Landlords must comply with contractual pre-conditions before serving notice on a tenant.
The recent case of Toms v Ruberry [2017] EWHC 2970 (QB) serves as a warning to landlords across England and Wales to double check that their right to forfeit for breach of covenant has arisen and that they have complied with any contractual pre-conditions before serving a notice on a tenant pursuant to section 146 of the Law of Property Act 1925.
The Case
This case was an appeal heard in the High Court by Mr Justice Dingemans. The relevant property concerned a public house (‘The Queen’s Arms’). The claimant was the freehold landlord and the defendant was the tenant. The lease contained a number of repairing covenants. The landlord served a section 146 notice and thereafter issued proceedings for possession / forfeiture.
The judge at first instance held that the landlord was not entitled to possession as the landlord would have to serve a ‘default’ notice as contractually required to do so under the lease before the right to forfeit arose.
The appeal was dismissed because the default notice was served at the same time as the section 146 notice and ought to have been served before.
Both the section 146 notice and the default notice specified the breaches and required the tenant to remedy the breaches within seven weeks. Both notices therefore seemed to comply with section 146 of the Law of Property Act 1925. So why was the landlord’s claim for possession of the property dismissed?
The lease contained two clauses which were key to this decision. The clauses stated that:
‘7.6 ‘if the [tenant] fails to maintain the standards as set forth in this agreement and manual …… then and in any such case it shall be lawful for the [landlord], … to enter into or upon the premises … whereupon this agreement shall absolutely determine’ (clause 4 and 4.1.5 Part II).
7.7 ‘if the [tenant] commits any other breach of his obligations under this agreement and (where such breach is capable of remedy) the [tenant] fails to remedy any such breach within fourteen 14 days following the receipt of written notice from the landlord to remedy the same (‘a default notice’) … then and in any such case it shall be lawful for the [landlord] … to enter into or upon the premises … whereupon this agreement shall absolutely determine’ (clause 4 and 4.1.7 Part II);’
The default notice served referred to the specific clauses in the lease giving the tenant a 14 day grace period to remedy the breaches of covenant. However, the section 146 was sent at the same time as the default notice. Mr Justice Dingemans took the view that the section 146 notice was not valid because it was served before the tenant’s 14 day grace period had expired.
Comment
One question that arises after reading this case is whether the default notice in clause 4.1.7 should have applied to breaches of covenants that concern the maintenance of the property at all. Clause 4.1.7 appears to refer to ‘other’ breaches of covenant. Interesting questions arise as to whether the Court has struck the right balance between protecting the landlord and protecting the tenant in commercial cases.
A practitioner might have been concerned about serving a default notice before serving the section 146 notice given that they may believe to do so would waive the right to forfeit for any other ‘once and for all’ breaches. This decision does not address these concerns.
In addition to satisfying section 146 of the Law of Property Act 1925, landlords also must make sure that any preconditions of the lease have been satisfied to make sure that their right to forfeit for breach of covenant has arisen before serving a section 146 notice to forfeit the lease and consider the waiver of other ‘once and for all’ breaches when doing so.
