Landlord and tenant — Forfeiture — Whether application for relief can be made by originating summons — Whether equitable assignee entitled to relief from forfeiture
In 1978 the defendants granted a 53-year
underlease of a flat to M at a premium. In 1982 M assigned the underlease to J
who charged it to S, who, on February 8 1993, transferred the mortgage to the
second plaintiffs. Because J made no payments under the mortgage, the second
plaintiffs exercised their powers of sale and exchanged contracts with D, who
was able to effect a subsale to the first plaintiffs. The sale by the second
plaintiffs as mortgagees did not require consent under the provisions of the
underlease, but the subsale to the first plaintiffs did require consent and no
consent was obtained. The defendants served a notice under section 146 of the
Law of Property Act 1925 on J alleging that the subsale to the first plaintiffs
was a breach of the underlease. On October 29 1993 the defendants forfeited the
flat by peaceable re-entry. In proceedings by the plaintiffs for relief from
forfeiture, relief was granted to the first plaintiffs. The defendants appealed
contending that the proceedings should not have been brought by originating
summons and that an equitable assignee, in whom no legal estate is vested,
because the transfer has not been registered at the Land Registry, is not
entitled to relief from forfeiture not being a lessee within the meaning of
section 146(5)(b) of the 1925 Act.
203(2)(a) of the Law of Property Act 1925, by which every application under the
Act is to be made by summons at chambers, is subject to the rules of the court;
by RSC Ord 5 r4(1) a plaintiff may bring proceedings by writ or originating
summons as he considers appropriate. An originating summons was a common and
convenient way of applying for relief from forfeiture. Lock v Pearce [1893] 2
Ch 271 disapproved. The first plaintiffs derived title to the underlease as
equitable assignees and were therefore entitled to apply for relief
from forfeiture; they had become entitled to have the lease assigned to them.
The following cases are referred to in
this report.
Escalus Properties Ltd v Robinson [1995] 3 WLR
524; [1995] 2 EGLR 23; [1995] 31 EG 71, CA
Fawsitt, Re [1885] 30 ChD 231
Lock v Pearce [1893] 2 Ch 271; 62 LJ Ch
582; 68 LT 569; 41 WR 369
Southern Depot Co Ltd v British Railways Board
[1990] 2 EGLR 39; [1990] 33 EG 45
This was an appeal by the defendants,
Bellshore Property Investments Ltd, from a decision of Mr Robert Gray QC,
sitting as a deputy judge of the Chancery Division, who had granted relief from
forfeiture to the first plaintiff, High Street Investments Ltd, on an appeal
from the master who had granted relief to the second plaintiffs, in an
application by both plaintiffs by originating summons.
Martyn Zeidman (instructed by Bowers)
appeared for the appellants; Stephen Moverley-Smith (instructed by Ince &
Co) represented the respondents.
Giving the first judgment, Leggatt LJ said: The defendants,
Bellshore Properties Ltd (‘Bellshore’) are headlessees of a flat known as Flat
6, 3 Marylebone High Street, in west London. They are so under a long lease. In
1978 Bellshore granted an underlease of the flat to Mr Mowlem for a term of 53
years at a premium. In 1982 the underlease was assigned to Mr Johnson. Five
years later he charged it to Southern Mortgage Corporation Ltd, but on February
8 1993 they transferred the mortgage to the second plaintiffs, Finance for
Mortgages Ltd (‘FFM’). Mr Johnson made no payments under the mortgage and so
FFM exercised their powers of sale as mortgagee. A buyer was found called Anna
Davison. Contracts were exchanged with her for the sale of the flat in the sum
of £67,500 but she was able to effect a subsale to the first plaintiffs, High
Street Investments Ltd (‘HSI’) for £10,000 more.
In the underlease is a covenant about
assignment of the whole. A sale by a mortgagee requires no consent, and so the
sale by FFM required no consent. On the other hand, any sale on did require
consent. That was evidently overlooked by HSI’s solicitor. When Bellshore
realised what had happened, they served a section 146 notice. That happened in
July 1993, but the point was then taken against them that, since assignment
occurs on registration at Her Majesty’s Land Registry, and since no
registration had in fact taken place, there was no breach. That notice is,
accordingly, no longer relied on.
It seems that negotiations then ensued
between the plaintiffs’ solicitors and Bellshore’s solicitors. But Bellshore
short-circuited those discussions by serving another section 146 notice on Mr
Johnson. Because he had disappeared, no steps were taken by him and on October
29 1993 Bellshore re-entered. They later told the plaintiffs’ solicitors that
they had done so. An application was then made for relief from forfeiture by
HSI, it being accepted that they are equitable assignees of the underlease
within the meaning of section 146(2) of the Law of Property Act 1925.
Alternatively, FFM applied, as mortgagees, under subsection (4) of the same
section.
On January 5 1994, the master granted FFM
relief from forfeiture, but on appeal, Mr Robert Gray QC sitting as a deputy
judge of Chancery Division, granted relief from forfeiture to HSI rather than
FFM. Against that decision appeal is now brought. By way of precaution, there
is a cross-appeal so that, in the event that this court denies relief to HSI,
it might be invited to grant it to FFM.
By the terms of section 146(2) of the Law
of Property Act 1925, it is provided, so far as material:
Where a lessor is proceeding, by action
or otherwise, to enforce such a right of re-entry or forfeiture, the lessee
may, in the lessor’s action, if any, or in any action brought by himself, apply
to the court for relief; and the court may grant or refuse relief, as the
court, having regard to the proceedings and conduct of the parties under the
foregoing provisions of this section, and to all the other circumstances,
thinks fit …
By subsection (5) it is provided that:
For the purposes of this section —
(a) ‘Lease’ includes an original or
derivative under-lease; also an agreement for a lease where the lessee has
become entitled to have his lease granted …
(b) ‘Lessee’ includes an original or
derivative under-lessee, and the persons deriving title under a lessee …
(d) ‘Under-lease’ includes an agreement
for an underlease where the underlessee has become entitled to have his
underlease granted;
(e) ‘Underlessee’ includes any person deriving
title under an underlessee.
When he gave judgment in this matter, Mr
Gray held:
While it is true that they [referring to
HSI] for the time being are not the original or derivative underlessee, they
are none the less persons entitled to have that lease transferred to them in
due course and they derive title under the original underlease and indeed one
would say under the original headlease in an indirect manner.
When it came to the exercise of his
discretion, after referring to the judgment of my brother Morritt in Southern
Depot Co Ltd v British Railways Board [1990] 2 EGLR 39, the deputy
judge said:
… this seems to be a case where, applying
that test (that is to say, whether the damage sustained by the second defendant
is proportionate to the advantage it will obtain if no relief is granted) that
question has to be answered very firmly in the negative.
This appeal is devoid of merit in any
discernible form. All that has atoned for it has been the economy and candour
shown by Mr Martyn Zeidman who appears for the appellants in this court, though
he did not appear in the court below. They seek to resist relief against
forfeiture on technical grounds in circumstances where the advantage of
forfeiture would, indeed, be out of all proportion to any damage sustained by
such breaches of covenant as are complained off.
The ground that comes first in the notice
of appeal sets the tone. It depends on the argument not advanced before the
deputy judge, but said to be admissible because it goes to jurisdiction, that these
proceedings can only be brought by action and not by originating summons. Mr
Zeidman relies on Lock v Pearce [1893] 2 Ch 271. Lindley LJ, who
in this court expressed himself most emphatically of the members of that
constitution, obviously based himself upon section 69(3) of the Conveyancing
and Law of Property Act 1881, which required that every application to the
court under that Act should be by summons at chambers; that necessitates an
action. His lordship had some hard things to say about the chancery
practitioners of the day who might have seen fit to take any other course. But
the corresponding statutory provision now in force is section 203(2)(a) of the
Law of Property Act 1925 which, by contrast with its predecessor, is expressed
to be ‘Subject to any rules of court to the contrary’ — RSC Ord 5 r 4(1)
provides that:
Except in the case of proceedings which
by these rules or by or under any Act are required to be begun by writ or
originating summons or are required or authorised to be begun by originating
motion or petition, proceedings may be begun either by writ or by originating
summons as the plaintiff considers appropriate.
Mr Zeidman frankly acknowledges that, not
only is this an unattractive argument, since there is no merit whatsoever in it,
but it would also involve condemning a course which is commonly adopted and
which he has himself often adopted in the past.
Halsbury’s Laws vol 27(1), para 516, note 5
describes Ord 5 r4 as ‘negativing Lock v Pearce‘. In my judgment,
that is exactly what it does. An originating summons affords a common, as well
as convenient, way of applying for relief from forfeiture.
The second ground relied on by the notice
of appeal is the substantive ground upon which Mr Zeidman relies. By it he
contends that there was no power to grant relief to HSI because they were not a
lessee within the meaning of section 146(5)(b) and accordingly they fell
outside section 146(2) and had no standing to claim relief from forfeiture. The
reason why HSI were said not to be a lessee was that
not registered. The defendants further contend that there is a distinction to
be drawn between being entitled to have an underlease granted and being
entitled to have it assigned, though Mr Zeidman was not, in answer to my
brother Peter Gibson LJ able to give any clear reasons of policy why the
legislature should have seen fit to draw that distinction. He, again very
frankly, concedes that the definition of ‘lessee’ in the Act is demonstrably
not an exhaustive one, having regard to the reiterated use of the word
‘includes’. It seems to me that the deputy judge, in the passage I have first
read from his judgment, expressed accurately the true view of the section.
Since, by para (a) of section 146(5) ‘lease’ includes an agreement for a
lease where the lessee has become entitled to have a lease granted, it must, in
my judgment, also include an agreement where the lessee has become entitled to
have his lease assigned. By para (d) the same is true of an
‘underlease’.
Mr Stephen Moverley-Smith, whom we have
not heard orally, also submitted in writing that, if a lessee who has become
entitled to have his lease granted under an agreement for a lease does not
‘derive title under a lessee’, none the less, since the use of the expression
‘the person deriving title under a lessee’ must denote something more than ‘an
original or derivative legal lessee’, the term ‘lessee’ must extend to a person
with equitable title such as HSI as must the term ‘underlessee’.
For my part, I do not consider, for
reasons I have already indicated, that that degree of sophistication is
necessary. HSI derived title from the underlease as equitable assignees and are
therefore entitled to apply for relief from forfeiture, because they are
parties to an agreement under which they have become entitled to have the lease
assigned. Since HSI are entitled to relief, it is not necessary to consider
whether FFM would be entitled to relief.
There being no limit to Mr Zeidman’s
candour, he has acknowledged that the argument, upon which he would perforce
have had to rely in relation to FFM’s application for relief from forfeiture,
would have run counter to the tenor of the argument upon which he relied in
relation to HSI, that is to say in relation to HSI he sought to take a
legalistic view of their position so as to disentitle them as mere equitable
assignees from applying for relief, whereas it was the burden of his argument
in relation to the second plaintiffs, FFM, that one ought not to take a strict
view of their technical position when considering whether they, as mortgagees,
would qualify to apply for relief.
Mr Zeidman has sought to argue that the
deputy judge wrongly exercised his discretion to grant relief in relation to
this case which, says Mr Zeidman, is truly an astonishing one, at least in the
sense that this is not an example of affording relief to the plight of a tenant
who has lost his interest as against a landlord who seeks to take advantage of
it. Here, neither of the parties can properly be said to have suffered loss
because, if HSI have suffered any, then it is common ground that they would be
protected against it by the Solicitors Indemnity Fund. It seems to me, however,
that those considerations do nothing to warrant interference with the exercise
by the deputy judge of his discretion.
It appears to me that his order, not only
was beyond challenge, but was plainly right. I would dismiss the appeal.
Agreeing, Peter Gibson LJ said: On the question whether relief from
forfeiture is obtainable in proceedings commenced by originating summons and
not by writ, Mr Zeidman relied on the decision of this court in Lock v Pearce
[1893] 2 Ch 271, in which it was held that an originating summons was not an
action within the meaning of section 14(2) of the Conveyancing and Law of
Property Act 1881, the predecessor of section 146(2) of the Law of Property Act
1925. ‘Action’ was not defined in the 1881 Act and at first blush it is
surprising that no reference was made by this court to Re Fawsitt [1885]
30 ChD 231 in which the definition of ‘an action’ for the purposes of section
100 of the Judicature Act 1873 (the predecessor of section 151 of the Supreme
Court Act 1981) was held to include an originating summons issued in accordance
with the rules. Lindley LJ was party to both decisions. But the answer may well
be because of the requirement, adverted to by Lindley LJ, in section 69(3) of
the 1881 Act that an application had to be made by summons at chambers, and
that connoted that there had to be a summons issued in an action. While the
provisions of section 69(3) have largely been re-enacted in section 203(2)(a)
of the Law of Property Act 1925, the later provision is now made subject to any
rules of court to the contrary. Ord 5 r4, apparently introduced in 1962, is a
contrary provision. Accordingly, I agree with the editors of Atkins’ Court
Forms (1995 issue) vol 24(1) and Halsbury’s Laws (4th ed reissue,
1994), para 516, note 5, and Woodfall on Landlord and Tenant, para 17.159,
note 48, that Lock v Pearce no longer governs the point. I am the
happier to reach that conclusion because the point is so technical and
unmeritorious.
If the circumstances are such that it is
more appropriate that proceedings commenced by originating summons should
continue as if begun by writ, then the court has power so to order: Ord 28 r8.
The question whether the first
plaintiffs, HSI, can apply for relief turns on whether an equitable assignee of
an underlease is a lessee within the meaning of section 146(5)(b) of the
Law of Property Act 1925. The meanings given in section 146(5) to the terms
‘lease’ and ‘lessee’ are, it is to be noted, not exhaustive; those terms are
merely inclusive of the meanings there set out. It is to my mind clear also
that a ‘lessee’ includes a person who has only an equitable title to have a
lease granted: see para (a).
What is the meaning to be attributed to
the extension of the meaning of ‘lessee’ to include persons deriving title
under a lessee? Some help is obtained from the decision of this court in Escalus
Properties Ltd v Robinson [1995] 3 WLR 524* at p538B where Nourse
LJ, with whom Roch and Henry LJJ agreed, said:
*Editor’s note: Also reported at [1995] 2
EGLR 23
It is clear that the definition of
‘lessee’ in section 146(5)(b) of the Act of 1925 is wider than that in
section 14(3) of the Act of 1881. Instead of including merely an original
underlessee, a derivative underlessee and the heirs, executors, administrators
and assigns of a lessee, it now includes ‘the persons deriving title under a
lessee.’ Although Mr Neuberger submitted that those words were no more than an
omnibus description of the heirs, executors, administrators and assigns of a
lessee, it is plain that they cannot be so limited. They must include not only
those who acquire the lessee’s own estate but also those who acquire a lesser
estate by way of subdemise.
Nourse LJ went on to say:
It is no longer permissible … to restrict
the class of applicants to those who are in privity of contract or estate with
the lessor.
Mr Zeidman said that the meaning of
‘lessee’ was not apt to include an assignee. He relied in particular on the
preposition ‘under’ as distinct from ‘from’ which he said would have been the
appropriate language if an assignee were included. I cannot agree. Like, it
appears, Nourse LJ, it seems to me that an assignee is plainly a person who can
be said to derive title under a lessee.
Why should an equitable assignee be
excluded from the purview of the section? I can see no reason in language nor,
as a matter of policy, why the words should not comprehend an equitable
assignee. It seems to me clear that an equitable assignee may suffer grievously
if he is not allowed to apply for relief from forfeiture, and I cannot see any
reason why it might have been the intention of parliament to exclude such a
person from applying under the Act.
In my judgment, the deputy judge was
entirely right to say that the equitable assignee (HSI in this case) was a
lessee for the purposes of section 146. For these, as well as the reasons given
by my Leggatt LJ, I, too, would dismiss this appeal.
Phillips LJ agreed and did not add
anything.
Appeal dismissed with costs.