Akici v LR Butlin Ltd

A covenant against parting with or sharing possession in a professionally drafted commercial lease ordinarily uses possession in its technical legal sense throughout. It is not breached by mere shared occupation. A breach occurs only where the lessee parts with possession or admits another to joint possession.

A notice under section 146 of the Law of Property Act 1925 must specify the actual breach relied on. The objective reasonable-recipient approach does not cure a notice which alleges parting with possession but omits the distinct breach of sharing possession. A breach of a covenant against sharing possession, without creation or transfer of a legal interest, is in principle capable of remedy.

The appellant was the tenant of commercial premises. A company owned and controlled by another individual operated a takeaway business from them. The landlord served a notice under section 146 of the Law of Property Act 1925, alleging assignment, subletting or parting with possession to the company. It then peaceably re-entered and forfeited the lease.

His Honour Judge Michael Dean QC held that the tenant had shared possession, that the notice was sufficient, that the breach was irremediable, and that relief from forfeiture should in any event be refused. The tenant appealed. The landlord cross-appealed against the finding that there had been no parting with possession.

The central issues were the construction of the alienation covenant, the validity of the statutory notice, and whether any breach was remediable.

Appeal allowed. Neuberger LJ, with whom Mummery LJ agreed, held that the landlord's re-entry was ineffective because its statutory notice did not specify the breach which had occurred.

1. The word possession bore its technical legal meaning both in the covenant against parting with possession and in the covenant against sharing possession. The contrary reasoning in Tulapam Properties Ltd v De Almeida [1981] 2 EGLR 55 was wrong. Mere shared occupation did not breach the covenant; joint legal possession could do so.

2. The judge had been entitled to find that the tenant retained possession and had not parted with it to the company. He had also been entitled to find that the company shared possession, given its control of the premises, its business operation, its employees and keys, and its payment of rent.

3. Section 146(1) of the Law of Property Act 1925 required the notice to specify the particular breach. Applying the reasonable-recipient approach in Mannai Investments Ltd v Eagle Star Assurance Co Ltd [1997] AC 749, the notice could not fairly be read as alleging sharing possession. It expressly alleged only assignment, subletting and parting with possession. It therefore neither identified the actual breach nor informed the tenant what he needed to remedy. The notice could not support forfeiture.

4. Although unnecessary to the result, a breach of a covenant against sharing possession was capable of remedy where it fell short of creating or transferring a legal interest. The practical question was whether compliance, with monetary compensation where appropriate, could effectively remedy the landlord's harm. The judge had been entitled to regard the tenant's acquisition of all the company's shares and sole directorship as capable of restoring exclusive possession, but the court left open whether this occurred within a reasonable time.

5. Also conditionally, the judge had been entitled to refuse relief from forfeiture because of the tenant's misleading and evasive conduct. That discretionary conclusion did not affect the invalidity of the re-entry.

• Court of Appeal (Civil Division) — allowed the tenant's appeal and held the landlord's re-entry ineffective: [2005] EWCA Civ 1296 .
• Central London County Court — His Honour Judge Michael Dean QC held that the lease had been validly forfeited and refused relief from forfeiture. The judgment was given on 17 February 2005; no citation is stated in the judgment.