The law requires landlords to allow tenants a reasonable time in which to remedy breaches of covenant before commencing possession proceedings. What is reasonable will depend on the facts and if a landlord proceeds too quickly its action will fail. If the breach is irremediable, landlords must still allow tenants time to consider their position, but they will often be able to act more quickly. Consequently, it is important to decide whether or not a breach is remediable, even though the fact that a breach is “irremediable” will not necessarily prevent the court from granting relief from forfeiture.
The Court of Appeal had to consider the effect of two different breaches of covenant in Patel v K&J Restaurants Ltd [2010] EWCA Civ 121; [2010] PLSCS 2761. The landlords served a section 146 notice on the tenant when they discovered that a subtenant of an upper floor flat had been using the premises for prostitution. They served a further notice on discovering that the tenant had appointed a manager to operate its restaurant business, on the ground that the tenant was also in breach of the alienation provisions in its lease.
The courts generally regard breaches of covenant involving immoral or illegal user, where premises are stigmatised by the use, as irremediable. However, they draw an important distinction between direct use by the tenant and use by a subtenant. Direct breaches by tenants are irremediable. However, where the use is by a subtenant, the breach is remediable so long as the tenant acts promptly on discovering the immoral or illegal use. Although this was a case of use by a subtenant, the court decided that the tenant had failed to investigate sufficiently after being alerted by the police. Consequently, the breach was irremediable. However, the premises had been relet, no further police action had been taken, and the premises had not been tainted by the immoral use because of they were in close proximity to a well-known red-light area.
The court considered the effect of the management agreement between the tenant and its manager. It ruled that a “manager” that runs the business and takes all the profit, while bearing all the loss, after paying fixed sums to the owner, which is obliged to carry on the business for a stated period unless the agreement is terminated for cause, cannot fairly be described as carrying on business as the owner’s agent. Consequently, the restaurant operator was carrying on the business for its own benefit and was sharing possession of the premises with the tenant in breach of the lease. However, the breach of covenant was remediable and the tenant had remedied it.
The court accepted that the landlord had not suffered any lasting damage and would reap a disproportionate financial advantage if it were to obtain vacant possession of the premises. Consequently, it granted relief from forfeiture on both counts (even though the courts are normally reluctant to grant relief from forfeiture where premises have been used for immoral purposes), on condition that the tenant paid the landlord’s costs on an indemnity basis and undertook not to repeat the transgressions.
Allyson Colby is a property law consultant
