions into the subsection. Both submissions overlook the fact
that the court might not know of the existence let alone the terms of every
derivative interest. SI 1986 no 1187, which came into force on October 1 1986,
amended Ord 6, r 2 of the Rules of the Supreme Court by adding to it paras
(1)(c)(iii) and (2) with the result that a writ in a forfeiture action must now
be endorsed with the name and address of, and be sent to, any person whom the
plaintiff knows to be entitled to claim relief against forfeiture under section
146(4) or in accordance with section 38 of the Supreme Court Act 1981 as
underlessee or mortgagee. That would have applied in the present case to the
trustees’ forfeiture action. Whether it would have ensured that the owners of
all interests derived from Parway’s lease were before the court is by no means
certain. I was told that, counting all the council’s tenants, the shopkeepers,
and so forth, there are some 500 of them. At all events, until that amendment
of Ord 6, r 2, there was no obligation on anyone to inform the court of
derivative interests. (Consider Egerton v Jones [1939] 2 KB 702
and what actually happened in the present case.) There is still no such obligation on an
applicant under section 146(4).
I therefore
reject the council’s first contention. I think that on that point Scott J was
right.
I turn to the
council’s second contention, that based on estoppel. In his opening submissions
Mr Hague relied on an equitable estoppel, a proprietary estoppel. He accepted
that, if he could not succeed in establishing such an estoppel, he could not
succeed on the basis of a common law estoppel. In his closing submissions he
put forward an alternative argument, based on Stroud Building Society v Delamont
[1960] 1 WLR 431 and Chatsworth Properties Ltd v Effiom [1971] 1
WLR 144, to the effect that, in circumstances such as those of this case, a
landlord may be precluded from denying the existence of a new tenancy on the
same terms in all respects as those of the old tenancy without the tenant
having to show that he relied to his detriment on the landlord’s conduct.
I will
consider first the council’s case based on equitable estoppel. As to that, the
principle on which Mr Hague relied was that expressed in two passages in the
judgment of Oliver J (as he then was) in Taylors Fashions Ltd v Liverpool
Victoria Trustees Co Ltd [1982] QB 133. The first was the passage expressly
approved by the Court of Appeal in Habib Bank Ltd v Habib Bank A G
Zurich [1981] 1 WLR 1265, where (at pp 151-152) Oliver J said:
Furthermore, the more recent cases indicate,
in my judgment, that the application of the Ramsden v Dyson . . .
principle — whether you call it proprietary estoppel, estoppel by acquiescence
or estoppel by encouragement is really immaterial — requires a very much
broader approach which is directed rather at ascertaining whether, in
particular individual circumstances, it would be unconscionable for a party to
be permitted to deny that which, knowingly or unknowingly, he has allowed or
encouraged another to assume to his detriment than to inquiring whether the
circumstances can be fitted within the confines of some preconceived formula
serving as a universal yardstick for every form of unconscionable behaviour.
The second was the citation by Oliver J
(at pp 154 to 155) from the judgment of the Master of the Rolls, Lord Denning,
in Moorgate Mercantile Co Ltd v Twitchings [1976] QB 225 at p241,
where Lord Denning said:
Estoppel is not a rule of evidence. It is
not a cause of action. It is a principle of justice and of equity. It comes to
this: when a man, by his words or conduct, has led another to believe in a
particular state of affairs, he will not be allowed to go back on it when it
would be unjust or inequitable for him to do so. Dixon J put it in these words:
‘The principle upon which estoppel in pais is founded is that the law should
not permit an unjust departure by a party from an assumption of fact which he
has caused another party to adopt or accept for the purpose of their legal
relations.’ Sir Owen said so in 1937 in Grundt
v Greater Boulder Proprietary Gold Mines Ltd (1937) 59 CLR 641, 674. In
1947 after the High Trees case (Central London Property Trust Ltd
v High Trees House Ltd) [1947] KB 130 I had some correspondence with Sir
Owen about it: and I think I may say that he would not limit the principle to
an assumption of fact, but would extend it, as I would, to include an
assumption of fact or law, present or future. At any rate, it applies to an
assumption of ownership or absence of ownership. This gives rise to what may be
called proprietary estoppel. There are many cases where the true owner of goods
or of land had led another to believe that he is not the owner, or, at any
rate, is not claiming an interest therein, or that there is no objection to
what the other is doing. In such cases it has been held repeatedly that the
owner is not to be allowed to go back on what he has led the other to believe.
So much so that his own title to the property, be it land or goods, has been
held to be limited or extinguished, and new rights and interests have been
created therein. And this operates by reason of his conduct — what he has led
the other to believe — even though he never intended it.
Turning back
to the facts of the present case, there is ample evidence, the details of which
I need not go into because this is not in dispute, that it was at all times the
policy of the mortgagees and in particular of the London & Manchester
companies to conceal, so far as they could, from the underlessees the fact that
Parway’s lease had been forfeited. The reason was that they wished to avoid
‘problems’ in the management of the estate. In particular, they feared that
some of the underlessees, if they knew of the forfeiture, would be glad to be
rid of what they might regard as onerous underleases. It also appears that the
trustees were content, at least from the time of the hearing before Scott J, to
co-operate in that policy. That is why throughout the period when Trevors
managed the estate, they did so on the footing that the underleases subsisted,
even to the extent of arranging for the grant of licences to assign underleases
and of conducting rent reviews in the case of such underleases as provided for
them.
Mr Hague
accepts, however, that the council knew of the forfeiture. That is because on
April 30 1984, shortly after the decision of the Court of Appeal, the clerk to
the trustees, Mr Lucas, wrote to the council a letter which was marked ‘For
attention: Mr Dauncey’ and which was in the following terms:
Dear Mr Dauncey, Insurance — Charecroft
Estate. Further to our telephone conversation earlier today, may I please
take this opportunity to inform you that we, as freeholders of the above
estate, have recently won an action in the Court of Appeal to obtain forfeiture
of the head lease to Parway Estates Developments Ltd (in liquidation). The
precise implications of this are not yet known, as receipt of the Court Order
is still awaited. My immediate concern is to satisfy my Trustees that the four
blocks of residential property are adequately insured and that our interest is
noted. I should be grateful, therefore, if you could let me have proof to this
effect as soon as possible.
Mr Dauncey was
the council’s insurance officer. He worked in its finance department. He was
not a lawyer. He clearly did not appreciate the significance as regards the
fate of the council’s underleases of the information that Parway’s lease had
been forfeited. It does not appear that he communicated that information to
anyone else on the council’s staff.
A number of
the council’s officers, including Mr Dauncey, knew at least by 1983 that Parway
was in liquidation. It is clear, however, that they did not appreciate the
possible significance of that.
Mr Nugee also
placed some reliance on correspondence that took place in February and March
1985 between the borough solicitor and the London & Manchester companies’
solicitor about a proposed agreement for the installation of cycle stands at
the shopping centre. In a letter of March 26 1985 addressed to the borough
solicitor, the companies’ solicitor said:
The Shopping Centre was vested in my
Client Companies, London and Manchester Assurance Co Ltd and London and
Manchester (Pensions) Ltd
Companies have not defined their future intentions with regard to the Shopping
Centre. Although they are substantial property-owning institutions, it is
probable that they will not wish to incorporate the Shepherds Bush Shopping
Centre within their long-term investment portfolio. In any event, at this
juncture we would be reluctant to involve ourselves in any arrangement which
might further encumber (however slightly) the Centre and inhibit in any way its
redevelopment, either by ourselves or by any successors in title.
He indicated in conclusion that the
London & Manchester companies would not consent to the installation of
those cycle stands. The reference in his letter to the vesting order did not
alert the borough solicitor to what had happened.
Mr Nugee,
while accepting that the council’s officers did not in fact realise that, as a
result of the forfeiture of Parway’s lease, the council’s underleases had
ceased to exist, submitted that that was something that the council ought to
have known because it was a legal consequence of that forfeiture. To that
submission Mr Hague riposted (as I think he was entitled to do) by referring me
again to the passage in Lord Denning’s judgment in Moorgate Mercantile Co
Ltd v Twitchings, where he said that a proprietary estoppel could
extend to an assumption of fact or law and, at any rate, to an assumption of
ownership. After all, bearing in mind that the surrender of a headlease does
not entail the extinction of all interests derived from it, the point that, in
contrast, the forfeiture of a headlease does is not obvious.
Mr Hague
relied on three matters apart from the continuous demands for, and acceptance
of, rent as constituting representations by the London & Manchester
companies sufficient to found the estoppel.
The first was
some correspondence in April and May 1985 between, on the one hand, Mr Harrow,
the underwriting manager of London & Manchester Assurance, and Mr Harvey,
the litigation manager in the legal department of London & Manchester Group
plc and, on the other hand, Mr Dauncey. That correspondence was about the
insurance of the four tower blocks. It was conducted on the express footing
that London & Manchester Assurance was now the headlessee and that the
council’s obligations to insure arose under what was referred to in the
correspondence as its ‘lease’. Mr Hague relies particularly on the fact that,
in a letter dated May 28 1985 to Mr Dauncey, Mr Harvey referred to a difficulty
that Mr Dauncey had had in locating a copy of the ‘lease’ and said: ‘I therefore
enclose for your information a copy of the insuring obligations’. It is common
ground that that must have been a copy of the relevant covenant in one of the
council’s underleases.
The second
matter relied on by Mr Hague was that on October 15 1985 the London &
Manchester companies served on the council notices, under section 146(1) of the
Law of Property Act 1925, of breaches of the council’s covenants to repair. The
covering letter with which those notices were sent was signed by Mrs Walker, a
solicitor in the legal department of London & Manchester Group plc, and was
headed ‘Re: Your Leases of Flats at Shepherd’s Bush Green’. There were two
notices — one relating to each underlease. They had been produced by completing
printed forms supplied by the Solicitors’ Law Stationery Society. Each notice
was signed by Mr Clarkson, who was described as ‘Solicitor to London &
Manchester Assurance Company Ltd and London & Manchester (Pensions) Ltd’.
Para 1 of one
of those notices was in these terms:
The Lease dated 2nd December 1970 and
made between Parway Estates Developments Limited of the one part and yourselves
of the other part (‘the lease’) under which you hold Bush Court and Shepherds
Court, Shepherds Bush Green, London W14 contains a covenant by the lessee to
repair and maintain the premises in accordance with the provisions of Clause
4(4) of the Lease.
Clause 4(4) was the repairing covenant in
the underlease of the tower blocks and amenity deck on the eastern site. Those
tower blocks are called Bush Court and Shepherd’s Court. I need not read paras
2 and 3 of the notice, which were in common form and referred to a schedule of
works of repair which it was said the council had failed to carry out. Para 4
stated that the recipient of the notice had the right to serve a counternotice
claiming the benefit of the Leasehold Property (Repairs) Act 1938. That was
correct if the recipient held a long lease but not if he held only a tenancy
from year to year. The printed part of that paragraph had a space for the insertion
of the name and address of the lessor. In that space the name and address of
the London & Manchester companies had been typed.
The other
notice was in identical terms save as to the description of the property and
save that it referred in para 1 to ‘Clause 4(6) of the lease’, which was the
repairing covenant in the underlease of the tower blocks and car park on the
western site.
The third
matter relied on by Mr Hague was a booklet prepared by Healey & Baker for
the purpose of marketing the estate. This contained a schedule of the tenancies
to which the estate was said to be subject. Included in that schedule were
particulars of the council’s underleases of December 2 1970. I will say at once
that, in my opinion, this is not a matter on which the council can much rely in
support of an estoppel: first, because the booklet was addressed not to the
council but to prospective purchasers of the estate and, second, because the
booklet contained a disclaimer by Healey & Baker in these terms:
NOTICE: Healey & Baker, as agents for
the Vendor and for themselves give notice that:
(1) These particulars do not constitute an offer,
or contract, or any part thereof and none of these statements contained in the
Particulars as to the property is to be relied on as a statement or
representation of fact.
(2) An intending Purchaser MUST satisfy himself
by inspection or otherwise, as to the accuracy of the statements herein. Such
statements are made in good faith but without responsibility on the part of
Healey & Baker or the Vendor.
(3) The Vendor does not make or give, nor is
Healey & Baker or its staff authorised to make or give any representation
or warranty in respect of this property.
In the event of any inconsistency between
these particulars and the Conditions of Sale, the latter shall prevail.
I have already mentioned the terms of the
contract of February 28 1986 between the London & Manchester companies and
Tops Estates plc as to underleases.
Mr Nugee in,
if I may say so, a characteristic display of learning took me through a long
line of cases starting with Jones d Cowper v Verney (1739) Willes
169 and ending with Central Estates (Belgravia) Ltd v Woolgar (No 2)
[1972] 1 WLR 1048, which I will for convenience call ‘the yearly tenancy
cases’, although that is not an entirely adequate description of them. From
those cases the following propositions may be deduced:
(1)
Where a lease is voidable, for instance because there has been a breach
of covenant by the tenant entitling the landlord to forfeit the lease,
subsequent acceptance of rent by the landlord operates as an election by him to
treat the lease as subsisting.
(2)
Where, on the other hand, a lease is or has become void, for instance
because (under the old law) it was granted by a tenant for life for a period exceeding
his own life, or because it did not comply with the statutory requirements for
the creation of a long lease, or because it was granted by a mortgagor in
excess of his powers, or because it has been determined by a valid notice to
quit, the subsequent acceptance of rent at the rate reserved by the void lease
cannot operate to restore that lease. Such acceptance of rent is, however, a
fact from which the court may infer the creation of a new tenancy from year to
year on the terms of the void lease so far as applicable to such a tenancy.
Whether that inference should be drawn was, in the days of trial by jury, a
matter for the jury. It is now a question that should be approached by the
judge as a juryman would. The better view seems to be that where the inference
is drawn the creation of the new tenancy rests on an implied agreement between
the parties rather than on an estoppel.
Mr Nugee also
drew my attention to Halsbury’s Laws of England (4th ed) vol 27, paras
178 and 202, from which it appears that the implication of a tenancy from year
to year will arise only where the rent reserved by the void lease was a yearly
rent, albeit payable quarterly or at other intervals. Where the void lease
reserved a monthly rent, the implication will be of a monthly tenancy.
Likewise, where the void lease reserved a weekly rent, the implication will be
of a weekly tenancy.
It was on
those authorities that Mr Nugee relied in support of the defendants’ contention
that in the present case the council is entitled and entitled only to tenancies
from year to year on the terms of its former underleases so far as applicable
to such tenancies. The difficulty in Mr Nugee’s way was that in none of the
yearly tenancy cases, except two, did the landlord do more than either simply accept
or demand and receive rent. The exceptions were Lowenthal v Vanhoute
[1947] KB 342 and Stroud Building Society v Delamont. In Lowenthal
v Vanhoute estoppel was not and could not have been relied on. Stroud
Building Society v Delamont is, as I have already mentioned, a case
that is relied on also by Mr Hague. I will advert to it in more detail later.
Suffice it to say at this stage that it is, on the
Mr Nugee was
thus driven to argue that this case was no different in essence from the yearly
tenancy cases because the matters other than the receipt of rent relied on by
Mr Hague were not inconsistent with the council’s having tenancies from year to
year on the terms of its former underleases. As regards the correspondence in
April and May 1985 between Mr Harrow, Mr Harvey and Mr Dauncey, Mr Nugee
pointed out that those terms would include the council’s obligations to insure
as expressed in its underleases. There was therefore nothing in that
correspondence that was inconsistent with the defendants’ contention. Likewise,
those terms would include the council’s obligations to repair as expressed in
its underleases, so that the notices under section 146(1) served in October
1985 were also consistent with that contention. True, the reference in para 4
of each of those notices to the Leasehold Property (Repairs) Act 1938 was
inapposite, but that was trivial and merely a result of the fact that whoever
drew up the notices was completing a printed form.
To my mind,
those submissions were unrealistic. Against the background of the London &
Manchester companies’ policy, to which the trustees conformed from June 1984
onwards, the only conclusion that can reasonably be reached is that the
trustees knowingly allowed and the London & Manchester companies knowingly
encouraged the council to assume that it still held its underleases. In saying
that, I do not overlook Mr Lucas’ letter of April 30 1984 to Mr Dauncey, which
was of course written before that policy was put into effect. However, that
letter itself stated that the precise implications of the forfeiture of
Parway’s lease were not yet known and itself implied that the council’s
obligations to insure the four tower blocks continued.
Any estoppel
to which that conduct on the part of the trustees and of the London &
Manchester companies gave rise of course binds their successors in title,
including the defendants. That is not disputed. However, such an estoppel can
arise only if the council in fact assumed that its underleases were still subsisting
and in reliance on or as a result of that belief acted to its detriment either
positively or by failing to take a step that it would otherwise have taken.
There is no
doubt that the council assumed that its underleases were still subsisting. It
continued to do so until well after the acquisition of the estate by the
defendants. There was a conflict of evidence as to when precisely the council
was first informed of the defendants’ contention that its underleases had
ceased to exist and been replaced by tenancies from year to year. However, I do
not think that the exact date matters. It was, at the earliest, in April 1986
and, at the latest, in October of that year.
Mr Hague
instanced three ways in which the council acted to its detriment as a result of
its belief in the continued existence of its underleases.
First and
foremost, the council did not seek to negotiate with the London &
Manchester companies for the grant of new underleases or apply for relief under
section 146(4). As I have already mentioned, the London & Manchester
companies did grant some underleases during the currency of their lease. It
also appears that at the time of the sale to Tops Estates plc, the London &
Manchester companies had agreed to grant a new underlease to a bank which
occupied one of the shops in the shopping centre and which had become aware
that there was a doubt about the status of its underlease.
As to the
council’s failure to apply for relief under section 146(4), Mr Nugee submitted
that Mr Hague was in a dilemma. Either the defendants’ contention on the third
issue in this case was sound so that the council lost its right to apply for
relief under section 146(4) on June 28 1984, which was before there was any
representation by the trustees or by the London & Manchester companies, or
that contention was unsound and it was still open to the council to apply for
relief. In any case, it was still open to the council to negotiate for new
underleases.
I do not think
that it would be satisfactory to determine the present issue on the basis of
that dilemma. I therefore turn now, as it were parenthetically, to counsel’s
arguments on the third issue.
Those
arguments centred on the opening words of section 146(4): ‘Where a lessor is
proceeding by action or otherwise to enforce a right of re-entry or forfeiture
under any covenant, proviso, or stipulation in a lease . . . .’ There is no material difference between those
words and the opening words of section 146(2), the ancestor of which, section
14(2) of the Conveyancing and Law of Property Act 1881, was considered by the
Court of Appeal in two contrasting cases: Quilter v Mapleson
[1882] 9 QBD 672 and Rogers v Rice [1892] 2 Ch 170.
In Quilter
v Mapleson a lessor had obtained judgment for possession in an action
brought under a proviso for re-entry, but the lessee had been granted a stay of
execution. It was held that the lessor was still proceeding to enforce his
right of re-entry so that it was not too late for the lessee to apply for
relief against the forfeiture.
In Rogers
v Rice the lessor had obtained a similar judgment, but no stay of
execution had been sought and the lessor had been given possession by the
sheriff. It was held that it was too late for the lessee to apply for relief
from forfeiture; the lessor’s ‘proceeding’ to enforce his right of re-entry was
at an end.
In neither of
those cases was there any underlease. There was an underlease in Ashton
v Sobelman [1987] 1 WLR 177*, a decision of Mr John Chadwick QC, sitting
as a deputy High Court judge. In that case a lessor claimed to have peaceably
re-entered by changing the lock on the demised premises and handing the key of
the new lock to the underlessee. The lessor made it clear, however, to the
underlessee that he was to continue in occupation under his existing
underlease. Mr Chadwick held that, that being so, there had been no effective
re-entry, the continuance of the underlease being inconsistent with the
forfeiture of the headlease. It would have been otherwise if the lessor had
agreed to grant the underlessee a new lease.
*Editor’s note: Also reported at [1987] 1
EGLR 33; (1987) 281 EG 303.
Mr Nugee
accepts that Ashton v Sobelman was rightly decided but says that
it is distinguishable. He submits that where, as here, a freeholder takes
proceedings to forfeit a headlease at a time when there are underlessees in
occupation, the forfeiture is complete when the headlessee is excluded from
receipt of the rents and profits of the demised premises. Mr Nugee says that
that necessarily follows from the nature of the headlessee’s interest and from
the form of the order made against him, because ‘possession’ in the context of
a headlease and underleases means receipt of the rents and profits. Thus, he
says, in the present case the trustees’ proceedings for forfeiture were at an
end when, on the dismissal by the House of Lords of Parway’s petition for leave
to appeal, Scott J’s order took effect, enabling the trustees to exclude the
receivers and the mortgagees, who derived their title from Parway, from receipt
of the rents and profits and from managing the estate.
In my opinion,
the fallacy underlying that argument is, as Mr Hague pointed out, that it
overlooks the fact that once the headlease has been forfeited, the underlessees
are, vis-a-vis the freeholder, trespassers. The freeholder is entitled to turn
them out of possession. The mere receipt from them of the rents payable under
their erstwhile underleases is not an assertion of the freeholder’s right of
re-entry as against them. So long as the freeholder has not effectively
asserted that right, for instance by compelling the underlessees to take new
leases or give up possession, he has not fully enforced his right of re-entry.
The position today, as I see it, is that the defendants, who are persons
deriving title under the trustees and therefore, by virtue of subsection (5) of
section 146, included in the expression ‘lessor’ in subsection (4), are
asserting against the council a right which was part of the trustee’s original
right of re-entry. That right is the foundation of their claim that the council
now has only tenancies from year to year. It follows, in my opinion, that the
council’s right to apply for relief from forfeiture was not lost on June 28
1984 but still subsists, unless of course the council is entitled to succeed on
the estoppel issue.
I turn back to
that issue. On the view that I have just expressed, the way in which the
council acted to its detriment as a result of its belief in the continued
existence of its underleases was correctly described by Mr Hague as being that
it did not seek to negotiate with the London & Manchester companies for the
grant of new underleases or apply for relief under section 146(4). The two of
course go together because the possibility of the council’s making an
application for such relief would have been a bargaining factor in any
negotiations between it and the London & Manchester companies. The question
is whether it is a sufficient answer to that point that it is still open to the
council to negotiate, albeit with the present defendants, and to apply for
relief against forfeiture. On that question Mr Hague referred me to Knights
v Wiffen (1870) LR 5 QB 660. In that case the plaintiff was lulled by a
statement made by the defendant into thinking that he need not demand payment
of a sum of money to which he was entitled from a person who was on the verge
of bankruptcy. Blackburn J, with whom Mellor J and Lush J agreed, observed at p
665: ‘. . . very likely he might not have derived much benefit if he had done
so; but he had a right to do it’. They held the defendant estopped from
denying the truth of his statement. In my opinion, similar considerations apply
here. It may be that the council would have been no better off negotiating with
the London & Manchester companies than with the defendants; about that one
can only speculate. But it had a right to do it.
Mr Hague,
rightly in my view, did not in the end rely at all heavily on the second way in
which he said that the council had acted to its detriment in the belief that
its underleases subsisted. He described it as ‘only a little bit of a
makeweight’. This was that the council in July and August 1985 spent £51,310 in
replacing light fittings on the landings and staircases of the four tower
blocks. That was not just repair, it was to some extent improvement because the
original fittings had been flimsy, whereas the new ones were vandal-resistant.
The suggestion was that the council might not have carried out that improvement
if it had thought that it had only yearly tenancies or was a trespasser. There
was, however, no direct evidence to that effect. It appears, moreover, that
over 50% of the original fittings were broken beyond repair and that spares for
them could not be obtained. I think that the council might, if it had known the
true position about its underleases, have tried to defer the work until it had
obtained new leases.
The third fact
on which Mr Hague relied on this part of the case was the grant by the council
on June 18 1985 to a company called Company Cars Rental Ltd of a 10-year
subunderlease of the car park on the western site. I heard a good deal of
argument on the question whether the grant of that subunderlease could entail
any detriment to the council. Mr Nugee, pointing to an admission by one of the
council’s witnesses in cross-examination that the subunderlease had been
granted on the best terms the council could have obtained, argued that so long
as the council’s yearly tenancies continued, the fact that it had no sufficient
interest to support the subunderlease could give rise to no right of action in
Company Cars Rental Ltd. If the council’s yearly tenancies should be determined
and Company Cars Rental Ltd be in consequence evicted, that company would have
no remedy against the council under the covenant for quiet enjoyment in its
subunderlease because, as was accepted by Mr Hague, that covenant had been so
framed as not to apply in the case of eviction by title paramount. Nor, said Mr
Nugee, would Company Cars Rental Ltd have any remedy under the other covenants
to which Mr Hague referred, such as covenants to repair, because the council
could not incur liability under those covenants after the subunderlease had
been determined. At this point in the argument I was left thinking that the
council was at least at risk of a dispute and possibly of litigation with
Company Cars Rental Ltd. Then Mr Hague cited Keith v R Gancia &
Co Ltd [1904] 1 Ch 774, which seems to me to show that the grant by an
underlessee of a subunderlease is a sufficient alteration of his position to
support an estoppel without it being necessary to examine the terms of the
subunderlease. Mr Nugee, rightly in my view, refrained from taking the point
that the subunderlease to Company Cars Rental Ltd affected only the western
site or the point that its grant antedated the service of the section 146
notices on the council.
There was no
direct evidence that the council, in acting as it did in any of the three ways
relied on by Mr Hague, did so in reliance on a belief induced by the conduct of
the trustees and of the London & Manchester companies. But there was no
evidence to the contrary either. There is authority that in those circumstances
such reliance may be presumed: see Greasley v Cooke [1980] 1 WLR
1306 and Re Basham dec’d [1986] 1 WLR 1498. The council is, in my
opinion, entitled to the benefit of that presumption.
In the result,
I think that Mr Hague has made good the council’s contention based on equitable
estoppel. In a nutshell, I think that the London & Manchester companies
having, with the co-operation of the trustees, encouraged the council to assume
to its detriment that its underleases subsisted, it would be unconscionable for
the defendants now to be permitted to deny it.
The
alternative argument put forward by Mr Hague in his final submissions points to
a shorter route whereby a substantially similar result may be reached, albeit
perhaps a technically different one. That argument was, as I mentioned, based
on Stroud Building Society v Delamont [1960] 1 WLR 431 and Chatsworth
Properties Ltd v Effiom [1971] 1 WLR 144.
In the Delamont
case, a mortgagor without the consent of the mortgagee, a building society,
granted a weekly tenancy of the mortgaged premises. Because of that lack of
consent, the tenancy was not binding on the society. The mortgagor became
bankrupt and the society appointed its secretary to be receiver under section
109 of the Law of Property Act 1925. He, by virtue of subsection (2) of that
section, was deemed to be the agent of the mortgagor. The receiver requested
the tenant to pay the rent due in respect of her tenancy to him. In reply to an
inquiry from the tenant as to the terms of the tenancy, the society’s
solicitors wrote to her saying they were the same as those between her and the
mortgagor. She then paid rent to the society. Subsequently, the society’s
solicitors gave her notice to quit, referring to her as tenant of the society.
The question was whether she had become the tenant of the society. It was
common ground that if she had the notice was bad because the premises were
business premises and the notice did not comply with the statutory
requirements. Cross J said ([1960] 1 WLR 431 at p 434):
When a mortgagor has granted a tenancy
which is not binding on the mortgagee, since he has not given his consent, the
mortgagee can, instead of treating the tenant as a trespasser, consent to treat
him as his tenant or, at all events, act in such a way as precludes him from
saying that he has not consented to take him as his tenant. Such an acceptance
by the mortgagee of the mortgagor’s tenant, whether express or implied, or
operating by way of estoppel, must, I think, amount to a creation of a new tenancy
between the parties. The tenancy between a mortgagor and a tenant is not one
which is merely voidable by the mortgagee if he chooses not to accept it, but
which he can confirm by waiving his right to avoid it. It is a nullity as
against the mortgagee; and so, if the mortgagee is to lose his right to treat
the mortgagor’s tenant as a trespasser, it must be because the tenant has
become the mortgagee’s tenant under a new tenancy.
Then, after considering the facts of the
case and the arguments of counsel for the society, he concluded at p 436:
It may well be that if one takes each
point which may be said to tell in favour of the creation of a tenancy in
isolation from the rest, each can be explained away on those lines, but I must
look at the picture as a whole. So far as I know, there is nothing in point of
law to prevent a mortgagee who has appointed a receiver of mortgaged premises
from creating, by virtue of his legal estate in the land, the relationship of
landlord and tenant between himself and a tenant of the mortgagor without
previously terminating his receivership. . . . On that footing I have to say
whether (looking at the facts as a whole and putting myself in the position of
a juryman) the society had consented to accept the tenant as tenant notwithstanding
the receivership or whether they had not. In my judgment, the right inference
to draw from all the facts is that the society had consented to accept her as a
tenant. No doubt the society never deliberately abandoned any right which it
had to treat her as a trespasser, but that was because it never appreciated
that it had any such right. No doubt, if it had appreciated that, it would have
acted differently. But, as I see it, that is irrelevant to the question I have
to decide.
The facts of Chatsworth
Properties Ltd v Effiom were similar so far as material. The
approach of Cross J in the Delamont case was expressly approved and
followed by the Court of Appeal.
Mr Nugee, as I
said earlier, classified the Delamont case among what I have called the
yearly tenancy cases. He was, in my opinion, right to do so. (He did not
include the Effiom case among those cases, but I imagine that that was
because, apart from the approval of the Court of Appeal, it adds little to the Delamont
case. He told me that he had made a selection.)
The
distinctive feature of the Delamont and Effiom cases is that in
neither of them could a tenancy have been inferred from the payment of rent
alone because the rent was payable to a receiver who was the mortgagor’s agent.
That is clearer in the Effiom case than in the Delamont case.
What was crucial in both cases was what had been written to the tenant by the
mortgagee’s solicitors. From that the court in each case, looking at the
picture as a whole as a juryman would, inferred that a new tenancy had been
created between the mortgagee and the mortgagor’s erstwhile tenant.
Now, neither
in the Delamont case nor in the Effiom case could there be any
question what kind of tenancy it was. It could only be a weekly tenancy. But if
the approach of Cross J in the Delamont case and of the Court of Appeal
in the Effiom case is adopted in a case where, as here, the tenant
formerly had a long lease and the communications received by him from the
mortgagee’s solicitors were consistent with the continuance of that lease
rather than with a periodic tenancy, the inference to be drawn must, it seems
to me, be the creation of a fresh tenancy on the terms of that lease. It
cannot, to my mind, weaken the tenant’s case that the rent is paid not to a receiver
but to the mortgagee’s agent.
Neither Cross
J nor the Court of Appeal thought it necessary to decide whether the new
tenancy arose as a result of an express or implied agreement or by estoppel. As
I mentioned earlier, the better view seems to be that, where the creation of a
tenancy is inferred in accordance with the principles established by the yearly
tenancy
what I am now considering is a logical extension or development of those
principles, it would follow that what was to be implied was an agreement for
the grant of a new lease on the terms of the former one. The practical
consequences of that would be different from those of an estoppel. For
instance, it would presumably be necessary for a fresh deed to be executed in
pursuance of the agreement. However, in view of the conclusion I have reached
that the council is entitled to succeed on the basis of an equitable estoppel,
I need not pursue that question.
I mentioned
earlier that the parties had reached agreement about the terms on which I
should grant the council relief under section 146(4) if I concluded that such
relief was its only remedy. It occurs to me that those terms ought perhaps to
be recorded in an agreed form in case a higher court should take a different
view from mine of the law. I will hear counsel on this as well as on the form
of the declaration that I should make.
The judge made a declaration in favour of
the plaintiffs and ordered the defendants to pay the plaintiffs’ costs except
for the costs of the first afternoon (the exception was due to a point about
setting down and listing the actions).
