Navnit Savadas Keshwala v Sharda Bhalsod

Hearing date: 4 March 2021

Approved Judgment

Introduction

This second appeal concerns relief from forfeiture of a lease of mixed commercial and residential premises in Leicester. Because the Appellants in this Court were the Respondents below, and vice-versa, it is more convenient to refer to the parties as “the Landlords” (Mrs Sharda Bhalsod and Mrs Jayshree Bhalsod) and “the Tenants” (Mr Navnit Keshwala and Mr Kiran Sharma) respectively.

On 13 September 2018 the Landlords, taking advantage of a minor shortfall in the payment of rent for the June 2018 quarter, forfeited the lease by peaceable re-entry for non-payment of rent. Nearly 5 months later on 4 February 2019, no application for relief having been made, the Landlords re-let the premises. On 26 February 2019 the Tenants applied to the County Court for relief. The application was heard by HHJ Hampton who gave a thorough and careful judgment on 10 January 2020, in which she described neither party as presenting a particularly appealing position to the Court, and the matter as finely balanced, but ultimately dismissed the claim for relief. I will have to look at the reasons for her decision in detail, but a significant factor was the delay of the Tenants in applying for relief, or even effectively notifying the Landlords of their intent to do so.

The Tenants appealed to the High Court. The appeal was heard by Martin Spencer J sitting in Birmingham. In a judgment dated 4 September 2020 he allowed the appeal. The effective ground on which he did so was that the Tenants had applied for relief within 6 months after the forfeiture, and that in those circumstances they should be treated as having applied with reasonable promptitude, and the fact that they had delayed until nearly the end of the 6 month period was not capable of amounting to exceptional circumstances, such as to defeat the claim for relief.

The Landlords sought permission for a second appeal which was granted, limited to one ground, by Floyd LJ on 8 December 2020. The ground for which he granted permission is that Martin Spencer J erred in his approach to delay, and that there was no proper basis for disturbing HHJ Hampton's decision.

In my judgment this ground is made out, and I would allow the Landlords' appeal and restore the judgment of HHJ Hampton.

Background

By a lease dated 12 December 2008 Rachel Rowley let 89 Narborough Road, Leicester to the Tenants for a term of 20 years from 17 March 2008 at an initial rent of £8,000, subject to 5-yearly upward only rent reviews, payable by equal quarterly instalments in advance on the usual quarter days. The lease contained a forfeiture clause in conventional terms enabling the landlord to re-enter if, among other things, any part of the rent should be unpaid for 21 days after its due date whether formally demanded or not.

The property consisted of a lock-up shop on the ground floor and residential accommodation on the upper floors. The Tenants were already in business together providing financial services under a franchise from Halifax plc from premises in Derby, and took the property at 89 Narborough Road to open a second branch. They spent a considerable sum of money refurbishing it to Halifax's standards, and later opened a third branch in Melton Road, Leicester. They operated this business together until 2011 when Halifax terminated their franchise (along with many others). That led to the Tenants agreeing to go their separate ways, severing their partnership. They agreed that Mr Keshwala would become the sole owner of the business at Melton Road, while Mr Sharma would take over both 89 Narborough Road and the Derby premises; Mr Sharma would be responsible for the outgoings at 89 Narborough Road and would indemnify Mr Keshwala for them.

In 2015 the reversion was bought by the Landlords. The transfer was dated 30 April 2015 and the Landlords were registered at HM Land Registry on 3 July 2015. HHJ Hampton found that although the property was put into the names of the two Mrs Bhalsods, the actual running and management of the property was carried out by Mr Anil Bhalsod, Mrs Sharda Bhalsod being his sister-in-law and Mrs Jayshree Bhalsod being his wife.

Shortly after acquiring the property, on 21 July 2015, the Landlords forfeited the lease for arrears of rent by taking peaceable re-entry. Mr Sharma (acting, at least purportedly, together with Mr Keshwala) gave prompt notice of his intention to apply for relief and duly applied to the County Court, and by a consent order dated 10 November 2015 relief was granted on terms that just under £5,000 in arrears, costs and bailiff's fees was paid, which it was.

In the present proceedings the Landlords asserted that the application for relief in 2015 had been brought without Mr Keshwala's authority, and applied to amend their defence by adding a claim to have the consent order set aside on that basis. The application to amend was based on some correspondence in 2018 between solicitors acting for Mr Keshwala, Crane and Walton LLP, and the solicitors who brought the application for relief in 2015, Bond Adams LLP, which certainly suggested that the latter had only been acting for Mr Sharma and not for Mr Keshwala. But in the present proceedings Mr Keshwala's evidence was that he had in fact agreed to assist Mr Sharma, albeit on terms that all the costs fell on Mr Sharma; the application to amend was refused at an interlocutory stage; and at trial HHJ Hampton cut short the evidence and argument on the point on the basis that it was all past history and had no effect on anything she had to decide.

Despite Mr Sharma successfully regaining possession of the premises, the business he was then running from them, which was that of a travel agency, had been severely interrupted by the forfeiture and although he attempted to re-start it, this failed. He never managed to start another one in the ground floor before the forfeiture in 2018 although (see below) he was about to do so.

The residential upper part was unoccupied and Mr Sharma decided to refurbish it for student accommodation. The work was completed in June 2016 at some expense and he applied to Leicester City Council for a licence to let it as a house in multiple occupation. That was in the event not forthcoming as the Council had decided to stop granting any such licences in the area, but unwisely Mr Sharma had in the meantime let the property to students. That led to the Council in March 2018 serving a planning contravention notice on the Landlords, and in June or July 2018 requiring Mr Sharma to have the flat vacated. HHJ Hampton found that all the students had vacated before the matters with which this case is concerned.

Mr Sharma also decided to make use of the ground floor again by opening a hairdresser's or barber's business. Again he spent considerable sums on refurbishing and fitting out the property, and by the time of the forfeiture in September 2018 it was practically ready for opening.

There is one other matter of background before coming to the forfeiture itself. As already referred to, the arrangement between Mr Keshwala and Mr Sharma when they went their separate ways in 2011 was that Mr Sharma would be solely responsible for the property at 89 Narborough Road. Indeed at the time of the 2015 forfeiture, Mr Keshwala asked Mr Sharma to remove his name from the lease. Mr Sharma approached Mr Bhalsod to have Mr Keshwala replaced by Mr Sharma's uncle, Mr Kirit Mistry, who was personally known to Mr Bhalsod, but Mr Bhalsod was unreceptive to the suggestion.

Mr Keshwala's continuing liability as one of the named tenants under the lease arose again in summer 2018 when he received demands from Leicester City Council for unpaid non-domestic rates for the property. The details do not matter but it appears that there was a Magistrates' Court summons, and bailiffs also turned up at his home, about which he was obviously very upset. The amount outstanding was not trivial — it was over £22,000. That led to his instructing Crane and Walton LLP, and the correspondence between them and Bond Adams LLP, described as “rather hostile” by HHJ Hampton, which was still ongoing at the time of the forfeiture. There was also evidence from Mr Bhalsod, which we were told was neither contradicted nor challenged in cross-examination, that in July 2018 Mr Keshwala had contacted him and said that he was being chased for unpaid business rates for 89 Narborough Road, that he had nothing to do with the premises, and had not done so for many years.

The forfeiture

The rent had not been reviewed which meant that the quarter's rent due on 24 June 2018 was £2,000. Mr Sharma was in the practice of getting his sister to pay the rent by transferring it to an account in the name of the Landlords' property agents, Andrew Granger & Co ( “AG”), who had acted for the Landlords throughout their ownership of the property. Unfortunately by mistake his sister only paid £1,500 on this...