Leasehold Property (Repairs) Act 1938 — Application for leave to bring an action for forfeiture of a lease and damages for breaches of repairing covenant — Appeal by tenant from master’s decision granting leave up to close of pleadings and until existing proceedings by tenant under Landlord and Tenant Act 1927 had been set down for hearing — Cladding on subject building out of repair — Dispute as to extent of disrepair and nature of remedial action required — Paradoxical situation of landlord objecting to tenant’s proposal to spend 10 times as much as landlord wished on repairs — Landlord in present proceedings relied on section 1(5)(a), (d) and (e) of 1938 Act — Discussion of effect of Sidnell v Wilson — A landlord seeking leave under 1938 Act must make out a prima facie or bona fide arguable case that at least one of the paras of section 1(5) is satisfied and this includes making out such a case for there being a breach of the repairing covenant — In present case landlord could satisfy paras (a) and (d), but Vice-Chancellor refused to exercise his discretion to give leave — Points at issue could and should be resolved in the existing proceedings under the 1927 Act rather than by starting new proceedings for forfeiture and damages — Appeal from master’s order allowed
The landlord
company, Land Securities plc, applied by originating summons under the
Leasehold Property (Repairs) Act 1938 for leave to bring an action against the
tenant, the Receiver for the Metropolitan Police District, for forfeiture of a
lease and damages. The property in question was New Scotland Yard. Master
Chamberlain gave the landlord limited leave to proceed and the tenant appealed.
D A Wood QC
and K M J Lewison (instructed by Winckworth & Pemberton) appeared on behalf
of the tenant, the present appellant; R H Bernstein QC and B Levy (instructed
by Nabarro Nathanson) represented the respondent.
Giving
judgment, SIR ROBERT MEGARRY V-C said: In this case there has been an
application by originating summons under the Leasehold Property (Repairs) Act
1938 as amended for leave to bring an action for forfeiture of a lease and for
damages in respect of breaches of a repairing covenant. The application is made
by Land Securities plc (which I shall call ‘the landlord’) against the Receiver
for the Metropolitan Police District (whom I shall call ‘the tenant’). The
property in question is New Scotland Yard, and the tenant holds it under a
lease dated November 5 1965 made between a predecessor in title of the landlord
and the tenant. The lease is for a term of 99 years from November 5 1965, so
that it has some 82 years to run. The building was originally intended to be
erected to a different design, but this design was varied during the course of
construction by agreement between the landlord’s predecessor in title and the
tenant. The lease was granted at a premium of £6m, in return for which the
tenant was to pay a rent of £570,000 a year but
37.6% less than the rack rent as computed under the terms of the lease. The
lease contains a full repairing covenant. The originating summons initially
came before Master Chamberlain, who gave the landlord leave to proceed up to
the close of pleadings, and until other proceedings between the parties under
the Landlord and Tenant Act 1927 had been set down and a date fixed for the
hearing. From this decision the tenant has appealed, and as requested by the
parties I am delivering judgment in open court.
The dispute
centres on the cladding on the building. This consists of polished granite
panels measuring about 2 ft x 4 ft and weighing about 165 lb each. Some six
years ago it was found that this cladding was in an unsatisfactory condition.
There were reports that cracks were appearing in many of the panels, and there
were questions whether they were satisfactorily fixed to the concrete of the
building. It is common ground that the building is out of repair as regards the
cladding, but it is in dispute how extensive that want of repair is, and in
particular there is a sharp divergence on what is the proper action to take in
order to make good the lack of repair. Put broadly, the tenant wishes to
replace all the granite panels with stainless steel, at a cost of some £5m,
whereas the landlord wishes only those granite panels which are defective to be
replaced by new granite panels, at a cost of some £1/2m. It is not the least
curious feature of the case that the landlord is objecting to the tenant spending
10 times as much on repairing the premises as the landlord wishes to have
spent, and that the tenant is objecting to the modesty of the figure which the
landlord says is all that the tenant need spend on repairs. Of course, that way
of putting it must not be allowed to conceal the underlying grounds of dispute,
which are as to the unsuitability of the material and the methods proposed by
the tenant.
Now as I have
indicated, the proposed action here in question is not the only litigation
which affects the parties. On November 30 1979, I was told, the tenant issued a
writ in the Queen’s Bench against the architect, the consulting engineer, the
developers (the landlord now being included under this head) and the GLC. The
general basis of this action is a claim for damages for negligence in the
erection of the building and for breach of the provisions of the development
agreement. Pleadings in this action have not yet closed, and at this stage not
much more can be said than that the action is expected to be ripe for hearing
in 1985 and will be heard by a judge exercising the functions of an Official
Referee. The estimated duration is some four months.
Second, there
are the Chancery proceedings under the Landlord and Tenant Act 1927 which I
have already mentioned. They were commenced by originating summons on July 2
1982. In these, the tenant claims various declarations as against the landlord.
One is that the removal of the granite cladding and its replacement by
stainless steel cladding according to certain plans in the specification would
amount to an improvement within the Landlord and Tenant Act 1927; and the
tenant asks for a certificate that the work would be a proper improvement
within section 3 of the Act. Then declarations are sought that the landlord has
unreasonably withheld its consent to carrying out this work and is unreasonably
withholding it. Last, there is a declaration that, despite clause 3(17) of the
lease, the plaintiff is entitled to carry out the work without the landlord’s
consent.
On October 22
1982, a little less than four months after the tenant issued his originating
summons, the landlord issued the originating summons which is now before me. In
this, Mr Bernstein, for the landlord, claims that the case falls within three
of the five heads in section 1(5) of the Leasehold Property (Repairs) Act 1938,
namely, paragraphs (a), (d) and (e); and to these I must turn in a moment. The
mechanics of operating the Act are not in dispute. The landlord wishes to sue
for forfeiture of the lease and damages; a notice under section 146 of the Law
of Property Act 1925 has been duly served; the tenant has duly served a
counternotice; more than three years of the lease remains unexpired; the
landlord cannot therefore commence its action without the leave of the court;
and: ‘Leave for the purposes of this section shall not be given unless the
lessor proves’ that one of the paragraphs in section 1(5) is satisfied. The
heads on which Mr Bernstein relies are as follows: ‘(a) that the immediate
remedying of the breach in question is requisite for preventing substantial
diminution in the value of his reversion, or that the value thereof has been
substantially diminished by the breach;’ ‘(d) that the breach can be
immediately remedied at an expense that is relatively small in comparison with
the much greater expense that would probably be occasioned by postponement of
the necessary work;’ ‘(e) special circumstances which, in the opinion of the
court, render it just and equitable that leave should be given’.
During the
argument it was accepted by Mr Bernstein, and by Mr Wood on behalf of the
tenant, that on an application under the Act of 1938 the landlord had to leap
three hurdles. The first was that there was a breach of a repairing covenant;
and it was not disputed that there was. The second was that section 1(5) of the
Act was satisfied; and that was in issue. The third was that as all that
resulted from satisfying section 1(5) was merely that a prohibition against the
granting of leave by the court was removed, there still remained the question
whether the court ought to exercise its discretion in favour of granting leave
to the landlord to bring this action. I must therefore consider the second and
third heads.
On the second
head, there was considerable argument about what was decided in Sidnell
v Wilson and Others [1966] 2 QB 67. Mr Wood adopted the approach
appearing in the headnote. On an application for leave under the Act of 1938, a
landlord did not have to ‘satisfy’ the court that there had been a breach of
the repairing covenant; for the application was merely of an interlocutory
nature, and as the question whether or not there had been such a breach would
have to be determined at the trial, it would be wrong to determine it on the
interlocutory application and so try it twice over. Instead, the landlord
merely had to establish that there was a ‘prima facie case’ that there
had been a breach. That was the view of Lord Denning MR and Harman LJ. Diplock
LJ, on the other hand, held that the landlord merely had to establish an
‘arguable case’ that one or more of the conditions in section 1(5) had been
satisfied.
Mr Wood’s
contention was that the difference in these two views was not merely whatever
difference there might be between a ‘prima facie‘ case and an ‘arguable’
case, but that there was in some way a difference between the process of
establishing a breach of covenant and the process of establishing that one of
the paragraphs of section 1(5) had been satisfied. On the first process, the
requirement was only that there should be a prima facie case. But this
did not apply to the second, since the question whether one of the heads of
section 1(5) was satisfied would have to be determined once and for all on the
application for leave to bring the proceedings, and so, unlike the question
whether there was any breach of covenant, would not arise for a second time at
the trial. I pressed Mr Wood to discover what had to be shown in establishing
that one of the paragraphs of section 1(5) had been satisfied, but although he
readily proffered a collection of the matters that had to be taken into
consideration, he put forward no clear standard in place of the ‘prima facie‘
or ‘arguable’ case that had to be shown on establishing a breach of covenant.
The standard was different, he said, but the difference was not explained,
beyond being one that was more exacting than was indicated by the words ‘prima
facie‘ and ‘arguable’.
I do not think
that this contention is right. One must begin with the words of section 1(5).
There is no separate requirement of establishing a breach of covenant; instead,
the existence of a breach is clearly assumed under each head in section 1(5)
except the last. Thus under paragraph (a), what the lessor must prove is that
‘the immediate remedying of the breach in question is requisite for preventing
substantial diminution in the value of his reversion’, and so on. The word
‘proves’ governs a compound requirement which includes the immediate remedying
of the breach and this being requisite to prevent substantial diminution in the
value of the reversion. I do not see how the existence of the breach can be
segregated out of this compound requirement and given a different standard of
proof from the rest of it. Instead, all that I think that Lord Denning and
Harman LJ were doing was to say that as the existence of the breach would have
to be determined at the trial, at this interlocutory stage only a prima
facie case for the existence of such a breach need be shown, with the
result that this must be the standard required for the whole of each paragraph
of section 1(5) in which a breach of covenant lay embedded. It is plain from p
77 of Sidnell v Wilson that Lord Denning was considering not
merely whether there was a breach of covenant but whether the landlord had
brought himself within section 1(5)(a), which must mean the whole of section
1(5)(a); and on the facts of that case Lord Denning was holding that the
landlord had done this, provided he had sufficiently established a breach.
Accordingly the thrust of the judgment was on this latter point rather than on
the whole of paragraph (a); but that does not mean that the rest of paragraph
(a) was being ignored.
Mr Wood
contended that this view was wrong. He said that
covenant has been committed; and that indeed is the case. Section 1(1) refers
to the service under the Law of Property Act 1925 of ‘a notice that relates’ to
a breach of a repairing covenant; section 1(2) refers to a ‘right to damages
for a breach of such a covenant’ and a notice served under the Law of Property
Act 1925, section 146(1), and a counternotice; section 1(3) refers to
proceedings for forfeiture or damages ‘for breach of the covenant or agreement
in question’; section 1(4) refers back to notices served under subsections (1)
and (2). Thus when section 1(5)(a) refers to the immediate remedying of ‘the
breach in question’, it appears to be assuming that there is a breach. Yet
obviously the court should give no leave to bring proceedings within the
section if there has in fact been no breach of covenant, even though not until
section 1(5) is reached does there seem to be anything to raise the question
whether a breach has in fact been committed. Mr Wood, however, contended that
this issue arose under section 1(3), and that in deciding in Sidnell v Wilson
what standard of proof should be applied in determining whether or not there
had been a breach of covenant, the Court of Appeal was really construing
section 1(3) and not section 1(5). He had to accept, however, that there was
not a word in any of the judgments about section 1(3), although all the members
of the court considered section 1(5)(a); and I do not see how the decision
could possibly be treated as a decision on the meaning and effect of a
subsection that the judgments do not even mention. If any emphasis is needed,
it is supplied by the terms of section 1(3); for, as I have indicated, this is
expressed in terms of imposing a prohibition on taking proceedings for forfeiture
under a proviso or stipulation in the lease, or for damages, for breach of the
covenant or agreement, and not in terms of whether or not there has in fact
been such a breach.
In the end, I
think that all that a landlord has to do on an application for leave is to make
out a prima facie case (or perhaps a bona fide arguable case) that at
least one of the paragraphs of section 1(5) is satisfied; and this includes
making out such a case for there being a breach of the repairing covenant. I
think that this includes paragraph (e), even though it does not mention any
breach of covenant; for I do not see how a landlord could establish that there
are special circumstances making it just and equitable for leave to be given
unless he has established a prima facie, or arguable, case that there
has been a breach of covenant. Sidnell v Wilson is a decision on
the word ‘proves’ in section 1(5), and the standard of proof that it lays down
applies to the whole of the contents of paragraphs (a) to (e). If the term ‘prima
facie case’ is used, I think that this is to be understood in the sense of
a case made out by the landlord, without the need to go into any rebutting
evidence put forward by the tenant. That is why Diplock LJ used the term ‘bona
fide arguable case’ (see at p 80); and the unanimous view of the court that the
point ought not to be tried twice over seems to point strongly to the phrase ‘prima
facie case’ bearing the meaning that I have indicated.
In the case
before me, in contrast with Sidnell v Wilson, there is no
difficulty about the lack of repair, for that is clear, and it has not been
disputed. On the other hand, Mr Wood has contended that the evidence put
forward to support the other elements of paragraphs (a), (d) and (e) does not
amount to even a prima facie case, or an arguable case. The evidence is
not impressive. Expressions of opinion by a chartered surveyor employed by the
landlord which do little more than apply to the building something of the
language of paragraphs (a) and (d), and wind up with a watered-down version of
(e), obviously leave a good deal to be desired. On the other hand, the primary
facts of the case by themselves go far towards satisfying paragraphs (a) and
(d). Given the nature and position of the building, and the state of at least
some of the granite slabs, it is difficult not to infer that the case falls
within these paragraphs. Looking at the evidence as a whole, and allowing for
the fact that much is in dispute, I nevertheless reach the conclusion that, on
the lowly standards of proof that apply, paragraphs (a) and (d) are
sufficiently satisfied, and section 1(5) imposes no prohibition on granting of
leave to the landlord.
That brings me
to the third hurdle, that of the discretion of the court. For some while during
the argument I remained completely in the dark why it was that the landlord
wished to sue for forfeiture and damages for breach of the repairing covenant
when a tenant of unquestionable responsibility was seeking to spend far more on
repairs than the landlord claimed. Mr Wood could not enlighten me, but
ultimately Mr Bernstein intervened to give an explanation which he amplified
later. None of this explanation appears to have been put before the master or,
indeed, told to the tenant until Mr Bernstein made his intervention. The
reason, Mr Bernstein said, was to ensure that various points in dispute between
the parties were resolved in binding form by the court. Most of these points,
he agreed, arose in the originating summons issued in July 1982 under the
Landlord and Tenant Act 1927; but the judge who tried that case might not find
it necessary to decide all of the points, and the landlord wished to ensure
that they were all resolved. For this reason the landlord had launched the
present application for leave to sue for forfeiture and damages, with the
intention of having the action (if leave were given) brought on at the same
time as the proceedings under the 1982 originating summons. An action for
forfeiture and damages was, Mr Bernstein said, the normal way in which to get
disputes over a repairing covenant resolved, since the tenant’s application for
relief from forfeiture would bring all the matters into issue. Mr Bernstein put
in a list of the points that he wished to have resolved, and later added to the
list.
I can well see
that it is desirable to have resolved at one and the same time all the matters
in dispute between the parties. What I found it hard to follow was why this had
to be done by a separate action for a forfeiture of the lease that the landlord
is most unlikely to want. Mr Bernstein never in terms accepted that the
landlord had no desire for forfeiture, though he accepted that this was not the
landlord’s primary object. From start to finish, I may say, nobody has
suggested that there has been any impropriety or lack of good faith on either
side. I do not intend to disturb this happy abstinence, and I make no
imputations; but I must say that I cannot see in the proposed new proceedings
anything but a somewhat inappropriate and expensive means of obtaining
decisions on the meaning and effect of the repairing covenant which may more
suitably and more cheaply be obtained by other means. I cannot see why the
whole apparatus of a new set of proceedings, claiming an unwanted forfeiture,
with the attendant costs in time and money, should have to be launched instead
of having the points in issue resolved in the existing proceedings. True, the
existing proceedings are brought by originating summons and not by writ; but
even if the landlord, in putting in evidence under the originating summons
(which has yet to be done), cannot procure that the points are raised for
decision, and the originating summons cannot be amended to raise the points, I
do not see why the landlord should not raise the points by counterclaim. True,
the landlord ought to have done this promptly (see Order 28, rule 7(2)); but I
think the court has ample powers under Order 2, rule 1 and Order 3, rule 5 to
cure any defect of this kind, and Mr Wood made it plain, as soon as this point
arose, that he would welcome rather than oppose such a course of action. In
short, of the course of taking new proceedings for forfeiture and damages
instead of using the existing proceedings, I would simply say cui bono?
As for the
nature of any counterclaim, I see no reason why it should be for forfeiture and
damages. There appears to be no real difficulty in the points raised by Mr
Bernstein (which I forbear from setting out) being cast into the form of
declarations. Mr Bernstein at one stage argued that to do this would in some
way circumvent the Act of 1938; but he failed to sustain this contention, and I
reject it. If the matter is dealt with by a claim for declarations, then if the
grossly improbable later occurs, and the tenant refuses to act on the
declarations, it would still be open to the landlord to seek leave to sue for
forfeiture and damages, and at that stage the Act of 1938 would apply. But the
remote possibility of that being necessary at some time in the future is no
reason for granting leave to bring such proceedings today.
It is not for
me to determine exactly how the questions should be raised and decided. It
suffices for me to say that I am satisfied that it is unnecessary and
undesirable for the landlord to sue for forfeiture and damages at this stage,
since all that the landlord wants can be resolved more conveniently and with
greater economy of time and money in the proceedings under the 1982 originating
summons. Accordingly, I feel no hesitation in saying that in my judgment my
discretion ought to be exercised by refusing leave under the Act of 1938.
In reaching
this conclusion, I do not overlook Re Metropolitan Film Studios Ltd’s
Application [1962] 1 WLR 1315. In that case, at p 1324, Ungoed-Thomas J said
that the discretion under the Act of 1938 is ‘of an interlocutory nature, not
to be exercised to exclude the lessor from his rights subject to the wide
discretion given to the court under section 146’ (that is, of the Law of
Property Act 1925),
requirements specified in the paragraphs of subsection (5), the application
should be refused’. In so far as this suggests that, once subsection (5) is
satisfied and the discretion of the court is opened, leave should always be
given unless the court is ‘clearly convinced’ that it should not, I would have
some difficulty in agreeing with it. Proceedings for forfeiture and damages are
burdensome on tenants, even though relief from forfeiture may be granted, and
the Act of 1938 was plainly passed so as to prevent oppression from the threat
of such proceedings. With all respect, I would have thought that the discretion
of the court was much less fettered than is suggested by subjecting it to the
words ‘clearly convinced’. The fact that one of the paragraphs of subsection
(5) must have been satisfied before the discretion is opened does of course of
itself point towards the landlord being given leave to bring the proceedings;
but there may be many other factors present which ought to be considered in
deciding whether or not to grant leave, including the fact that only prima
facie evidence is required under subsection (5), and I do not see why in
balancing all the relevant matters nothing save a clear conviction that leave
should be refused should suffice for refusing leave. However, even if I accept
the Metropolitan Film case to the full, I would still refuse leave
because I am in fact ‘clearly convinced’ that it ought to be refused. I
therefore allow the appeal; and that is all that I have to decide.
At the same
time I should say that I will readily accede to any application for directions
or orders which will make it possible to have all matters in dispute between
the parties under the repairing covenant resolved in the most convenient way,
either now, or after counsel have had an opportunity of discussing matters
between themselves. For this purpose I will, of course, be willing to treat the
1982 originating summons as being before me.
The appeal was
allowed with the costs of the proceedings before the Vice-Chancellor and the
Master, with the exception of an adjourned appointment before the Master, the
costs to be taxed if not agreed. Leave to appeal from the Vice-Chancellor’s
decision was refused.
