Archive for the ‘lease covenants’ Category

Break clause and forfeiture

October 24, 2012

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

April 19, 2012

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.

April 12, 2012

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

April 10, 2012

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.

Implied licence for landlord to enter property to perform repairing covenant

April 9, 2012

A tenant who uses property in a reasonable way for a reasonably contemplated use does not commit waste. A covenant to ‘keep’ property in repair implies that, if need be, it will first be put in repair. A landlord who has covenanted to keep demised premises in repair has an implied licence to enter the property for a reasonable time in order to perform the covenant.

In Saner v Bilton ((1877 – 78) L.R. 7 Ch.D. 815) L owned a newly constructed warehouse for the storage of grain. He granted a lease of it to T. L covenanted to ‘keep the main walls and main timbers of the warehouse in good repair and condition.’ T used the property in a reasonable way (L alleged that this was not so but failed to make out this allegation). Nevertheless, a beam supporting one of the floors broke. Two of the external walls bulged and very extensive repair works were needed.

Fry J. held that T had not committed waste. He had not used the property unreasonably. A tenant who uses property in a reasonable way for a reasonably contemplated use does not commit waste. The fact that the cause of the problems arose from the original construction of the building did not take the work outside the scope of the landlord’s repairing covenant. A covenant to ‘keep’ property in repair implies that, if need be, it will first be put in repair. Put another way, a covenant to ‘keep’ in repair does not water down the scope of the repairing covenant. T was not entitled to damages in respect of the time he was kept out of possession by the landlord’s presence for the purpose of the repair works. A landlord who has covenanted to keep demised premises in repair has an implied licence to enter the property for a reasonable time in order to perform the covenant. This implied licence is not inconsistent with the covenant for quiet enjoyment:

“I think the covenant for quiet enjoyment must be read as subject to the license which I have held to be implied in the covenant to repair.’ (per Fry J at 824).

Assessing damages where breach of covenant for quiet enjoyment makes it impossible to trade

April 4, 2012

Where there has been a breach of a covenant for quiet enjoyment which makes it impossible to trade from the demised premises, it is legitimate for the judge to find on the balance of probabilities that the tenant would have traded successfully and then to reach a conclusion as to the profit likely to have been earned. If this approach is taken there is no need to apply a discount to the resulting figure to take account of the possibility of failure.

In Vasiliou v Hajigeorgiou ([2010] EWCA Civ 1475, CA (Eng)) L broke the covenant for quiet enjoyment in a lease of restaurant premises on the ground floor and in the rear yard of his property. He had stored materials in the yard making trade unlawful. Then work done by his contractors resulted in foul water leaking into the restaurant from upstairs flats. T brought separate proceedings in respect of each incident. In the first case, the judge found as a fact that the tenant would have traded successfully from the premises. He then reached a conclusion as to the amount of profit that would have been earned had the landlord not been in breach. The court in the second case replicated this approach. On appeal, the landlord argued that a percentage discount should have been applied to reflect the possibility of failure. The English Court of Appeal rejected this. The judges below were entitled to take the approach they had. Once the judge had found that the tenant would have made a go of the restaurant there was no place for a discount.

Co-existence of the covenant for quiet enjoyment and landlord’s repairing covenant

April 3, 2012

Whether the steps taken by a landlord to perform his repairing covenant amount to a breach of the covenant for quiet enjoyment depends on whether all reasonable steps have been taken to minimise the potential risks. It is not necessary to show that all possible steps have been taken.

In Goldmile Properties Ltd v Lechouritis ([2003] EWCA Civ 49, CA (Eng)) L was the tenant of restaurant premises on the ground and basement floors of a seven storey building. The lease contained a covenant for quiet enjoyment and a covenant by the landlord to keep the structure and exterior of the property in repair. The landlord’s contractors erected scaffolding outside the building to do work necessary for compliance with the repairing covenant. This made the tenant’s restaurant feel dingy inside and made it appear closed to passers by. The tenant claimed that this amounted to a breach of the covenant for quiet enjoyment but this failed. It was necessary to make the two covenants compatible with each other; this was to be done by holding that the parties must have contemplated the possibility of some kind of interference when repairing works were being carried out. The covenant for quiet enjoyment was subject to this understanding. The question then became whether the landlord had taken all reasonable steps to minimise the risk to the tenant of interference caused by repair works. On the facts, the landlords satisfied this test.

Quiet enjoyment: landlord’s liability for acts of those claiming under him

April 2, 2012

A landlord can be in breach of the covenant for quiet enjoyment because of the actions authorised by him or those claiming under him.

In Sanderson v Berwick-Upon-Tweed ((1883 – 84) L.R. 13 Q.B.D. 547, CA (Eng) D let a farm to S and another farm, lying above S’s farm, to C. D granted C a right to use the drainage system that ran under S’s farm. C twice caused damage to S’s farm. First through an excessive use of the drains and secondly though a normal use of the drains. On the second occasion the damage was caused because of defects in the drainage system. S brought proceedings in respect of the damage caused on both occasions relying on the covenant for quiet enjoyment.

S succeeded in respect only of the damage caused on the second occasion. D was liable here because C claimed under him and had acted in a way authorised by the easement granted by D.

‘[I]t appears to us to be in every case a question of fact whether the quiet enjoyment of the land has or has not been interrupted; and where the ordinary and lawful enjoyment of the demised land is substantially interfered with by the acts of the lessor, or those lawfully claiming under him, the covenant appears to us to be broken, although neither the title to the land nor the possession of the land may be otherwise affected.’ (per Fry L.J. at 551).

Quiet enjoyment: elements of the covenant: it is prospective

March 28, 2012

The covenant for quiet enjoyment is a covenant that the tenant’s lawful possession of the premises will not be substantially interfered with by the acts of the lessor or those claiming under him. It is prospective: it only relates to things done after the lease was granted. The interference need not be direct or physical (noise can give rise to a breach).

In Southwark LBC v Tanner ([2001] 1 AC 1, HL) the House of Lords confirmed the English Court of Appeal decision in Southwark LBC v Mills. T was the tenant in a block of flats owned by the Council. Because of inadequate sound insulation, the tenants could hear any noise made in other flats. This made life very unpleasant and T brought an action against the Council in nuisance and for breach of an express covenant for quiet enjoyment. The claims failed. There was no breach of the covenant for quiet enjoyment because the essential problem was a lack of sound insulation. But the covenant cannot impose a new positive obligation. The problem pre-dated the lease and the covenant is prospective. The landlords were making use of the remaining flats for the purpose that must have been in T’s contemplation at the time of the lease (as residential flats).

The claim in nuisance failed. There was no suggestion that the other tenants were committing a nuisance. In that case neither could the landlords be said to be authorising those claiming under them to commit a nuisance.

Lord Hoffman said:

‘The covenant for quiet enjoyment is therefore a covenant that the tenant’s lawful possession of the land will not be substantially interfered with by the acts of the lessor or those lawfully claiming under him.” (at 10).

For there to be a breach of the covenant, there must be substantial interference with the tenant’s possession, her ability to use the property in an ordinary lawful way. The covenant is not a warranty that the land is fit to be used for some special purpose (at 10). The covenant is prospective; the action complained of must occur after the grant (at 11). The tenant takes the property subject to the uses of the retained parts which the parties must have contemplated (at 11).

Lord Millett pointed out that the covenant had originally been concerned with the tenant’s title or possession but had later been extended to cover substantial interference with the ordinary and lawful enjoyment of the land  (at 22). Interference need not be direct or physical and noise could give rise to a breach (at 22 – 23). The covenant extends to rights appurtenant to the demised premises such as a right to light (at 24).

Relationship between privity of contract and privity of estate

March 21, 2012

In City of London Corporation v Fell ([1993] 1 A.C. 458) the original tenant of leasehold property had assigned the lease. The assignee stayed in possession at the end of the term and the lease was continued by virtue of section 24 of the Landlord and Tenant Act 1954. The assignee went into liquidation during this continuation and the landlord sought to recover rent arrears from the original tenant relying on the contractual commitments given. Was the original tenant liable for rent arrears that had accrued during the continuation? The House of Lords held not. The original tenant had not contracted to make any payments once the contractual term had ended (there was no express covenant to pay the rent during any statutory continuation) and the statute did not extend the original tenant’s liability in this way.

Lord Templeman’s judgment is notable for its explanation and affirmation of some of the basic principles concerning privity of estate. For example:

‘The effect of common law and statute on a lease is to create rights and obligations which are independent of the parallel rights and obligations of the original human covenantor’. (at 465).

A little later:

‘Upon assignment of a lease, the provisions of the covenants by the original tenant continue to attach to the term because those provisions touch and concern the land and not because there continues to exist an original tenant who has ceased to own any interest in the demised land but remains liable in contract to fulfil the promises he made under covenant.’ (at 465 – 466).