Chartered Trust Plc v Davies

A landlord’s duty not to derogate from a grant is governed by fair dealing and the purpose for which the premises were let. It is not confined to acts making use physically or legally impossible. Where the grant forms part of a managed shopping development, the landlord may be obliged to use retained control and contractual powers to prevent nuisance or serious interference caused by another tenant. Mere letting to a potentially unsuitable tenant is insufficient. Liability may arise from consenting to, adopting or continuing the tenant’s actual nuisance, including by failing to act when a duty to intervene exists. The relevant duty depends on what was reasonably contemplated when the lease was made and what action lay within the landlord’s power.

The appeal was brought by mortgagees in possession from a decision of His Honour Judge Baker in the Chichester County Court dated 1 March 1996. The judge dismissed the landlord’s claim for rent arrears and an order requiring the tenant to keep the shop open, and allowed the tenant’s counterclaim based on repudiation of the lease.

The tenant occupied a shop in a small shopping mall. A pawnbroker’s business in another unit caused queuing, obstruction, threatening behaviour and loss of passing trade. The central issues were whether the landlords had derogated from their grant, breached quiet enjoyment, or continued a nuisance by failing to intervene, and whether that conduct amounted to repudiatory breach.

1. Appeal dismissed. Lord Justice Henry delivered the leading judgment, with Lord Justice Staughton agreeing entirely. The dismissal was therefore unanimous.
2. The doctrine of derogation from grant is an independent rule embodying fair dealing. It prevents a landlord from using retained land, or permitting its use, so as to make premises materially less fit for the particular purpose for which they were let. The doctrine is not confined to physical or legal impossibility. The purpose of the grant must be identified from the lease and the circumstances existing when it was made.
3. The obligation must be construed fairly, and must be within the reasonable contemplation of the parties and within the grantor’s power to fulfil. In a shopping mall, the grant may include the benefit of an effectively managed development and usable common parts. Retained rule-making powers, control of access, similar leases and a service-charge arrangement were relevant to that conclusion.
4. A tenant relying on a landlord’s failure to act must establish a legal duty to act. A landlord may be liable for a nuisance caused by another tenant where the landlord has consented to, adopted or continued it. An omission may amount to continuation where the landlord had a duty and the means to take effective action. The authorities, including Hilton & Another v James Smith and Sons (Norwood) Limited [1979] 2 EGLR 44 and Sedleigh-Denfield v O’Callaghan [1940] AC 880, supported that approach.
5. The mere letting of premises to a pawnbroker was not itself enough. The relevant interference was the manner in which the pawnbroker’s business was conducted. The landlords could have enforced the covenant against nuisance, made rules keeping the passage clear, and addressed the queues and obstruction, but did nothing. That failure continued the nuisance and derogated from the grant, making the premises materially less fit for the intended retail use. The resulting substantial interference amounted to repudiatory breach, which the tenant was entitled to accept.

Appeal dismissed with costs. Leave to appeal refused.

1. Court of Appeal (Civil Division): Appeal from the Chichester County Court dismissed with costs; leave to appeal refused.
2. Chichester County Court: On 1 March 1996, the landlord’s claim for rent arrears and a keep-open order was dismissed, and the tenant’s counterclaim based on repudiatory breach was allowed.