by Delyth Williams
In the event of a failure by a tenant to a lease to comply with the express repairing covenant, or any implied obligations, a landlord has to consider what remedies are available to him in pursuing a claim. From a landlord’s viewpoint, the remedies available vary, depending on whether the remedy is sought during the term or at the end of the term. This article considers the main remedies available to the landlord in the context of commercial premises.
Remedies during term
Where the landlord is seeking to enforce the tenant’s repairing obligation during the term, it is generally agreed that the following remedies may be available:
(a) forfeiture of the lease;
(b) damages for breach of covenant;
(c) execution of work by the landlord;
(d) specific performance.
Forfeiture
For a landlord to be able to forfeit the lease, a right of re-entry must be reserved in the lease and it must be borne in mind that the procedure is complex and abounds with technical details. In addition, the adviser should consider whether the landlord wishes to obtain possession of the demised property, for the procedure is irrevocable if the court is satisfied on the evidence and either the tenant does not apply for relief or relief is refused (which, in practice, would be a rare occurrence). An essential prerequisite to the forfeiture of the lease for breach of a repairing obligation is the service of a notice under section 146 of the Law of Property Act 1925. Section 146(1) provides:
A right of re-entry or forfeiture under any proviso or stipulation in a lease for a breach of any covenant or condition in the lease shall not be enforceable, by action or otherwise, unless and until the lessor serves on the lessee a notice —
(a) specifying the particular breach complained of; and
(b) if the breach is capable of remedy, requiring the lessee to remedy the breach; and
(c) in any case, requiring the lessee to make compensation in money for the breach;
and the lessee fails, within a reasonable time thereafter, to remedy the breach, if it is capable of remedy, and to make reasonable compensation in money, to the satisfaction of the lessor, for the breach.
The rules for the service of the section 146 notice are contained in section 196 of the Law of Property Act 1925 and section 18(2) of the Landlord and Tenant Act 1927. The practical effect is that the landlord must show that the fact of service of the notice was known to the lessee and notification by registered or recorded delivery to the last-known abode of such person raises a presumption of such knowledge. Section 196 of the Law of Property Act (as its ambit has been extended by the Recorded Delivery Service Act 1962) allows the landlord, for example, to leave the section 146 notice at or affixed to the premises or abode or place of business of the tenant or serve it by registered or recorded delivery letter to the abode or place of business or premises of the tenant.
The person on whom the section 146 notice should be served was considered in Old Grovebury Manor Farm Ltd v W Seymour Plant Sales Ltd (no 2) (1979) 38 P & CR 374, where the subject property was demised to the second defendant by the plaintiff landlords and the second defendant covenanted, as tenant, not to assign, underlet or part with the possession of the demised premises without the written consent of the landlords. The lease contained a proviso for forfeiture on a breach of covenant. On September 23 1976, the second defendant purported to assign the residue of the lease to the first defendant without first obtaining the landlords’ consent. The landlords served a notice on the second defendant under section 146 requiring the breach to be rectified, and later they brought an action to forfeit the lease. Walton J held that the section 146 notice had to be served on the assignee and not on the assignor, because the assignee was the person in whom the term was properly vested and because the object of the section was to give the persons who were affected by the proposed forfeiture of the lease an opportunity of considering their position.
In the normal course of events, a reasonable time must be given in which the tenant can execute the repairs. In Myers v Oldschool [8] EGD 167 the defendant acquired his interest in the houses in 1924.
On December 3 1926, the plaintiff wrote to the defendant representing that the plaintiff was the owner of the ground interest and complaining of the condition of the houses. The plaintiff was the ground landlord. On January 10 1927, the plaintiff served his notice of forfeiture under section 146. It was a three months’ notice and was in respect of all the premises, and contained schedules of dilapidations in respect of each of the houses. There were about two thousand items on the schedules, which involved, among other things, the taking off and replacement of the roofs of houses on one side of a street in the months of January, February, March and a part of April. All the houses were occupied by tenants who could not be disturbed under the Rent Restrictions Act. The action was brought on the expiration of the three months given by the notice, and judgment was given for the plaintiff, but relief was granted to the defendants on the terms that the repairs must be done to the satisfaction of a surveyor, and that all the costs of the action and mesne profits, as well as two guineas damages, should be paid by the defendant.
Slater J held that, in considering whether a reasonable time had elapsed, regard must be had to all the circumstances.
Although not directly concerning a breach of a repairing covenant, the decision of the Court of Appeal in Expert Clothing Service & Sales Ltd v Hillgate House Ltd [5] 2 EGLR 85; (1985) 275 EG 1011 concerned a lease of 1978 which provided that the defendant tenant was to have “full licence and permission to demolish and reconstruct the interior and roof of the demised premises” subject to the proviso that “the Tenant shall commence the said works of demolition and reconstruction within a period of three years from the commencement date”.
A subsequent county court consent order provided that the reconstruction was to be “substantially completed and ready for occupation by or before the 28th day of September 1982 and fully completed as soon as reasonably possible thereafter”. When no works had commenced by that date, the plaintiffs’ solicitors served on the defendants a section 146 notice which stipulated that the breaches complained of were incapable of remedy. The defendants claimed relief from forfeiture. The Court of Appeal held that the breach of covenant to reconstruct was capable of remedy within section 146(1). If the section 146 notice had required the defendants to remedy the breach, and if the plaintiffs had allowed a reasonable time to comply with the covenant, the defendants might have undertaken the reconstruction. Such reconstruction (together with appropriate monetary compensation) would have remedied the breach. The section 146 notice was therefore invalid. In all the circumstances, the plaintiffs had not waived their right to forfeit.
In considering whether forfeiture is appropriate, or even applicable, regard must be had to the operation of the Leasehold Property (Repairs) Act 1938, which applies to all proceedings (whether for damages or forfeiture) where the lease was originally granted for seven years or more and three years or more are left at the date of service of the section 146 notice. Where the 1938 Act applies, the landlord cannot proceed without first serving a notice in the form specified in section 146, which must also inform the tenant of his right to serve a counternotice. If the tenant serves a counternotice, no further proceedings can be taken without leave of the court. If the tenant does not serve a counternotice, it is clear from the decision in Church Commissioners for England v Ve-Ri-Best Manufacturing Co Ltd [7] 1 QB 238 that no leave of the court is required. The court may not grant leave unless the landlord shows:
(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;
(b) that the immediate remedying of the breach is required for giving effect in relation to the premises to the purposes of any enactment, or of any byelaw or other provision having effect under an enactment or for giving effect to any order of a court or requirement of any authority under any enactment or any such byelaw or other provision as aforesaid;
(c) in a case in which the lessee is not in occupation of the whole of the premises in respect of which the covenant or agreement is proposed to be enforced, that the immediate remedying of the breach is required in the interests of the occupier of those premises or part thereof;
(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; or
(e)there are special circumstances which, in the opinion of the court, render it just and equitable that leave should be given.
It is clear from the decision in Land Securities plc v Receiver for the Metropolitan Police District [3] EGD 531; (1983) 267 EG 675 that the court still has discretion to refuse leave to proceed even if the landlord establishes one or more of the grounds. In this case, the tenant occupied the premises under a lease for 99 years from November 5 1965. The lease contained a full repairing covenant and, in about 1977, the granite-panel cladding on the building was found to be in an unsatisfactory condition. A dispute arose between the landlord and the tenant about the extent of the repairs that were necessary and the materials and methods to be used. In November 1979, the tenant began proceedings against the landlord and others claiming damages for negligence in the erection of the building; those proceedings were still pending. In July 1982, the tenant began proceedings by originating summons against the landlord claiming, inter alia, declarations that a proposed replacement of the granite cladding by stainless-steel cladding would be an improvement within section 3 of the Landlord and Tenant Act 1927, that the landlord had unreasonably withheld consent to the work, and that the tenant was entitled to carry out the work without the landlord’s consent. In October 1982, after service on the tenant of a notice under section 146 specifying breach of the covenant to repair and service by the tenant of a counternotice claiming the benefit of the 1938 Act, the landlord issued a summons seeking leave under section 1 of the Act to bring an action for forfeiture of the lease and damages. Sir Robert Megarry V-C held that, under section 1 of the 1938 Act, the landlord had to make out a prima facie or arguable case that at least one of the grounds in section 1(5) of that Act was satisfied, for which purpose he had only to make out his case without the need for the court to evaluate evidence by the tenant in rebuttal. In view of the low standard of proof required, paras (a) and (d) of the subsection had been satisfied, and there was no prohibition on the granting of leave to the landlord. However, in view of the desirability of having all disputed matters resolved at the same time, and since what the landlord wanted could be resolved more conveniently and economically in the proceedings begun by the tenant under the Landlord and Tenant Act 1927, the court, in its discretion, would refuse the landlord leave to proceed with a claim for forfeiture and damages.
The question of the standard of proof for leave to proceed under section 1(3) of the Leasehold Property (Repairs) Act 1938 was one of the main issues in Associated British Ports v C H Bailey plc (1989) (soon to be reported in Estates Gazette). In this case the plaintiffs were the owners of a reversion on a 99-year lease in which the tenant had covenanted to repair and maintain the premises. When the premises fell into a state of extreme disrepair the plaintiffs served a schedule of dilapidations requiring repairs to the sum of around £600,000 and the diminution in the value of the reversion was placed at some £3,000. The tenant served on the plaintiffs a counternotice claiming the protection of the 1938 Act. When the plaintiffs were granted leave to issue re-entry proceedings the tenants appealed. Harman J [9] 1 EGLR 69; (1989) 13 EG 61 held that the plaintiffs were entitled to proceed with the forfeiture of the lease as at least one of the grounds in section 1(5) of the 1938 Act was satisfied, namely ground (a). Further, the rule emanating from Land Securities plc v Receiver for Metropolitan Police District (1983) 267 EG 675 was that the standard of proof on the plaintiff to obtain leave to proceed is not so high as in a substantive action for forfeiture. In the Court of Appeal the tenant argued that in the Land Securities case the Vice-Chancellor failed to correctly apply the decision of the Court of Appeal in Sidnell v Wilson [1966] 2 QB 69. The Court of Appeal was of the opinion that the requirement of what the landlord has to “prove” is a compound one so that it necessarily follows that the standard of a prima facie case applies not only to the existence of a breach of covenant but also to the existence of one or more of the matters in paragraphs (a) to (e) of section 1(5) of the 1938 Act. Nourse LJ quoted with approval the remarks of Megarry V-C in the Land Securities case where he stated:
In the end, I think that all that the landlord has to do on an application for leave is to make out a prima facie 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. 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 is to be understood in the sense of a case made out by the landlord, without the need to evaluate any rebutting evidence put forward by the tenant.
The appeal was dismissed.
The application of the 1938 Act to a particular covenant was considered in Starrokate Ltd v Burry [3] EGD 446; (1982) 265 EG 871 where the tenants of business premises held under a seven-year lease covenanted:
At all times during the said term well and substantially to repair decorate cleanse maintain amend and keep the interior of the demised premises and the windows thereof and all additions made thereto and the fixtures and fittings therein and the interior walls and appurtenances thereof and the sewers drains and services serving only the demised premises with all necessary reparations cleansings and amendments whatsoever (damage by fire only excepted).
When the premises fell into alleged disrepair, the landlords served a section 146 notice on the tenants requiring them to remedy certain breaches of covenant which was complied with by the tenants. Within six months, a further section 146 notice was served on the tenants which alleged 13 breaches of covenants, one of which was the unhygienic condition of a toilet contrary to the requirements of the public health authority. The principal complaint of the landlords was that the premises, instead of being used as a restaurant in accordance with the user covenant, was being used for the operation of amusement machines to the annoyance of adjoining occupiers. The Court of Appeal held that the breaches alleged in the landlords’ notice were not breaches of a “covenant or agreement to keep or put in repair” within section 1(1) of the 1938 Act.
If the landlord’s claim for forfeiture is successful, it will result in the obtaining of possession of the demised premises. The tenant may, however, be able successfully to sustain a claim that the landlord has waived his right to forfeit the lease or the tenant may be able to obtain relief from forfeiture. In the case of a tenant, regard should be had to the application of section 146(2) of the Law of Property Act 1925, which provides as follows:
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, 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; and in case of relief may grant it on such terms, if any, as to costs, expenses, damages, compensation, penalty, or otherwise, including the granting of an injunction to restrain any like breach in the future, as the court, in the circumstances of each case, thinks fit.
Subtenants may be able to apply for relief from forfeiture under the provisions of section 146(4) and (5); subsection (4) provides:
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, or for non-payment of rent, the court may, on application by any person claiming as under-lessee any estate or interest in the property comprised in the lease or any part thereof, either in the lessor’s action (if any) or in any action brought by such person for that purpose, make an order vesting, for the whole term of the lease or any less term, the property comprised in the lease or any part thereof in any person entitled as under-lessee to any estate or interest in such property upon such conditions as to execution of any deed or other document, payment of rent, costs, expenses, damages, compensation, giving security, or otherwise, as the court, in the circumstances of each case, may think fit, but in no case shall any such under-lessee be entitled to require a lease to be granted to him for any longer term than he had under his original sub-lease.
The landlord should also be aware that his conduct may amount to a waiver of his right to forfeit. In Farimani v Gates [4] EGD 467; (1984) 271 EG 887, the tenant held the long lease of a building which became severely damaged by fire and there was a delay in reaching a settlement with the insurers. The appellant-tenant had covenanted to insure and keep insured the demised premises and, in the event of damage or destruction by fire, to lay out the insurance moneys in rebuilding or repairing the premises. Having served the section 146 notice, the landlord made a peaceable re-entry and forfeited the lease. In the county court, the tenant’s claim for relief from forfeiture was dismissed, but it had been tried in that court on the basis that the breach complained of was not the breach specified in the section 146 notice. The Court of Appeal held that the breach of the obligation to lay out the insurance moneys was not a breach of a repairing covenant and therefore the landlord’s section 146(1) notice was not rendered invalid by a failure to include the statements required by the Leasehold Property (Repairs) Act 1938; that the breach was a breach of a single obligation, not a continuing one, and that the tenant’s obligation to lay out the insurance moneys was subject to an implied obligation to do so within a reasonable time and was broken when that time had passed. Finally, the acceptance of rent by the landlord after that breach constituted a waiver of the right to forfeit, so that his subsequent entry into possession was unlawful.
Finally, it is to be noted that a special form of relief is available in respect of internal decorative repairs under section 147 of the Law of Property Act 1925. Section 147(1) provides that:
After a notice is served on a lessee relating to the internal decorative repairs to a house or other building, he may apply to the court for relief, and if, having regard to all the circumstances of the case (including in particular the length of the lessee’s term or interest remaining unexpired), the court is satisfied that the notice is unreasonable, it may, by order, wholly or partially relieve the lessee from liability for such repairs.
Damages
An action for damages for disrepair may be brought by the landlord at any time during the term and after its expiry. The measure of damages at common law is usually as follows:
(a) where proceedings are taken during the term, the measure is the amount by which the value of the reversion is diminished by reason of the breach; or
(b) where proceedings are taken at the end of the term, the measure is the cost to the landlord of effecting the repairs, plus any loss of rent thereby sustained.
The remedy of damages is subject to the same provisions of the Leasehold Property (Repairs) Act 1938 and the rules governing the form, contents and service of the section 146 notice as in the case of forfeiture. In addition, a landlord seeking damages as a remedy is subject to the provisions of section 18 of the Landlord and Tenant Act 1927. The effect of the first limb of section 18(1) is that, whether the landlord’s action is brought during or on the termination of the lease, the landlord cannot recover more than the amount (if any) by which the value of the reversion is diminished by the breach. In principle, this does not alter the common law measure of damages but merely imposes a ceiling on the amount of damages that is recoverable. The second limb of section 18 of the 1927 Act means that no damages are recoverable for failure to put or leave premises in repair at the termination of the lease if it is shown that the premises would, at or shortly after termination, either be pulled down or be so altered structurally as to render such repairs valueless. The case law on the operation of section 18(1) of the 1927 Act was considered at length by the present author in an article entitled Calculation of damages for disrepair (1986) 280 EG 708 and the reader is referred to it for the relevant authorities. (The question of damages is also considered post.)
Execution of work by landlord
If the tenant is in breach of his repairing obligations, and there is no provision in the lease allowing the landlord to enter and undertake the repairs, the tenant may be able to obtain an injunction to stop the landlord from entering to repair. This was considered in Regional Properties Ltd v City of London Real Property Co Ltd [1] EGD 44; (1979) 257 EG 64, where the premises in question consisted of a basement, lower-ground floor, ground floor and seven upper floors of which the top floor was surmounted by a mansard roof rising from a flat roof. The two tenants of the office building brought two interlocutory motions for injunctions in interrelated actions. The tenants of the premises covenanted, inter alia:
The Lessee will at its own cost and charges from time to time and at all times during the said term well and substantially repair and maintain whiten colour paper pave cleanse amend and renew and keep so repaired maintained whitened coloured papered paved cleansed amended and renewed in every respect the said building and the Lessor’s fixtures therein and the foundations and the roof thereof including the structure and the main walls and timbers thereof and the drains thereof and all buildings now or hereafter to be erected on the said piece or parcel of land and to cause the lift of the said building to be inspected and maintained at regular intervals by maintenance contractors.
When the roof began to leak, the freeholders obtained a judgment for damages against the first tenants, who were the tenants of parts of the office block (including the roof). The first tenants then brought an action for an injunction to restrain the freeholders from entering to repair the roof. Although the tenants were in breach of their repairing covenant, the freeholders had no right of entry to repair the roof. In the second action, the tenants of the other parts of the block sought an injunction against the tenants whose demise included the roof. The tenants of these other parts, who were not themselves in occupation, wished to protect their subtenants against damage caused by the penetration of water from the leaking roof and, hence, wished to carry out repairs themselves to the roof and sought an injunction to prevent the “tenants of the roof” from obstructing access for this purpose. Oliver J held, on the first motion, that the tenants of the roof were entitled to an injunction but, in view of the mutual undertakings, an injunction was not necessary. The unusual relief sought in the second motion would be refused, taking into account, inter alia, the undertaking given by the tenants of the roof which satisfied the freeholders in the first action.
The basis of this decision can be seen to rest on the decision in Stocker v Planet Building Society (1879) 27 WR 877, where James LJ stated:
Where a reversioner has granted a lease with no power of re-entry reserved on breach of a covenant to repair, can he give himself the right to enter and do the repairs? It is a plain invasion of the rights of property. He has no more right than any stranger has. There is no suit in point of law for what has been done. As a matter of law according to the present legal rights in this country, there is no right in a reversioner to go in and do necessary repairs.
Where there is no provision in the lease for the landlord to enter and execute the works, the question arises as to the application of the Leasehold Property (Repairs) Act 1938.
In such a case if the works expended by the landlord are recoverable, regard should be had to the decision in SEDAC Investments Ltd v Tanner (1982) 44 P & CR 319, where a 14-year lease contained a repairing covenant by the tenants and a further right in the landlords to enter and carry out the repairs upon the tenants’ failure to do so. On April 25 1980, the tenants, without appreciating their obligation to repair, became aware that stonework on the front wall of the premises was so loose that fragments at first-floor level were falling on to the pavement below.
They informed the landlords so as to make sure that the landlords’ insurance covered them against any possible claims for injuries to passersby. The landlords made immediate arrangements for a chartered engineer to inspect the premises. His opinion was that repair work should be carried out as a matter of urgency. Following the engineer’s advice, the work was started on May 1 and was completed by May 9 at a cost of about £3,000.
On January 5 1981, the landlords’ solicitors served a notice under section 146 pointing out that the tenants were in breach of the covenants in clause 2(2) of the lease and that the landlords had remedied the breach.
The notice required compensation of £3,000 to be made to the landlords. It further stated that, if the tenants failed to comply with the notice, the landlords intended to claim damages against them. The tenants’ solicitors served a counternotice claiming the benefit of the 1938 Act. In their covering letter they made it clear that the counternotice was without prejudice to the lessee’s claim that the lessor’s section 146 notice was void.
Mr Michael Wheeler QC (sitting as a deputy High Court judge) held, inter alia, that the scheme of the 1938 Act contemplated a process beginning with a lessor’s giving a valid section 146 notice and, if such a notice, to be effective, must be served before the breach was remedied, the service of the notice would be invalid where, as here, the lessor remedied the breach before attempting to serve the notice. Further, without a valid section 146 notice, the lessees were deprived of their right to serve a valid counternotice and that, accordingly, the court had no jurisdiction to give the lessor leave to commence proceedings for damages, because that jurisdiction arose only when the lessee served a counternotice.
