Landlord and tenant update - part I

Citation

(1998), "Landlord and tenant update - part I", Journal of Property Valuation and Investment, Vol. 16 No. 2. https://doi.org/10.1108/jpvi.1998.11216bab.002

Landlord and tenant update - part I

<Legal update

Landlord and tenant update ­ part I

Keywords Business tenancies, Break options, Lease surrender, Licences, Residential tenancies

January 1998Preliminary note. Readers may have noticed that there are now two landlord and tenant briefings each year. With this in mind, it seemed best in future to re-organise the way the cases and other materials are covered. In future, we shall examine common law matters in Part I of the two briefings and matters relating to business and residential tenancies in Part II of the material. It is hoped that this arrangement will be found convenient. It almost goes without saying that, while our best endeavours to trace important material have been used, no single article can hope to be comprehensive, but we hope that the following materials will prove of general interest.

Tenancies by estoppel and licencesBy a majority in Bruton v. London and Quadrant Housing Trust (1997) 4 All ER 970, the Court of Appeal have thrown some light on, and enlarged, the third category of Lord Templeman's exceptional cases as stated in Street v. Mountford (1985) AC 809. Lord Templeman, it will be remembered, said that one of the three cases where the grant of exclusive possession would not create a tenancy was where the grantor had no power to create a tenancy, as in the case of a requisitioning authority. The majority of the Court of Appeal in the Bruton case, notably through the incisive judgment of Millett LJ, have held, following Denning LJ in Lewisham BC v. Roberts (1949) 2 KB 608 at 622, that Lord Templeman's third category extended to a case where the grantor has in fact no estate or interest in the land which enables it to grant a lease or tenancy, provided at least that the grantor makes this clear to the grantee, who contracts with him on that basis.

Where it is indeed plainly understood by both parties that they contract on the basis that the grantor has no estate or interest in the land, which is also the fact, then there is no room for the grantee later to claim that he has a tenancy by estoppel. That is because, following Millett LJ, the doctrine of estoppel by convention, of which tenancies by estoppel are a sub-species, rests on the fact that if A and B both assume that a tenancy has been granted, when in fact A had no power to grant a tenancy, then A is as much estopped from denying that B has a tenancy as is B prevented from asserting that A has no power to grant him one. But that is not at all the same as where A, with no estate or interest in land, grants a licence to occupy to B, which Millett LJ said that A is entitled to do, making it clear to B that A has no estate or interest, and where B fully understands this.

The facts in the Bruton case need not long detain us. The defendant trust had no estate or interest in the land which it held under licence from a local authority. The trust granted the plaintiff a licence to occupy a flat within the relevant premises. Both parties knew, at the date of the agreement (1989) that the grantor was a licensee and was not purporting to grant a tenancy. The trust, as noted by Millett LJ, could not have conferred exclusive possession anyhow, as against all the world, to the plaintiff, seeing that it had no estate in the land itself. Thus, on the facts, it was held that the plaintiff could not claim to hold a tenancy.

The majority refused to follow Family Housing Association v. Jones (1990) 1 WLR 779, even though it came to the opposite conclusion on very similar facts to the present case. Millett LJ, for example, said that although a tenancy by estoppel must have been created in that case, it failed to consider whether the necessary conditions for the creation of such a tenancy existed. Thus the matter could be considered afresh by the Court of Appeal.

The dissenting judgment of Sir B. Neill held, as we understand it, that Family Housing Association v. Jones was binding authority on the Court of Appeal for the prosition that, given the similarity of the facts to the Bruton case, the occupier in that and in the present case had a weekly tenancy with exclusive possession, and that, following Street v. Mountford, the present plaintiff had the hallmarks of a tenancy. The fact that the parties might have stated that they intended to grant only a licence made no difference to this result, as Lord Templeman in Street v. Mountford had expressly held that such professions of the parties must be of no effect on the actual result of the agreement they had entered into.

Leave to appeal to the House of Lords was refused. On the whole, the approach of the majority is to be preferred, since it seems strange that if A has no estate or interest in land and makes this clear to the grantee B, that A should somehow be able to acheive the grant of a tenancy to B which, in the essential nature of things, he cannot do. Lord Templeman's strictures about the importance of giving effect to the substance of a contractual agreement to occupy land were, on this basis, directed at tenancies masquerading as licences. As Kennedy LJ in the present case said, in this case what the parties had described as a spade was a spade.

Implied covenant not to derogate from grantWhere a landlord grants a lease of any premises, he impliedly undertakes not to derogate from his grant ­ not to take away with one hand that which he has given with the other. The covenant extends to those actions on neighbouring land or premises of an adjoining tenant which cause a nuisance to the complaining tenant, and which the landlord might reasonably be expected to control. In Chartered Trust plc v. Davies (1997) 49 EG 135, the tenant was granted a lease in December 1988 of a shop unit in a shopping mall in Bognor Regis. The unit was one of ten. It was a back unit. There was a common passageway for access to the shop in question. The landlords advertised the shop unit as being in a high class development envisaging lettings to high class tenants only. The tenant ran a specialist chop selling puzzles and executive toys. The landlords reserved themselves general powers of management and control over the mall, including the passageway and had the right to be paid service charges for these facilities. The tenant had been marketed a shop unit in its place in a shopping mall. All tenants in the mall would, implicitly, be subject to the similar terms of lease, as was the pawnbroker. Thus the lease prevented the tenant from committing a nuisance and from obstructing his windows without consent. Thus the way one tenant conducted his business could have a great influence on the business of other tenants.

However, the landlords let the unit next to that of the tenants to a pawnbrokers' business. The tenant of this business obstructed the windows of that unit so that no light came from them into the passageway. Entry to the unit was limited to one customer at a time: the others queued outside the shop and spilled over in the area in front of the tenant's shop ­ groups of six to ten were not uncommon. All of this had a deterrent effect on the tenant's business, and choked it off entirely during an 18-month period.

The tenant complained over an 18-month period and on many occasions to the landlords who did nothing. Indeed the landlords agreed to the pawnbrokers' shop putting its sign at the entrance to the mall on the High Street side. The tenant disclaimed the lease by letter in August 1993. The landlords' claim for rent arrears failed. It was held that they ought to have taken steps within their powers of management to control the remaining units in the small development, and so, the obstructions in the passageway or by proceeding against the pawnbrokers for nuisance under their lease. The tenant was not to be expected to engage in the expense and uncertainty of litigation. The conduct of the landlords was a breach of their implied covenant not to derogate from their grant of the tenant's lease: they had continued the nuisance created by the tenant of the pawnbrokers' shop which amounted to a substantial interference with the tenant's business. The county court judge was entitled to find that they had repudiated the tenant's lease as a result.

Henry LJ took the opportunity to re-examine the principles applicable. Nuisance had not been pleaded in this case but the conduct of the landlord amounted to an undue interference with the defendant tenant's land, by means of the conduct of his pawnbroker tenant, which the landlord had adopted. That adoption was a derogation from grant, because the landlord failed to do anything to put an end to the nuisance. It was held that a landlord who was held liable for adopting his tenant's nuisance could be required to take action against that tenant. In this case he ought to have taken action because by not doing so he had rendered valueless the protection of the tenant's business which had been marketed in the letting scheme.

The case of Malzy v. Eichholz (1916) 2 KB 308 was not authority to the contrary but in any case if it was, times had changed and it could not represent the law today, notwithstanding the statement in Woodfall's Landlord and Tenant 11.275. Henry LJ cited Hilton v. James Smith & Son (Norwood) Ltd (1979) 2 EGLR 44, where landlords were held liable because they failed to take action to prevent other tenants obstructing a lessee's parking space to which he had a right under his lease.

The Court of Appeal said more generally that the doctrine of non-derogation from grant must not be too narrowly based. Henry LJ cited from the classical statement of Sterling J in Aldin v. Latimer Clark Muirhead & Co. (1894) 2 Ch 437 at 444:

(W)here a landlord demises part of his property for carrying on a particular business, he is bound to abstain from doing anything which would render the demised premises unfit for carrying on such business in the way it is ordinarily carried on.

Henry LJ said that the principle was based on the "bedrock of fair dealing, rather than a restrictive straitjacket of individual restrictions", citing in support Younger LJ in Harmer v. Jumbil (Nigeria) Tin Areas Ltd (1921) 1 Ch 200 at pp. 225-226 and also for a "modern statement of principle" Nicholls LJ in Johnston & Sons Ltd v. Holland (1988) 1 EGLR 264 at p 267 (Nicholls LJ). Thus once conduct amounting to a nuisance by a neighbouring tenant has been proved, the fact that it might be labelled a breach of covenant for quiet enjoyment or a derogation from grant matters less than the substance of the claim ­ a ruining of the tenant's business by the inaction of his landlord in the face of the known nefarious activities of an adjoining lessee.

Construction of leasesThe courts from time to time give some insights into the general principles to be used in the construction of leases. Melanesian Mission Trust Board v. Australian Mutual Provident Society (1997) 41 EG 153 is one such case. It dealt with a rent review dispute. That context must first be mentioned. The lessee undertook to pay a "base rent" during the term of the lease. This was for nine years with an option for three further three-year terms. In addition, he promised to pay a rent "where increased in accordance with the express provisions of this Lease at the specified rate". The lessee unsuccessfully claimed that the rent review clause (which allowed two rent reviews in the nine-year term) allowed the rent to move up or down ­ i.e. below the floor of the initial rent. On the facts the claim was dismissed. The rent review clause, taken as a whole and read with the whole of the lease, was clear and unambiguous. For example, the initiative for a rent review was with the landlord alone. The fact that this part of the clause used the word "shall" in relation to the landlord's starting a rent review did not force him or the lessee to seek a review. It was said to have laid down the route to be followed to achieve those results. Also, if the lease had provided for some means for the lessee to initiate or compel a review, that might have been an indication that a two-way review had been intended. In addition, careful provision had been made for a different position if the lease were renewed pursuant to the renewal option, and in favour of the lessee, who had the right to have the rent determined with regard to the market rent of the premises at the start of the new term. The fact that the parties had made this special provision showed that they did not impliedly intend to make an upwards or downwards provision in the generality of the lease. The Privy Council, in the words of Lord Hope repeated some well-established principles of construction of a clause in a lease of commercial premises. The principles were, it was said, well settled. The intention of the parties ­ the governing factor ­ was to be discovered from the words used in the lease. If ordinary words were used then these would be taken to bear their ordinary meaning. If their meaning was clear and unambiguous then that meaning must be given to them, since that was what the parties had agreed on.

The Privy Council, having helpfully re-stated these obvious and orthodox points, then said, which is new in this bald form, that the court ought not to search for an ambiguity. "Nor should the rules which exist to resolve ambiguities be invoked in order to create an ambiguity which, according to the ordinary meaning of the words, is not there" ((1997) 41 EG 153, p. 154). It was legitimate to look at the context of words used in a clause, as this might affect the meaning of the words. "Unless the context shows that the ordinary meaning cannot be given to them or that there is an ambiguity, the ordinary meaning of the words which have been used in the document must prevail" (ibid).

It was noticeable, in this case, that the Privy Council was not prepared to adopt a hair-splitting approach, so that it saw nothing in the fact that the word "rent" rather than "rate" at the end of the rent review clause was used. They refused to hold that a suspension of rent clause if the premises became unusable due to disrepair had any bearing on the construction of the rent review clause ­ thus in other words the court will go to other clauses of a lease if in doubt about the meaning of the clause in contention, but only if it derives help from the process. That could not be so with a clause such as suspension of rent for the premises, aimed at a quite different object to a rent review clause.

It would seem difficult to object to the common-sense propositions set out in this case; but the facts were fairly clear and when courts speak of intentions of parties, they seem to mean the courts' view of those intentions, construed objectively. If the rent review clause had been ambiguous, and if the court had formed the view that the purpose of the rent review was to enable the recovery of the market rent payable for the premises at the rent review date, it might easily have been possible for the court to conclude that the rent could be reviewed up or down. In this case the language of the lease was clear enough to prevent any such argument succeeding, despite the strenuous efforts of the tenant's counsel.

Misrepresentation principles revisitedIn the recently reported decision in Bridgegrove Ltd v. Smith (1997) 33 EG 96, the Court of Appeal reviewed the principles governing negligent misrepresentation. The tenants formed a partnership to carry on a garage business. They took a lease of basement premises and a rear yard of certain property of the landlords for a six-month term, and they thereafter remained in possession as monthly tenants. It seems that they sunk their money into these premises. Before the tenancy agreement was entered into, the landlord had orally represented to the tenants, in particular, that the premises were ideally suited for car repairs. He also represented to them that the premises enjoyed planning permission for this type of user. Neither representation was true. It was found that the tenants would not have taken a tenancy if they had known of the untruth of these statements. In fact the premises became the subject of a planning enforcement notice and could not be used for spraying cars, which activity had caused a neighbour to issue complaints about the resultant fumes, and yet which the Court of Appeal held formed part of carrying out car repairs. The landlords claimed unpaid rent. In the result, the tenants' counterclaim for damages for misrepresentation succeeded and they were awarded damages of £17,230, minus £ 8,470 for unpaid rent.

The Court of Appeal held that, following recent authority, the relevant principles governing liability for negligent misrepresentation were as follows:

(1) Where a person had been induced to enter into a tenancy such as this by a misrepresentation, whether fraudulent or negligent, he was entitled to recover as damages the loss suffered by him as a result of entering into the tenancy. (It will be noted in this connection that a negligent misrepresentation is treated for the purpose of measuring loss as on a par with one that is fraudulent ­ or known to be false when made by its maker ­ section 2 of the Misrepresentation Act 1967.)

(2) If a party had been misled, his position when he had discovered the truth had to be considered. Until then he was under no duty to mitigate (or reduce) his loss. It was not possible, in this case, even after the initial six month tenancy ended, for any mitigation to take place. This was owing to the fact that it had been reasonable for the tenants to remain in possession, lacking the resources to relocate, they having sunk their resources into the premises concerned.

(3) Where a person has entered into a tenancy as a result of a misrepresentation (having proved that he would not have signed the agreement unless the representations were true), he was entitled to recover all the losses suffered, capital and income, down to the date when he discovers the truth and has an opportunity to avoid further loss.

The result on the facts of a case such as this will no doubt turn on the quality of the evidence given on both sides and the judge's findings of fact were seemingly influenced his preferring the tenants' version of events. As far as the cut off date for recovery of losses is concerned, the premises in this case had been in a poor state of repair and needed much renovation work before they could be put to use. This goes some way to explaining why ­ despite the insecure nature of the tenure of the tenants ­ the Court of Appeal was not prepared to limit the tenant's claim to damages to the initial period of the tenancy. Had no significant expenses been incurred before the business had been commenced, or if in any event relocation at the end of the tenancy had been financially possible, then the court might have reached a different conclusion on this point.

Fixtures revisitedIn Elitestone Ltd v. Morris (1997) 2 All ER 513, the House of Lords unanimously held that a chalet or bungalow which rested by its own weight on a site, but which could not be dismantled as a whole and removed to another site, had become part and parcel of the land. It had stood there for half a century. Since it had been used by a tenant and his family under yearly tenancies, the tenant qualified for the protection of the Rent Act 1977 and could not be moved out by the site owner, who had wished to redevelop the site.

The House of Lords took the opportunity, while pointing out that each case must depend on its facts, and that authorities were a guide and no more, to review the tests applicable in the field. Lord Lloyd declined to use the expression "fixture". He adopted a threefold test from Woodfall, Landlord and Tenant, release 36 Vol. 1, p. 13/83 para 13.131. The test says that an object brought onto land may be (a) a chattel (b) a fixture and (c) part and parcel of the land. Objects within (b) or (c) are regarded as being part of the land. Lord Lloyd concluded that once the materials of which the bungalow in this case had been assembled, they ceased to be chattels.

Lord Lloyd said that the answer to this type of question depended mainly on two factors, the degree and the purpose of annexation. As to the first of these, the degree of annexation, he cited with approval a statement in the American case of Goff v. O'Connor (1855) 16 Ill 421, at 423. In that case the issue of whether a chattel became part of the land, where houses were in issue, depended not so much on the particular mode of attaching them to the land as on the uses and purposes for which they were erected and designed.

In the case of the purpose of annexation, his Lordship repeated his main point: a house so built that it could not be removed without destroying it ­ as in the present case ­ could not have been intended to remain a chattel. This point and his citation of the well-known judgment of Blackburn J in Holland v. Hodgson (1872) LR 7 CP 328 at 335, makes it reasonably clear that the test of the purpose of annexation is taken by Lord Lloyd (and indeed the whole House) to be purely objective in nature.

The other reasoned judgment in this case, that of Lord Clyde, is illuminating. He said that the main principle at stake was that of accession. This principle was distinct from that of removability of an object attached to land. Thus a fixture could be removed if it fell within a common law exception allowing removal of tenants' trade fixtures or within a different, but related exception for things attached to the freehold as ornamental fixtures.

In deciding whether accession had taken place, Lord Clyde noted that account must be taken of the degree of physical attachment and the possibility or otherwise of restoring the article to its original state once it had been removed. However, he laid some stress on the fact that in some cases (notably D'Eyncourt v. Gregory (1866) LR 3 Eq 382, where statutes rested on the land by their own weight) "accession can operate even where there is only a juxtaposition without any physical bond between the article and the freehold" (p. 523j). Thus the intention test (in relation to the issue of attachment) must be resolved objectively. "It is the purpose which the object is serving, not the purpose of the person who put it there" (p. 524g). The actual intention of the person who put the object there was not relevant. In this case, the bungalow satisfied the requirement of a degree of permanence: it was not merely, as was the greenhouse in Deen v. Andrews (1986) 1 EGLR 262, a temporary and removable erection.

The House of Lords have moved back to earlier objective tests in this field and away from any subsequent suggestions of the relevance of subjective tests. We may not read much in future textbooks of the question of which of the object or purpose tests of annexation is to predominate in a case of doubt: they seem to have been treated as of equal value and as relevant only to the issue of accession.

It is notable that Lord Clyde insisted that the end result of what was done to the object brought onto land must be regarded, not the subjective intention of the person bringing or affixing the object to land. This should simplify the law, as narrowing the range of inquiries needed. Both he and Lord Lloyd stressed the need for a permanent accession of the object to the land, and within this the question of the degree of attachment was a relevant factor. The House of Lords also emphasised the need not to cite one case as decisive guidance to the result of another case, as may have happened in the present case, since Deen v. Andrews was, to the House, different to the present case on the facts.

Notable was what the House did not stress. Little appears about any need to examine the question of the extent of any permanent damage or injury to the land if the object brought onto it is later removed ­ rather the issue of the permanence of the attachment is emphasised, which may be saying the same thing. In future, as noted, the intentions of the person bringing the object onto the land will count for nothing, if the observations in this case are taken to apply outside its own facts, which they seem to be intended to by the House of Lords. The actual end result of what the person bringing the object onto the land did with the object could well be decisive. It is interesting to note that the word "fixture" only featured in the judgments of this intriguing case as the object of criticism: the expressions "accession" or "object brought onto land" being preferred. It remains to be seen how far the case will simplify the law but its emphasis on commonsense and on the objective end result of bringing objects onto land, as well as paying due attention to the nature of the objects themselves, rather then the mechanistic application of well-worn tests will be helpful.

Liability of underlessee to head lessorOwing to the doctrine applying to leases granted before 1 January 1996, in principle it is not possible for a head landlord directly to enforce covenants contained in a head lease against an underlessee, nor to enforce covenants in the headlease entered into by the underlessee with the headlessee. If the head lessor wishes to enforce such covenants, he must arrange a clear form of words which makes it clear that not only the mesne or intermediate landlord is to benefit from the sub-tenant's covenant, but that he is also within its scope.

In Amsprop Trading Ltd v. Harris Distribution Ltd (1997) 47 EG 127, Neuberger J adhered to the orthodox interpretation of the relevant provision, section 56(1) of the Law of Property Act 1925, in order to reach the general result just set out. The facts were that USF granted a head lease in October 1975 to K for 99 years less three days. USF assigned the freehold reversion to Amsprop, who in due course re-assigned it to AT Ltd. Meanwhile, K had sub-let the whole premises to D1, with the consent of the head lessor. D1 had assigned its sub-term.

In the sub-lease the underlessee entered into a covenant with the landlords (prima facie with K) to permit the superior landlord and the immediate landlord a right to enter and inspect the premises in order, inter alia, to view their state of condition and repair. The underlessee also undertook at its own cost to execute all necessary repairs following three months' notice from the landlords.

AT Ltd, the then head lessor, purported to give a notice to repair to D2, the current underlesse, in February 1996. D2 abandoned the premises in March 1996 and the headlease of K was forfeited. However, it was held that Amsprop Ltd, the original assignee of the freehold reversion, was not entitled to recover from the defendants (the original sub-lessee and the sub-lessee by assignment) damages for breach of covenant to repair. (Since success by the original head lessor against the underlessees was an essential precondition to any action by its successor in title, the claim by the latter must fail.) The principal reason for this ruling was that section 56(1) of the Law of Property Act 1925 did not apply, following Beswick v. Beswick (1968) AC 58. The covenant in the sub-lease between the intermediate landlord (K) and the underlessee did not in terms purport to be with anyone other than the parties to the sub-lease. No one else was mentioned as a person for whose benefit the covenants were made. In any event, Neuberger J held that these covenants functioned satisfactorily without having to extend them. The head lessor could have enforced its rights against K, the intermediate landlord, who, therefore, obtained for itself a corresponding right to enforce the covenants against the underlessee for the time being. In addition, the identity of the party undertaking the burden of the covenant was clear and unambiguous. Section 56 did not confer the benefit of this covenant on a party not in terms within the scope of the covenant.

Neuberger J also held, obiter, that had he decided that the original assignee of the reversion, Amsprop, could have succeeded in recovering damages, its assignee AT Ltd would have been entitled to claim damages against the underlessees under section 78(1) of the Law of Property Act 1925. AT Ltd was a "successor in title" to the assigning lessor within that provision. The covenant by the sub-lessee to allow entry and repair "touched and concerned the land" within the test propounded by the House of Lords in P&A Swift Investments Ltd v. Combined English Stores Group plc (1989) AC 632. In any event, since in the Swift case it was held that an assignee of the original landlord could claim against a surety of the tenant since the surety covenant touched and concerned the landlord's interest, the present head landlord in the instant case would have been entitled to claim damages against the underlessees at common law, invoking the Swift case itself, had Amsprop been entitled to sue under section 56(1) of the Law of Property Act 1925.

The two final rulings may be noted. Neuberger J held that even if the current landlords had been entitled to claim against D1, the first sub-tenant, they would have failed against D2, the assignee of the sub-tenancy, owing to the lack of privity of estate between the parties. In addition, the underlease had ended during the currency of the three-month notice served under the right of repair clause. Thus the obligation to comply with it had, in the words of the judge, fallen away.

If the head landlords in this case, having regard to the established interpretation of section 56(1) of the 1925 Act (nothing much in the present case was new), had wished to benefit themselves and their successors in title in relation to the entry and repair on notice clause, nothing would have been simpler than to have expressly extended the sub-lessees' covenant to them, as presumably by making it a condition of any sub-letting that an identical covenant in an extended form should appear in any sub-lease. They did not do so and there seemed no good reason to stretch the interpretation of section 56(1) to suit the landlords in this case.

Enforcement of positive covenantsIn last year's landlord and tenant review, we discussed Co-Operative Insurance Society Ltd v. Argyll Stores (Holdings) Ltd (1996) 1 EGLR 71, in which a covenant by the tenant of a shop "to keep the demised premises open for retail trade during the usual hours of business" was enforced by an order of specific performance awarded by a divided Court of Appeal, which had reversed the court of first instance. There is no need to repeat the facts of the case here, therefore.

The House of Lords (1997) 23 EG 141 held that the Court of Appeal (Millett LJ dissenting) had wrongfully interfered with the decision of the court of first instance. It discharged the order of specific performance. Lord Hoffmann gave the only reasoned opinion, but Lord Clyde reserved his opinion as to the position of civil jurisdictions ­ France, Germany and Scotland, where a form of specific performance prevails as the ordinary remedy over damages.

It is convenient first to deal with the particular grounds on which the original order was restored by the House of Lords before turning to more general questions. Lord Hoffmann said that:

(1) If it could be shown that there would be a difficulty of supervision in relation to any order of specific performance, then this was a powerful argument against granting an order. The difficulty of supervision is now, it seems, the fact that the sanction for non-compliance is contempt proceedings, which may be heavy-handed. Until now it had been thought that the doctrine required the court to ask itself if its officers would have to be present from time to time to supervise the execution of the order.

(2) It was not necessarily the case that it sufficed, to render an award of damages inadequate and enable an order of specific performance to be made, that the contract defined the tenant's obligation with sufficient precision. But even if it were the case, then in the present instance the words of the covenant, were not sufficiently clear: thus they did not specify the level of trade nor the area of the premises for the conduct of the business.

(3) Any order had to be certain. This requirement could not be avoided by holding that it was inconceivable that the tenant would not run its business efficiently, as was assumed by the majority in the Court of Appeal.

(4) The Court of Appeal had thought it likely that the tenant would re-assign: thus any order for specific performance was assumed to be for a short duration. Lord Hoffmann said that no time-scale could be assumed: and wondered what might happen if the tenant could not re-assign: would it then have to carry on business until 2014, when the lease expired?

(5) The conduct of the tenant in breaking its covenant was regrettable: in this case, however, both parties were large sophisticated organisations both of whom were perfectly aware that breach of the "keep open" covenant sounded in damages.

The above matters tilted the balance away from ordering specific performance in this case. In one sense, all that occurred in the present case was that the Court of Appeal was held wrongfully to have exercised its discretion to award specific performance on the facts. However, the House of Lords reviewed the settled practice of the courts not to grant an order of specific performance, or a mandatory injunction, so as to require a tenant to keep a business open, certainly when the business was losing money. Their Lordships found nothing wrong at all with the settled practice.

One of the main reasons advanced for upholding it was that specific performance was traditionally regarded as an exceptional remedy, as opposed to damages. Thus it will not be awarded where damages would be an adequate remedy. But where the tenant had undertaken to run a business, the fact that damages would not adequately compensate the plaintiff for breach of such an undertaking was not enough to incline the court to award specific performance. Other factors came into play. In particular, there was a need for continuous supervision ­ in the sense already explained.

The House of Lords noted that if the plaintiff seeks to require the defendant to achieve a given result ­ such as to repair a collapsed balcony, then the court is prepared to make an award of specific performance, whereas if the defendant is under covenant to carry on an activity, repeated applications for compliance might have to be made. In addition, in the latter case the terms of the court order might have to be imprecise (as might be the case in the present dispute) and this in itself would be a discretionary bar to specific relief, whereas an order requiring a given result could be very precise indeed. Lord Hoffmann also mentioned that if specific performance of a keep open covenant was awarded, the landlord might be able to enrich himself at the tenant's expense. The tenant would lose much more money from complying with the order in a case such as the present than any sums gained by the landlord from forcing the defendant to comply.

The fact remains that the defendant in this case had signed a covenant knowing fully well what he was doing and with no inequality of bargaining power between himself and the plaintiff. The tenant flagrantly and deliberately broke his covenant. At the same time, it was clear that his business was losing money. It might seem oppressive to him to be required to continue to run his business at a loss: and the result of any application for contempt of court would not be possible to predict, even if the House of Lords had not reversed the Court of Appeal's order of specific performance. Thus it could be said that the balance of advantage seemed to favour the status quo, which was that the covenant had been broken and that it might be futile and encouraging of further litigation to order its observance until possibly the end of the lease. Thus the first instance judgment should not have been interfered with. The extent to which the result in this case will be taken as a carte blanche by tenants similarly placed to the defendants in the present dispute to disregard their obligations is not clear as some of the observations of Lord Hoffmann were directed to the exercise in this case of discretion. At the same time, as the settled practice of the court not to award specific performance as opposed to damages for breach of a "keep open" covenant has now been approved at the highest level, it seems that certain defendants such as the tenants in the present case will be able to in effect purchase the right to break their covenants ­ and even very precisely drafted "keep open" covenants would not avoid the discretionary bars against awarding specific performance which were canvassed in the present case. It seems that only exceptionally will a breach of a "keep open" covenant lead to the award of specific performance: Lord Hoffmann's mention of gross breach of personal faith or an attempt to use a threat to break the covenant as a means of blackmailing the landlord, which would override the settled practice, seems to support this belief.

Exercise of option to breakIt is often provided in leases that if a lessee wishes to exercise an option to break the term of the lease early, he must have performed and observed the covenants of the lease up to the date of determination. Sometimes, as in Reed Personnel Services v. American Express Ltd (1997) 1 EGLR 229, the requirement is qualified by the expression "reasonably". In that case the tenant exercised his option to determine on time but failed to comply in time with a landlords' notice to remedy breaches of covenant to repair. The High Court held that since he had failed to comply with his obligations, this tenant could not comply with the stated condition precedent for the exercise of his option to determine and so the lease continued.

Jacob J reviewed the law. The effect of the qualification "reasonably" was to require consideration of whether the tenant had behaved as a reasonable tenant might have behaved in relation to his covenants, following Paull J in Gardner v. Blaxhill (1960) 1 WLR 752. On the facts, the tenant had not behaved reasonably as envisaged by the condition precedent ­ he had completely failed to comply with the repairing covenant.

Jacob J held, obiter, that where there was a reasonableness requirement in a pre-condition, there might be a difference between options to renew and options to break a lease. Thus an obligation to paint the premises on the inside was much more important if the tenant was leaving than if he was staying on. This was made clear by Bingham LJ (as he then was) in Bass Holdings Ltd v. Morton Music Ltd (1988) Ch 493, 538, cited in the present case. To paraphrase his words, where a tenant had performed badly during the lease, although the landlord might well wish to be rid of that tenant, he would also be concerned to see to it that all rent arrears were cleared and all covenants performed by the date of the break in the lease ­ since after then he could not distrain for rent or, as the case might be, re-let or sell the property without incurring expense. We would add that if a tenant has a privilege of breaking a lease early, he must expect, as a corollary of that, to perform his covenants in large measure or strictly, depending on the exact words of the break clause, as a condition precedent of the exercise of his privilege and that the law as set out by Jacob J is not unfair, save perhaps that aspect which holds that if an existing breach of covenant to repair is trifling, but the words of the condition are strict, the tenant cannot then break the lease.

Covenant against assignments or sub-lettingsThe courts seem to be moving to the view that if a reason given by a landlord for refusing consent to a proposed assignment or sub-letting was not operative on his mind at the time he notified it to the tenant, the landlord cannot rely on that reason later on if his decision to refuse consent is challenged. Moreover, they continue to hold that while it is not a condition precedent to a reason being upheld as reasonable that the landlord need give reasons which every similarly so placed landlord might agree with, the court retains its right to disqualify a reason if no reasonable landlord would have given the ground given by the landlord in question.

These two points result from Blockbuster Entertainment Ltd v. Leakcliff Properties Ltd (1997) 08 EG 139, decided by Neuberger J. We noted the case in JPVI, 1997, Vol. 15 No. 1, when it had been only informally reported; but the case is worth revisiting for reasons which it is hoped will become apparent.

The tenant held a 15 year lease at an annual rent of £115,000 of commercial premises. He was subject to a fully qualified covenant not to, inter alia, underlet the whole of the premises. Any permitted underlease, by clause 5.8.6 of the lease, had to be granted without any fine or premium at a rent not less than the open market rental value of the premises to be approved by the landlord. Such approval was not, in principle, to be unreasonably withheld or delayed.

The tenant agreed to grant a sub-lease to Byte, on 1 July 1996, at an initial rent of £75,000 annually, subject to consent being obtained to the transaction. The landlord refused consent, first, because of alleged detriment to his reversion; second, because he reasonably thought that the rent was less than the open market rent of the premises. He failed to sustain both grounds and declarations were made accordingly. There was a claim by the tenant for damages under the Landlord and Tenant Act 1988 but nothing is reported as to that claim, as it was put off pending the court's rulings on the two issues just mentioned.

Neuberger J said that the best evidence from a tenant of what a particular property might be worth on the open market is the rent payable under a binding agreement for the letting of the property after it had been properly exposed to the market. If it could be shown that the property had been marketed incompetently or that for some special reason of the landlord, the property had not been properly exposed to the market, then the highest firm bid might not represent the market value of the property concerned. But on the facts his Lordship found that the criticisms against the lessee's marketing exercise in connection with the proposed sub-letting were unfounded.

It was held, as a matter of construction, however, that it would still be open to this landlord to justify the refusal of his consent in this case if he could convince the court that at the time of the refusal of consent, he reasonably believed that the £75,000 pa was not the open market rental value of the premises. But the landlord failed on this issue also. There were two main difficulties in his path, and he overcame none of them:

(1) At the time of the refusal he did not consider whether the £75,000 was the market rental value of the premises save in the most perfunctory way. Thus he could not now take the point as the ground put forward was not in his mind at the time of refusal, applying Bromley Park Garden Estates Ltd v. Moss (1982) 1 WLR 1019.

(2) If the landlord had formed a view as to the question at issue, his view would not, in the judgment of Neuberger J, have been a reasonable one. Thus the landlord, at the time of his refusal of consent, was no doubt aware of the marketing exercise carried out by the tenant. A subsidiary point was that he refused his consent under a different part of the clause in the lease than that referring to his power to approve the rent.

As to the issue of alleged diminution in the value of the landlord's reversion, the landlord failed to prove any diminution on the facts: indeed an underletting at the rental agreed would increase the value of his reversion, which had seemingly been affected by the fact that the current lessee was seeking to move out so soon after having gone into occupation.

In this case the High Court accepted that in law a landlord was ordinarily entitled to refuse consent if he reasonably believed that the proposed transaction would reduce the market rent for the premises, although if he wished to sell his interest, the position might be different. The court also accepted that it sufficed if a reasonable lessor might take the same view as he did: he did not have to show that all lessors similarly so placed would agree with him. It also sufficed to show that there actually would be, or might very well be, a depreciatory effect on the market value of his reversion. But in any event the landlord was not entitled to require the tenant to wait until the market improved for sub-lettings. Otherwise, in any case where the landlord wished to sell his reversion in a market he anticipated would rise, he could then prevent the lessee from subletting.

It will be seen from the operation of the principles in this case that it mainly confirms the existing law although it is a good example of the application to perhaps topical facts of these established principles. A new point is the last referred to, viz, that a landlord is not entitled to prevent a tenant from sub-letting merely because he has plans to sell his reversion at some time in the future if a favourable opportunity should arise. There is no reason why the courts should extend the restrictions of disposition covenants so as to cripple the common law right of a lessee to sub-let to any person he pleases at any time he pleases. It may also be noted that the fact that the test for assessing the reasonableness of a refusal of consent is partly subjective does not prevent the court from saying that no reasonable person could have taken the view the landlord in the given case has adopted.

Licence to alter premisesA new point had to be considered by the Court of Appeal in Mount Eden Ltd v. Prudential Assurance Co. Ltd (1997) 1 EGLR 36. This was as to the effect in a letter granting a licence to the lessee to undertake certain works of the statement "subject to licence". The Court of Appeal held that these words did not render the conferral of the permission in any sense precarious or devoid of all meaning, and refused to make any analogy with the words "subject to contract".

The case was concerned with four long leases of high-class shop premises for terms of 999 years from 6 April 1915. Each lease contained a widely-drafted express prohibition in a qualified form against the carrying out of any "addition or alteration affecting the elevation, external structure or stability of the said premises..." without the previous written consent of the landlord. Such consent could be temporary or permanent, revocable or irrevocable.

The lessees wished to replace the outside cladding to the premises and realised that the work needed fell within the covenant. In due course the landlords, having been sent the plans of the lessees, sent a letter to them which was stated to be "Subject to licence". It confirmed that the freeholder gave consent to the works subject to three conditions. One of these was that the lessee would enter into a formal licence. The letter ended by asking for confirmation of acceptance of these terms and indicated that the landlord's agents would then arrange for the necessary licence to be prepared.

After the lessee had satisfied a further condition of the letter, namely, obtaining consent from the planning authority, forfeiture notices were served on the lessees by the landlord, relying on breaches of the covenant against alterations in the lease.

The Court of Appeal held that the landlords' agents' letter had given consent to the proposed work, and that there was no breach of covenant. The words "Subject to licence" in that latter did not render the consent of the landlord in any way temporary, revocable or qualified. The letter, taken as a whole, expressed consent in the clearest possible terms. Thus the words at the beginning of the letter could not qualify these unambiguous expressions of consent.

It is of interest to note the reasons why the Court of Appeal adopted the view they did of the expression "Subject to licence" in the letter in question. This was a case requiring a unilateral act, viz., the consent of the landlords. The sole issue was as to whether such consent had occurred. That was a question of construction of the letter in the surrounding circumstances, and, as seen, the latter made it very clear that the consent was subject only to three stated conditions.

The Court of Appeal accepted the view of Harman J in Ventian Glass Gallery v. Next Properties Ltd (1992) 2 EGLR 42. Harman J had distinguished between cases where there was already an existing legal relationship between the parties and those where they were, at the relevant time, strangers. The landlord and tenant relationship was an example of the former situation and that of parties negotiating for the sale and purchase of land an illustration of the latter. The court did not, as between landlord and tenant, regard the need for a formal licence as being an essential step without which there could be no licence. The magic words "subject to contract", which on clearly established authority (see e.g. Salomon v. Akiens (1993) 1 EGLR 101) prevent the parties from being taken to have agreed on a binding contract for the sale of land, were confined to the case of bilateral negotiations, and did not extend to a unilateral act. It will of course be noted in the present case that the terms of the letter of consent were taken to be definite, and unqualified. The courts have been similarly reluctant to hold the words "subject to contract" as denying the validity of an act in the case of rent review: cf Royal Life Insurance v. Phillips (1990) 2 EGLR 135. It must be emphasised that the question of the terms of a consent or licence letter are always ones of construction of the whole document in its context, which means that one expression will not be wrenched out of context. That was what the landlords were seemingly trying to do in the case under consideration.

Expense of insuranceLandlords sometimes have the right under the terms of the lease to require their management company to insure the building or buildings occupied by tenants with an insurer named by themselves, and their managing company is then able to collect the insurance premiums from the lessees as part of their service charges. The power of the landlord to name an insurer may well lead to increases in costs for tenants, especially if no proper safeguards are provided within the terms of the lease against landlord conduct in changing the insurer to a more expensive company, perceived by lessees as oppressive and certainly more expensive for them. A term that the insurer is to be reputable or to offer market rates will act as no protection against a landlord. Berrycroft Management Co. Ltd v. Sinclair Gardens (Investments (Kensington) Ltd (1997) 1 EGLR 47 was a case involving a claim by the tenants of flats that their landlord had changed the nominated insurer in the way just mentioned, so forcing up their costs, when cheaper insurance could have been arranged. The landlord management company had to keep up insurance of the buildings concerned against fire and other risks. The insurance had to be with an office of repute and if directed by the landlord through a company nominated by the landlord (emphasis supplied). The tenants covenanted directly with the landlord and any successor of the landlord to pay management charges, including a proportion of the insurance premium. The present landlords, once they had become such by assignment, directed the management company to take out the insurance with a different company, which charged higher rates, and to the payment of which the tenants objected.

The tenants argued that a term should be implied into their leases, as between them and the management company and the company and the landlord that the sums charged by the nominated insurer should not be unreasonable. Alternatively, that sums charged should not substantially exceed what the tenant could himself arrange with an office of repute. Beldam LJ dismissed this claim. There was no reason to imply any restriction on the landlord's right to nominate the company or the agency through whom insurance was to be arranged. The tenants' rights were, to Beldam LJ, protected by the requirement in the lease that the insurer must be reputable. The rates charged by the disputed insurer were market rates and it was beside the point that lower rates might have been arranged by the management company. Beldam LJ agreed with Lord Shaw in Viscount Tredegar v. Harwood (1929) AC 72 that the landlord in this case had no doubt nominated the insurer he wished to use for reasons of simplicity ­ as he owned many other properties ­ thus requiring all his policies to be with one insurer.

The two recent cases of Bandar Property Holdings Ltd v. JS Darwen (Successors) Ltd (1968) 2 All ER 305 and Havenridge Ltd v. Boston Dyers Ltd (1994) 2 EGLR 73 were cited and treated as guides to the correct approach of the court. In the latter case the Court of Appeal refused to limit the landlord to recovery of a reasonable amount of premium, if the lease did not in terms limit him to that sum. The court held that only if, for example, the insurance had not been arranged in the ordinary course of business, could the landlord not recover the premiums concerned from the tenants ­ if otherwise entitled to do so. The landlord certainly did not have to "shop around" for the cheapest insurance.

The Court of Appeal held that the landlord was caught by sections 18-30 of the Landlord and Tenant Act 1985, owing to the fact that under section 30 "landlord" included any person with a right to recover a service charge, seeing that the tenant had covenanted directly with the landlord to pay the service charge to his management company. But the insurance was not paid by or on behalf of the landlord and so was not "relevant costs" within section 18 of the Act. Thus the tenant could not use this route to reduce the costs paid. Since the terms of the tenancy did not require the payment by the tenant of the insurance costs, but rather the fact that the landlord could nominate the company, Sched, para 8 to the 1985 Act did not apply. It might perhaps have been otherwise if the landlord had been able to nominate the insurer direct.

The decision will not be popular with residential tenants and the question arises both as to its correctness and as to how to mitigate its results. As a matter of authority, the extreme reluctance of the courts to alter the express terms of executed leases has been noted many times. It makes no difference that hardship may result to the tenants: it is the landlord's interests which count ­ even if the tenant has had no real choice but to accept the terms of a standard-form insurance nomination clause. Since the Court of Appeal has adopted a technical and not a purposive approach to the terms of sections 18-30 of the 1985 Act, which were amended in 1987 precisely to deal with overcharging where the landlord is able to nominate the insurer, these provisions seem deficient and may need amendment further to discourage any unreasonable use of a landlord's nomination power. After all, Parliament has recently acted (Housing Act 1996 section 81) to prevent oppressive use of forfeitures as a means of enforcing service charges arrears. This decision is regrettable. It is the sad result of the rigid application of the court's refusal to imply terms save in the most dire circumstances and of an unduly technical approach to tenant remedial legislation. It is however seemingly based on a correct reading of the authorities and so only legislation can alter the result arrived at ­ unless, intriguingly, this type of clause could be considered to be a candidate for the fairness tests of SI 1994 No. 3159, discussed in an earlier issue of this Journal.

Notices to break a leaseThe House of Lords has broken with a well-established rule of at least 50 if not 150 years' standing. They held, in Mannai Investment Co Ltd v. Eagle Star Life Assurance Co. (1997) 3 All ER 352; (1997) 1 EGLR 57 that if a tenant serves a notice to exercise a right to terminate his lease early, and the notice contains a mistake as to the date of termination, that mistake was not necessarily fatal to the validity of the notice. If a reasonable landlord would be left in no doubt as to the meaning of the notice, having regard to the context of the lease under whose provisions it was served, the notice would be upheld.

In the present case, the tenant held commercial premises under two identical ten-year terms. He had the right by minimum notices of six months to terminate the lease by notice expiring on the third anniversary of the term commencement date. The term commenced on 13 January 1992. Unfortunately, the tenant served identical notices to determine the lease, pursuant to the relevant clause, on 12 January 1992, one day too soon. This date was stated in error. Unlike the case with certain allegedly invalid notices, since the termination date having passed, the tenant had only one chance to serve the relevant notices and could not validly serve new notices.

The Court of Appeal (1996) 1 EGLR 69 (see our note JPVI, Vol. 14 No. 2, p. 89f) held that the tenant's error was fatal to the validity of the notices. By a narrow majority, the House of Lords held that, applying the new test set out above, that the notices were valid. Thus Lord Steyn, for the majority, said that a reasonable landlord would know of the terms of the lease and of the date of the third anniversary of the term date commencing, viz., 13 January. A reasonable recipient would have appreciated that the tenant wanted to terminate his lease on that date and had misdescribed it as 12 January not 13 January. The reasonable recipient would not have been perplexed in any way by the minor errors. The notices were valid. By contrast, the minority in the House of Lords insisted that one of the requirements for validity of these notices was that they should have plain unambiguous words claiming to determine the tenancy at a certain time. These were not present. The notices were therefore invalid as they did not comply with the specifications agreed for their validity in the terms of the lease itself. Although the court had the power to condone a typing error in a notice, if it was obvious to the landlord what the tenant had meant (as where, in Carradine v. Aslam (1976) 1 WLR 442, the notice gave as its termination date a year which had already passed by the time it was served) it had no power to correct an error as to the day of a month. That type of mistake was a plain error and not some ambiguity or typing slip.

The new more flexible rule applies, as admitted by the majority in the House of Lords, not only to tenant's notices to exercise a right to break the term of the lease, but also to notices to quit, at least at common law. It is not clear whether the ruling applies to statutory notices to terminate under Part II of the Landlord and Tenant Act 1954. Since special statutory rules and forms apply to these notices, the ruling in the present case seems unlikely apply to these notices (cf Payne v. Barnet London Borough Council Times 24 June 1997, in which the Court of Appeal held that special statutory procedures for the disclosure by landlords of certain structural defects to tenants of council houses modified, to the extent only that they applied, the common law rule of caveat emptor). However, there is no clear statement to this effect in the Mannai decision, and this area of uncertainty will surely be explored by the litigation which the result of the case, to our mind, risks producing.

The adoption of a new rule was justified by Lord Steyn on a number of grounds. The new, reasonable recipient test of validity was, he claimed, objective, since the issue was as to how a reasonable recipient would understand the notices. The court would allow evidence of the surrounding circumstances, in this case for all practical purposes the terms of the lease, to influence its interpretation of the understanding of the reasonable recipient, who in this case would have had in the forefront of his mind the terms of the lease. In addition, according to Lord Steyn, the purpose of a notice of the kind under consideration was informative only. If the notice unambiguously conveyed the purpose of the tenant to put an end to the lease then immaterial errors in it would be ignored. On this basis, the tenant's error as to the precise date at which the right to break was to be exercised fell into the category of an allowable error.

Neither Lord Steyn nor Lord Hoffman were prepared to hold that notices in break clauses in leases fell into a special category. Indeed, Lord Steyn, and seemingly also the majority in the House of Lords, regarded these notices as governed by similar rules of construction to notices to quit, to determine licences and to complete. Thus, provided that the reasonable recipient was left in no doubt as to the exercise of the right reserved, having regard if need be to the terms of the lease, then the notice would be valid. According to this flexible test, the tenant in this case could validly have served a notice to break the lease which simply stated that he wished to put the lease to an end at the third anniversary of the commencement date of the term.

The results of this case may turn out to be unfortunate. The question is very finely balanced, however, and one cannot ignore that the majority was influenced by an infusion of cases in the commercial contract field in which, seemingly, the flexible text which they favour was adopted ­ albeit in a rather different context from the present case. Such an approach has the danger that one can lose sight of the fact that leases are proprietary as well as contractual animals.

The new test has the advantage that errors in a notice to break a lease or for that matter in a notice to quit will be condoned provided that a reasonable recipient would have been able to make sense of them. It is the court which will decide this issue, not the say so of the parties ­ so, unhappily, risking litigation. The chances are that small scale slips of the kind in issue here will pass the new test, so enabling careless tenants or landlords to get away with the consequences of their error. Whether this result is a good thing is a matter for debate.

The new rule relieves the server of an erroneous (as well as an ambiguous) notice from the consequences which might follow from the application of the old rule, because although it might no doubt be possible to serve a further notice to quit, once one has failed in time to serve a notice to break, the chance to serve a new one will probably have vanished. There is a disproportion between the gravity of the "offence" in serving a carelessly drawn up tenants' notice to break and the penalties which flow from striking down such a notice (continuing liability to pay rent and for the performance of leasehold covenants until the expiry date of the lease). This may well have influenced the majority of the House of Lords to stigmatise and abandon the former rule (epitomised by Hankey v. Clavering (1942) 2 KB 326). To Lord Steyn, the strict approach of Lord Greene MR in that case was "rigid and formalistic". Lord Hoffman said that the old rule was "highly artificial and capable of producing results which offend against common sense".

However, the authority of the present case is weakened by the dissents of Lords Goff and Jauncey, who adhered to the old rule. Lord Goff pointed out that the notice in this case did not comply with the specifications of the lease. In any event, the minority thought that the rule in Hankey v. Clavering provided a clear and well-settled rule. What is more disconcerting than the abandonment with ease of a well-settled rule is the encouragement to litigants which the new test may open up. It is not the policy of the law to encourage litigation, yet this may be the result of raising the possibility of airing uncertain questions of degree as to when a reasonable recipient of an apparently invalid notice might be able to understand it. This decision may be greeted with some cheers but as time proceeds it may turn out to have less than happy results.

Implied surrender ­ againThe complexities of the doctrine of implied surrender, which some authors regard as sufficiently great to merit its abolition, at least in relation to abandoned premises (see e.g. N. Hopkins "Leasehold Reform: Time to Abandon Implied Surrender (1995) 58 MLR 547), surfaced again McDougalls Catering Foods Ltd v. BSE Trading Ltd (1997) 42 EG 174. The tenant of a lease of business premises went into receivership and vacated the premises, which were then invaded by gypsies. The tenant's receiver was held on the facts to have offered to surrender the lease to the landlord. The landlord had also initiated proceedings, which the Court of Appeal had held were inappropriate, to remove the gypsies. However, this fact alone did not involve that the landlord had accepted the tenant's offer to surrender. On the contrary, on the facts, which had to be considered objectively in the light of the conduct of the parties before and after the alleged act of acceptance, the landlord had done no more than was necessary to protect the property. He had asked the tenant to procure the removal of the trespassers and only on their failure did the landlord himself act.

The Court of Appeal cited from and followed the principles as set out in Proudreed Ltd v. Microgen Holdings Ltd (1996) 1 EGLR 89, 90B (which were noted in JPVI, Vol. 15 No. 1, p. 80). Reference was made to three cases. In one of these, Oestler v. Henderson (1872) 2 QBD 575, it was held that a lease was only surrendered as from the date when the landlord managed to re-let the subject premises, and not an earlier date when the tenant had handed back the keys to the landlord's agent. It was said in this case: "the landlords did nothing but what they might reasonably be expected to do under the circumstances...". In the second case mentioned, Pevlok Properties Ltd v. Dixon (1972) 25 P&CR1, it had been held that for the landlord merely to change the locks of premises was not in itself an acceptance of the implied offer of the tenant to surrender, by vacating the property. It was there said that: "(I)t is open to a landlord whose tenant has absconded both to protect the security of his premises and the state of their repair and yet to maintain his rights to rent from the tenant until a fresh one is found...". The last case mentioned in this connection was a decision of the Australian High Court, Buchanan v. Byrnes (1906) 3 CLR 740, where it had been held that a landlord of a hotel who had, after the tenant had left, procured the running of the business until finding a new tenant, had not, by re-possessing the premises, impliedly accepted the tenant's surrender offer at the time the tenant left. All he had done was to preserve the business as, in effect, a going concern, an essential step.

In this case there had to be a minute examination of the facts to discover the intentions of both parties and the circumstances, including the fact that the receiver must have known that there had been a problem with trespassers and that action would need to be taken to remove them from the premises. These complexities make the relevant law complex and difficult to predict in its application, as opposed to its principles. The complexities of this case seem to support Mr Hopkins in his view that the time for reform of this area of the law has arrived.

Service chargesAlthough the questions at issue in Secretary of State for the Environment v. Possfund (North West) Ltd (1997) 39 EG 179 were of construction of a particular lease, the case is worth mentioning owing to its unhappy result for the long lessees concerned. The landlords were entitled to be paid service charges by the lessees on account of the maintenance and replacement of air-conditioning plant. The two leases in question expired and the plant had not been replaced. The landlords were held, as a matter of construction of the leases, to keep the surplus funds as their own money. These leases had no machinery for repayment of any surplus of the fund to the lessees, which Rattee J regarded as an indication supporting his conclusion.

Forfeiture right remained in landlordIt has been held by the Court of Appeal in Kataria v. Safeland plc Times 3 December 1997, that a landlord who, in the contract to purchase business premises, had assigned the personal right to recover some £10,000 rent arrears to his predecessor in title, was nonetheless entitled peaceably to re-enter the premises, a modest kiosk, and to terminate the lease pursuant to his proprietary right to re-enter contained in the lease. This was notwithstanding the fact that the tenant had made arrangements to clear the arrears, so that she might well have been able to apply for relief against forfeiture, if the right to recover the rent arrears had not been assigned to the landlord's predecessor in title. The device seemingly used in this case worked because, as a result of the assignment of the right to sue for rent arrears to the landlord's predecessor, the tenant owed the present landlord nothing. In addition, peaceable re-entry of business premises was not subject to the same restrictions as applied to residential premises. Brooke LJ is reported as having noted the fact that the Law Commission reform proposals of 1985 had not been enacted, and this despite the publication of a draft Bill in 1994. Implementation of reform is probably not an immediate prospect. In any case, if it were based on the 1994 version of the reforms, it would arguably be one-sided, and so unfair, as those proposals omitted all reference to a tenants' termination order scheme which the 1985 proposals had suggested as a counterweight to the streamlining and reform of the admittedly technical rules governing forfeiture, as so well illustrated by the manifestly unjust result in this case.

Entitlement to bring forfeiture proceedingsIt now appears from the Court of Appeal decision in Britel Corpn NV v. Orbach Chani (1997) CLY No 409, that the management company of a block of flats could properly be ordered by the court, in its discretion under section 37(2) of the Supreme Court Act 1981, to take proceedings in the name of the landlord in order to enforce payment of service charges by tenants.

The proceedings had to be in the name of the landlord. The order in this case was proper because the service charges were, under the relevant leases, payable to the management company. It appears from the brief summary of the case that the proceedings, to forfeit leases, were to be at the instigation of one of the shareholders in the company ­ and a lessee ­ against a number of defaulting lessees.

Section 138(3) of the County Courts Act 1984Under section 138(3) of the County Courts Act 1984, the court, if it is satisfied that forfeiture of a lease should be ordered, must order possession of the demised premises to be given to the landlord unless the lessee pays "all the rent in arrear" within a four week period, such period being capable of extension.

In Maryland Estates Ltd v. Joseph (1997) 147 New Law J 1386, Judge Diamond QC, sitting in the Central London County Court, held that the words "all the rent in arrear" referred to the rent due down to the date a notional forfeiture of the lease had been incurred. That date, owing to the fiction that forfeiture occurs at the date of service of the landlord's writ claiming possession (Canas Property Co. Ltd v. KL Television Ltd (1970) 2 QB 433), was the date of service of that writ by the landlord.

The certainty principle appealed to the judge. He said that the tenant would, within section 138, know precisely what sum he had to pay within five days of the return day for his defence, in connection with his being able to obtain automatic relief against forfeiture. If he did not use this opportunity, the court could at trial fix a precise sum which the tenant had to pay as a condition of relief. He referred to the policy of the statutory provision at issue. It was designed to give the tenant a simple and automatic right to oppose the forfeiture of the lease. The procedure was designed to be relatively speedy and if rough and ready results were produced, these were inherent in the nature of the section.

Both sides accepted that section 138 of the 1984 Act was a complete code where there was a "rent only" case before the county court. Included within this would be a lease where service charges had been expressly reserved in the lease as rent, as indeed was the position in the present case. Also, since service of a writ claiming forfeiture ends the lease at the date of service, no rent may be claimed as from this notional termination date, after which time the lease acquires: "a trance-like existence pendente lite: none can assert with assurance whether it is alive or dead" (per Megarry V-C in Meadows v. Clerical Medical and General Life Assurance Society (1980) 1 All ER 454 at 457h-j). Thus the landlord may only claim mesne profits. Hence, the result in this case, apart from having the merit of simplicity, which is important in such matters, seems also to be logical enough, once one accepts the artificial nature of the doctrine of re-entry, which only legislation can remove.