Landlord and tenant — Surrender — Landlord evicting gypsies by action — Whether lease surrendered by operation of law — Whether surety liable for costs of evicting gypsies
The appellant was the surety to an
underlease dated July 6 1981 and made between the respondent landlord and Z. On
Z being placed in administrative receivership, the receiver did not pay rent;
initially the appellant paid the rent. In 1994 the appellant refused to
continue paying the rent, contending, inter alia, that by reason of a
successful action by the landlord to evict gypsies from the premises by the
procedure under RSC Ord 113, and as the tenant had abandoned the premises, the
underlease had been surrendered by operation of law. In the court below it was
held that there had been no surrender. The appellant appealed.
correspondence it was clear that the landlord never intended to accept a
surrender of the underlease. The court’s task, when considering a claim of
surrender, is to consider all the facts, both prior to and subsequent to the
alleged act of acceptance, whether the conduct of the landlord, that is relied
on as acceptance, did in fact amount to an unequivocal acceptance of cesser of
the tenancy such that it would be inequitable for the landlord to dispute that
the tenancy ceased. There was a clear desire by the receiver to relinquish
possession; that was not accepted by the landlord. The circumstances
surrounding the use of the Ord 113 proceedings could not have misled the
receiver to think that they were an act of acceptance of surrender of the
lease. No equity arose to prevent the landlord disputing that the tenancy had
ceased. The costs of evicting the gypsies was properly recoverable from the
appellant as an ‘action reasonably taken’ under the covenants of the lease.
The following cases are referred to in
this report.
Buchanan v Byrnes (1906) 3 CLR 740
McVicar v Jackson 75 WN 46
Oastler v Henderson (1877) 2 QBD 575
Proudreed Ltd v Microgen Holdings plc
[1996] 1 EGLR 89; [1996] 12 EG 127
Relvok Properties Ltd v Dixon (1972) 25
P&CR 1; sub nom Revlok Properties Ltd v Dixon [1972] EGD 924;
224 EG 1401, CA
This was an appeal by the surety, BSE
Trading Ltd, from a decision of Blofield J, who had allowed claims by the
landlord, McDougalls Catering Foods Ltd, for arrears of rent and other costs
against the surety.
Katherine Dunn (instructed by Eversheds,
of Leeds) appeared for the appellant; Kirk Reynolds QC (instructed by Metson
Cross) represented the respondent.
Giving judgment, ALDOUS LJ said:
The appellants, BSE Trading Ltd, were the surety in an underlease between
McDougalls Catering Foods Ltd and Zastava Cars (GB) Ltd dated July 6 1981, in
respect of premises known as Worcester House, Basingstoke Road, Reading. On
January 2 1993, Zastava was placed in administrative receivership and
subsequently ceased trading and vacated the premises. The receiver refused or
was unable to pay the rent and therefore BSE became liable to pay and to ensure
performance and observance of the covenants. That was an unwelcome obligation
as BSE had no use for the premises and there was no realistic chance of an
assignment as the rent payable was in excess of the market rent.
BSE paid the rent for the premises until
the spring of 1994 when the payment for the March quarter was due. Upon advice
of their solicitors, Eversheds, they refused to pay as they contended that the
underlease had been either forfeited or surrendered. They later abandoned their
contention that the underlease had been forfeited, but maintained the view that
it had been surrendered. Their ground for their contention, which I will have
to examine in detail later, was based upon a successful application made by
McDougalls to evict gypsies from the premises using the procedure of Ord 113.
Put shortly, BSE contend that the tenant had abandoned the premises and
McDougalls, by seeking the order for eviction, took possession of the premises
with the result that the underlease was surrendered by operation of law. They
also contend that they had no obligation to pay the costs incurred by
McDougalls when evicting the gypsies.
The questions for decision on this appeal
are the same as came before Blofeld J. They are:
(1) Was the underlease surrendered?
(2) If it was not, were BSE liable to pay
the costs of removing the gypsies?
The judge concluded that there was no
surrender and that BSE had to pay the costs of the action to remove the gypsies
and made an appropriate order. Against that judgment BSE now appeals.
Facts
The problem of what to do with the
underlease arose after Zastava went into receivership and vacated the premises.
At a meeting on March 4 1993, at BSE’s offices, the possibility of a surrender
was discussed between representatives of McDougalls, including Mr Fearn of the
property department and a representative of their solicitors, Metson Cross, and
representatives of BSE, who included the company secretary and a representative
of Eversheds, their solicitors. No agreement was reached.
Sometime in April 1993, gypsies came onto
the premises. That prompted Mr Fearn to write to BSE in these terms:
Please be advised that gypsies or
travellers moved on to the carpark at the rear of your premises last night. I
presume that you or your agents will take the appropriate steps to have them
removed.
BSE contacted the receiver, Mr Selby, and
replied on May 11:
Mr JK Selby of Robson Taylor has informed
me that he has no further requirement for the properties at Reading and that he
has advised the landlords of his position. He is therefore unable to take any
action with regard to the gypsies or travellers occupying the car park.
I am sorry that we could not be more
helpful on this occasion.
The matter could not be left indefinitely
as the gypsies continued to cause damage. That placed McDougalls in
considerable difficulty as the insurers of the property threatened to withdraw
insurance cover.
By the autumn of 1993, BSE had instructed
a firm of estate agents called Campbell Gordon to look after their interest
with a view of trying to find a buyer for the property. Thus it was to them
that Mr Fearn next turned to try to solve the problem of the gypsies. On
November 8, he wrote to them stating:
I understand from one of your colleagues
that travellers have reoccupied the loading area to the rear of the premises. I
should be pleased to hear what steps have been taken to remove them and prevent
a re-occurrence.
The reply of Campbell Gordon was as
follows:
I have also received a letter from
Eversheds reiterating their position that BSE Trading Limited have no
proprietary interests whatsoever in the land in question. I understand the
position set out by yourself, that you take the view that BSE is responsible
for implementing all the requirements of the lease, a view which BSE’s solicitors
do not appear to accept.
I have to tell you that I was advised on
Monday that more ‘gypsies’ have appeared, and some have stationed themselves on
the forecourt of the building in which you have an interest. This is a much
more visible location, and I think it can only be a matter of time before the
Borough Council is pressed into some action.
I have advised Mr Mark Harrison of
Eversheds of this turn of events. I understand that he is hopeful that action
will soon be taken in respect of at least the northern part of the land. He has
promised to keep me advised of progress.
At that stage BSE’s solicitors were
involved in negotiations of a surrender of the lease of the adjacent property
to another landlord. That property had also been invaded by gypsies. Thus, if
action were to be taken to evict the gypsies, it was best done in respect of
both properties at the same time. BSE’s and McDougalls solicitors talked about
this and in a letter of November 11, McDougalls solicitors wrote to Eversheds
in these terms:
We refer to our telephone conversation
yesterday (Mr Murrell/Mr Harrison) when we discussed the recent occupation of
the above site by gypsies. We are instructed that the number of unlawful
occupiers is increasing by the day and the condition of the premises is
deteriorating as a consequence.
We have been instructed subsequently that
the freeholders’ insurers, Guardian Royal Exchange, have indicated that unless
within the next 24–48 hours action is taken to remove the gypsies to have the
premises made completely secure (including the boarding up of windows) to
prevent a repetition of the unlawful occupation and the water turned off, the
insurance cover for the premises will be withdrawn.
We discussed the fact that your client is
expecting to enter into a deed of surrender and release of that part of the
premises let from Medical Sickness and that, once the documents have been
executed, Medical Sickness would be making an application for summary
possession.
We agreed that it was in the interest of
all parties that the possession application relate to the whole site and not
just part of the premises.
You stated that as guarantors your client
did not have an interest in the premises. We refer you to RSC Order 113 which
states that the Plaintiff in summary possession proceedings must state his
interest in the land. The word ‘interest’ is not defined but it would appear
that such an application would not be restricted to only those Plaintiffs with
a proprietary interest in the land …
We further understand that Zastava’s
receiver has indicated that he will, if necessary, take action to recover
possession of the premises from the gypsies provided he obtains an indemnity
for his costs from your clients.
Our client requires action to be taken
immediately to remove the gypsies and to take such other action as is necessary
to avoid the insurance cover being withdrawn.
On November 22 1993, McDougalls
solicitors wrote again asking for information as to what progress had been made
towards obtaining possession for the unlawful occupation. Eversheds replied on
December 7 1993:
We have drawn to our client’s attention
the requirements of General Accident and as you are aware from our telephone
conversation have strongly advised our client to comply with the insurance
requirements as soon as possible. We believe that our clients are instructing
an agent to deal with the requirements.
As nothing then happened, McDougalls’
solicitors wrote again on December 9 1993 in these terms:
We acknowledge receipt of your letter
dated 7th December, the contents of which we note. However, the information is
not sufficient for our client’s purposes. If we have not received confirmation
by close of business on 15th December and agents have been instructed to take
action to ensure the removal of the gypsies, we will be instructed to take the
action ourselves, the costs of which will be payable by the tenant and
therefore ultimately your client.
They wrote again on December 14:
We are now instructed that the unlawful
occupiers have stripped the premises of all valuable materials and that the
premises are now in a serious state of disrepair. We take the view that this
could have been avoided had action been taken by the receiver when it was first
requested by us on 11th November 1993.
We refer you to our letter of 9th
December and in particular the time limit we have imposed. If it becomes
necessary to commence summary possession proceedings, we will be instructed to
make a claim against your client under the lease for the costs incurred in
consequence thereof. In any event, we will be instructed to make a claim
against your client for any losses suffered by our client as a result of the
disrepair of the premises.
They received no reply and therefore
wrote this letter on December 17 1993:
We refer to our letter dated 14th
December and note that we have not heard from you in reply. Since the deadline
has now passed, we are instructed to apply to the Court for a possession order.
Please note that our client, by its
actions, will not be re-entering the premises and no forfeiture of the
underlease can be deemed to have occurred.
We are instructed that completion of the
deed of release and surrender with Medical Sickness has now taken place. If so,
please indicate by return whether Zastava’s receivers have been instructed to
apply for possession.
It should be noted that in that letter
they made it clear that in their view McDougalls were not re-entering the
premises. That could only be understood as meaning that they were not accepting
the surrender of the lease. However, there is no evidence that that letter was
sent to the receiver nor that it came to his attention.
An originating summons was issued by
McDougalls’ solicitors on December 20 1993 against ‘Persons Unknown’ seeking
pursuant to Ord 113 an order that:
… the Plaintiff do recover possession of
the land and premises on the North side of Acre Road and known as Worcester
House Basingstoke Road, Reading, Berkshire, … on the ground that the Plaintiff
is entitled to possession and that the persons in occupation are in occupation
without licence or consent.
That summons was supported by an
affidavit of Mr Fearn which exhibited the headlease but not the underlease. An
order was made on January 4 1994 and executed on January 7 with the help of the
police.
By letter dated December 17 1993,
Campbell Gordon informed McDougalls that they had been instructed by BSE to
make arrangements to drain down the heating system, to board up the premises,
to visit the premises once a week and ensure that repairs were carried out. A
copy of that letter was sent to Eversheds on December 20 1993 by McDougalls’
solicitors. They said:
Further to our letter dated 17th
December, we enclose herewith a copy of a letter received today by our client
from your client’s agents, Campbell Gordon.
Whilst it is not mentioned, please let us
know whether it is your client’s intention to apply for possession of the
premises. It appears to us that the steps that your client proposes to take
will not comply with the freeholder’s requirements all the time that the
gypsies remain on the site.
We are instructed that the only way to
make the premises properly secure will be to place mounds of loose earth around
the perimeter of the site. We would suggest that your client gives instructions
to Campbell Gordon to do this as well but if you fail to do so our client will
have no alternative but to instruct them accordingly, the costs of which will
be recoverable from your client.
In fact both Mr Fearn and Mr Barton attended
the execution of the order on January 7 and Mr Barton did ensure that a mound
was constructed around the premises, supervised its construction and retained
the keys.
On January 4 McDougalls’ solicitors wrote
to Eversheds:
We acknowledge receipt of your letter
dated 22nd December and note that the deed of surrender and release has still
not been completed.
As you are aware we are making an
application for possession of the premises from the gypsies. Our client,
because of its own commitments under its lease, has no alternative but to take
these steps following Zastava’s failure to apply for possession. It is not, and
never has been, our client’s intention to forfeit the underlease.
We do not agree that our client does not
have the right to seek possession. Order 113 requires only that our client
states its interest in the land.
They also wrote to the receiver in
somewhat similar terms. They pointed out that they acted on behalf of
McDougalls and stated:
You will no doubt be aware that by an
underlease dated 6th July 1981 our client granted Zastava Cars (GB) Limited an
underlease of the above premises for a term of twenty years less three days
commencing on 21st April 1981.
The premises are currently occupied
unlawfully by a number of gypsies and we are instructed by our client to seek
an order for possession. The hearing will take place on 4th February.
We have been informed by Eversheds,
solicitors on behalf of BSE Trading Limited, the guarantor under the
underlease, that you were to be instructed to apply for possession. However,
since this has not happened and given our client’s own commitments under its
lease, our client has no alternative but to apply for possession itself. It is
not, and never has been our client’s intention to forfeit the underlease.
No reply was received to that letter from
the receiver until February 8 when the receiver wrote back in these terms:
I would refer you to my letter of 22
April 1993 in which I stated that I had not adopted the lease in respect of
Worcester House. I therefore have no intention of applying for possession. I
have no interest in the property.
Eversheds replied to McDougalls letter of
January 4 by a letter of January 5. They confirmed that they had completed the
surrender of the adjacent premises and could therefore focus their attention
more fully on the premises known as Worcester House. They stated:
We believe that our client is approaching
your client to discuss the terms of a surrender directly and doubtless the
question of the gypsies can be dealt with at the same time.
From the correspondence it is clear that
McDougalls never intended to accept a surrender of the lease. Nothing that
McDougalls did led BSE to believe that the lease had been surrendered. That is
clear from what happened after January 7. On January 21 1995 BSE wrote to
McDougalls stating that the payment of the December 1993 quarter rent had been
discussed with their managing director and they hoped to receive the necessary
authorisation to pay it within the next week. The letter stated:
When this payment has been made we would
like to arrange an early meeting to discuss the release of our company from its
obligations under the lease.
Further, Campbell Gordon continued to
visit the premises on behalf of BSE to ensure that the premises were kept
secure and reported their findings to McDougalls and no doubt to BSE. In any
case BSE paid the rent on February 11.
On February 24 1994, BSE reopened
negotiations about surrendering the lease. They stated:
We would like to recommence the
negotiations with your company for the surrender of the lease(s) granted to
Zastava (GB) Ltd., and for the elimination of our obligations under those
lease(s).
The leases granted by Medical Sickness
were surrendered on the basis of two years rent plus costs accruing under the
lease up to the time of surrender …
We have consulted our solicitors with
regard to a meeting with your company and it has been suggested that the
initial meeting should be held without legal advisers being present. If you are
in agreement with a meeting being held on this basis then kindly suggest a
suitable date and place.
The actual suggestion of paying two
years’ rent was not agreed and it was at this stage that Eversheds sought a
copy of the Ord 113 proceedings and upon receipt advised their clients, BSE,
that there had been a surrender. That led to these proceedings.
Judgment
The judge reviewed the facts and the law.
He held that he was not satisfied:
… that the indication to the plaintiffs
by the tenants that they were ceasing business and had appointed an
administrative receiver was in fact a clear intention of the abandonment of the
lease. In coming to that conclusion I note that Mr Fern in his undisputed
evidence said at paragraph 6, ‘When Zastaphar went into administration it
ceased trading and vacated the premises. On the 4th March, 1993 I attended a
meeting at BSE’s office. Among those present at BSE were Mr Able, BSE’s company
secretary, and Mr Mark Harrison of Eversheds, BSE’s solicitors. We discussed
the fact that Zastaphar were in administrative receivership and the possibility
of McDougalls taking a surrender of the premises. We also discussed the
marketing of the premises and it was said on behalf of BSE that as
co-guarantors they had no authority to instruct agents to market the property.
However, it was countered on behalf of McDougalls that having appointed
Zastaphar as administrative receiver they can instruct Mr Selly to do it. No
agreement was reached at the meeting.’
Clearly there was every opportunity for
the defendants in this case to have made it clear that the premises had been
abandoned. No such opportunity was ever taken.
The judge went on to refer to certain
evidence and concluded:
So quite clearly there again it is not
the defendant’s case that they were abandoning this property or they would have
said so in that statement and they have said nothing of the sort. Further, the
correspondence in this case nowhere says anything of that sort so factually
there is simply no evidence to support the defendant’s contention of
abandonment that this court can accept. There was ample opportunity for the
administrative receiver to say so if he had chosen to do so or for this
defendant to say so on his behalf as he had appointed the administrative
receiver. He did not. Instead, even after the bailiffs had gone in on the 7th
January these defendants still continued talking about surrender. Consequently
I find against the defendants on that first ground.
The judge went on to consider whether McDougalls
had, by their conduct, accepted that the lease was at an end. He said:
On the second ground I am wholly
satisfied by the plaintiffs’ evidence that the whole tenor of the acts and
background indicate here that the plaintiffs did not enter into possession. It
is perfectly clear that at all times they were solely concerned to uphold the
covenant which they had accepted in the headlease in relation to insurance. It
is perfectly clear that they did their best to persuade the defendants to take
the appropriate action. It is perfectly clear that they repeatedly made
precisely clear for the defendants exactly what they were intending to do. They
also made it quite clear they were not intending to enter into possession.
While recognising that intent is of itself not in any way conclusive it does
demonstrate that their entering was certainly not unequivocal, an unequivocal
act. They were simply securing their property …
In my view once the principles set out,
which have been accepted by both parties, have been accepted then the question
turns on the facts in each individual case. On the facts of this case I
unhesitatingly come down on the side of the plaintiffs and those facts I find
indicate that there was no surrender by operation of law. So that means a finding
for the plaintiffs on the first issue in this case.
Law
The basic principles of the law relating
to surrender by operation of law were concisely set out by Schiemann LJ in Proudreed
Ltd v Microgen Holdings plc [1996] 1 EGLR 89 at p90B:
Much of our law, including the law as to
informal surrenders of leases, has been shaped by two competing considerations:
1. It has for centuries been the policy
of the law that changes of ownership should be attended by various formalities
so that possibilities of mistake are minimised and everyone knows where they
stand. In the context of land law that policy is most recently encapsulated in
the provisions of the Law of Property (Miscellaneous Provisions) Act 1989.
2. In practice, people do not always
adopt in their dealings the formalities prescribed by law as preconditions for
the transfer of an interest in property. This failure to adopt the appropriate
formalities may be the result of laziness, ignorance, double dealing or a
number of other causes. The law recognises that there comes a point when it
will be seen as inequitable to maintain that, just because the due formalities
have not been observed, no transfer has taken place.
There is no significant dispute between
the parties as to what is required to result in a surrender of a lease by
operation of law. It is happily summarised in Woodfall’s Law of Landlord and
Tenant, vol 1 at para 17.020 as follows:
‘The conduct of the parties must
unequivocally amount to an acceptance that the tenancy has ended. There must
either be relinquishment of possession and its acceptance by the landlord, or
other conduct consistent only with the cesser of the tenancy, and the
circumstances must be such as to render it inequitable for the tenant to
dispute that the tenancy has ceased.
That passage is itself taken from Tarjomani
v Panther Securities Ltd (1983) 46 P&CR 32 a case in which the
tenant was doing the disputing. In the present case it is the landlord who is
doing the disputing, but the parties are agreed that the law would be accurately
stated if the Woodfall passage were amended so as to add the words ‘or
such as to render it inequitable for the landlord to dispute that the tenancy
has ceased.’
It is common ground that, although on the
facts of the present case the defendants are the sureties and not the tenant,
when considering whether or not the lease has been surrendered and that
surrender has been accepted, the court must look at the situation as between
landlord and tenant rather than consider the equity of the situation as between
landlord and sureties.
In the present case, this court has
mainly been concerned with what conduct can amount to an unequivocal acceptance
that a tenancy has ended. In particular whether the starting of the Ord 113
proceedings by McDougalls amounted to conduct consistent only with cesser of
the tenancy, such that it would be inequitable for McDougalls to dispute that
the tenancy had ceased.
Mr Kirk Reynolds QC, who appeared on behalf
of McDougalls, submitted that for there to be surrender the conduct of both
parties must point unequivocally to the conclusion that the tenancy had been
surrendered and that, when deciding whether that had happened, it was both
permissible and right to look at all the surrounding circumstances, both prior
to and subsequent to the proceedings. To support that submission he drew to our
attention Oastler v Henderson (1877) 2 QBD 575, Relvok
Properties Ltd v Dixon (1972) 25 P&CR 1, and Buchanan v Byrnes
(1906) 3 CLR 740.
In Oastler the defendant took a
lease for seven years and entered into possession, but shortly afterwards quit
the premises and went to America with apparently no intention of returning.
Before going away he gave the keys to an agent with instructions to let the
premises if he could and if not to try and induce the plaintiff to accept
surrender. The agent, not succeeding in letting the premises, handed over the
keys to the plaintiffs who at once endeavoured themselves to let the premises
but without success until March 1872. It was at that stage that the plaintiff
let the premises to a new tenant and that put an end to the defendant’s term
from that date because, as the court held, that was an act that was
inconsistent with the continuance of the defendant’s term. They were estopped
from denying that it was at an end. Cockburn CJ said at p577:
The plaintiffs then, by letting the
premises to a new tenant, put an end to the defendant’s term from that date,
for they thereby did an act so inconsistent with the continuance of the
defendant’s term, that they were estopped from denying that it was at an end.
But up to that date they had not done such an act, for they had not virtually
taken possession of the premises; and in order to estop the lessors, so as to
constitute a surrender by operation of law, there must be a taking of
possession. I do not say a physical taking of possession, but, at all events,
something amounting to a virtual taking of possession. But here there was no
such taking of possession. The plaintiffs, the landlords, took the keys because
they could not help themselves, the defendant being gone, and, for all they
knew, not likely to return. Then they tried to let the house, but what else,
under the circumstances, were they to do? They must do the best they could. If
they had let the house, they would have done so as much for the benefit of the
defendant as of themselves. The mere attempting to let does not amount to an
estoppel. The landlords did nothing but what they might reasonably be expected
to do under the circumstances for the benefit of all the parties. As for the
fact that the plaintiffs’ workmen used two of the rooms in 1870, I do not think
that any jury ought to hold that to be equivalent to a taking of possession,
for it is, under the circumstances, quite consistent with an intention to hold
the defendant to his lease.
Bramwell LJ was of a similar view.
However he made clear that the events subsequent to the date when the surrender
was alleged to have taken place could be relevant when ascertaining whether the
alleged act of acceptance was an unequivocal acceptance. He said at p578:
Mr Grantham has contended that the
surrender by the ultimate letting in 1872, relates back to the receipt of the
keys, and carries back with it the intention to take possession to that earlier
date; and the case of Phenè v Popplewell (1), which he has cited,
at first sight gives considerable countenance to his contention. But all that
that case goes to shew is, that in that particular case, the equivocal act of
using the keys for the purpose of obtaining an entrance to the premises was
afterwards rendered unequivocal, and the plaintiff’s intention in so using them
explained by his subsequent conduct; it does not shew that the subsequent
letting affected the legal character of the earlier act. And though the Court
in that case were able to conclude from the lessor’s after conduct that his
intention in using the keys was to take possession at once, we have no
materials in the present case to enable us to arrive at a similar conclusion.
In Relvok the lease was assigned
to a Mr Krokidis who did a moonlight flit. The landlords instructed estate
agents to change the locks. That the defendants contended amounted to a
surrender. The Court of Appeal disagreed. Sachs LJ said at p5:
In my judgment Judge Irving correctly
applied the principles which emerge from Oastler v Henderson,
where the Court of Appeal held that attempts by a landlord to let premises
which had been abandoned by a tenant did not constitute an unequivocal act
operating as acceptance of a surrender. The result of that and other
authorities is that as the law stands it is open to a landlord whose tenant has
absconded both to protect the security of his premises and the state of their
repair and yet maintain his rights for rent against that tenant until a fresh
one is found and he then thinks fit to enforce the forfeiture. Whether in any
individual case the landlord has done more than thus protect his interests is
of course a question of fact in each case. The onus lies on the tenant to prove
that more has been done and thus the lease terminated. In the instant case the
defendants have failed to discharge that burden. The landlords took a course
which has rightly been described as ‘sensible’ from their own point of view. In
those circumstances it is a great pity that there was not more joint effort to
make the best of this unfortunate situation.
Roskill LJ was of a similar view. He said
at p7:
Relying on that statement of the law, Mr
Bromley argued that the letter dated October 23, 1970, was ‘a palpable act’
inconsistent with the continued subsistence of the lease under which the
liability for rent arose. Like Sachs LJ, I think that if that letter had stood
alone and could be construed in isolation from the following letter of October
28, 1970, and without regard to the background of the fact as found by Judge
Irving by reason of his acceptance of the landlords’ evidence, there would be
much to be said for the defendants’ contention. But the judge — and it is not
for this court to say whether he was right or wrong in so doing — accepted the
evidence of the landlords as to what they did at the time, and on that
acceptance of his evidence it seems to me plain that all that was done here was
done in order to secure the premises, which might otherwise have been broken
into, and that nothing was done which really could be said to be an act
inconsistent with the continued subsistence of the lease under which the
liability for rent arose.
Clearly changing the locks can in certain
circumstances amount to an unequivocal acceptance of surrender. It did not in Relvok
because the landlord had changed the locks in circumstances where that was
necessary to protect his interest. Thus the court looked not only at the act,
namely the changing of locks, but also at the reason and the surrounding
circumstances. In that way they were able to decide whether there had been an
unequivocal act of acceptance.
Buchanan was decided by the High Court of
Australia. The plaintiff in the action let an hotel to the defendant. The lease
contained covenants to pay the rent, to carry on the business of an hotel and
to protect the liquor licence. Five years after grant of the lease, the
defendant left the premises and sold the furniture. The plaintiff went in and
made arrangements to carry on an hotel business so that the licence would not
be forfeited. For 12 months he unsuccessfully tried to let the premises and
then sued. The court held he was entitled to damages in respect of damage which
flowed from the breach and therefore any defence of subsequent surrender was
irrelevant. However the observations of O’Connor J at p721 are, in my view,
pertinent.
Now, there is no doubt that the
acceptance of possession in such a way as to bring about a surrender by
operation of law may be evidenced by the mere relinquishment of possession on
the part of the tenant and the acceptance of possession on the part of the
landlord. Whether the inference can be drawn in any particular case is entirely
a question of fact. There are cases, no doubt, in which it would be a very
reasonable inference, from the acceptance of possession by the landlord after
an abandonment by the tenant, that there was an acceptance of possession in
such a way as to put an end to the contract. In the case of a dwelling-house,
for instance, if the tenant goes out and the landlord takes possession or in
any other way assumes rights of ownership over the property, it may be a very
fair inference that he has accepted possession in such a way as to put an end
to the contract. But where you are dealing with a property of this kind — where
it is vital to the existence of the property that someone should be in
possession, that it should be kept up as a public house, that certain duties
under the Licensing Act should be continually performed by someone —
where in short it is essential, when the house has been abandoned, that the
landlord should take some action to preserve his property in its existing
condition, it does not at all follow that a resumption of possession amounts to
an acceptance such as would establish a surrender by operation of law. If it
were not so the landlord would be put in this position, that he must either
stand by and see the value of his property destroyed, or he must take possession
in such a way as to put an end to his rights under the contract. The law does
not put a party to a contract in that position. It will be a matter to be
considered, whether he has done more in taking possession under the
circumstances than was necessary. The jury have found, in answer to a question
put by the learned Judge who tried the case, that the plaintiff resumed
possession, but not with the intention of putting an end to the lease. The mere
fact of resumption of possession is not of itself sufficient; on the other
hand, the intention with which he resumes possession, so long as it remains in
his own breast, is immaterial. In that I quite agree with the learned Judge.
The real question for the jury on that part of the case is whether in resuming
possession he had done anything more than was necessary for the purpose of
preserving the subject matter of the contract for both parties. It was open to
the landlord to take possession, to enter into the hotel, to do everything that
was necessary for carrying on the business and conforming to the law so as to
preserve his rights under the lease and his remedies, and to preserve the
rights of the defendant also.
That view of the law is, in my view,
consistent with Oastler and Relvok. The court’s task when
considering a claim of surrender is to ascertain from all the facts, both prior
to and subsequent to the alleged act of acceptance, whether the conduct of the
landlord, that is relied on as acceptance, did in fact amount to an unequivocal
acceptance of cesser of the tenancy, such that it would be inequitable for the
landlord to dispute that the tenancy ceased. In Oastler the landlord had
possession and tried to relet the premises. That was consistent with the
landlord seeking to help and at the same time relying upon the lease. The same
happened in Relvok. In Buchanan, O’Connor J’s judgment reflected
the fact that the premises were an hotel. The action of the landlord was
consistent with an intention to preserve the rights of the plaintiff and the
defendant under the lease.
The conclusion to be drawn from these
cases is each case has to be decided on its facts, with the issue being decided
objectively, taking into account the surrounding facts, including such matters
as communications passing between the parties and their conduct.
Miss Katherine Dunn, who appeared for
BSE, referred to McVicar v Jackson 75 WN 46*. In that case the
plaintiff, the landlord, sought to eject a Mr Jackson who occupied part of the
premises that had been let to a company. The company had abandoned the
premises. Mr Jackson’s defence was that the landlord had no right to evict him
as the premises had been let. The court held that there had been surrender and
therefore the landlord had a right to eject Mr Jackson. Street CJ said at p47:
*Editor’s note: We are unable to confirm
the accuracy of this reference
If the lease given in July, 1950, to the
company had not been determined and was still current, then the claimants could
not prove a right on 27th August, 1956, to the immediate possession of the
premises. They sought, however, to establish that right by relying upon the
abandonment of the premises by the tenant and asserted that a surrender of the
lease had been created by operation of law. It is quite plain that the
abandonment of possession by a tenant, coupled with the acceptance of
possession by the landlord is sufficient to establish a surrender by operation
of law and to determine the tenancy. If, for instance, after the tenant had
vacated, the landlord had gone into physical possession of the premises and
taken them over, that would amount to a sufficient acceptance of the tenant’s
relinquishment of his possession to create a surrender and determine the lease.
If, however, there is an intruder in possession of the premises when the tenant
goes out, the landlord cannot then obtain the physical possession, but it is
clear from a long line of authorities that his claim to establish a surrender
can be created by the issue of a writ of ejectment to obtain by legal process
the actual physical possession of the premises in respect of which the landlord
asserts a right to recover. Such a claim in a writ of ejectment is an
unequivocal assertion of a right to possession based upon abandonment or the
relinquishment by tenant of all rights under the tenancy, and is equivalent to
a physical re-entry of possession.
In that case it was clear that the claim
to eject Mr Jackson was based on a right to possession and the plaintiff was
asserting the right to recover possession. There were no surrounding
circumstances to suggest that the plaintiff might not have accepted surrender.
The action was therefore an unequivocal statement that the tenancy had ceased.
Further in the circumstances of that case, it would have been inequitable for
the landlord to change his mind. But that case is not an
when there is an application to evict, with a view to deciding whether the
conduct of the landlord amounted to an unequivocal acceptance of possession,
such as to be only consistent with the cesser of the tenancy, in circumstances
which would render it inequitable for the landlord to dispute that the tenancy
existed.
First issue
Miss Dunn submitted that the premises had
been abandoned by the tenant who was in receivership. That, she submitted, was
clear to McDougalls from the facts, namely that Zastava had ceased to trade,
had vacated the premises, had not paid the rent and because the receiver had
made it clear that he had no interest in the property and had not adopted the
lease.
Mr Reynolds submitted that there was no
evidence that the receiver had unequivocally relinquished possession. He
submitted that the factual background relied on by BSE was consistent with the
receiver wishing to retain the interest provided by the lease, even though he
had no use for the premises, but was unable to pay the rent. There is, as Mr
Reynolds pointed out, no evidence from the receiver and no statement was made
that he abandoned the lease.
I prefer the submission of Miss Dunn. The
receiver, by his statements and conduct, when considered in the light of what
was the market rent at the time, indicated to McDougalls a clear desire to
relinquish possession such that acceptance by them would amount to an agreement
to terminate the relationship of landlord and tenant. That appears to me to
amount to abandonment. On this point therefore I differ with the view expressed
by the judge.
I therefore turn to consider whether
there was acceptance by McDougalls and whether the circumstances were such as
to render it inequitable for them to dispute that the tenancy had ceased.
Miss Dunn submitted that the application
to evict the gypsies was an unequivocal acceptance of surrender. She submitted
that taking action under Ord 113 was inconsistent with the lease existing with
the result that the lease had to be surrendered to make any sense of the
proceedings. In essence, the facts were the same as in McVicar and the
same conclusion should be reached.
Mr Reynolds submitted that a conclusion
that the lease had been surrendered did not reflect the facts. All that
McDougalls had done was to protect the property albeit using an inappropriate
procedure. In those circumstances there was no unequivocal acceptance and no
circumstance which would render it inequitable for McDougalls to dispute that
the tenancy had ceased.
I prefer Mr Reynolds’ submissions as they
take account of the surrounding facts and reflect the events as they happened.
The Ord 113 proceedings do, in my view, have to be considered against the whole
background just as the taking of possession in Oastler and Buchanan
had to be considered. In this case McDougalls had refused surrender of the
lease and had called upon BSE to pay the rent and observe the covenants. The
gypsies posed a pressing problem. McDougalls urged BSE to ensure that
appropriate steps were taken and they contacted the receiver to carry that out
with no satisfactory result. It was therefore clear that McDougalls had to do
something. As was clear from the correspondence, they adopted the wrong
procedure. They launched proceedings under Ord 113 believing that it was
sufficient if they had an interest as landlord. They made it clear to BSE and
later to the receiver that their action did not indicate that the lease had
been forfeited. BSE were under no misapprehension. They instructed agents to
inspect the property and see that it was kept secure. Their agents kept the
keys and gave instructions to build a mound to prevent the gypsies returning.
The Ord 113 proceedings were taken against persons unknown. Neither the
receiver nor BSE were joined as parties and neither of them could have believed
that the proceedings were being taken to evict them. In fact nobody thought
about surrender until about March 1994 after the rent had been paid in February
and negotiations for surrender had started.
I accept that it is necessary to consider
the position as between McDougalls as landlord and the receiver as tenant, but
that does not mean that the court should shut its eyes to the surrounding
circumstances and in particular how the Ord 113 proceedings came to be
launched, why they were carried out, who was evicted and what happened
thereafter. Further, the receiver knew about the problem with the gypsies in
May 1993 and must have realised that some action to evict them had been taken.
He could not have been misled by the Ord 113 proceedings to think that they
were an act of acceptance of surrender of the lease.
Upon that basis, I believe there was no
evidence of an unequivocal acceptance of surrender. In any case no equity
arises such as to prevent McDougalls disputing that the tenancy had ceased. I
therefore conclude that the judge came to the right conclusion on this point
and correctly decided the first issue in favour of McDougalls.
Second issue
This concerns the costs of evicting the
gypsies. I understand that BSE accept that pursuant to clause 4(16) of the
underlease they were under a duty to ensure that the covenants in the lease
were complied with. However they contend that they need not pay the costs
incurred by McDougalls as McDougalls had no power or right to obtain an order
to evict the gypsies. Whether that is right depends upon the terms of the
underlease.
Under clause 6 the surety covenanted to
perform and observe the covenants on the part of the tenant. The relevant
covenant is that set out in subclause 15(c) in these terms:
To pay all reasonable costs and expenses
(including but without prejudice to the generality of the foregoing Solicitors
costs and Surveyor’s fees) in respect of or incidental to any action reasonably
taken by or on behalf of the Landlord in order to prevent or procure the
remedying of any breach or non-performance by the Tenant of any of the covenants
conditions or agreements herein contained and on the part of the Tenant to be
observed and performed.
The issue between the parties revolves
around the words ‘any action reasonably taken by … the landlord’. BSE submitted
that McDougalls’ action to evict the gypsies was not reasonably taken.
McDougalls submitted to the contrary.
In most cases taking inappropriate legal
action would not be ‘action reasonably taken’. This, however, is a very
peculiar case as the legal proceedings, although inappropriate, did provide a
result which was appropriate and urgently needed. When deciding whether action
is reasonably taken it appears to me to be permissible to consider the action
which was taken. When all those matters are taken into account I believe that
they lead to the conclusion that the action was reasonably taken and therefore
BSE became liable to reimburse McDougalls for the costs. I therefore conclude
that the judge was right on this issue also.
It follows that for the reasons I have
given I would dismiss this appeal.
AULD and BUTLER-SLOSS LJJ agreed and
did not add anything.
Appeal dismissed with costs.
