Smith v Spaul
| Jurisdiction | England & Wales |
| Judge | Lady Justice Arden,Lord Justice Kay |
| Judgment Date | 16 December 2002 |
| Neutral Citation | [2002] EWCA Civ 1830 |
| Docket Number | Case No: B3/2002/9001 CCRTF |
| Court | Court of Appeal (Civil Division) |
| Date | 16 December 2002 |
[2002] EWCA Civ 1830
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM CENTRAL LONDON
COUNTY COURT (His Honour Judge Goldstein)
Royal Courts of Justice
Strand,
London, WC2A 2LL
Lord Justice Kay and
Lady Justice Arden
Case No: B3/2002/9001 CCRTF
B3/2001/6019 FC3
Miss Josephine Henderson (instructed pro bono) for the Appellant
Mr Richard Alomo (instructed by Messrs Dhalokia Cummings-John) for the Respondent
This appeal is brought by the landlord of the premises known as Flat C, 103 Gloucester Place, London, against the assignee of the 99 year lease dated 7 October 1983 of those premises ("the premises"). The appeal is brought with limited permission granted by Ward LJ against the order for costs contained in the order of His Honour Judge Goldstein, sitting in the Central London County Court. The main part of the order struck out the appellant's claim for forfeiture based on a notice pursuant to section 146 of the Law of Property Act 1925 dated 18 May 1995 ("the section 146 notice") on two grounds. The order for costs was that the appellant should pay £15,000 on account of costs by 4.00 p.m. on 12 November 1999. The only ground on which this appeal is now advanced is that one of the grounds on which the judge struck out the proceedings was based on the erroneous conclusion as a matter of law that a mortgagee in possession of the premises could effectively serve a counter-notice pursuant to the Leasehold Property (Repairs) Act 1938 ("the 1938 Act"). That meant that the appellant could not commence proceedings to enforce the section 146 notice in respect of breaches to which the 1938 Act applies without the leave of the court.
Accordingly the short point of law which this appeal raises is whether the mortgagee in possession of premises is the "lessee" for the purposes of section 146 of the Law of Property Act 1925 and section 7 of the 1938 Act. It is surprising that this precise point has not previously been considered by the higher courts since there must in practice be many cases where a lessor wishes to obtain possession of premises he has let but the lessee had mortgaged his interest to a mortgagee who has taken possession.
The statutory definition of "lessee" is the same for both sections and it is expressed in wide and general, but non-exhaustive, terms:—
"'Lessee' includes an original or derivative under-lessee, and the persons deriving the title under a lessee; also a grantee under any such grant as aforementioned and the persons deriving title under him,"(s146(5)(b))
The relevant statutory scheme is as follows. Under the Law of Property Act 1925, a landlord cannot enforce a right of forfeiture in a lease unless he serves on the lessee a notice requiring (if the breach is capable of remedy) the lessee to remedy the breach and (in any case) to pay compensation and containing other particulars required by section 146(1). The lessee is then given a reasonable time to remedy the breach (if capable of remedy) and to pay compensation. If a section 146 notice is served, the lessee can claim relief from forfeiture. Moreover, any under-lessee can apply to the court for an order vesting the lease in him (section 146(4)).
The 1938 Act provides that where a section 146 notice is served to enforce a repairing covenant, or claims damages for breach of a repairing covenant, and the lease has three years or more unexpired, the section 146 notice must contain a notice that the lessee is entitled to serve a counter-notice claiming the benefit of the 1938 Act. That benefit is principally contained in 1(3) of the 1938 Act:—
"(3) Where a counter-notice is served by a lessee under this section, then, notwithstanding anything in any enactment or rule of law, no proceedings, by action or otherwise, shall be taken by the lessor for the enforcement of any right of re-entry or forfeiture under any proviso or stipulation in the lease for breach of the covenant or agreement in question, or for damages for breach thereof, otherwise than with the leave of the court."
Furthermore, the circumstances in which the court can grant leave under section 1(3) are limited. For instance, leave may not be given unless the lessor proves that he will suffer a substantial loss in the value of his reversion if the breach is not immediately remedied (section 1(5)).
The mischief which the 1938 Act was designed to remedy was:—
"speculators buying up small property in an indifferent state of repair, and then serving a schedule of dilapidations upon the tenants which the tenants cannot comply with. I am not saying that was this case, but it is the general mischief, that the speculator buys at a very low price, turns out the tenants and gets the reversion which he has never paid for, which is a great hardship to the tenants" (per Lord Goddard CJ in National Real Estate and Finance Company Ltd v Hassan [1939] 2 KB 61, CA).
The factual background necessary to determine this appeal can be stated briefly and I can do so using the summary in the respondent's skeleton argument. The appellant is, and was at all material times, the freeholder of the block of flats known as 103, Gloucester Place, London W1. In October 1983, the appellant granted a Mr French a lease of Flat C for 99 years, commencing September 1983. In November 1985, Mr French assigned his lease to a Dr Moore. In 1998 Dr Moore converted the flat into a two-bedroomed flat with a bathroom and kitchen at mezzanine level. In 1998 Dr Moore sold the flat to Mr Omiros Mavrovouniotis. Dr Moore was required to pay and did pay, the sum of £11,162.48 to the appellant as compensation for his alterations to Flat C before a licence to assign was granted. Mr Mavrovouniotis bought Flat C with the aid of an advance from Halifax Building Society ("Halifax"), in whose favour he executed a charge.
In March 1995, Halifax obtained a possession order in respect of Flat C at the Central London County Court. At about the same time the appellant purported to repossess Flat C. However, in May 1995 the appellant allowed Halifax back into possession. On 19 May 1995 the appellant served a notice under section 146 on Halifax. On 22 May 1995 the solicitors acting for Halifax served a counter-notice on the appellant's solicitors claiming, among other things, the benefit of the 1938 Act. In June 1995 Mr Spaul, the respondent to this appeal, bought Flat C from Halifax at an auction. On 15 November 1995, the appellant commenced proceedings for possession of Flat C on the basis of the section 146 notice, served on 19 May 1995. Pleadings were served and the matter came on for trial in 1999. The judge decided to deal with two preliminary issues: first, whether the appellant was in breach of the provisions of the 1938 Act in not obtaining leave of the court to bring the action, and, second, whether the appellant was estopped from bringing the action to enforce a breach not covered by the 1938 Act by reason of her conduct over the years. The judge found against the appellant on both issues. As regards the 1938 Act, the judge held that (apart from paragraph A of the schedule of breaches attached to the section 146 notice, with which we are not concerned), the notice related to breaches of covenant to keep the property in repair and that those items fell within the 1938 Act. There is no appeal from that part of his ruling or on the second issue. The debate has centred on the judge's conclusions of law on the first issue: was Halifax a lessee for the purposes of section 1(3) of the 1938 Act?
It is common ground that a mortgagee qualifies as a lessee within the statutory definition set out above, as indeed, might a number of other persons in any given case.
In Egerton v Jones [1939] 2 KB 702 a mortgagee of a leasehold interest claimed that he should have been given notice pursuant to section 146. The Court of Appeal held that it was unnecessary to give the mortgagee notice. Sir Wilfred Greene MR, with whom Mackinnon and Finlay LJJ agreed, held:—
"Accordingly in the case of a mortgagee by subdemise that mortgagee is always at the risk of a lessor obtaining re-entry for breach of covenant without the mortgagee knowing anything about it; in which case the mortgagee is completely shut out. Every mortgagee, therefore, knows that this is the risk he runs. If, after taking a covenant from his mortgagor to observe the covenants in the lease, he takes no steps whatsoever to satisfy himself from time to time that no breach of covenant is taking place, he is always exposed to the risk that, behind his back and without his knowledge, the lessor will succeed in re-entering, and so determining the lease, with the result that all possibility of relief from forfeiture is lost to the mortgagee. That is one of the risks of the game."
In Church Commissioners for England v Ve-Ri-Best Manufacturing Co [1957] 1 QB 238, the lessee in possession sought to rely on a counter-notice served by the mortgagee. Lord Goddard CJ held that in the context of a section 146 notice the expression "lessee" meant the lessee in possession. Accordingly, the lessee in possession could not rely on the counter-notice served by the mortgagee. In the course of argument, Counsel for the plaintiffs (Mr R E Megarry QC) conceded that it might have been necessary to give notice to the mortgagee if he had been in possession. That cautious and Delphic concession assumed importance in a later case which I consider below.
In Kanda v Church Commissioners for England [1958] 1 QB 332, the sequence of events was that a section 146 notice was served on a tenant,...
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