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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Freifeld & Anor v West Kensington Court Ltd [2015] EWCA Civ 806 (30 July 2015) URL: https://www.bailii.org/ew/cases/EWCA/Civ/2015/806.html Cite as: [2015] EWCA Civ 806 |
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COURT
OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM
CENTRAL LONDON COUNTY COURT
HHJ Gerald
2CL10209
![]() ![]() Strand, London, WC2A 2LL |
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B e f o r e :
LORD JUSTICE RYDER
and
LORD JUSTICE BRIGGS
____________________
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Appellants |
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- and - |
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Respondent |
____________________
(Transcript of the Handed Down Judgment of
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Caroline Hutton and Jennifer Meech (instructed by Beavis Partnership Limited LLP) for the Respondent
Hearing dates: 1 – 2 July 2015
____________________
Crown Copyright ©
LADY JUSTICE ARDEN :
SHOULD A LESSOR GAIN A WINDFALL FROM FORFEITING A LEASE?
"(a) (i) Not to assign part only of the demised premises
(ii) Not to underlet the whole or any part of the demised premises without the consent of the Landlord (such consent not to be unreasonably withheld)"
(2) Where a lessor is proceeding, by action or otherwise, to enforce such a right of re-entry or forfeiture, the lessee may, in the lessor's action, if any, or in any action brought by himself, apply to thecourt
for relief; and the
court
may grant or refuse relief, as the
court
, having regard to the proceedings and conduct of the parties under the foregoing provisions of this section, and to all the other circumstances, thinks fit; and in case of relief may grant it on such terms, if any, as to costs, expenses, damages, compensation, penalty, or otherwise, including the granting of an injunction to restrain any like breach in the future, as the
court
, in the circumstances of each case, thinks fit.
. . . the discretion given by the section is very wide. TheCourt
is to consider all the circumstances and the conduct of the parties. Now it seems to me that when the Act is so express to provide a wide discretion, meaning, no doubt, to prevent one man from forfeiting what in fair dealing belongs to some one else, by taking advantage of a breach from which he is not commensurately and irreparably damaged, it is not advisable to lay down any rigid rules for guiding that discretion. (at 631)
judge's findings as to the conduct of the appellants
87. Whether the landlord or those in proximity to him have suffered damage. The conduct of any non-parties material to the occupation of the demised premises may also be relevant. Whether any damage suffered by the landlord is proportionate to the advantage the landlord will obtain if no relief is granted is highly material. That said, it might be said that the greater the length and value of a lease, the more punctilious the tenant might be expected to be in observing the covenants and managing the demise so as to jealously guard it and its value. If he fails to do so that is a cause for concern as to the future relationship between landlord and tenant. Particularly where the breach is deliberate, the tenant will bear a heavy burden of demonstrating to thecourt
that he has since the breach and particularly in the period leading up to the hearing of the application for relief and after service of the section 146 notice observed and taken all reasonable steps to ensure due compliance with the covenants so as to justify the
court
in permitting the contractual relationship to continue with the landlord.
88. Thus, depending on the circumstances of the case, the intrinsic value of the unexpired forfeited term is of itself not necessarily persuasive. If it were, then, of course, breaches could be committed by tenants with valuable leases with impunity, and a mere granting of relief would neuter or very seriously undermine the landlord's ability to enforce the covenants in the lease, which, it is well known, is in practical terms very difficult in a long lease, not only because of the Leasehold Reform (Repairs) Act 1938 but also because of the reluctance of thecourts
to interfere with the operation of long leases or, as Miss Shea put it albeit perhaps a little high, to lean against forfeiture and in favour of relief from forfeiture.
109. In short, I find that MrFreifeld
, acting for himself and his wife, took a conscious and deliberate decision to grant the future lease to Mr Ding and Ms Yang on 8th December 2011, since when he has wilfully failed to take any steps to remedy that breach by procuring or taking steps to procure surrender of the future lease, at any rate until mid-way through trial on the evening of the 12th November 2013. He also failed to inform, and concealed from [the respondent], the fact of that grant leaving it up to [the respondent] to find it out for itself which it ultimately did on 17th April 2012 when inspecting the Land Register, causing the section 146 notice to be issued on 15th August 2012, by which time these proceedings had been issued without any reference to the unlawful grant of the future lease. . . .
113. In acting in the way they have, it seems to me and I find that theFreifelds
demonstrated a cynical disregard for their own obligations under their lease and also for the very real and longstanding problems which had been encountered by [the respondent] for many years in respect of the Chinese restaurant. I was not at all satisfied that Mr
Freifeld
gave a true and full account of precisely why he had agreed to grant the future lease at the time when he did. . . .
114. I am bound to say that, in those circumstances, theFreifelds
face a vertiginous, but not necessarily impossible, climb up to the peak of relief from forfeiture. I say this because it is difficult to see why [the respondent] should be compelled to remain in a contractual relationship with a tenant who has so acted. That said, it would be wrong for me to reach that conclusion without consideration of the other evidence relating to relief from forfeiture and also the factors which the authorities indicate should be considered, one of which uppermost in my mind is the length of the unexpired but forfeited term and its apparent value. .
203. When viewed in the cold light of day, it is fair to say and will be apparent from what I have said and found in relation to past and present breaches that, in my judgment, theFreifelds
had not even begun to make preparations to leave base-camp in order to embark upon their vertiginous journey up to the peak of relief from forfeiture. . . .
224. As I have said, theFreifelds
, in those circumstances, faced a vertiginous but not necessarily impossible climb to the summit of relief made, it has to be said, more difficult by their historic failure to properly manage the demise and discharge their contractual obligations. In my judgment, the
Freifelds
have failed to adduce any or any sufficient evidence upon which the
court
could properly grant relief from forfeiture.
POST-JUDGMENT APPLICATIONS FOR RELIEF ETC
POST-JUDGMENT APPLICATIONS FAIL
appeal and applications to this court
to admit fresh evidence
"I have to date authorised all recommendations made by Maunder Taylor in a timely manner to ensure the proper management of the units. Maunder Taylor have direct dealings with the commercial tenants including the collection of rent and service charges and have the authority to serve the appropriate notices on tenants for breach of lease and take enforcement action as well as approving new incoming tenants."
The witness statements of Mr Maunder Taylor (a) deal with the agreement dated 2 July 2014 between the firm of Maunder Taylor, chartered surveyors and the appellants whereby Maunder Taylor agreed to provide management services for the property. Maunder Taylor could terminate the arrangement on giving notice in accordance with the conditions of engagement; and (b) particularise the various steps of management that he has taken. For instance he states that properties are inspected annually and where vacant fortnightly.
PRINCIPAL ISSUES ON THIS APPEAL
Issue (1): Did the judge direct himself correctly about what had to be shown to obtain relief from forfeiture where the breach was deliberate?
Issue (2): If there was a misdirection, what order should this court
make?
Issue (3): If there was no misdirection, how should the court
exercise its residual discretion to grant or refuse relief on the findings of the judge and the fresh evidence and new circumstances?
ISSUE (1): DID THE JUDGE DIRECT HIMSELF CORRECTLY ABOUT WHAT HAD TO BE SHOWN TO OBTAIN RELIEF FROM FORFEITURE WHERE THE BREACH WAS DELIBERATE?
There can be no doubt that the wilfulness of the breach is a relevant consideration and that thecourt
should not in exercising its discretion encourage a belief that parties to a lease can ignore their obligations and buy their way out of any consequential forfeiture.
But to impose a requirement that relief under section 146(2) should be granted only in an exceptional case seems to me to be seeking to lay down a rule for the exercise of thecourt
's discretion which the decision of the House of Lords in Hyman v Rose [1912] AC 623 said should not be done. Certainly Lord Wilberforce in Shiloh Spinners Ltd v Harding did not purport to do so in cases under the statute.
Accordingly, in my judgment, although I should give considerable weight to the fact that two out of the three breaches were wilful, I am not required to find an exceptional case before granting relief from forfeiture. (page 43)
[50] The starting point for the exercise of our discretion has to be to remind ourselves that the purpose of the reservation of a right of re-entry in the event of unpaid rent or a breach of covenant is to provide the landlord with some security for the performance of the tenant's covenants. The risk of forfeiture is not intended to operate as an additional penalty for breach. It is an ultimate sanction designed to protect the landlord's reversion from continuing breaches of covenant which remain unremedied and to secure performance of the covenants: see Shiloh Spinners Ltd v Harding [1973] AC 691 at p 723, [1973] 1 All ER 90, [1973] 2 WLR 28. There may, of course, be breaches which are so serious and irremediable as to justify the refusal of relief: for example, an unlawful sub-letting. But in most cases relief will be granted on the breach being remedied and on terms as to costs.
If . . . [t]he defendants' conduct in this case amounted to a conscious disregard of the terms for relief which thecourt
had imposed then it would be much more difficult to argue that the refusal of further relief was wrong in principle even though it would produce a windfall for the landlord. The balance to be struck will obviously depend on the relevant circumstances. (para 41)
".. from..8 December 2011 onwards, [the Head Lease] was an asset whose value was at risk the minute [the respondent] discovered that [the appellants] had deliberately acted in breach of covenant. That risk became a threat of forfeiture when [the respondent] served the section 146 notice on 31 May 2012. By the time [the Head Lease] was forfeit, on 15 September 2012, virtually all of the sand had gone through the hour glass so that all that was left thereafter was a hope value, a hope that relief from forfeiture would be granted if applied for, application for relief finally being made on 13 March 2013."
"In our judgment, there should be added to the Master's order additional terms for the protection of the legitimate interests of Delbounty against the likely continuance of the problems experienced by Delbounty with Mr and Mrs Khar over the years. On the past record of Mr and Mrs Khar, the prospects for future improvement are not good. Mr and Mrs Khar have been bad payers from the start. Delbounty have had to start legal proceedings against them on a number of occasions. No satisfactory explanation has been provided by Mr and Mrs Khar for failure to pay the maintenance charges. They live out of the country. They left the flat empty and were unable to agree on joint instructions because of continuing matrimonial disputes. In contrast, the conduct of Delbounty and their managing agents is not subject to any criticism.
The fair and just solution in this situation is for the lease to be sold, so that Delbounty can recoup themselves out of the proceeds of sale for any arrears of rent and maintenance charge due to them. They can then account to Mr and Mrs Khar for the balance. Delbounty will be entitled to let to a new tenant. Mr and Mrs Khar will have the benefit of the value of the lease, subject to the discharge of their liabilities to Delbounty. (at page 239)
ISSUE (2): IF THERE WAS A MISDIRECTION, WHAT ORDER SHOULD THIS COURT
MAKE?
ISSUE (3): IF THERE WAS NO MISDIRECTION, HOW SHOULD THE COURT
EXERCISE ITS DISCRETION TO GRANT OR REFUSE RELIEF ON THE BASIS OF A CHANGE IN CIRCUMSTANCES?
CONCLUSION
Lord Justice Ryder
Lord Justice Briggs