Factual and Procedural Background
This appeal arises from a decision of His Honour Judge Michael Dean QC in the Central London County Court on 17th February 2005 concerning a lease of commercial premises. The lease was originally granted by predecessors in title of Company A to the predecessor in title of the Appellant, with a term expiring in 2011. Company A acquired the reversion in 1999 and the lease was assigned to the Appellant in 2002. The lease contained covenants restricting alienation, including prohibitions on assigning, subletting, parting with possession, or sharing possession without written consent.
Shortly after assignment, a company (Company B) began trading from the premises. Disputes arose regarding whether the Appellant had breached the lease by allowing Company B to occupy the premises without consent. Company A served a section 146 notice alleging breaches related to assignment, subletting, or parting with possession without consent. Company A then re-entered the premises peacefully and changed the locks. The Appellant sought relief from forfeiture, leading to the proceedings before Judge Dean, who found valid forfeiture and refused relief. The Appellant appealed against both findings.
Legal Issues Presented
- The meaning of clause 4.18.1 of the lease regarding parting with possession and sharing possession;
- Whether the Appellant was in breach of the lease covenant;
- Whether the section 146 notice was validly served and specified the breach;
- Whether the breach was capable of remedy;
- Whether the breach was in fact remedied;
- Whether the Judge was correct to refuse relief from forfeiture.
Arguments of the Parties
Appellant's Arguments
- The Appellant contended there was no breach of the covenant;
- Any breach was not adequately specified in the section 146 notice;
- If a breach existed, it was capable of remedy and had been remedied;
- The forfeiture was invalid and relief from forfeiture should be granted.
Respondent's Arguments
- Company A argued the Appellant breached the covenant by sharing or parting with possession;
- The section 146 notice was valid and justified re-entry;
- If there was a breach capable of remedy, it had been remedied;
- The Judge erred in finding no parting with possession;
- The Judge's refusal of relief from forfeiture was justified.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Lam Kee Ying Sdn. Bhd. v Lam Shes Tong [1975] AC 247 |
Definition and strict legal meaning of "possession" in lease covenants; a lessee retains possession if not wholly ousted. |
The Court applied the strict legal meaning of possession for the covenant against parting with possession, confirming no breach unless complete exclusion occurred. |
| Tulapam Properties Limited v De Almeida [1981] 2 EGLR 55 |
Interpretation of "sharing possession" as sharing occupation rather than legal possession. |
The Judge below followed this reasoning; the appellate court rejected it, holding "possession" should retain its strict legal meaning in both contexts. |
| Jackson v Simons [1923] 1 Ch. 373 |
Alienation covenants may distinguish between parting with and sharing possession or occupation. |
Supported the view that sharing possession is a legally cognisable concept distinct from sharing occupation. |
| Mannai Investments Ltd v Eagle Star Assurance Co Ltd [1997] AC 749 |
Approach to construction of contractual notices; notices should be interpreted in a commercial and practical manner. |
The Court accepted the principles but held the section 146 notice failed to specify the correct breach and thus was invalid. |
| Scala House Limited v Forbes [1974] QB 575 |
Whether breaches of covenant are capable of remedy; held breach of covenant against underletting was irremediable. |
The Court distinguished the present case, holding breaches of sharing possession were capable of remedy despite Scala House. |
| Expert Clothing Service & Sales Ltd v Hillgate House Ltd [1986] 1 Ch 340 |
Breaches of positive covenants can be capable of remedy; practical approach to remedies. |
Supported the view that breaches of covenants, including negative ones, should be capable of remedy. |
| Savva v Hussein (1997) 73 P&CR 150 |
Negative covenants can be capable of remedy; breach of covenant not to alter premises was remediable. |
Reinforced the practical approach to remedyability of breaches under section 146. |
| Fox v Jolly [1916] AC 1 |
Section 146 notices should be construed as a whole in a common-sense way so lessees understand breaches. |
Applied in assessing whether the section 146 notice specified the breach; held it did not. |
| Rainham Chemical Works Ltd v Belvedere Fish Guano Co [1921] 2 AC 465 |
Lessee may retain possession through an agent or company under his control. |
Supported the conclusion that the breach was remedied by the Appellant acquiring full control of the company. |
| Street v Mountford [1986] AC 809 |
Legal distinction between licences and tenancies; possession through employees. |
Used to analogise possession through a company controlled by the lessee as possession through an agent or employee. |
Court's Reasoning and Analysis
The Court began by interpreting clause 4.18.1 of the lease, distinguishing between "parting with possession" and "sharing possession." It affirmed the strict legal meaning of "possession" in the covenant against parting with possession, following the Privy Council in Lam Kee Ying, requiring a complete ouster of the lessee to constitute parting with possession. Conversely, the Court rejected the lower court’s acceptance of a looser meaning for "sharing possession" (as merely sharing occupation), holding that "sharing possession" must also be given its strict legal meaning. The Court reasoned that possession, while unitary, can be shared as joint possession, and that the covenant against sharing possession has real legal effect preventing the lessee from converting exclusive possession into joint possession with another party.
Applying these principles to the facts, the Court found that the Appellant had not parted with possession to the company but had shared possession with it. This conclusion was supported by the evidence that the company exercised a degree of control over the premises, including holding keys, paying rent, and running an active business, while the Appellant retained access and oversight but did not exclude the company.
The validity of the section 146 notice was then examined. The notice alleged breaches by assigning, subletting, or parting with possession, but did not mention sharing possession. The Court held that the notice failed to specify the actual breach (sharing possession) and thus was invalid under section 146(1) of the Law of Property Act 1925, even applying the commercial and practical approach from Mannai. Consequently, the landlord’s re-entry was not supported by a valid notice.
Regarding remedyability, the Court disagreed with the lower court’s view that breaches of sharing possession are incapable of remedy. It adopted a practical approach consistent with recent authorities (Expert Clothing and Savva), concluding that breaches of covenants against sharing possession are generally capable of remedy, unless special circumstances apply.
On whether the breach was remedied, the Court upheld the Judge’s provisional finding that by the Appellant acquiring all shares and becoming sole director of the company, he ceased to share possession, effectively regaining exclusive possession through control of the company. The Court found this analysis consistent with established principles allowing possession to be held through an agent or entity controlled by the lessee.
Finally, the Court addressed relief from forfeiture. The Judge had refused relief due to the Appellant’s dishonest and evasive conduct during correspondence and the covert manner in which the breach was remedied, which destroyed trust. The Court found no basis to interfere with this discretionary decision.
Holding and Implications
The Court’s final ruling was to allow the Appellant’s appeal.
Holding: The section 146 notice was invalid for failing to specify the actual breach (sharing possession), and therefore the forfeiture was ineffective. The Judge’s findings that the Appellant shared possession but did not part with possession were upheld. The breach was capable of remedy and was remedied by the Appellant’s acquisition of full control of the company. The refusal of relief from forfeiture, had the forfeiture been valid, was justifiable.
Implications: The direct effect is that the forfeiture was set aside and the Appellant’s leasehold interest was preserved. No new binding precedent was established beyond clarifying the interpretation of covenants against sharing possession and the requirements for section 146 notices. The decision underscores the importance of precise notice wording and the practical approach to remedying breaches under section 146.