The claimant held part of the ground floor and basement of commercial premises in London SE1 on a lease granted by the defendant in 2007 for a term expiring at the end of September 2012. The lease contained a provision for re-entry by the landlord in the event that the rents reserved remained in arrears for 14 days after they became due. In late May 2011, the defendant physically re-entered the premises and forfeited the lease on the grounds of non-payment of rent in the sum of £2,5445.
The claimant then paid off the arrears and, at the defendant’s insistence, made an application to the court, under section 139 of the County Courts Act 1984, for relief from forfeiture. The question of relief was not disputed and relief from forfeiture was granted in the county court. The main issue between the parties was as to the costs of the application. The claimant sought a costs award against the defendant on an indemnity basis, contending that it had been unreasonable for the defendant to require a formal application for relief since relief from forfeiture could have been effected, and the lease continued, simply by the agreement of the parties. The defendant’s position was that, in the absence of a formal application for relief, a new lease might have arisen that was protected under Part II of the Landlord and Tenant Act 1954 and that it had validly been concerned to avoid that outcome.
Held: Costs were awarded against the claimant. Forfeiture of a lease at common law can be effected by an unequivocal act on the part of the landlord, such as entering the premises and taking possession. Accordingly, the defendant’s physical re-entry of the premises had brought the lease to an end by operation of law. A lease once forfeited will remain so unless and until the lessee applies to the court for relief under section 139 of the 1984 Act. The re-entry cannot simply be set aside or waived by agreement of the parties; likewise the lease, having been forfeited, cannot be revived by the parties on the pretence that there has been no forfeiture. Only where an application is made to the court for relief from forfeiture, and such relief is granted, can the tenant continue to hold according to the same lease, by virtue of the specific statutory provision to that effect: see section 138(9B) of the 1984 Act. Any purported relief granted by the landlord without application to the court will instead amount to the grant of a new lease. Accordingly, an application to the court under section 139 had been required in order to continue the original lease between the parties. Any other consensual arrangement between them, in the absence of such an application, would have been likely to amount to the grant of a new lease and would therefore have been prejudicial to the defendant as landlord since it would not have been contracted out of the 1954 Act. The defendant could not be criticised for enforcing its legitimate right to forfeit the lease following the claimant’s default. Its subsequent insistence that the claimant issue an application for relief was not unreasonable. It was the claimant that had adopted an unreasonable approach and so escalated the costs of the proceedings. Costs should be awarded against the claimant on an indemnity basis.
This was a hearing on costs in an application by the claimant tenant, Zestcrest Ltd, against the defendant landlord, County Hall Green Ventures Ltd, for relief from forfeiture, under section 139 of the County Courts Act 1984, in respect of a lease of business premise.
Edward Denehan (instructed by Freeman Box Solicitors) appeared for the claimant; Toby Watkin (instructed by Maxwell Winnard) appeared for the defendant.
Giving judgment, District Judge Worthington said:
This claim for relief against forfeiture came on before me on 13 July 2011.
I shall briefly set out the background. On 20 July 2007, the defendant granted the claimant a lease of part of the ground floor and basement at the Riverside Building, London SE1 7PB for a term expiring on 30 September 2012. The lease contained the usual covenants to pay the rent and service charges and clause 5.1 contained the proviso for re-entry exercisable by the landlord in the event that the rents reserved were in arrears for 14 days after they became due whether formally demanded or not. Rent in the sum of £25,445.52 became due on 12 May 2011 and remained unpaid at the time the defendant physically re-entered the premises on 27 May and locked the claimant out thereby effecting peaceable re-entry and forfeiting the lease in accordance with the above provisions.
It is not in issue between the parties that the defendant was entitled to forfeit the lease by peaceable re-entry on 27 May and that such forfeiture was lawful. The issue is whether it was reasonable of the defendant to require the claimant to issue these proceedings for relief and who should bear the costs thereof.
The claimant relies on a witness statement of its solicitor, Mr Trevor Box, dated 12 July 2011 and a skeleton argument prepared by its counsel Mr Edward Denehan. The defendant relies on its solicitor’s witness statement prepared by Mr Levontine dated 11 July 2011 and its counsel’s skeleton argument together with a number of authorities.
The statutory framework in relation to obtaining relief from forfeiture for non-payment of rent can be found at sections 138 and 139 of the County Courts Act 1984 (the 1984 Act). To forfeit a lease at common law merely required an unequivocal act on the part of the landlord such as entering the premises and taking possession rather than having to bring court proceedings. At that point, the lease comes to an end, and will remain so unless and until the lessee applies to the court for relief under section 139 of the 1984 Act, indeed, that was the remedy referred to by Lord Templeman in Billson v Residential Apartments Ltd*, when he said, at p540E-F:
A tenant may apply for relief after a landlord has forfeited by re-entry without first obtaining a court order for that purpose but the court in deciding whether to grant relief will take into account all the circumstances, including delay, on the part of the tenant.
The claimant’s position is, however, at odds with the above stated approach to applying for and obtaining relief and is set out at para 2.5 of Mr Box’s statement at which he says: “the Claimant did not need to apply to the Court for an order to be relieved from the forfeiture and that on payment of the rent arrears the Claimant would be relieved from forfeiture and that it was entirely within the Defendant’s power to accept that any forfeiture had been relieved”. That proposition is maintained by the claimant today in furthering its argument that the defendant unreasonably required it to issue proceedings for relief and that not only should they not pay the defendant’s costs but that the defendant should pay its costs.
Mr Denehan’s assertion, on behalf of the claimant, is set out in para 5.8 of his skeleton, in which he states “The Defendant’s apparent fears that without an order of the court a new tenancy within Part II of the 1954 Act might arise is misconceived. It is open to the parties to agree that the Claimant holds the premises without a new lease… . The Defendant should have agreed that the Claimant stand relieved from the forfeiture without the need for court proceedings, which are a waste of court resources, a waste of time and a money generating exercise on the part of the Defendant”. That assertion is not supported by any authority and although Mr Denehan sought to develop it in submissions to me, it was primarily on the basis that there was, in principle, no reason why a willing landlord could not grant the same relief as the court.
The fact remains, however that the landlord physically re-entered on 27 May, thereby bringing the lease to an end by operation of law. The re-entry happened and cannot simply be “set aside” or “waived” or made fictional by agreement of the parties. Equally, the lease having gone cannot simply be revived at the whim of the parties on the pretence that there has been no forfeiture. Hence, the specific statutory code at sections 138 and 139 of the 1984 Act giving the court a discretionary power to grant relief and particularly section 138(9B), which states:
(9B) Where the lessee is granted relief on an application under subsection (9A) he shall hold the land according to the lease without any new lease
Accordingly, it is only on an application to the court where relief is granted that there is specific statutory provision that “he shall hold the land according to the lease without any new lease” and the corollary logically must be that any purported relief granted without application to the court (that is, by the landlord) must amount to the granting of a new lease. Indeed, Mr Watkin drew my attention to Taylor v Wildin (1868) LR 3 Ex 303, which involved the purported withdrawal of a notice to quit by the consent of the parties and it was held, at p305:
But it is clear that, whether the notice to quit is given by the landlord or the tenant, the party to whom it is given is entitled to insist upon it, and it cannot be withdrawn without the consent of both. If that is so, then the consent of the parties makes a new agreement, and if there is a new agreement there is a new tenancy created to take effect at the expiration of the old tenancy…
…
If the notice is given, the tenancy is at an end; the parties may by parole contract create a new tenancy, which is what is meant by the phrase withdrawing the notice but the old tenancy no longer exists and the guarantee, which applied to the old tenancy, is gone.
In this case, the forfeiture had happened and the lease had come to an end. Absent an application to the court under section 139, the parties consenting to the lease continuing would not have that effect but would instead create a new agreement and tenancy. I am also referred to Jones v Carter (1846) 15 M&W 718, per Parke B approved by the House of Lords in Scark v Jardine (1882) LR 7 App Cas 345, per Blackburn LJ, at p361, as authority for the proposition that the election of the landlord to terminate the lease by re-entry is final and that once determined the lease could not be revived by the landlord.
I am therefore satisfied that in order to preserve and continue the original lease between the parties an application to the court under section 138 was necessary and any other consensual arrangement between the parties in the absence of such an application would be likely to amount to the grant of a new lease and therefore prejudicial to the landlord because it would not be contracted out of the 1954 Act.
Notwithstanding that finding, the claimant maintains that the defendant has acted precipitately with regard to the actual forfeiture and unreasonably thereafter, to the extent that they should not have to pay the defendant’s costs. Mr Box refers in para 3 of his witness statement to a “campaign” allegedly conducted by the defendant against the claimant by reference to High Court litigation being conducted by associate companies. Without looking in detail at the subject of that litigation, I am unable to comment on the validity or otherwise of Mr Box’s perception that the defendant is indeed pursuing some sort of “campaign” and I therefore dismiss it as irrelevant to the facts of this case. It is common ground that the defendant was entitled to forfeit by peaceable re-entry when it did so on 27 May even though that was the earliest date on which it could exercise such a remedy. The fact that it did so without prior warning and thereafter insisting that the claimant issues these proceedings for relief does not amount to what Mr Box refers to in his witness statement to “a war of attrition”. These parties are commercial entities well aware of their obligations under the lease, primarily, from the claimant’s point of view, to pay the rent as and when it fell due under the lease or suffer the consequences. Payment of a substantial sum of rent became due and then overdue for more than 14 days and the defendant exercised its right of forfeiture, which had the effect it was designed to achieve and the rent payment was in consequence thereof forthcoming the same day. I fail to see how the defendant can be criticised for enforcing its legitimate right following the claimant’s default. The claimant was the author of its own misfortune.
I now turn to address the claimant’s contention that the defendant has acted unreasonably and thereby embarked on, what Mr Denehan terms “a money generating exercise.” For the reasons already given, I do not consider the actual forfeiture by the defendant and its subsequent insistence that the claimant issues this application for relief was unreasonable. Indeed, if one looks at the correspondence passing between the parties’ solicitors immediately after the re-entry, it clearly sets out the respective positions adopted by the parties. In the defendant’s solicitor’s letter to the claimant’s solicitor dated 27 May 2011, it states:
Our client is not prepared to allow your client relief from forfeiture without an order of the Court since they are not prepared to accept the risk that a new tenancy has been created… However since the sum due under the lease has now been paid, apart from interest and costs, in order to allow your client to resume trading, our client is prepared to allow them back into possession as Tenants at Will on the following basis:
(a) upon your undertaking to issue proceedings for relief from forfeiture (and, if your client wishes to, for a declaration that the forfeiture was unlawful, which is denied) by 4pm Tuesday 31st May 2011.
(b) That interest is paid on all sums now paid together with our costs of and occasioned by the forfeiture on an indemnity basis (we will provide details in due course) and
(c) You provide us by 4pm Tuesday 31st May 2011 a draft order granting relief from forfeiture which, for the avoidance of doubt, should recite the fact that no new lease has been granted…
The claimant’s solicitor replied the same day agreeing to the above, save that it would agree to pay only the defendant’s reasonable (not indemnity) costs of and occasioned by the forfeiture and even then subject to its right to argue that the forfeiture was not lawful in which case it will argue that no costs are payable. It goes on in its penultimate paragraph in reply to say that it will seek indemnity costs from the defendant on its contention that the defendant could have granted relief without the need for these proceedings. Accordingly, although purporting to agree to pay the defendant’s costs at the same time it would be seeking its own costs, which I find to be a somewhat confused and inconsistent position to hold, but sufficient, as far as it was concerned to regain possession.
In any event, the claimant accepts the forfeiture was lawful and therefore the caveat to its paying the defendant’s reasonable costs of and occasioned by the forfeiture fell away before the claim was even issued and as to the need to issue the proceedings I have already found that it was reasonable for the defendant to insist on formal application to the court for relief. It therefore follows that had the claimant adopted a reasonable approach, a consent order would have been agreed at a cost (in relation to these proceedings) of possibly hundreds of pounds instead of cost schedules now submitted by the defendant in the combined sum of £7,599 and from the claimant in the sum of £10,375. I find that it is the claimant that has adopted an entirely unreasonable approach to these proceedings, which has lead to the escalation in costs. I therefore order the claimant to pay the defendant’s costs of and occasioned by the forfeiture (as originally agreed) and the costs of these proceedings. That then leaves the issue as to whether those costs are payable on an indemnity basis or standard basis. Mr Denehan argues that the defendant is not entitled to indemnity costs because there is no contractual right to the costs it claims.
Dealing with the contractual point. Clause 3.20 of the lease is headed “Cost of Section 146 Notices and other costs incurred by the Landlord etc” by which the tenant covenants:
to indemnify the Landlord against all costs fees charges disbursements and expenses incurred by the Landlord including but not limited to those payable to solicitors counsel architects surveyors and bailiffs… (c) In connection with the recovery or attempted recovery of arrears of Rents or other sums due from the tenant or in considering and/or in procuring the remedying of the breaches of any covenant by the tenant.
Clearly, the exercising of forfeiture by peaceable re-entry on the tenant’s breach of covenant to pay rent is “In connection with the recovery… of arrears of rent” and evidently had the desired effect of recovering substantial arrears of rent in this case.
Furthermore, there is a catch all provision at clause 3.33 headed “Indemnity” by which the tenant indemnifies the landlord against all costs arising out of any breach or non-observance of the tenants covenants. These provisions clearly cover the costs incurred by the landlord in forfeiting the lease and therefore contractually the defendant is entitled to contractual indemnity costs.
Notwithstanding the contractual position, Mr Denehan relies on the observations of Lord Templeman in Billson v Residential Apartments Ltd [1992] 1 AC 494, at p541B-C, in which he said that an order for indemnity cost as a condition of relief made by the lower court should not have been made and that “the practice of ordering indemnity costs as a condition of granting relief is ripe for consideration”.
Those observations were indeed considered afresh by the Court of Appeal in Patel v K&J Restaurants Ltd [2010] EWCA Civ 1211, when Lloyd LJ said:
104… Having given closer consideration to the authorities on the appropriate basis of costs than was possible during the hearing of the appeal, I have come to the conclusion that the indemnity basis should apply as a general principle, despite what Lord Templeman said, and that there is nothing in the circumstances of the present case to make it appropriate either to adopt the standard basis or to disallow some part of the Claimants’ costs.
I can find no reason in this case why the defendant’s should not be allowed their contractual indemnity costs. After all, on the same day that it took possession, it was prepared to allow the claimant back into possession on entirely reasonable terms, there was no delay on its part and the issue has escalated out of proportion simply because the claimant was not only refusing to pay the defendant’s costs but required it to pay its indemnity costs on an entirely fallacious basis.
The claimant maintains that the defendant’s costs are unreasonable in amount but fail to justify such an assertion while at the same time submitting its own cost schedule amounting to £10,375 against the defendant’s schedule of £4,287 . In any event, CPR 48.3(1) provides that costs payable by virtue of a contract are presumed to be reasonably incurred and reasonable in amount and the claimant has singularly failed to rebut that presumption.
Although the only argument before me was over costs, for the avoidance of doubt I grant relief from forfeiture on the assumption that the interest due, if any, has been or will be paid within the next 28 days and on terms that the claimant pays the defendant’s costs of and occasioned by the actual forfeiture in the sum of £3,312 and in respect of these proceedings in the sum of £4,287 making the total costs payable by the claimant to the defendant within 28 days of £7,599.
I propose to hand down this judgment at 10am on Wednesday 24 August. If either party wishes to attend to make any application, please advise the listing office and give a time estimate and another date can be fixed.
Costs awarded against the claimant.