Landlord seeking to forfeit valuable lease – Tenants subletting in breach of covenant – Sublessees of good financial standing – Landlord refusing tenants’ invitation to give retrospective consent – Tenants seeking relief – Whether tenants’ “sloppy practice” a ground for refusing relief – Appropriate conditions as to costs
Commercial premises in London W1, consisting of three floors and a basement, were at all material times let on a lease containing a forfeiture clause in standard form and a covenant by the lessee not to assign or underlet without the prior written consent of the lessor. In 1959 the lease was acquired by F, who, in 1990, granted a sublease of three floors to K Ltd without seeking the consent of the then lessor, G Ltd. In 1992 F transferred the lease to the first two named defendants (H and L) to hold the same on certain family trusts. H was a solicitor.
In July 1993 H and L, without seeking the consent of G Ltd, renewed the sublease in favour of K Ltd. In January 1994 the reversion was acquired by MEL Ltd. During 1995 and 1996 H and L effected two further sublettings, on each occasion without obtaining the consent of MEL Ltd, which subsequently transferred the reversion to the claimant, an associated company.
In January 1998 the claimant, having served a notice pursuant to section 146 of the Law of Property Act 1925, brought proceedings for forfeiture on the ground that the various sublettings had been effected in breach of covenant. The defendants did not dispute the breaches, but counterclaimed for relief. At about the same time the defendants, having pointed to the good standing of the subtenants, invited the claimant to give retrospective consent to the sublettings. That invitation was summarily rejected in a letter from the claimant’s solicitors of February 1998. In November 1999 the claimant responded in similar terms to an offer made under Part 36 of the Civil Procedure Rules, proposing that relief be given on the defendants agreeing to bear the claimant’s costs. At the hearing the judge found, inter alia, that the defendants were aware that G Ltd was no longer their landlord when they effected the last two sublettings, and that the approximate capital value of the residue of the lease was £300,000.
Held: The defendants were entitled to relief.
1. Although the breaches could not be described as wilful or deliberate, the defendants, in particular the legally qualified H, had been guilty of sloppy practice in proceeding on the assumption that they could dispense with the need to apply for consent. However, the discretion given to the court by section 146 of the 1925 Act was not one to be regulated by strict rules, there being a number of factors that the court could take into consideration: see Woodfall on Landlord and Tenant vol 1 para 17.66. The issue was essentially one of proportionality.
2. Having regard to the value of the lease and the inability of the claimant to show that the sublettings had caused it any loss, there was an overwhelming case for the grant of relief, notwithstanding that the defendants might, if refused relief, have had a good claim against their solicitors: see Scala House & District Property Co Ltd v Forbes (1973) 227 EG 1161.
3. In the case of a deliberate breach, it was no longer true, notwithstanding the observations of Lord Wilberforce in Shiloh Spinners Ltd v Harding [1973] AC 691, to say that relief would only be granted in exceptional circumstances: see Southern Depot Co Ltd v British Railways Board [1990] 2 EGLR 39, considering Hyman v Rose [1912] AC 623.
4. Given that the claimant was at all times intent on obtaining possession, and that consent could not have been reasonably withheld if a licence had been applied for, it was appropriate to make no order for costs incurred after the claimant’s rejection of the defendants’ Part 36 offer. The claimant’s costs incurred before that date should be given on a standard basis, there being no invariable rule that relief was conditional on the landlord recovering his costs on an indemnity basis: see Billson v Residential Apartments Ltd [1992] 1 EGLR 43.
James Aldridge (instructed by Stephenson Harwood) appeared for the claimant; Wayne Clark (instructed by Gold Mann & Co) appeared for the defendant.
Alan Cooklin, barrister
