Factual and Procedural Background
This appeal arises from an order made by His Honour Judge Baker QC in April 1984, whereby the plaintiffs, Company A, were granted possession of certain premises known as Hillgate House, 13 Hillgate Street, London W8, against the defendant company, Company B. The defendants appealed against the order dismissing their counterclaim for relief from forfeiture of a lease dated January 23, 1978.
At trial, breaches of covenant by Company B were conceded, specifically the failure to reconstruct the premises by a stipulated date and failure to give notice of a charge on the premises. The judge addressed three main questions: whether the breaches were capable of remedy, whether the plaintiffs had waived their right to forfeit the lease, and whether relief from forfeiture should be granted if the first two questions were answered negatively. The judge answered all in the negative, leading to the defendants’ appeal.
Negotiations and a lease arrangement had taken place since 1976, involving the plaintiff’s director and the defendant company’s principal. The lease granted Company B permission to reconstruct the premises, subject to conditions, but did not impose an obligation to do so initially. A compromise order was made in 1981 following prior proceedings, imposing obligations on Company B to reconstruct the premises by September 28, 1982.
Despite the order and a draft deed of variation circulated in 1982, Company B failed to commence reconstruction by the deadline. The plaintiffs served a notice under section 146 of the Law of Property Act 1925 alleging breaches and indicating intention to re-enter the premises. Subsequent proceedings were consolidated, culminating in the order under appeal.
Legal Issues Presented
- Whether the breaches of covenant by the defendant company were capable of remedy within the meaning of section 146(1) of the Law of Property Act 1925;
- Whether the plaintiffs had waived their right to forfeit the lease;
- If the breaches were capable of remedy and no waiver was established, whether relief from forfeiture should be granted to the defendant company.
Arguments of the Parties
Appellants' Arguments
- All breaches should be considered capable of remedy, entitling the defendants to relief from forfeiture.
- The plaintiffs’ solicitors’ letter dated October 22, 1982, enclosing a draft deed of variation, constituted an unequivocal election to treat the lease as subsisting and thus waived the right to forfeit.
- The breach of the covenant to reconstruct was a positive covenant breach and therefore capable of remedy, despite being a once-and-for-all breach.
- The failure to give notice of the charge was also capable of remedy.
- The plaintiffs’ refusal to accept rent or to allow time to remedy the breach was unreasonable, and the section 146 notice was invalid.
Respondents' Arguments
- The breaches, especially the failure to reconstruct, were not capable of remedy within a reasonable time, rendering the section 146 notice valid.
- The letter and draft deed of variation were part of negotiations without legal effect and did not amount to waiver.
- The breach of the covenant to reconstruct was a once-and-for-all breach incapable of remedy, supported by precedent concerning negative covenants and the linked rent review provisions.
- The plaintiffs had validly elected to forfeit the lease by serving the section 146 notice and rejecting requests for extension or relief.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Hoffman v Fineberg [1949] Ch 245 |
Distinction between breaches capable of remedy and those that are not; breach of covenant may be remedied by compliance even if late. |
Supported the view that some breaches, particularly positive covenants, can be remedied by subsequent compliance. |
| Rugby School (Governors) v Tannahill [1934] 1 KB 695; [1935] 1 KB 87 |
Distinction between positive and negative covenants; breaches of negative covenants generally not capable of remedy. |
Used to analyze whether the breaches were capable of remedy; distinguished positive covenant breach from negative covenant breach. |
| Scala House Ltd v Forbes [1974] 1 QB 575 |
Breach of negative covenant not to assign, underlet or part with possession is not capable of remedy under section 146. |
Held binding for breaches of negative covenants; court limited its application to negative covenants, not extending to positive covenants. |
| Central Estates (Belgravia) v Woolgar (No 2) [1972] 1 WLR 1048 |
Acceptance or demand of rent constitutes waiver of right to forfeit even if made without prejudice. |
Referenced in discussion of waiver principles; distinguished from negotiation letters. |
| Scarf v Jardine (1882) 7 App Cas 345 |
Landlord’s election to forfeit is irrevocable once made; definition of unequivocal act for waiver. |
Applied to evaluate whether the plaintiffs’ conduct amounted to waiver of forfeiture rights. |
| Bader Properties Ltd v Linley Property Investments Ltd (1968) 19 P & CR 620 |
Offer to vary lease constitutes unequivocal recognition of subsisting lease. |
Considered in assessing whether the draft deed of variation amounted to waiver. |
| Egerton v Esplanade Hotels (London) Ltd [1947] 2 All ER 88 |
Requirement of reasonable time to remedy breach in section 146 notices; |
Supported reasoning on reasonable time for remedying breaches. |
| Stephens v Junior Army & Navy Stores [1914] 2 Ch 516 |
Once-and-for-all breach concept in covenant breaches. |
Used to explain the nature of the breach of the covenant to reconstruct. |
Court's Reasoning and Analysis
The court began by interpreting section 146(1) of the Law of Property Act 1925, which requires a lessor to serve a notice specifying the breach, requiring remedy if capable, and compensation. The court emphasized the distinction between positive and negative covenants: breaches of positive covenants (promises to do something) are generally capable of remedy by performing the required act, even if late, whereas breaches of negative covenants (promises not to do something) are often not capable of remedy due to irreparable consequences or stigma.
Applying this to the facts, the court found that the breach of failure to give notice of a charge was capable of remedy, and this was not contested by the plaintiffs on appeal. The more significant breach was the failure to reconstruct the premises by the stipulated date, a positive covenant breach. The court rejected the lower judge’s conclusion that this breach was not capable of remedy, reasoning that the harm caused by the breach could be remedied by completing the works within a reasonable time and paying appropriate compensation.
The court considered the plaintiffs’ argument that the linked rent review provisions made remedy impossible, but disagreed, noting that rent valuation could assume the works were done, and any damage could be compensated monetarily.
Regarding the requirement of remedying within a reasonable time, the court distinguished this case from precedents involving negative covenants where stigma could not be removed. Here, the breach could be remedied within a reasonable time, and the landlord could not refuse to allow any time to remedy on the basis that the tenant had already had time before the notice.
On the issue of waiver, the court analyzed the plaintiffs’ solicitors’ letter of October 22, 1982, enclosing a draft deed of variation. The court held that this letter and draft did not constitute an unequivocal act of election to treat the lease as continuing. The letter was part of negotiations, not intended to have binding legal effect, and the deed was unexecuted. The plaintiffs had concurrently served a section 146 notice and resisted relief from forfeiture, demonstrating an intention to enforce forfeiture rights. The court applied the objective test for waiver and concluded no waiver had occurred.
Accordingly, the court held that the section 146 notice was invalid because it failed to require remedy of breaches capable of remedy, and no waiver of forfeiture rights had been established. Therefore, the questions of relief from forfeiture did not arise.
Holding and Implications
The court ALLOWED THE APPEAL on the grounds that the breaches of covenant were capable of remedy and the section 146 notice served by the plaintiffs was invalid for failing to require remedy of those breaches.
It was further held that the plaintiffs had not waived their right to forfeit the lease despite sending a letter and draft deed of variation during negotiations. The court’s decision restores the defendants’ opportunity to remedy the breaches within a reasonable time and seek relief from forfeiture if necessary.
No new precedent was established beyond affirming the established principles distinguishing positive and negative covenant breaches under section 146 and clarifying the application of waiver principles in the context of lease forfeiture. The direct effect is to invalidate the plaintiffs' notice and reinstate the defendants’ rights to remedy and relief.