Forfeiture–Landlord’s right to refuse rent tendered on tenant’s behalf–Entitled to raise question on whose account money was tendered, that of the tenant or of a company licensee–Further issue whether landlord could reject a second tender made after issue of writ claiming forfeiture but before service–Yes, despite principle that service, not mere issue, is what affects the forfeiture–Numerous interesting points canvassed in squabble (essentially) over liability for costs
This was an
appeal by Mr Derek Graham Richards, of Forest View, Chingford, London E4, from
a decision of Master Lubbock in the High Court on April 23 1974 giving Mr Urban
Ray de Freitas, of Rolls Park Avenue, Chingford, E4, leave to defend an action
for forfeiture of a lease of factory premises in Manor Park, London E12.
Mr J B W
McDonnell (instructed by Bernard Solley & Co) appeared for the plaintiff,
and Mr J S Colyer (instructed by Durrant-Piesse) represented the defendant.
Giving
judgment, MAY J said: This is an appeal from a decision of Master Lubbock of April
23 1974 ordering that the defendant should have leave to defend the action. I
heard the argument in this appeal in chambers on June 26, and it has now been
adjourned for judgment in open court at the request of the parties. The facts
can be shortly stated. The plaintiff is the freeholder of small factory
premises at 3-7 Chesterford Road, London E12, of which, at least until the
events to which I shall shortly refer, the defendant was the tenant under a
lease for 21 years from May 1969 at an annual rent of £2,000, payable quarterly
in advance. The lease contained a repairing covenant and the usual proviso for
re-entry entitling the plaintiff to forfeit the lease and to re-enter upon the
demised premises if the defendant should fail to pay the rent within 21 days of
its becoming due, whether formally demanded or not. In the past the plaintiff
and the defendant had carried on business together in a company, Ross’s Frozen
Foods Ltd. When the plaintiff and the defendant separated the latter took this
company over, and it has in fact been it which has at all material times
occupied the relevant factory premises, although, as I have said, the actual
leasehold term has remained vested in the defendant. There is no dispute that
the plaintiff was well aware that it was the company that was occupying the
premises, and indeed, until the end of 1973 the quarterly rent of £520 was
always paid by a company cheque.
On November 22
1973 Barclays Bank Ltd appointed one Wilson to be the receiver and manager of
the company under powers contained in a debenture held by them. Mr Wilson sent
the plaintiff the usual form of letter telling him of his appointment on
November 26 1973. Solicitors for the plaintiff replied on December 12 to the
effect that the company was in no way indebted to the plaintiff, and
reaffirmed, as was the fact, that their client was the owner of the relevant
property, that his tenant was the defendant, and that they understood the
company had occupied those premises as the defendant’s licensee. Some time in December
1973 the defendant forwarded the plaintiff’s rent demand for that quarter to Mr
Wilson, the receiver, and as this was for rent of the premises occupied and
operated by the company the receiver’s cheque for the quarter’s rent was sent
to the plaintiff on about December 31 1973 with the receiver’s compliments
slip, upon which it was briefly stated that the cheque was for the rent due for
the Christmas quarter. No point has been taken at any time that this tender of
the rent was by cheque and not in cash. On January 3 1974 the plaintiff’s
solicitors wrote to the receiver referring to this tender of the rent and
asking him whether he was paying it on behalf of the defendant or on behalf of
the company. The letter went on to say, first, that if the rent had been paid
on behalf of the defendant it would be accepted, but that if it had been paid
on behalf of the company it would not be accepted; and secondly, that they (the
solicitors) were that day serving a schedule of dilapidations upon the
defendant, a copy of which they enclosed. Unfortunately, in circumstances which
are not material, the receiver did not reply to this letter. Consequently, on
January 28 1974 the plaintiff’s solicitors wrote again to the receiver, telling
him that as they had not had any such reply they were returning his cheque, and
that they were now instructed to issue proceedings against the defendant for
arrears of rent and forfeiture.
On February 5
1974 the writ in this action was issued claiming forfeiture of the lease on the
ground of nonpayment of rent for the Christmas quarter. Before that writ was
served, the receiver wrote to the plaintiff’s solicitors on February 6
explaining the reasons for his delay. He went on to say that he understood that
the company had been in the practice of paying the quarterly rent on behalf of
the defendant, as was indeed the fact, and that it was because of this that he,
as receiver, had taken steps to see that the rent had in fact been paid. In
further reply to the plaintiff’s solicitors’ letter of January 3 the receiver
accepted in his letter that the defendant was the lessee and that the company
occupied the premises under licence. He consequently enclosed a fresh cheque
for the full quarter’s rent. In so far as the schedule of dilapidations was concerned,
he said that he had authorised and instructed the defendant to carry out the
necessary work. As I have indicated, however, by this time proceedings had been
started, and on February 12 the plaintiff’s solicitors replied to the receiver
in these terms: ‘We thank you for your letter dated the 6th instant with
enclosure’–which was, of course, the second cheque–‘which we return herewith.
We issued proceedings prior to receipt of your letter, and the lease is
therefore forfeited unless Mr de Freitas wishes to apply to the court for
relief. Such application will be opposed. Please accept this letter as formal
notice that your licence to occupy the premises is determined.’ The writ in this action was ultimately served
upon the defendant on February 15 1974.
This brief
recital of the facts cannot but suggest that it is perhaps unfortunate that the
court has had to be troubled with this matter and that the parties have not
been able satisfactorily to compose their difficulties. As will be apparent,
there is very little between them. For the plaintiff it is contended that,
having received the receiver’s formal letter of November 26 1973 and then his
cheque for the rent without any explanation, the plaintiff was entitled at the
least to be concerned whether by the acceptance of that payment he might
compromise his position vis-a-vis the defendant on the one hand and the company
on the other. Consequently, it is submitted, the plaintiff was in such
circumstances entitled to reject that tender of the rent then due. Counsel then
argues that his client was also entitled to reject the second tender of the
rent enclosed in the receiver’s letter of February 6 1974, first, because by
that time the 21 days for payment of the Christmas rent referred to in the
proviso for re-entry in the lease had expired; and secondly, because by that
later date the schedule of dilapidations had been served upon the defendant,
accompanied by the usual notice under section 146 of the Law of Property Act
1925. In the result, contends the plaintiff, the defendant’s lease was
forfeited by the service of the writ upon him on February 15 1974; his only
right now is to seek relief from that forfeiture; and this should only be
granted upon payment by the receiver of all the arrears of rent and mesne
profits due to date, upon the execution of the repairs listed in the schedule
of dilapidations, and upon payment by the defendant of the plaintiff’s costs of
these proceedings.
For his part,
the defendant contends that upon a true analysis of the situation as at January
3 1974 the acceptance by the plaintiff of the receiver’s cheque for the rent
could in no way have prejudiced the former’s position; in the circumstances,
that tender of the rent was a good tender, and accordingly, the plaintiff was
not thereafter entitled to forfeit or seek to forfeit the lease. If this should
be wrong, then the defendant by his counsel secondly submits that upon the
authorities the second offer of the rent on February 6 1974, being between the
issue of the writ the day before and its service nine days later, was also a
good tender which the plaintiff was not entitled to reject. Accordingly, for
this reason also, the service of the writ did not forfeit the lease. If either
of these two contentions should be correct, then the proper order would be to
dismiss the plaintiff’s claim with costs. If, however, I were to come to the
conclusion that both these contentions were wrong, then nevertheless the state
of the law applicable to the undisputed facts which I have outlined is by no
means easy or certain; the defendant’s contentions, it is submitted, are at the
least well arguable in law; and consequently the defendant should in any event
have leave
before me in chambers. In truth, as I see it, the real issue now between the
plaintiff and the defendant is substantially which of the two of them should be
liable for the costs of these proceedings. As I have indicated, I think that it
is unfortunate they have reached the point which they have and that substantial
costs have been incurred. I can see no good reason why this matter could not
have been satisfactorily compromised between the parties at an early stage.
Nevertheless, as will appear, even though the practical issue may be so
limited, the various contentions of the two sides do raise interesting and
indeed difficult points of landlord and tenant law, which of course it is my
duty to consider and decide, notwithstanding the view that I may take of the conduct
of one or other or both of the parties.
The first
question which therefore arises is whether the plaintiff was entitled to refuse
the receiver’s cheque for the rent due at Christmas 1973; or at the least,
whether he was entitled to return it after his solicitors had not received a
reply to their letter of inquiry of January 3 1974 within the 21 days referred
to in the proviso for re-entry after December 25 1973. Mr McDonnell, on the
plaintiff’s behalf, submits that a creditor, particularly a lessor, cannot be
expected to accept tender of a debt due to him proferred by any and every third
party. In the first place, he submits that a creditor is not bound to accept a
tender which would not in law operate to discharge the relevant debt. In this
connection he refers me to a passage from the judgment of Parke B in Simpson
v Eggington (1855) 10 Ex 845 at 847, which is in these terms:
The general
rule as to payment and satisfaction by a third person, not himself liable as a
co-contractor or otherwise, has been fully considered in the cases of Jones
v Broadhurst, Belshaw v Bush and James v Isaacs;
and the result appears to be, that it is not sufficient to discharge a debtor
unless it is made by the third person, as agent, for and on account of
the debtor and with his prior authority or subsequent ratification.
The italics
are those of the report. This dictum of Parke B was followed by Humphreys J in Smith
v Cox [1940] 2 KB 558, which was a landlord and tenant case and
concerned the payment of rent to a landlord by a third party. On this first
question Mr McDonnell secondly submits that a creditor is not bound to accept a
tender from a third party when such acceptance would operate to the former’s
detriment to any greater extent than would payment by the actual debtor in
person. Indeed, he goes further and contends that commonsense requires that a
creditor is not bound to accept tender from a third party when he reasonably
fears that such acceptance might prejudice his position.
I have been
referred to no authorities on the question when, if at all, a creditor is
entitled to reject a tender by someone other than his debtor except for the two
cases which I have mentioned and which can perhaps be said to assist only
somewhat obliquely. In my judgment, however, a creditor is not bound to accept
a tender from a third party either when on the facts that he then knows, or
ought to know, the acceptance will not discharge the debt due to him, or
alternatively, again on such facts, where acceptance would prejudice his position
vis-a-vis his debtor to a greater extent than would tender by that debtor in
person. In such circumstances I do not think that a creditor must be deemed to
know the complete factual situation if he does not do so: he is entitled to
make his decision on the facts as he knows or ought to know them. Secondly, if
the proferred tender will not discharge the relevant debt, it cannot in my view
properly be described as a tender. Finally, I see no reason in justice or
commonsense why a creditor should be required unnecessarily to act to his
detriment in such a case. In the present case, therefore, I have first to ask
myself whether on the facts which were or ought to have been known to the
plaintiff or his advisers the acceptance of the receiver’s cheque on some date
in January 1974 prior to the expiry of 21 days after Christmas 1973 by the
plaintiff would have discharged the defendant’s liability to the latter at that
time for the quarter’s rent. Following the dictum of Parke B in Simpson
v Eggington. I do not think that on the facts as they in truth were
there can be any doubt that acceptance of the receiver’s cheque would have
discharged the defendant’s liability in respect of the defendant’s quarter’s
rent. Paragraph 15 of the defendant’s affidavit, sworn in these proceedings on
June 21 1974, which has not been disputed, is enough to make this clear:
(15) In December 1973 when I received the rent
demand for the quarter’s rent due on December 25 I passed it on to Mr Wilson’s
staff, who were working at [other premises], and I requested them to pay it
from the company’s account. Mr Wilson as receiver of the company had my
authority, as did the company, to pay all rent due on the relevant premises on
my behalf.
But although
this may have been the actual situation, I do not think that the plaintiff and
his advisers were, nor ought they at that stage to have been, fully aware of
it. The plaintiff’s solicitors’ letter to the receiver of January 3 1974 asked,
‘Would you please let us know whether you are paying this money on behalf of
[the defendant] or on behalf of the company,’ which was a very pertinent
question in the light of the dictum of Parke B, and I see no reason to doubt
the genuineness of that inquiry. In the particular circumstances which obtained
as between the defendant, the company, the receiver and the plaintiff at this
time, I do not think that the plaintiff or his advisers either were or ought to
have been aware that the receiver was paying the rent either as the defendant’s
agent for or on his account or with his prior authority (at this stage no
question of subsequent ratification can have arisen). On this ground,
therefore, I am of the opinion that the plaintiff was entitled to reject the
receiver’s tender at least until his solicitors had had a reply to their letter
of January 3 1974 within 21 days after December 25 1973.
In these
circumstances, it is perhaps unnecessary for me to express a view on the second
question, namely, whether acceptance of the receiver’s tender on the facts as
they were, or ought to have been, known to the plaintiff and his advisers would
have prejudiced his position as against his tenant, the defendant.
Nevertheless, in case I may be wrong on the view I have expressed on the first
question, I will say that I do not think that in the postulated circumstances
the plaintiff would have been so prejudiced. This could only have been so if
his acceptance of the receiver’s cheque either might have created a new tenancy
in some person other than the defendant, or might have waived some default by
the defendant under his lease which would otherwise have entitled the plaintiff
to forfeit the term. In so far as the creation of any new tenancy was
concerned, the relevant issue would have been quo animo the rent was
received. There can be no suggestion in the present case, in my opinion, that
if the plaintiff had accepted the receiver’s cheque he would have done so with
any intent of creating any new tenancy in anyone. As to the possible waiver of
any forfeiture, there could be none if the alleged ground of forfeiture was the
failure to pay rent within the relevant 21 days. In so far as forfeiture on the
ground that the defendant was in breach of covenant not to assign his term
without the plaintiff’s consent was concerned, he (the plaintiff) would only
have waived the right to forfeit if he had known of the material breach of
covenant. Here the plaintiff did not know whether there had been any such
assignment; this was the very thing that his solicitors were trying to find
out. Finally, although a schedule of dilapidations accompanied by a notice
under section 146 of the Law of Property Act 1925 had been served, it was
invalid in that it failed to comply with the requirements of the Leasehold
Property (Repairs)
or not the defendant was in breach of the repairing covenants in his lease, the
plaintiff was not then, nor, so far as I am aware, is he now, in a position to
forfeit the lease on that ground. Consequently, no acceptance by him of any
rent in January 1974 could have prejudiced his position on this score. In the
result, I take the view that if I am wrong and the plaintiff was not entitled
to reject the receiver’s cheque on the basis of the first contention put forward
on his behalf, then also would he not have been entitled to reject it on the
basis of his second contention.
Be that as it
may, the next question with which I have to deal in this case is whether the
plaintiff was entitled to reject the second tender by the receiver of the rent
which had been due at Christmas 1973 and which the latter offered between the
issue of the writ herein on February 5 1974 and its service on the defendant on
February 15 1974. It is clear from the decision of the Court of Appeal in Canas
Property Co Ltd v KL Television Services Ltd [1970] 2 QB 433 that,
contrary to the view previously held by some, it is the service of the writ
upon the defendant tenant in proceedings for possession on the grounds of a
breach by the latter of a covenant in his lease that is the notional re-entry
which completes the forfeiture, and that it is not merely the issue of the
writ. It was consequently submitted on behalf of the defendant that there
exists in these cases between issue and service of the writ what may be
described as a locus poenitentiae during which it is always open to the
tenant, at least where the ground of forfeiture is nonpayment of the rent, to
tender the rent due and thus put an immediate end to the effectiveness of
proceedings which have been begun. I do not agree. In my judgment the decision
in the Canas case did not alter the basic principles applicable to
forfeiture. It merely corrected the then held view of the point in time at
which the forfeiture took place. Once a lessor becomes aware of a breach by his
lessee of any of the covenants in the lease, then he has an election. He may
either elect to allow the term granted by the lease to continue, merely suing
for damages for the breach of covenant; or alternatively he may elect to
forfeit the lease, either by actual re-entry or by a notional re-entry effected
by the service of the writ in ejectment proceedings. He is not bound to choose
the former in preference to the latter. In these circumstances, the issue of
the writ is a mere incident in the procedure; it does not signal the start of
any special period in so far as the relationship between lessor and lessee is
concerned. If at any time after a lessor becomes aware of a breach of covenant
on the part of his lessee he accepts rent from the latter, then it is clear and
indeed irrebuttable evidence that he has elected not to forfeit but to continue
the lease. When he becomes aware of the lessee’s breach of covenant, he is
permitted by the law a reasonable time in which to make up his mind in which
direction he proposes to elect. That that reasonable period of time may
encompass the period between issue and service of the writ is, in my opinion,
neither here nor there. If, having issued the writ to the knowledge of the
lessee, the lessor delays for an unreasonable period before he serves it, then
this may well be evidence that he has changed his mind and proposes not to
forfeit the lease but to allow it to continue. This is, however, a matter of
fact to be considered in each case.
Applying these
principles to the facts in the present action, by February 5 1974 the defendant
lessee was in breach at least of the covenant to pay the rent. He may at the
same time have been in breach of the repairing covenant. In consequence the
plaintiff lessor decided to forfeit the lease, and the writ was issued. Ten
days later it was served and the notional re-entry completed. Having made his
election, there was in my judgment no obligation whatever upon the lessor in
that period of ten days to accept any second tender of the rent from the
receiver. He was entitled to say to the defendant lessee that he had so
conducted himself as to incur a liability to forfeiture which he, the lessor,
proposed to enforce. To accept rent thereafter would, as I have indicated, have
negatived his clear election. Once the right of forfeiture has accrued, no
lessor is bound to give up that right or, to put it in another way, no lessee
is entitled to relief from that forfeiture save on the special conditions laid
down in the case of Gill v Lewis [1956] 2 QB 1. I should add
that, anticipating the locus poenitentiae argument to which I have
referred, counsel for the plaintiff sought to meet it by the inference which he
suggested could be drawn from a very short dictum of Lord Denning MR in the Canas
Property Co case at page 441 of the Law Reports. The relevant passage
reads:
Ogan v Raite & Holt in 1903 was decided by Grantham J. It is
only reported in 67 JP Journal 100. It says that ‘by the issue of the writ the
plaintiff exercised his option to determine the lease.’ That was wrong. But the decision is right.
The landlord did not accept the rent. So the lease was forfeited when the writ
was served. The defendants had to seek relief.
In Ogan
v Raite the defendant tenants failed to pay one quarter’s rent due on a
particular day. After the expiry of the 21 days reserved for providing for
re-entry, in that case also the plaintiff issued a writ claiming possession,
and on the following day the defendants tendered the rent by cheque. Counsel in
the present case submitted that when in the Canas case the learned
Master of the Rolls said of Ogan v Raite, ‘The landlord did not
accept the rent,’ he must in the context be taken as meaning or to have
inferred that in that case the landlord was entitled not to accept the
rent, and the only basis on which he could have been so entitled was that it
was tendered after the expiry of the 21 days reserved by the proviso for
re-entry. I cannot accept this argument. The report of the judgment in Ogan
v Raite is very short, but it is to be noted that it does record that
after its tender the defendants’ cheque was returned marked ‘cancelled.’ This can only have been because it was
stopped, for some reason or other, by the defendants. Consequently in that case
the relevant rent had not been paid by the defendants, and thus could not have
been accepted by the landlord plaintiff by the time the action came before
Grantham J for trial. In these circumstances, I am quite satisfied that that
was all that Lord Denning meant by the seven-word sentence relied on by the
plaintiff in our case, that ‘As a matter of fact the landlord did not
accept the rent,’ and that no other inference such as was suggested can be
drawn from it. Nevertheless, for the reasons which I have already given, I do
not think that there was any obligation upon the plaintiff lessor in this
present case to accept the second tender by the receiver for the rent due at
Christmas 1973 in the period between February 5 and 15 1974. It further follows
from all that I have said that in my opinion the lessor in this case validly
forfeited the relevant lease when he served the writ in these proceedings on
the defendant lessee on February 15 1974.
Although I
have reached this conclusion, should the defendant nevertheless still retain
his leave to defend granted by the learned master on the ground that is put
forward, namely that the law is by no means clear, that his case is well
arguable and that in consequence he should be given the further opportunity to
do so, no doubt more fully and at greater length? I have no doubt that he should not. The facts
in the present case are simple and not in dispute. If my view of the relevant
law is wrong it can be corrected. Mindful of the dictum of Russell LJ in Bigg
v Boyd Gibbins Ltd [1971] 1 WLR 913 at 915, it would in my judgment now
be a complete waste of further costs were I to allow the master’s order to
stand. Subject to argument on the precise terms of my order, I therefore
propose to allow this appeal and to give judgment for the plaintiff for
possession of the relevant premises, and also whatever is now the correct
figure for arrears of rent and mesne profits in this present action. The
defendant, however, may have relief from such forfeiture if he pays both those
arrears of rent and mesne profits and, if not already paid, the further sum of
£320 arrears of rent for which judgment was obtained for the plaintiff against
him in the Bow County Court on February 12 1974, but to which it has not
hitherto in this judgment been necessary to refer.
Relief from
forfeiture was granted on terms that arrears of rent and mesne profits to date,
including the sum of £320 referred to, be paid within three weeks. No order was
made as to the costs of the proceedings before the master, and the plaintiff
was awarded only half the costs of the appeal to his Lordship.
