Posts Tagged ‘immoral user’

Forfeiture: is immoral user by a sub-tenant always an irremediable breach of a head-lease covenant?

June 13, 2019

Introduction

When, and how, should a tenant’s rights be affected if a subtenant uses the property for immoral purposes in breach of a head-lease covenant? These were the questions considered by the Court in Patel v K&J Restaurants Ltd ([2010] EWCA Civ 1211).

Forfeiture and irremediable breaches

A lease that contains an appropriately worded forfeiture clause can be brought to an end in the event of a tenant’s breach by following the appropriate procedure. The procedure for breaches other than non-payment of rent is laid down in section 58 of the Conveyancing and Property Ordinance (which follows section 146 of the English Law of Property Act 1925).

Section 58 requires the landlord to serve a notice (‘the section 58 notice’) on the tenant specifying the breach complained of and ‘if the breach is capable of remedy, requiring the lessee to remedy the breach’ (emphasis added).

This phraseology suggests that there are irremediable breaches, breaches that are not capable of remedy and that there is no need for the notice to require the lessee to remedy the breach in such a case.

Where the breach is capable of remedy, the section 58 notice has to specify the reasonable period within which the breach must be remedied. Where the breach is irremediable then the notice can specify a very short period. At the end of that period, the landlord can take steps (proceedings or peaceable re-entry) to recover possession.

Is breach of a prohibition on immoral use irremediable?

Breach of a covenant against immoral user has been held to be irremediable. In Rugby School (Governors) v Tannahill ([1935] 1 KB 87) a tenant allowed a house to be used as a brothel in breach of the covenant prohibiting immoral user. The English Court of Appeal held that this breach was irremediable.

In Glass v Kencakes Ltd ([1966] 1 QB 611), however, it was decided that a sub-tenant’s use of the property for immoral purposes was not an irremediable breach of the head-lease where the head-lease tenant neither knew nor had reason to know that the property was being used for immoral purposes.

A tenant who knows, or has reason to know, about a sub-tenant’s breach of a prohibition on immoral use has to take immediate steps to bring the use to an end and to forfeit the sub-lease.

Patel v K&J Restaurants

In Patel v K&J Restaurants, the English Court of Appeal had to consider whether the head-lease tenant satisfied the Glass v Kencakes requirements.

K&J Restaurants were tenants under a head-lease which contained a covenant against immoral use. A sub-tenant used her flat for prostitution. Was this an irremediable breach of the head-lease covenant?

The problem was that K&J Restaurants was informed of the problem by police but took no action for a while though, after some delay, it did evict the sub-tenant. This delay was enough to render the breach irremediable.

When does a tenant ‘know’ of an immoral use?

The first instance judge in Patel put forward this proposition that:

‘”Known”, as in “so soon as the user is known”, must mean exactly that. No court expects a tenant to act on mere suspicion. However, if there are reasonable grounds for suspicion the tenant should make enquiries. He cannot turn a blind eye. The question, therefore, whether breaches are remediable depends on the facts of the individual case.’

In the Court of Appeal, Lloyd LJ agreed with this approach but with one clarification:

‘It seems to me that the tenant must take some action when he has either knowledge or, at least, reasonable grounds for suspicion.’ ([28]).

Why had the tenant in Patel not done enough?

The tenant was informed of the immoral use in a telephone call from a police officer. The tenant took no action at that time, claiming that the police officer had promised to write to him with further details. This call was enough at least to raise a reasonable suspicion that the sub-let flat was being used for immoral purposes. He should at least have made enquiries but did not do so. Three months later, the tenant brought the sub-lease to an end.

This failure to act promptly on the reasonable suspicion of breach meant that the breach was irremediable, not immediately after the phone call but well before the service of the s. 146 (CPO. s58) notice ([32]).

Relief from forfeiture

Even though the breach was irremediable, the Court of Appeal agreed with the decision of the first instance judge to grant relief from forfeiture.

In Ropemaker Properties Ltd v Noonhaven Ltd ([1989] 2 EGLR 50), Millett J. said that where the breach involved immoral user, the courts would only grant relief in the rarest cases.

The first instance judge, however, decided that no stigma attached to the property as a result of the immoral use. The problem use was ended and the character of the area in which the property was located meant that it was difficult for stigma to attach to any particular property.

While it was unusual to grant relief in this class of case, there was no reason to disturb the finding that relief should be awarded given the lack of stigma.

Michael Lower