Landlord and tenant — Forfeiture — Arrears of rent — County Courts Act 1984 section 138 — Whether ‘all rent in arrear’ limited to arrears at date of forfeiture — Whether county court entitled to order payment of all arrears as condition of statutory relief from forfeiture
In June 1995
the appellant landlord commenced forfeiture proceedings in the High Court to
recover possession of a flat held on a long lease by the respondent tenants,
and arrears of rent and service charges reserved as rent amounting to
£2,695.79. The action was transferred to the county court where, in October
1996, the landlord applied for an order that the tenants should give up
possession unless within 28 days they paid the rent and service charges, which
by then totalled £5,958.90. The deputy district judge considered he had no
power under section 138(3) of the County Courts Act 1984 to order the tenants
to pay more than the arrears of £2,791.93, the sum due at the date of the issue
of the writ. On appeal the circuit judge confirmed the order. The landlord
appealed.
forfeiture given in the county court is from start to finish statutory. The
words ‘all the rent in arrear’ in section 138(3) of the County Courts Act 1984
means the rent in arrears at the time when the court making its order assumes
that payment of that rent will result in the lease continuing for all purposes.
It was not parliament’s intention that the words used in section 138(3) should
be construed to mean that the court could order payment only of the rent in
arrear at the date of service of the summons as a condition of granting relief.
It is assumed that the lease continues to exist after service of the summons on
the tenant; he remains under an obligation to the sum reserved in the lease as
rent and that all the rent in arrears means the rent payable up to the date
stated in the order.
The following
cases are referred to in this report.
Canas
Property Co Ltd v KL Television Services Ltd
[1970] 2 QB 433; [1970] 2 WLR 1113; [1970] 2 All ER 795; (1970) 21 P&CR
601; [1970] EGD 445; 214 EG 1494, CA
Dendy v Evans [1909] 2 KB 894; [1910] 1 KB 263, CA
Driscoll v Church Commissioners for England [1957] 1 QB 330; [1956] 3
WLR 996; [1956] 3 All ER 802; (1956) 7 P&CR 371; [1956] EGD 259; 168 EG
521, CA
Meadows v Clerical Medical & General Life Assurance Society
[1981] Ch 70; [1980] 2 WLR 639; [1980] 1 All ER 454; (1979) 40 P&CR 238;
[1980] 2 EGLR 63; 255 EG 883
Sanders
v Pope (1806) 12 Ves 282
This was an
appeal by the landlord, Maryland Estates Ltd, against the decision of Judge
Diamond QC, sitting in Central London County Court, who had dismissed an appeal
by the landlord against a decision of Deputy Judge Clapham, who had made an
order in proceedings against the tenants, Yair Bar Joseph and Freda Bar Joseph,
for possession and arrears of rent.
Nicholas
Dowding QC (instructed by Malthouse Chevalier) appeared for the appellant;
Arthur Moore (instructed by Jim McKenzie & Co) represented the respondents.
Giving
judgment, BELDAM LJ said: On March 20 1998, after argument, the court
announced its decision to allow the appeal, giving our reasons later. We now
give our reasons.
The appellant,
Maryland Estates Ltd (the landlord), is the freehold owner of 13 Brondesbury
Park, London NW6. The building is divided into flats. By a lease dated April 3
1984 the landlord’s predecessor in title let flat 3 to the respondents (the
tenants) for a term of 125 years from June 24 1983 at an initial annual rent of
£75 for the first 33 years of the term, payable by equal half-yearly
instalments in advance on June 24 and December 25 each year. By clause 4(23) of
the lease the tenants covenanted to pay a service charge which was to be
regarded as, and recoverable as, rent. The lease contained in clause 6 a
proviso for re-entry in the usual form if the rent reserved, or any part
thereof, should be unpaid for 21 days after becoming payable, whether formally
demanded or not. By 1994 the tenants had fallen into arrears in payment of the
rent and service charges on the due dates, and on June 6 1995 the landlord
issued proceedings in the Queen’s Bench Division claiming possession of the
premises, £2,695.79 arrears of rent and service charges up to and including December
25 1994. Thereafter, the landlord claimed mesne profits from the date of
service of the writ until possession. The writ was served on the tenants and
shortly thereafter they entered a defence and counterclaim in which they denied
that any sums were due and owing and denied that the landlord was entitled to
forfeit the lease, counterclaiming relief from forfeiture. On March 6 1996 by
its reply and defence to counterclaim the landlord said in para 10:
The Plaintiff
will grant relief from forfeiture to the Defendants upon payment within a
reasonable time of all sums claimed in the Statement of Claim, statutory
interest, any further sums falling due upon the reinstatement of the Lease and
the Plaintiff’s costs of the action to be taxed if not agreed.
After close of
pleadings the proceedings were remitted to Central London County Court. In an
attempt to discover the extent of disagreement between itself and the tenants,
the landlord sought interrogatories and on August 9 1996 obtained a peremptory
order for discovery. By August 15 the tenants had made payments into court of
£2,791.93, representing the amount of the rent claimed to be outstanding at the
date of the writ and interest, and a sum of £1,177.50 in satisfaction of the
landlord’s costs. The latter sum was less than the amount stated by the
landlord’s solicitors to have been incurred in bringing the proceedings.
The tenants
failed to comply with the order for discovery and on October 28 1996 the
landlord applied to Central London County Court for a declaration that it was
entitled to possession of the premises for non-payment of rent and for an order
that the tenants should give up possession unless within 28 days of judgment
being obtained they paid the rent and service charges claimed and sums falling due
since the issue of the summons in respect of rent and service charges, which by
that date totalled £5,958.90, together with interest. The landlord’s
application was heard by Deputy District Judge Clapham on January 9 1997, who
made the declaration that the landlord was entitled to possession of the flat
because the rent and service charges due under the lease were in arrears to the
extent claimed and that the landlord had the right of re-entry or forfeiture,
but he ordered that the tenants should give up possession of the property
unless within 14 days of agreement or taxation of the landlord’s costs the
tenants paid to the plaintiff the arrears of rent of £2,791.93 and the
landlord’s costs as taxed or agreed. From an agreed note of the judgment it appears
the deputy district judge considered that he had no power under section 138(3)
of the County Courts Act 1984 to order the tenants to pay more than the arrears
of rent of £2,791.93, the sum due at the date of service of the writ upon them,
because the words in subsection (3):
all the rent
in arrear
only referred
to the rent due at the date of service of the writ. From that order the
landlord appealed to Judge Diamond QC. On October 17 1997 he confirmed the
district judge’s order in these terms:
(a) The
Defendants do give possession of the property unless they comply with the terms
set out in Paragraph 2(b) hereof.
(b) If,
within the period set out below, the Defendants do pay to the Plaintiff the
following sums, then the existing lease will continue and the Plaintiff will no
longer be entitled to possession of the property under this Judgment:
(i) Arrears
of rent £2,791.93 within 28 days.
(ii) The
Plaintiff’s costs as taxed or agreed within 14 days of agreement or taxation.
Such costs
only to be payable up to and including August 1996.
4. The
Plaintiff do pay the Second Defendant’s costs from 15th August 1996 to be taxed
if not agreed. Legal Aid Taxation of the Second Defendant’s costs.
He further
ordered sums to be paid by way of interest and that:
In the event
that the lease does not continue and the Plaintiff do take possession of the
property, the Plaintiff do recover against you the sum of £2,791.93 together
with Mesne Profits to be assessed.
From this
order the landlord now appeals.
On the face of
it the issue is a narrow one which turns upon the interpretation to be given in
section 138(3) to the phrase ‘all the rent in arrear’. But the tenants’
argument, which found favour with the district judge and Judge Diamond, is
based on a wider foundation. The tenants argue that the jurisdiction of the
county court to grant relief from forfeiture for non-payment of rent is
different from, and not as wide as, the jurisdiction of the High Court.
Further, it is separate from the jurisdiction exercised in equity to grant
relief. Historically the right to grant relief from forfeiture has developed
differently in the county court and in the High Court so that the power to
grant relief given in section 138 is to be strictly construed and confers by
section 138(3) power to make an order for possession on terms that only the
rent in arrears at the date of service of the writ or summons is payable
together with the landlord’s costs incurred.
On the other
hand, the landlord argues that if the very restricted meaning of ‘all rent in
arrear’ is adopted and orders for relief from forfeiture are made in the form
of the order in the present case, a landlord entitled to forfeit a lease will,
to recover sums due to him, be forced to return to the court more than once and
possibly several times to obtain judgment resulting in a multiplicity of
proceedings. If the proceedings had remained in the High Court, the terms on
which relief from forfeiture is granted would not be so constrained; thus,
landlords who commence proceedings in the High Court would resist any move to
transfer them to the county court. Underlying the controversy between the
parties is the question which has been considered by the courts from time to
time of the effect of the exercise by a landlord of his right to claim
forfeiture for breach of covenant under the lease and the status of the lease
after service on the tenants of a writ claiming possession. In Meadows v
Clerical Medical & General Life Assurance Society [1981] Ch 70* Sir
Robert Megarry V-C, at p74, said:
*Editor’s
note: Also reported at [1980] 2 EGLR 63
A number of
authorities were discussed in argument, but none of them had any direct bearing
on this problem. It seems clear that the mere issue of a writ claiming
forfeiture of a lease does not bring about a forfeiture. On the other hand,
there is authority for saying that as soon as such a writ is served, there is a
forfeiture, though not until judgment will it be determined whether the forfeiture
was justified.
At p75 he
observed:
There are, of
course, curiosities in the status of a forfeited lease which is the subject of
an application for relief against forfeiture. Until the application has been
decided, it will not be known whether the lease will remain forfeited or
whether it will be restored as if it had never been forfeited. But there are
many other instances of such uncertainties. When the validity of a notice to
quit is in dispute, until that issue is resolved it will not be known whether
the tenancy has ended or whether it still exists. The tenancy has a trance-like
existence pendente lite; none can assert with assurance whether it is
alive or dead. The status of a forfeited underlease which is the subject of an
application for relief seems to me to be not dissimilar; at least it cannot be
said to be dead beyond hope of resurrection.
For the
landlord, Mr Nicholas Dowding QC traced the development of the grant of relief
against forfeiture in the county court. He outlined the way in which equity
first started to intervene to restrain forfeiture and to grant relief to a
tenant who was in breach of covenant whether to pay rent or to perform some
other obligation. He referred us to the judgment of the Lord Chancellor, Lord
Erskine in Sanders v Pope (1806) 12 Ves 282, at p289, emphasising
the two forms of relief obtainable in courts of equity, namely an injunction to
restrain the landlord from pursuing his rights at law, on the one hand, and, on
the other, an order for the grant of a new lease. The right of re-entry
reserved in the lease was regarded as a security for rent and although by
statute a tenant could originally seek relief at any period after the landlord
had re-entered in the exercise of his right under the lease, the period during
which the tenant could thereafter seek relief was limited to six months by the
Common Law Procedure Act of 1852. Further, by section 212 of that Act it was
provided:
If the tenant
or his assignee do or shall, at any time before the trial in such ejectment, pay
or tender to the lessor or landlord … or pay into court where the same cause is
depending, all the rent and arrears, together with the costs, then and in such
case all further proceedings in the said ejectment shall cease and be
discontinued; and if such lessee, his executors, administrators, or assigns,
shall, upon such proceedings as aforesaid, be relieved in equity, he and they
shall have, hold, and enjoy the demised lands, according to the lease thereof
made, without any new lease.
By section 1
of the Common Law Procedure Act 1860 jurisdiction was conferred on common law
courts to grant relief in a summary manner:
subject to
the same terms and conditions in all respects as to payment of rent, costs and
otherwise as in the Court of Chancery.
When it was
decided to give county courts power to give summary relief from forfeiture by
section 52 of the County Courts Amendment Act 1856, that Act largely followed
the language used in section 212 of the Common Law Procedure Act 1852. Section
52 of the Act of 1856 provided for recovery of possession of ‘small tenements’
by landlords for non-payment of rent. The section afforded two means by which a
tenant could avoid forfeiture. Where under the terms of a lease the landlord
had the right to re-enter for non-payment of rent, he could without any formal
demand or re-entry enter a plaint in the county court for recovery of the
premises; the summons then issued was served on the tenant and stood in lieu of
a demand and re-entry, and if five clear days before the return day the tenant
paid into court ‘all the rent in arrears, and the costs’, the action ceased. If
the tenant did not make payment and did not at the hearing show good cause why
the landlord should not recover the premises, then if one-half year’s rent ‘was
in arrear before the plaint was entered’ and the landlord proved that there was
no sufficient distress on the premises and his power to re-enter and ‘the rent
being still in arrear …’, the judge could order possession of the premises to
be given by the defendant to the plaintiff on or before such day, not being
less than four weeks from the day of hearing, as the judge should name unless
within that period ‘all the rent in arrear and the costs be paid into
court’ (emphasis supplied). If the order was not obeyed, the court at the
instance of the plaintiff would issue a warrant for possession for the bailiff
to give possession to the plaintiff:
and the
plaintiff shall from the time of the execution of such warrant hold the
premises discharged of the tenancy, and the defendant and all persons claiming
by, through or under him shall so long as the order of the court remains
unreversed be barred from all relief in equity or otherwise.
From the
wording of this section it is clear that the premises of which possession was
sought was only ‘discharged of the tenancy’ from the time of execution of the
warrant. The Act, therefore, did not regard the issue of the plaint as itself
forfeiting the lease and section 52 referred to the rent in arrear at the
different stages of the procedure, making it clear that at each stage all the
rent in arrear had to be paid without limiting or qualifying the arrears to
those due when the summons was issued.
The wording of
this Act was undoubtedly the statutory forerunner of the present words of
section 138 of the County Courts Act 1984, the Act under which the court acted
in the present case. The section where relevant provides:
Provisions as
to forfeiture for non-payment of rent.
(1) This
section has effect where a lessor is proceeding by action in a county court
(being an action in which the county court has jurisdiction) to enforce against
a lessee a right of re-entry or forfeiture in respect of any land for
non-payment of rent.
(2) If the
lessee pays into court not less than 5 clear days before the return day all the
rent in arrear and the costs of the action, the action shall cease, and the
lessee shall hold the land according to the lease without any new lease.
(3) If —
(a) the
action does not cease under subsection (2); and
(b) the court
at the trial is satisfied that the lessor is entitled to enforce the right of
re-entry or forfeiture,
the court
shall order possession of the land to be given to the lessor at the expiration
of such period, not being less than 4 weeks from the date of the order, as the
court thinks fit, unless within that period the lessee pays into court all the
rent in arrear and the costs of the action.
(4) The court
may extend the period specified under subsection (3) at any time before
possession of the land is recovered in pursuance of the order under that
subsection.
(5) … if —
(a) within
the period specified in the order; or
(b) within
that period as extended under subsection (4),
the lessee
pays into court —
(i) all the
rent in arrear; and
(ii) the
costs of the action,
he shall hold
the land according to the lease without any new lease …
(7) If the
lessee does not —
(a) within
the period specified in the order; or
(b) within
that period as extended under subsection (4),
pay into court
—
(i) all the
rent in arrear; and
(ii) the
costs of the action,
the order
shall be enforceable in the prescribed manner and so long as the order remains
unreversed the lessee shall, subject to subsections (8) and (9A), be barred
from all relief …
(9A) Where
the lessor recovers possession of the land at any time after the making of the
order under subsection (3) (whether as a result of the enforcement of the order
or otherwise) the lessee may, at any time within six months from the date on
which the lessor recovers possession, apply to the court for relief; and on any
such application the court may, if it thinks fit, grant to the lessee such
relief, subject to such terms and conditions, as it thinks fit.
(9B) Where
the lessee is granted relief on an application under subsection (9A) he shall
hold the land according to the lease without any new lease.
(9C) An
application under subsection (9A) may be made by a person with an interest
under a lease of the land derived (whether immediately or otherwise) from the
lessee’s interest therein in like manner as if he were the lessee; and on any
such application the court may make an order which (subject to such terms and
conditions as the court thinks fit) vests the land in such a person, as lessee
of the lessor, for the remainder of the term of the lease under which he has
any such interest as aforesaid, or for any lesser term.
In this
subsection any reference to the land includes a reference to a part of the
land.
Judge Diamond
QC accepted the submission made by Mr Arthur Moore, for the tenants, that in
section 183(3) the words ‘all the rent in arrear’ referred only to the rent in
arrear at the date of service of the summons upon them. It did not include sums
which accrued due after the service of the summons for use and occupation and
claimed in the summons as mesne profits. By issuing the summons the
lessor had made a final election to exercise his right of forfeiture and
thereafter could not enforce the covenants, including the covenants to pay
rent. The judge considered that this submission was supported by the judgment
of Lord Denning MR in Canas Property Co Ltd v KL Television Services
Ltd [1970] 2 QB 433, at p442. However, in a different context in Driscoll
v Church Commissioners for England [1957] 1 QB 330, the question how far
a restrictive covenant contained in a lease survived the issue and service of a
writ claiming forfeiture was considered by this court. The landlords in that
case had argued that after issue and service of the writ the tenant had no
right to apply to the Lands Tribunal under section 84 of the Law of Property
Act 1925 for an order discharging or modifying the covenant. Denning LJ, as he
then was, said, at p340:
I do not agree
with the argument, for this reason: that, although a writ is an unequivocal
election, nevertheless, until the action is finally determined in favour of the
landlord, the covenant does not cease to be potentially good. For instance the
forfeiture may not be established; or relief may be granted, in which case the
lease is re-established from the beginning.
(Emphasis
supplied.)
This view is,
in my opinion, consistent with the decision of this court in Dendy v Evans
[1910] 1 KB 263. A lessor had claimed to forfeit a lease in breach of covenant
to keep in repair. He had issued proceedings and served them upon the lessee,
who had sublet the premises to the defendant with a similar covenant to keep
the premises in repair. After the proceedings had been served upon the lessor,
he assigned the lease to the plaintiff who, having obtained relief from
forfeiture under section 14(2) of the Conveyancing and Law of Property Act 1881
on terms that he should hold the premises according to the old lease without
any new lease, brought an action against the defendant for rent due upon the
underlease subsequent to the issue and service of the writ to recover
possession. The defendant argued that the issue of the writ for possession by
the lessor was an irrevocable election by him to treat the lease as void and
made the lease void, thus putting an end to the underlease. Cozens-Hardy MR
rejected this argument. He held that the order relieving the plaintiff from
forfeiture of the lease and ordering that she held the demised premises
according to the lease without any new lease meant that the right of re-entry
for forfeiture was got rid of. He said, at p269:
For all
purposes, and as between all parties, rights and liabilities are absolutely
unaffected by the circumstance that there was a breach of covenant and that
there was a writ issued not followed by judgment or entry, and I cannot listen
for one moment to the suggestion that the effect of this order is merely to
resuscitate the lease from the date of the order or grant a new lease from the
date of the order, leaving the underlease to perish, although the original
cause of mischief, namely, the forfeiture by the lessee, has been absolutely
and entirely got rid of. In my opinion that would be an unreasonable and
unnatural construction, and I think that Darling J was quite right when he said
in effect that the lease continued for all purposes; it is the original lease
which continues, not a new lease; and, that being so, the derivative lease
which was created out of the original lease has not ceased to exist, but is
still a valid lease in respect of which the defendants are liable to the
plaintiff on the covenants.
Farwell LJ
agreed. He said, at p270:
It is not the
case of the estate having gone and a new estate being now created; it is that
the Court says the true meaning of the parties being that the right of re-entry
is a security for the performance of the covenant, and that the lessee is ready
and willing and offers to do or has done equity, the Act now enables this Court
to give him relief on the footing that there shall be no forfeiture at all …
The forfeiture is stopped in limine; so that there is no question of any
destruction of an estate which has to be called into existence again.
I accept, as
did Mr Dowding, that the effect of the relief against forfeiture given in the
county court is from start to finish statutory. But in construing the words of
section 138 of the Act of 1984 it seems to me important not to lose sight of
the purpose of the Act, which was to grant relief against forfeiture, and where
there is to be found in the section wording which bears a close similarity to
words which have been used to grant relief at law in the High Court, it seems
to me the court should not resort to a literal construction of words which have
been given a purposive interpretation in Acts granting similar relief unless
driven to do so. Moreover, the tenant’s construction depends upon the theory
that the lease is in a state of suspended animation and is only revived when
the order of the court granting relief from forfeiture is complied with. In the
meantime the tenant who has been granted conditional relief from forfeiture has
occupied the premises without payment and, if the form of the judgment in the
present case is accepted, without any obligation to pay the sums outstanding
for that use and occupation unless a further application is made to the court
by the landlord. I would draw attention to the use of the words in section
138(5):
If … the
lessee pays into court or to the lessor
(i) all the
rent in arrear; and
(ii) the cost
of the action,
he shall hold
the land according to the lease without any new lease.
In my view, it
is not straining the interpretation of the language to hold that all rent in
arrears means the rent in arrears at the time when the court making its order
assumes that payment of that rent will result in the lease continuing for all
purposes. Thus, if the lease is not forfeit, the rent plus the amount claimed
for use and occupation is the amount of ‘rent in arrear’, and on condition that
this amount is paid the court declares that the lease is not forfeit. In my
view, it was not parliament’s intention that the words used in section 138(3)
should be construed to mean that the court could order payment only of the rent
in arrear at the date of service of the summons as a condition of granting
relief. The tenant granted relief continues to hold ‘the land according to the
lease without any new lease’. In my view, the judge was wrong to accept the
submission made by Mr Moore. The implication of the judge’s approach is that if
the tenant continues to hold under the terms of the lease and does not pay rent
during the period between the service of the summons and the making of the
judge’s order, he would at once be in breach of covenant, for further rent
would be in arrears and the lease would be liable to be forfeited immediately.
The landlord could commence proceedings and the whole procedure would
recommence.
Such an
inconvenient result is easily avoided if it is assumed that the lease continues
to exist after service of the summons on the tenant, that he remains under an
obligation to pay the sum reserved in the lease as rent and that all the rent
in arrears means the rent payable up to the date stated in the order.
Since the date
on which rent becomes due is stated in the lease, I do not understand the
difficulty referred to by the judge in calculating the amount to be inserted in
the order. For these reasons I would allow the appeal, and in para (b)(i) of
his order I would substitute a figure which represents the amount of rent and
service charges due under the terms of the lease up to June 24 1997 and in
arrear at the date of that order.
BRACEWELL J agreed and did not add anything.
