Periodic tenancy: restriction on right of landlord to serve notice to quit

Breams Property Investment Co Limited  v Stroulger ([1948] 2 K.B. 1, CA (Eng)) concerned a quarterly tenancy. The landlord was prohibited from serving notice to quit for three years unless it needed the property for its own occupation. This was held to be a valid restriction that was not repugnant to the nature of a periodic tenancy.

The landlord had assigned the reversion. Another question was whether the successor was bound by the restriction. It was held that the successor was bound by the restriction. It had reference to the subject matter of the lease for the purposes of section 142 of the Law of Property Act 1925.

Construction of ‘curtilage’ covenant in Government lease

In New Mercury Holdings Corp v Secretary for Justice ([2013] HKEC 435, CFI) P wanted to re-develop the residential properties on sites it owned. It sought a declaration that the government should permit these developments. There were two applications. One concerned the redevelopment of property on two neighbouring lots. The other concerned the redevelopment of a ‘stand-alone’ lot. The relevant leases contained the following covenant:

“[The plaintiff] … shall at all times during the term hereby created maintain and preserve in respect of and exclusively for the purposes of the residential premises now erected or being upon the demised premises a curtilage or compound of an area (including the area covered by buildings) of not less than Eight thousand square feet; AND shall at all such times provide maintain and preserve in respect of and exclusively for the purposes of any other residential premises which may at any time be erected upon the demised premises in each case a curtilage or compound as aforesaid of like minimum area”

Essentially, the question was whether, as the government contended, the purpose and effect of the covenant was to control the density of permissible development: did the clause require each house to have its own ‘curtilage or compound’ of eight thousand square feet? The developer contended that this was not the correct interpretation and that houses could share their curtilage with each other (so that two semi-detached houses could share some of the eight thousand feet with each other).

The government succeeded.

The court reminded itself of the relevant legal principles:

’7. These are not in dispute: (a) when construing the terms of a land grant, the court can take into account the matrix of fact (that is, the objective surrounding circumstances known (or reasonably known) to both parties) at the time of the grant: see, for example, Gold Shine Investment v Secretary for Justice [2010] 1 HKC 212 , 218; Investors Compensation Scheme Ltd v West Bromwich [1998] 1 WLR 896 , 912; Jumbo King Ltd v Faithful Properties [1999] 4 HKC 707 , 726;

(b) the court shall have regard to the object and purpose of the term, which can be informed by the genesis, the background and the context: River Trade Terminal Co Ltd v Secretary for Justice (2005) 8 HKCFAR 95 , 107 (para 34 to 36);

(c) the above are applicable to the construction of a lease: Woodfall’s Law of Landlord and Tenant (2012) Vol 1, para 11.007 and 11.008).’  (Andrew Chung J.)

The factual matrix and the relevant term construed in the context of the rest of the document all supported the government’s contention.

Woops! The problem of the missing clause

In Sadd v Brown ([2012] UKUT 438 (LC)) the Upper Tribunal (Lands Chamber) had to deal with a dispute between the tenant of a flat held on a long lease and her landlord. The landlord covenanted to insure the building for its full reinstatement value. It sought to recover the cost of insuring the building. Unfortunately, there was no tenant’s covenant to reimburse a share of the premium.

The landlord sought to rely on a covenant to pay and indemnify the lessor against ‘all rates duties charges assessments impositions and outgoings whatsoever’. This was not adequate since this wording did not indicate an intention to repay an expense voluntarily incurred by the lessor ([18]). The landlord also relied on a number of other aspects of the service charge provisions in the lease but none of them amounted to an obligation to reimburse a share of the insurance premium (not even a covenant to contribute to the costs of estate management) ([16]).

Finally, there was no implied covenant. The lease was detailed and (on its face) a complete record of the terms that had been agreed ([20]). Business efficacy did not demand that a term to reimburse a share of the premium be implied. The mere fact that the landlord covenanted to insure was not a sufficient basis on which to imply the term. Nor was the fact that such a term would have been expected and was commonly encountered ([19] – [20]).

On the contrary:

‘To imply a term in the present case would be ‘to effectively draft a completely new paragraph in the Fifth Schedule to the Lease’ ([21].

The landlord could seek rectification or apply for the lease to be varied under Part IV of the Landlord and Tenant Act 1987 ([23]).

Clear words needed for a general waiver

Real Honest Investment Ltd v Attorney-General ([1997] 2 HKC 436, PC) concerned a restrictive covenant in a 1923 Government Lease that prohibited the erection of any building exceeding 35 feet in height. In 1948, the site had been redeveloped and the Government had waived the height restriction. Now RHI proposed a further redevelopment and argued that the 1948 waiver had been a general waiver and that the height restriction no longer applied. This failed. The 1948 waiver had been a waiver in respect of the particular development then proposed. Clear words are needed to express an intention to grant a general waiver (Lord Clyde at 440) and they were not present in the 1948 waiver.

Covenant only to build domestic houses

Expressluck Development Ltd v Secretary for Justice ([2007] HKEC 1352, CFI) concerned land on which houses had been built. The Conditions of Exchange under which the land was held provided that “The lessee will not be allowed to erect any buildings on the lots except domestic houses.” From the 1940s onwards, the ground floors of the houses had been used for commercial purposes without the Government taking any formal action in respect of the breaches of covenant. Where, however, other major changes of use had been proposed, consent had been sought by the owners. Expressluck now intended to build a block of residential units but with the ground floor being used for commercial purposes. It did not want to apply for a variation or release of the covenant. Instead it sought, inter alia, declarations to the effect that the proposed development did not amount to a breach of covenant, that the covenant had been abandoned or waived (because of the long history of tolerating commercial use) or that the Government’s demand for rent based on commercial use of the ground floor of the development gave rise to an estoppel. Expressluck failed in all respects.

First, there was a breach. The covenant did not affect only the type of building that could be built but also its subsequent use. Second, although the Government may have waived breaches of the covenant, it had not waived the covenant itself:

’81. What I glean from the authorities is that waiver of a covenant cannot be lightly inferred. It can be, but only where acquiescence by the grantor is sufficiently clear and unambiguous that it would be inherently unfair for him to be permitted to go back on his word, either actually spoken or derived from his conduct.
82. Further, it is important to distinguish between waiver of a breach of a covenant and the covenant itself.
83. Acquiescence will not amount to a waiver of the covenant unless in the particular circumstances, there was a clear intention to do so for all time.’ (Deputy Judge Gill)

Finally, there was no estoppel the Commissioner for Rating and Valuation had issued the demand but this did not bind the relevant department of Government (the Director of Lands).

Lost waiver and its effect on later agreement between the parties

In Favourable Issue Co Ltd v Secretary for Justice ([2012] HKEC 1416, CFI) the Government granted a lease to F’s predecessor of some land in 1962. The lease contained a special condition prohibiting any building exceeding 30% of the overall size of the Lot. The Lot was eventually assigned to F. The Government later wrote to F informing it that it was in breach of the special condition and requiring it to carry out work to comply with the special condition. Both F and the Government believed that there had been a breach of the special condition. A Temporary Waiver (and certain ancillary documents concerning breach of the terms of the licences of adjoining Government land occupied by F) were agreed.

Later, it was discovered that the relevant Government departments had, at the time the building was erected, given their express consent to the building as it stood even though it covered significantly more than 30% of the Lot.  F successfully argued that the Government had waived the breach long before the Temporary Waiver. Thus, the Temporary Waiver was the result of a common mistake that the Government had been entitled to enforce the special condition and so the Temporary Waiver was void or rescinded ([78]). F was not estopped (by its entry into the Temporary Waiver and associated dealings) from attacking the basis on which the Temporary Waiver had been entered into ([87] – [88]).

F failed, however, in its attempt to argue that it had taken over the benefit of Permits to occupy adjoining Government Land granted to F’s predecessor. Further, the Government’s claim that there had been breaches of these Permits was accepted.

Break clause and forfeiture

In Far East Consortium v Full Wealthy International Ltd ([2006] HKEC 968, CA) T occupied property under a three year lease that gave the landlord the right to break the lease on six months’ prior written notice. The landlord served notice pursuant to this break clause. After service, but before the notice period had elapsed, the landlord served forfeiture proceedings on T. The court refused to deal with the matter under order 14. It was at least arguable that the service of the forfeiture proceedings prevented the landlord from relying on the break clause even though the notice to quit had been served before the forfeiture proceedings.

Obligation to pay rent in advance; break clause; estoppel

In PCE Investors Ltd v Cancer Research UK ([2012] EWHC 884 (Ch)) C had granted a lease to P. The lease contained a break clause. One of the pre-conditions to the effective exercise of the break right was that the tenants must have paid the rent due up to the ‘Termination Date.’ Rent was payable quarterly in advance on the usual quarter days. The tenant served a notice on the landlord exercising the break right. The landlord served its demand for the rent due on the next quarter day. The demand sought the entire rent due for the next quarter even though the tenant’s notice, if effective, would bring the lease to an end before the end of the quarter. The tenant proffered rent calculated on a daily pro rata basis from the relevant quarter day to the Termination Date specified in its notice. It invited the landlord to confirm that its calculation of the rent due was correct but the landlord did not respond. The landlord then argued that the tenant’s notice exercising the break right was ineffective since only part of the rent due on the quarter date had been paid. The tenant responded that it was only liable to pay the amount due on a pro rata basis up to the date of termination. It also sought leave to amend its pleadings to include a plea that the landlord’s silence in the face of the tenant’s request for confirmation amounted to a representation that the calculation was correct and that the landlord was estopped from resiling from that representation.

Peter Smith J. made the point that each lease, and indeed each contract, has to be construed in the light of the objective intention of the parties to it and that decisions concerning similar words in other contracts, indeed even other leases, are of limited help. He concluded that there was no reason to depart from the plain words of the lease which required the full quarter’s rent to be paid in advance ([35] and [54]). He refused leave to introduce the estoppel point. In any event, he thought that there was nothing in it. The landlord had made no representation since it had received the tenant’s notice at the time it demanded the full quarter’s rent ([85]). The request for confirmation could not impose a duty on the landlord to comment ([86]). There was no evidence as to why the tenant believed it had only to pay rent on a pro rata basis; it refused to disclose the legal advice it had received ([91]). If there was a representation / belief it was as to the law rather than as to a fact ([96]). There is no ‘general proposition that where one party perceives the other side is making a mistake they have a duty to correct it.’ ([104]).

No liability in nuisance for the ordinary use of residential premises. The principle of caveat lessee.

There is no liability in nuisance for the ordinary use of residential premises. Landlords are not liable to tenants in nuisance in respect of a state of affairs that existed at the date of the lease.

In Baxter v Camden LBC (No 2) ([2001] Q.B. 1, CA (Eng)) the council had converted a house into three flats (one flat on each floor). The work had been done in accordance with the building standards of the time but these standards did not require the installation of adequate sound insulation between the floors. The tenant of the middle floor complained of the noise from the flats above and below her. These noises were occasioned by the ordinary use of the flats but the lack of sound insulation meant that they could be heard clearly and were a source of great stress to the tenant. She brought proceedings in nuisance against the council.

These failed because the noises were the result of the ordinary use of residential premises and this could not amount to a nuisance. ‘Ordinary use may only give rise to a nuisance if it is unusual or unreasonable having regard to the purpose for which the premises were constructed.’ (per Tuckey L.J. at 12). The claim also failed because the cause of the problem existed at the date of the lease. While it is normally no defence to say that the plaintiff came to the nuisance, this does not apply in the case of landlord and tenant. Here there is a principle of caveat lessee when it comes to the state of the property (per Tuckey LJ at 12 – 13). It would have been different if the inadequate conversion works had taken place after the date of the lease.

On the facts, the landlord was not liable in negligence. The work had been done properly according to the standards of the time.

Tuckey L.J. provided this general statement of the law of nuisance:

‘The essence of the tort is undue interference with the use or enjoyment of land and the right of the plaintiff not to be interfered with. In striking this balance in the case of noise nuisance, and other nuisances of this type, the court will obviously have to consider the locality, age and physical characteristics of the premises in question. Occupiers of low cost, high density housing must be expected to tolerate higher levels of noise from their neighbours than others in more substantial and spacious premises.’ (at 10).

Quiet enjoyment: Southwark LBC v Long

In Southwark LBC v Long ([2002] EWCA Civ. 403, CA (Eng)) S had granted L a lease of a flat in a block of flats. There was a communal rubbish bin. Residents could either put rubbish in the bin or into a chute leading to it from their floor. S agreed to ‘take all reasonable steps to keep the estate and common parts clean and tidy.’ In fact, the bin was often full. The area was smelly and there had been maggot infestations. The rubbish chutes were not big enough so residents had to bang them to force their rubbish down. This was noisy and was often done late at night. The English Court of Appeal found that S was in breach of its covenant. Handing over the operation of the system of refuse collection to contractors did not amount to taking all reasonable steps unless there was a proper system for monitoring the performance of the contractors. Nor was it enough simply to remind residents not to use the refuse chutes outside certain hours. This did not satisfy the requirement to take all reasonable steps. While the fact that this was low cost public housing was a relevant component of the factual matrix to be borne in mind when interpreting the covenant, there was no room for compromise on basic standards of cleanliness. The cost-effectivess of a proposed measure was relevant to an assessment of whether it was a reasonable step.

On the covenant for quiet enjoyment, this case was indistinguishable from Southwark LBC v Mills. The state of the facilities and the use of them was as originally contemplated so that there was no breach of the covenant.