On 24 November 2017, the High Court District Registry handed down judgment in Toms v Ruberry [2017] EWHC 2970, the conclusion of an unfortunate and complex long running commercial landlord and tenant dispute that has taken more than 2 years and 7 courtrooms to reach its end. Nalders LLP, working closely throughout with barrister Simon Lane from Pump Court Chambers, acted for the successful tenant.

 

The case concerned a landlord’s right to seek forfeiture of premises where the tenant was alleged to be in breach of covenant. Forfeiture is the act of bringing a lease to an end early because of a breach of covenant, so that the premises revert to the landlord.
The Right to Forfeit

 

The ability to forfeit for breach of covenant is not universal: it arises only where there is a contractual right to forfeit (or proviso for re-entry) contained within the lease; and so the right can only be exercised based on the construction and interpretation of the lease.
Because forfeiture of a lease is such a severe outcome, there are statutory restrictions, currently those contained in s146 of the Law of Property Act 1925, but identical restrictions have existed since 1881. The contractual right to forfeit cannot be exercised unless a compliant s146 notice is first served, stating the specific breach alleged and what is required to remedy it (if it can be remedied) within a reasonable period of time. The notice and its contents are critical.
The contractual right in this case

 

In this case, the lease contained a right to re-enter, but unusually it also contained a provision that provided that in the event of any breach of covenant, an independent contractual Default Notice was required to be served, providing 14 days’ notice. Our argument was that any breach of covenant was not capable of giving rise to a right to forfeit until a Default Notice was served, and then on the expiry of that notice, a s146 Notice was also served. The landlord had served both notices simultaneously. We argued that the right to forfeit only arose from the failure to comply with the Default Notice, and that as the Default Notice had not expired before the s146 Notice was served, the claim for possession should be dismissed, regardless of any breaches of covenant that might otherwise be found.
This is an unusual form of words, and the specific facts are unlikely to arise frequently, but it presented the Court with the opportunity to answer a question which, to our surprise, appears never to have been considered by any Court since forfeiture came about in 1881: whether the s146 Notice can be served when a breach of covenant is alleged, but before a right to re-enter as a result of the breach has arisen. The trial judge agreed with our analysis. The claim for possession was dismissed. The claimant landlord appealed.
The Decision: when a s146 Notice may be served

 

In a reasoned, detailed, and logical decision of the Queens Bench Division, Mr Justice Dingemans agreed with our analysis and that of the trial judge. First, he reiterated that:
‘section 146 must be given a common sense interpretation, and that the purpose of the section is that the tenant should have full notice of what the tenant is required to do’.
Secondly and more significantly, he addressed the question of when in the timeline of an alleged breach of covenant and right to re-enter it is possible to serve a s146 notice:
‘however there is no authority to support the proposition that a section 146 notice may be served before the relevant right to re-entry has occurred.  The wording of section 146(1) requires “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”. The ordinary meaning of this provision suggests that the right of re-entry must exist because there is reference to “a right” not to “a future right”.  This interpretation is supported by the requirement set out in section 146(1)(a) that the notice shall specify “the particular breach complained of”.  This requires the “particular breach” to have occurred, because otherwise the service of the section 146 notice becomes a matter of guesswork about whether a particular breach will occur, and because it is not possible to specify a particular breach unless it has occurred.  If the right of re-entry in this case arises because of a failure to take action within 14 days of the clause 4.1.7 [Default] notice, then the 14 days is required to elapse before the notice can be served because this is the particular breach relied on.’
This decision confirms that: (a) a s146 Notice must be clear so as to identify, specifically, what a tenant is required to do, and more importantly, and for the first time, (b) that there is no ability to service a s146 Notice unless and until there is a contractual right to re-enter which has as a matter of fact arisen. The landlord here had jumped the gun. Many thousands of pounds were incurred unnecessarily.
Guidance and lessons

 

Both the preparation and service of a s146 Notice are technical issues of serious importance, which must be considered with great care to avoid a landlord losing any right to forfeit that might otherwise exist: in this case, an expensive error.
Sometimes it is perfectly appropriate for forfeiture to take place by peaceably re-entering; sometimes serious attention to detail is required. In any case, the decision to serve a tenant with a s146 Notice and seek to forfeit a lease requires more than a casual decision; professional advice should be sought before doing so, and equally if a tenant receives one: often there is a livelihood at stake that a tenant has no choice but to defend to the end.

We were pleased to have been found to have correctly deconstructed the evidence, identified a ‘silver bullet’ point, and properly analysed and argued it up to the appeal Court on behalf of our local client, clarifying a point of law for others in the future in the process.

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