Mr Ragmohan Singh Chug v Mr Mohinderpal Singh Dhaliwal
| Jurisdiction | England & Wales |
| Judge | Mr Justice Adam Johnson |
| Judgment Date | 05 April 2023 |
| Neutral Citation | [2023] EWHC 804 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: CH-2022-000145 |
[2023] EWHC 804 (Ch)
Mr Justice Adam Johnson
Case No: CH-2022-000145
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
CHANCERY APPEALS (ChD)
Royal Courts of Justice, Rolls Building
Fetter Lane, London, EC4A 1NL
Mr Niraj Modha (instructed by Radius Law) for the Appellants/Claimants
Mr Evan Price (instructed by MT UK Solicitors) for the Respondents/Defendants
Hearing dates: 28 March 2023
Approved Judgment
This judgment was handed down remotely at 10.30am on Wednesday 5 April 2023 by circulation to the parties or their representatives by e-mail and by release to the National Archives.
Introduction and Background
This is an Appeal in a landlord and tenant case, from a Judgment of HHJ Saggerson in the Central London County Court dated 5 July 2022.
I will start with some facts, as found by the Judge in his Judgment. There is no appeal against any of the Judge's factual findings.
Mr and Mrs Dhaliwal are freeholders of a property in Hounslow. It is at 358–360 Bath Road, Hounslow. It is used as a shop.
On 17 July 2005, they entered into a twenty-year lease with Mr Ragmohan Singh Chug (“ the Lease”) at a rent of £57,000 pa. Mr Chug wanted to use the property as a “ homeware” shop.
As usual, the Lease contained a number of covenants, including a covenant against alienation. This was at cl. 3(13)(a) of the Lease. Under it, Mr Chug agreed not to do a number of things. Among them he promised not to part with possession of the demised property (“ the Property”) or to suffer any other person to occupy the whole or part of it.
By late 2016, Mr Chug was looking to sell his business. He had discussions with a Mr Dhawan. These included discussions about transferring the leasehold interest in the Property. To begin with, Mr Chug looked to assign the Lease, but in the end nothing came of this and no licence to assign was ever granted. Mr Chug and Mr Dhawan went ahead anyway. Mr Dhawan agreed to pay Mr Chug £175,000 for his business, of which he eventually paid about £150,000. Meanwhile, Mr Dhawan entered into occupation of the Property. He paid to Mr Chug each month a sum of money corresponding to the rent due from Mr Chug, and Mr Chug paid it on to Mr Dhaliwal, so that as far as Mr Dhaliwal was concerned there was no change. This secret pass-through arrangement continued for about two years.
Although the Judge found that from 2018, Mr Dhawan had carried on his business at the Property via his company, The Essential Homewares Limited, he nonetheless considered that the arrangement between Mr Chug and Mr Dhawan was only ever a personal one between the two of them. The Judge described it as follows (at para. [31]):
“ In the light of my findings, [Mr Dhawan] was, in my judgment, a tenant at will or licensee of [Mr Chug].”
Things changed in January 2019. Mr Dhaliwal applied for a loan from Barclays bank. This was to be secured on the Property, and so a surveyor was sent round. The surveyor raised some questions about what was going on at the Property. Mr Dhaliwal realised that Mr Chug had stepped aside and that someone else was in occupation.
As it happened, in December 2018 there had been – for the first time – a shortfall in rent, in the sum of £3,222.25. There was also another issue, which was that part of the Property had been partitioned off, for use as a mobile phone shop. This gave rise to a question whether there had been a breach of another clause in the lease, cl. 3(10) which prohibited the making of certain alterations to the Property.
Notwithstanding his knowledge of the above matters, Mr Dhaliwal continued to accept rent during the period January-April 2019. To be precise, there were four payments during this period, on 30 January (£3,000), 25 February (£6,322.25), 25 March (£6,322.25) and 23 April (£6,232.25).
On 1 May 2019, however, Mr Dhaliwal served on Mr Chug a Notice under s.146 of the Law of Property Act 1925. This drew attention to the perceived breaches of both the alterations clause (cl 3(10)) and the alienation clause (cl. 3(13)(a)), and to the December shortfall in rent. It said that if there was failure to comply with the Notice within 28 days, then the Landlord (Mr Dhaliwal) reserved the right to re-enter the premises.
There was no response to the s. 146 Notice. The 28-day period expired and nothing further happened, although there was another payment of rent on 25 May. There was then yet a further payment of rent after expiry of the 28-day period, on 24 June.
On 5 July 2019, however, Mr Dhaliwal took action. He instructed bailiffs and re-entered the premises. Mr Dhawan was excluded.
What happened next is important. On 9 July 2019 Mr Chug sent a letter. It had an apologetic tone. It said he understood his responsibility to put the Property “ … into a state as it was at the time of the [L]ease”. It said he had settled the rent arrears that day. As regards the occupation by another party, although Mr Chug remained coy about who the other party was, the letter said the position would be regularised:
“ … the people running the business are known to our client and the process of assignment to them is in progress. Our client will soon be applying for Landlord's consent to the assignment.”
Discussions followed in the period 9 to 20 July 2019. At trial, Mr Dhaliwal gave written evidence about this. He said that Mr Dhawan had pleaded with him to sort things out. He also had discussions with Mr Chug. Mr Dhaliwal summarised the position reached as follows:
“[Mr Chug] informed me that he accepted the forfeiture and negotiated that I do not serve a Schedule of Dilapidations on him. I agreed, and instructed the bailiffs to allow … re-entry.”
The Judge plainly accepted this evidence. His summary of the position reached is in his Judgment at [59]–[60]. At [59], he set out his findings in relation to Mr Chug:
“[Mr Chug], I find, had lost interest by then. He had his agreement for £175,000 with [Mr Dhawan], £150,000 of which had been paid, and he was focusing on his business as an estate agent. He had moved on. I find that [Mr Chug] orally agreed on or shortly after 5/7/19 and before 20/7/19 that he would set aside any further claims in respect of the Property on [the Dhaliwals] agreeing not to pursue him for any dilapidations that might otherwise have arisen. This is consistent with [Mr Chug] effectively washing his hands of the Property.”
As to the position between Mr Dhaliwal and Mr Dhawan, the Judge found there was an agreement between them as well. He said at [60] of his Judgment that when the keys to the Property were made available to Mr Dhawan again on 20 July, this was “ … on the express agreement that he or [The Essential Homewares Limited] would be allowed back onto the Property to clear the stock but continue trading pending negotiations about a new lease.” The Judge described Mr Dhawan as a “ licensee of [the Dhaliwals] during this period”.
Negotiations with Mr Dhawan then continued. These were not negotiations for an assignment of the old Lease, as originally suggested in the letter from Mr Chug's solicitors of 9 July 2019. Instead, they were negotiations for a new lease.
As the Judge also held in his Judgment at [60], Mr Chug during this period “ … was prepared to engage sufficiently to do whatever might be necessary to help [Mr Dhawan] in his quest …”. But notably what he did not do was to raise any objection about the validity of the s.146 Notice or about the re-entry which had taken place on 5 July 2019.
While the negotiations for a new lease were going on, Mr Dhawan continued paying rent during August and September 2019. The Judge held (at [64]) that these payments were made under the agreement Mr Dhaliwal had reached with Mr Dhawan, that Mr Dhawan would be allowed to occupy the Premises as licensee pending negotiations for a new lease.
Mr Dhawan's proposal was in fact that the new lease be taken up by an associate of his, a Mr Malhotra. Heads of terms were exchanged, but problems arose, and by mid-October 2019 things were sufficiently bad for the Dhaliwals to give notice that the Property should be vacated and cleared out by 19 November, after which possession would be taken again.
On 24 October, a further rental payment was made, but this time by Mr Chug. By 7 November at the latest, Mr Malhotra had confirmed he did not wish to continue negotiations for a new lease. A further payment of rent by Mr Chug was made on 19 November; but when Mr Dhaliwal came to realise that it was Mr Chug who had made the last two rental payments, he paid the money back, on 22 November.
A second re-entry to the Premises was effected on 12 December 2019, which as the Judge put it at [61], terminated any remaining licence to occupy. Mr Dhawan was thereafter excluded, and later a new lease was entered into with a third party.
The Judgment and the Appeal
The Claimants in the present action were Mr Chug and Mr Dhawan's company, The Essential Homewares Limited. They sought a number of forms of relief, but principally a declaration that the re-entry effected on 5 July 2019 was unlawful, or alternatively relief from forfeiture.
The Judge rejected all the Claimants' claims for relief. Mr Chug and The Essential Homewares Limited now appeal. They do so on three Grounds:
i) They argue that there were no effective breaches of the Lease by the time of the re-entry on 5 July. As to what the Judge found on the topic of breach, he held (1) that in fact there had been no breach of the alternation covenant (cl. 3(10)), because the relevant alterations were not of such a type as to have...
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