On 8 February 2019, the Court of Appeal (Civil Division) handed down Judgment in Toms v Ruberry [2019] EWCA Civ 128. This is a significant and rare decision on the validity of notices before forfeiture.
Nalders LLP acted as solicitors for the successful commercial tenant, as they did previously (see the decision here). Nicholas Grundy QC of Five Paper, and Simon Lane of Pump Court Chambers, were instructed as Counsel. We have made a copy of the tenant’s Skeleton Argument available here.
Having already unsuccessfully appealed the first decision, this was an unusual ‘Second Appeal’, which the Court may only grant if there is an important point of principle involved. In granting permission to appeal on 23 January 2018, Lord Justice Lewison considered that the appeal ‘raised an important point of principle, [being] whether a s146 notice may be served once a breach of covenant has been served, or whether in addition to the breach of covenant the right of re-entry must also have arisen’.
The parties have been awaiting the final answer to that question for more than a year. We now have it.
Summary of the Decision
In giving the leading Judgment of the Court, and in agreement with our view, Lord Justice David Richards held that a landlord may not validly serve a notice under s146 of the Law of Property Act 1925 (which is the first step in initiating forfeiture of a lease), until the contractual right to re-enter has arisen under the lease.
In doing so, he upheld the same decision reached by the Recorder in the County Court, and again by Mr Justice Dingemans in the High Court. It endorses the submissions that we and our client have been arguing as the correct proposition of law, to various opposition, since August 2016.
The question has now exercised 3 Courts and 5 Judges, each of whom agreed with the specific interpretation that our client has advanced for the past 3 years, and which is now the absolute authority on the question.
The Court of Appeal also gave a clear indication that, if it had been required to do so, it would have found the s146 Notice also to be invalid on the basis that it failed to specify the particular breach complained of. This was a pub lease, and the route to forfeiture and the event that gave rise to the right to forfeit was the expiry of a ‘Default Notice’; but the s146 Notice served did not relate to the expiry of a Default Notice. Instead it related to specific other alleged antecedent breaches of the lease.
A tenant accused of being in breach of lease must know what it is they are accused of breaching, and what is expected of them to remedy it. The Court of Appeal applied and confirmed the decisions in Akici -v- LR Butlin Limited [2005] EWCA Civ 1296 and Fox -v- Jolly [1916] 1 AC 1, that a ‘notice should be construed as a whole in a common-sense way, and that no lessee could have any reasonable doubt as to the particular breaches which are specified.’
The Arguments and the Law
The Court of Appeal reminds us, at paragraph 3 of the Judgment, of the precise words of s146(1):
“A right of re-entry or forfeiture under any proviso or stipulation in a lease for a breach of any covenant or condition in the lease shall not be enforceable, by action or otherwise, unless and until the lessor serves on the lessee a notice-
(a) specifying the particular breach complained of; and
(b) if the breach is capable of remedy, requiring the lessee to remedy the breach; and
(c) in any case, requiring the lessee to make compensation in money for the breach;
and the lessee fails, within a reasonable time thereafter, to remedy the breach, if it is capable of remedy, and to make reasonable compensation in money, to the satisfaction of the lessor, for the breach.”
The landlord argued at the Court of Appeal, as he had previously, that it was sufficient for there to have been any breach of the lease, not necessarily an event that gave rise to a right of re-entry, to bring about the ability to serve a s146 Notice. We argued, as we had previously, that the correct and only lawful process is to (i) to ensure that there is a right to re-enter, or forfeit, at all (ii) for an event giving rise to the right to re-enter having arisen, then (iii) service of a s146 notice identifying the breach complained, and only then and not before, (iv) may a lease be forfeited by proceedings or peaceable re-entry.
Conclusions of the Court of Appeal
The Court of Appeal accepted our submissions (paragraph 26 of the Judgment):
Section 146(1) is concerned with the exercise by a landlord of rights of re-entry or forfeiture conferred by the terms of the lease. The opening words of the sub-section make clear that it is directed to those covenants and conditions, breach of which entitles the landlord to exercise the right of re-entry or forfeiture conferred by the lease.
And continued (paragraph 27):
A section 146 notice must specify “the particular breach complained of” and, if it is capable of remedy, require the tenant “to remedy the breach”. The particular breach in this case contemplated by section 146(1) is the [failure to comply with the Default Notice], it is that breach (and not the antecedent breaches…) which entitles the landlord to exercise the right of re-entry…It is the failure to remedy the antecedent breaches…within the period of 14 days from receipt of the Default Notice which is the relevant “breach of any covenant or condition in the lease” referred to in the opening part of section 146(1).
In making those findings, it reached this conclusion:
…it is in my judgment clear from the sub-section as a whole that it can only be after the breach of the covenant or condition triggering the right of re-entry has occurred. The notice under section 146 must state “the particular breach complained of” and, if it is capable of remedy, require the tenant “to remedy the breach”. Similarly, the section 146 notice can be given only if the tenant has failed to remedy the breach within a reasonable time. These requirements make sense only if the relevant breach has already occurred.
Lord Justice Holroyd and Lady Justice Nicola Davies agreed.
Comment
Attempting to terminate a commercial lease by forfeiture is an important and high risk business, with individuals’ livelihoods and reputations at stake. Making an early technical mistake may be something that cannot be saved and can set the parties on the wrong course entirely. Landlords and tenants are reminded of the need to take proper advice and to ensure:
(a) Absolute compliance with the requirements of s146(1) and also with any specific or peculiar provisions within the lease itself; and
(b) Clear identification of the particular breach complained of, in terms that mean that the tenant knows what to do to remedy that breach.
Nalders LLP acts for numerous commercial landlords and tenants, mostly in Cornwall but also elsewhere. We will be pleased to assist our clients and contacts in ensuring that landlords are compliant, and tenants are not coerced into accepting allegations that their lease is at risk when there has been non-compliance by their landlord. We are happy to discuss related services that we can offer to commercial landlords and tenants, and to property professionals, including lease renewals, dilapidations, breach of covenant, and any other matters of contentious property law.