Forfeiture — Relief against forfeiture — Breach of user covenant — Evidence of prostitution — Whether defendants had knowledge — Whether relief available — Lease forfeit — Relief on terms — New lease to be entered into excluding “hostesses”
In this action the plaintiff landlords claimed possession of business premises at 14-16 Bruton Place, London W1, the premises being held by the defendants under a 25-year lease at a rent of £75,000 per annum. Under the user clause the lessee covenanted “not knowingly to use or permit the demised premises or part thereof to be used for any illegal or immoral purpose”. Certain floors could be used only as a “high class” restaurant or night club.
Two night clubs occupied the premises; one under a sublease and the other under a license. Evidence was obtained that hostesses were available in the clubs and that there was prostitution. Without prior warning, the plaintiffs served a notice in October 1987 under section 146 of the Law of Property Act 1925 alleging breaches of the user clause. During the following months one of the clubs closed and there were changes in the management of the other. The plaintiffs contended that they had forfeited the lease and sought possession. They submitted that the defendants were in breach of the lease by (1) failing to use the premises as a high class restaurant or night club; and (2) knowingly permitting its use immoral purposes.
Held. There was overwhelming evidence that both clubs were used for the purposes of prostitution; most of the hostesses were prostitutes. At both clubs all the staff knew perfectly well what was going on. There was a breach of the user clause, as it is no part of the business of a “high class nightclub” to provide for prostitution in the way that this was an integral part of the businesses at these premises.
There was no direct evidence that the principal behind the defendant company had knowledge of the immoral use prior to the service of the section 146 notice. However, the circumstantial evidence, derived by his supervision and control over the businesses, was that that person must be taken to have known of the immoral use. Accordingly, there was a breach of the lease that the premises should not be used for immoral purposes.
The fact that the breaches in question involve immoral user does not preclude the court from granting relief from forfeiture, although it will be only in rare and exceptional circumstances. Relief was granted for the following reasons: (1) the lease is of substantial value; (2) forfeiture would result in a substantial financial loss to the defendants out of all proportion to their offence, and an adventitious profit to the plaintiffs; (3) the immoral use has stopped and the defendants are willing to vary the lease to exclude hostesses; (5) any stigma to the premises by reason of the immoral use will be short lived; (5) the clubs were run by two individuals who have now left; (6) in other respects the defendants are excellent tenants; and (7) the defendants appear to have a genuine intention to dispose of the lease. Relief was granted on the terms that the defendants enter into a deed of variation to exclude hostesses and that arrears of rent and interest be paid.
John Furber (instructed by Linklaters & Paines) appeared for the plaintiffs; and Jonathan Gaunt (instructed by Rubinstein Callingham with Polden Bishop & Gale) appeared for the defendants.
