Landlord & tenant update (2)

Disrepair

Marlborough Park Services Ltd v Rowe [2006] EWCA Civ 436 was a landlord's appeal against a decision that it was responsible for repairing a cracked floor in the upper floor of a maisonette. The cracking was caused by deflection of floor joists. R had covenanted to keep the property in good repair and L had covenanted to maintain 'the main structures'. The trial judge held that the floors were part of the 'main structure' and that the cost of the work was service charge payable by all tenants. L argued that the judge's construction of the lease was wrong, because the main structure was limited to the items in the ownership and control of the landlord that served more than one unit.

The Court of Appeal agreed with the trial judge, pointing out that the term 'main structures' included floor joists, as the joists played a significant part in keeping the structure of the building sound and it was more likely that landlord and tenant would expect maintenance of the floor joists to be the landlord's responsibility, as the work would be substantial and would benefit a number of tenants. The Court also pointed out that L's construction required the insertion of words of qualification to the lessor's obligations whereas the law would not imply such words unless it was obvious or necessary, which it was not in this case.

Forfeiture

Waycourt Ltd v Viscount Chelsea [2006] EWCA Civ 511 was an appeal by a head lessee (W) against a decision that the lease had been forfeited. The head lessee altered the basement premises by converting one of the vaults into a kitchen and dining area. The section 146 notice alleged breach of covenant 'not to alter the plan layout height or elevation of demised premises'. The lessee sought a declaration that consent to the alterations had been unreasonably withheld and that there had been no breach of covenant. The trial judge held that there had been a breach and that forfeiture of the lease had occurred but granted relief. On appeal the issues were (i) whether there had been a breach of the clause; and (ii) if there had been a breach, whether the s.146 notice had correctly specified the breach complained of.

The Court of Appeal dismissed the appeal, holding that the alteration of the vault was clearly an alteration of the layout for the purpose of the covenant. Also, the s.146 notice was sufficient to draw the tenant's attention to the breach and that was all that was required of the notice.

Akici v LR Butlin Ltd [2006] 1 WLR 201 considered breach of covenant against sharing possession. A was the assignee of a business lease which included a clause prohibiting him from assigning, underletting, sharing or parting with possession of the demised premises. A allowed a company to occupy for the purposes of a take-away pizza business. B, the landlord, served a section 146 notice alleging breach for having assigned, sublet or parted with possession. A then acquired the shareholding in the pizza business and was appointed its sole director. B then effected peaceable re-entry. A applied for relief from forfeiture. The judge held that A had not parted with possession on the facts, but found that he had been in breach by sharing possession. Relief was refused notwithstanding that the landlord's section 146 notice failed to rely expressly on such breach. The Court of Appeal allowed the appeal, ruling that the judge had been wrong to construe the covenant against sharing possession as extending to sharing occupation. Further, as the s.146 notice failed to specify the particular breach of sharing possession rather than parting with possession, it was ineffective. The Court also stated that save in exceptional circumstances, a breach of covenant against parting or sharing possession was capable of remedy and A's acquisition of the occupying company would have constituted remedy of any breach.

Break clause

Fitzroy House Epworth Street (No.1) Ltd v Financial Times Ltd [2006] EWCA Civ 329. The landlords appealed against a decision that the tenant had successfully terminated its lease of business premises by notice given under a break clause. Prior to vacating the premises, T undertook extensive repairs in order to seek to comply with its covenants under the lease. L commenced proceedings and sought a declaration that T had not successfully terminated the lease as, on the date that T had vacated the premises, it had failed to materially comply with its repairing and other obligations under the lease. The first instance judge found that the word 'material' meant 'in context and taking all relevant considerations into account. The landlord appealed on the basis that the judge had misdirected himself as to the test of material compliance. The Court of Appeal agreed that the wrong test had been applied and the judge had taken into account irrelevant considerations. The purpose of the word 'material' in the break clause was to mitigate the requirement for absolute compliance with all covenants. The issue of material compliance had to be determined on an objective basis the relevant question being whether T had materially complied with its obligations and should be assessed by reference to the ability of the landlord to relet or sell without delay.

Legal & General Assurance Society Ltd v Expeditors International (UK) Ltd [2006] EWHC 1008 (Ch). The landlord (L) claimed arrears of rent and service charge in two leases which contained six month break clauses giving the right to determine in December 2004. E covenanted to yield up the premises with vacant possession in repair. E served break notices. In October 2004, the parties settled E's liability for dilapidations in consideration of a payment and E covenanted to keep the premises in no worse a state and condition than they were then. Later L claimed that it had not received the keys to the units and that E had left property there. The issue was whether the leases had been determined. L argued that the exercise of the right to break was conditional upon E delivering the premises with vacant possession, which it had failed to do.

It was held that it was an implied term of the settlement agreement that L waived the right to defeat notices that had already been served. If that had not been the case, it was settled law that if an option relating to land was made subject to conditions, those conditions had to be strictly complied with. On the question of vacant possession, the judge held that the retention of the keys, use of the units for storage and the presence of E's employees on the sites meant that L could not have occupied the units on 31st December 2004 and if that had been decisive of the issue in the case, it would have been held that vacant possession had not been given as required.,

Landlord & Tenant Act (Covenants) Act 1995. In Edlington Properties Ltd v J H Fenner & Co Ltd [2005] EWCA Civ 403 the original freehold owner had agreed with F to construct a factory on land in return for F taking a commercial lease of the factory. Rent was payable 'without deduction or abatement'. After taking possession of the factory F complained to the landlord that it was in breach of its obligations in the building agreement on the basis of defective construction. Shortly thereafter the landlord assigned the freehold reversion to a third party who in turn assigned to E. F ceased paying rent and E claimed arrears.

A preliminary issue arose as to whether F was entitled to raise an equitable set-off defence in relation to the alleged breaches of the construction agreement. The Court of Appeal agreed with the first instance judge's analysis of the operation of the 1995 Act and his decision that F was not entitled to set-off a claim for damages against E as the new landlord because the combined effect of sections 3 and 23(1) of the 1995 Act was to make the benefit and burden of covenants pass with the estate for the future, but to leave past rights and obligations with the assignor. The Court held that a tenant's right to claim damages against a predecessor in title of the present landlord was a personal right and not an interest in land. Two different situations have to be considered: (1) where the new landlord seeks pre-assignment rent and (2) where he seeks post-assignment rent. Where the new landlord's claim is for pre-assignment rent the claim is based on assignment of chose and is subject to any existing claims such as the right of set-off, but where the claim is for post-assignment rent the claim arises out of the reversion that has been transferred and it is not affected by equities arising at an earlier stage. It is also to be noted that the Court of Appeal took the view, based entirely on 'the need to ensure consistency of court decisions', that the words 'set-off' must be used in the lease in order to prevent set-off being used against rent.

In Avonridge Property Co Ltd v Mashru [2005] EWCA Civ 1306, A took an assignment of a head lease of seven commercial shop units and granted subleases in respect of six of the shops at substantial premiums and peppercorn rent. A covenanted in the subleases that it would pay the rent reserved by the head lease, but subject to qualification that: 'The landlord covenants with the tenant as follows (but not, in the case of Avonridge Property Co Ltd only, so as to be liable after the landlord has disposed of its interest in the Property)'¦'

Shortly after granting the subleases A assigned its reversion to P. P granted a sublease of the remaining shops and then disappeared allowing the rent under the head lease to fall into arrear. The head landlord issued forfeiture proceedings and the sub-tenants sought relief. Relief was granted on terms that they pay off the arrears and take new leases on similar terms to the forfeited head lease.

The sub-tenants claimed against A. The Court of Appeal upheld the decision in favour of the sub-tenants that the qualification in the sub-leases which purported to exclude A's liability for breach of covenant was void under the anti-avoidance provisions in s.25 of the 1995 Act. However, by 4 to 1 majority, the House of Lords allowed the appeal. Lord Nicholls commented that although A's case was not "overburdened with merit" it could not be said that the wording of the clause frustrated the operation of s.25. The purpose of the Act was to provide a way out of continuing liability for tenants and landlords alike and there was nothing in the Act to suggest that it was intended to exclude the parties' ability to limit liability from the outset in whatever form they expressly agreed. Lord Nicholls also commented that risks posed by the qualification were not obscured but were clearly evident on the face of the sub-leases and that any competent conveyancer should have warned the sub-tenants of the risks inherent in the clause.

Business tenancies

Note that the Court of Appeal has upheld the decision in Wessex Reserve Forces & Cadets Association v White (covered in a previous update in SJ Vol 149, No 31) both as to reasoning and conclusions ([2005] EWCA Civ 1744).

Norman Joss and Nick Grundy are barristers specialising in property and housing law at 5 Paper Buildings, Temple. normanjoss@5paper.com; nicholasgrundy@5paper.com