Expert Clothing Service & Sales Ltd v Hillgate House Ltd

A breach of a positive lease covenant will ordinarily be capable of remedy, including where performance was required by a fixed date and the breach occurred once and for all. Under section 146(1) of the Law of Property Act 1925, the question is whether full compliance within a reasonable time after notice, together with appropriate monetary compensation, would effectively remedy the landlord’s harm. Earlier default may justify a tight timetable, but the landlord cannot omit a requirement to remedy because the tenant appears unwilling or unable to comply.

Waiver requires an objectively unequivocal election to recognise the lease as subsisting. Sending a proposed deed of variation must be assessed in its context and may be consistent with fulfilling an earlier contractual obligation rather than affirming the lease’s present existence.

Expert Clothing Service & Sales Ltd, the landlord, granted Hillgate House Ltd a 25-year lease. David Booth-Jones controlled the tenant company and joined the lease as surety. The original lease permitted reconstruction but imposed no obligation to undertake it.

Following an earlier forfeiture for unpaid rent, county court proceedings were compromised by a Tomlin order. Its scheduled terms required a deed varying the lease and obliged the tenant to reconstruct the premises by a specified date. The tenant undertook no reconstruction by that date and also failed to notify the landlord of a charge over the premises.

The landlord served a section 146 notice describing both breaches as incapable of remedy and requiring immediate possession. Its solicitors subsequently sent an unexecuted deed of variation for execution. Judge Paul Baker QC, sitting as a deputy High Court judge, ordered possession and dismissed the tenant’s claim for relief from forfeiture. The defendants appealed, challenging the reconstruction breach’s remediability, alleging waiver through the proposed deed, and seeking relief from forfeiture.

1. The appeal was allowed. Slade LJ concluded that both breaches were capable of remedy. The section 146 notice was therefore invalid because it afforded no opportunity to remedy them. O’Connor LJ agreed. Questions of relief from forfeiture did not arise.

2. Per Slade LJ, the practical inquiry under section 146(1) of the Law of Property Act 1925 concerned retrieval of the harm caused to the landlord. The court had to ask whether full compliance within a reasonable time after notice, coupled with appropriate monetary compensation, would effectively remedy that harm. A positive covenant could ordinarily be performed late, even where its breach occurred once and for all. Exceptional positive breaches might remain irremediable.

3. The binding decision in Scala House Ltd v Forbes, [1974] 1 QB 575, concerned negative covenants against assignment, underletting or parting with possession. It did not establish that every breach occurring once and for all was incapable of remedy. Cases concerning brothel use involved lasting stigma which cessation could not remove. No comparable harm arose from the failure to reconstruct, and the lease still had 20 years to run.

4. The tenant could not use its failure to reconstruct to reduce the reviewed rent. Valuation should assume that the required reconstruction had occurred. Any resulting rental loss could be compensated in money. Earlier opportunities to undertake the works could justify a correspondingly tight timetable after notice. They did not justify allowing no time, and the landlord could not prejudge whether the tenant would obtain the means or willingness to comply.

5. Waiver was rejected as a subsidiary issue. Slade LJ, with O’Connor LJ expressly agreeing, applied an objective inquiry into whether the landlord’s conduct unequivocally recognised a presently subsisting tenancy. A negotiating document could have that effect in suitable circumstances. Here, the proposed deed implemented an earlier contractual compromise and was intended to operate retrospectively. Recent correspondence maintained the landlord’s forfeiture position. Sending the unexecuted deed therefore did not amount to waiver. Whether a demand for rent alone necessarily waived forfeiture was assumed without final decision.

6. O’Connor LJ separately criticised Scala’s reasoning concerning breaches already remedied before notice. He considered that successful remedy demonstrated original remediability. He nevertheless accepted the binding decision concerning unlawful subletting and confined it to that context.

The appeal was allowed with costs in the court below. No order was made for costs of the appeal. Leave to appeal to the House of Lords was refused.

• Court of Appeal: Allowed the defendants’ appeal from the possession order and dismissal of the claim for relief from forfeiture. The notice was invalid because both breaches were capable of remedy. Leave to appeal to the House of Lords was refused.
• High Court: On 2 April 1984, Judge Paul Baker QC, sitting as a deputy High Court judge, ordered possession against the tenant company and dismissed its counterclaim for relief from forfeiture. He treated the reconstruction breach as incapable of remedy and rejected waiver.
• West London County Court: Earlier proceedings concerning forfeiture for unpaid rent were compromised on 29 June 1981 by a Tomlin order. Its scheduled agreement required variations to the lease, including an obligation to reconstruct the premises.