Roadside Group Ltd v Zara Commercial Ltd

A covenant expressed in the active voice, such as an undertaking not to use premises for a specified purpose, ordinarily concerns acts of the covenantor or the covenantor’s agent. It does not ordinarily make a tenant liable for a sub-tenant’s independent acts. Section 79 of the Law of Property Act 1925 does not extend such a covenant where doing so would be contrary to the expressed intention and structure of the lease. The meaning of “forecourt” is contextual. It may include an outer court that is not directly at the front of a building, and in this case covered areas visible from the public highway.

Roadside was tenant of a petrol station, showroom, service garage and associated land under a 1963 underlease. It had sub-let the showroom and garage to Triple Eight, which parked cars for sale around the site. Zara alleged that this breached a covenant not to use the premises for parking motor vehicles for sale on any forecourt and sought forfeiture.

The County Court held that Roadside was liable on the construction issue and that the relevant northern and western areas were part of the forecourt. It nevertheless refused forfeiture. Roadside appealed on whether it was liable for the sub-tenant’s conduct and on the meaning of “forecourt”.

1. The appeal was allowed in part. Roadside was not liable under the parking user covenant for the independent activity of its sub-tenant. The appeal failed on the construction of “forecourt”.

2. Covenants in leases must be construed in their own context, having regard to their ascertainable purpose. Nevertheless, the distinction between an active covenant, such as an undertaking “not to use” premises, and a passive covenant concerning how premises “shall not be used” remained material. An active covenant ordinarily required an act by the covenantor or the covenantor’s agent.

3. The wording of the underlease deliberately distinguished covenants not to do something or permit it from the parking user covenant, which merely prohibited use for parking vehicles for sale. Treating the latter as extending to the acts of a sub-tenant would substantially broaden its scope and conflict with the purport of the underlease. The sub-tenant’s equitable liability did not justify leaving the declaration against Roadside in place, since the sub-tenant was not a party to the proceedings.

4. Law of Property Act 1925, section 79 could extend the persons whose acts fell within a covenant, subject to contrary intention. Following the approach explained in Morrells of Oxford Ltd v Oxford United Football Club Ltd, the statutory words could not be read into this covenant because the lease showed an intention to limit its scope.

5. “Forecourt” was not confined to the area immediately in front of the petrol pumps or showroom. Its meaning depended on the circumstances. The covenant’s object was to prevent the premises from being, or appearing to be, a used-car lot. The areas along the northern and western perimeters were visible from Broadway and therefore formed part of the forecourt. The southern area, being unseen from Broadway, did not.

6. The court would hear further argument on the appropriate form of order if the parties could not agree.

• High Court (Chancery Division): on appeal from the Newcastle upon Tyne County Court, the court allowed the appeal on Roadside’s liability for its sub-tenant’s conduct but upheld the finding that the northern and western areas were part of the forecourt.
• Newcastle upon Tyne County Court: HH Judge Langan QC held Roadside in breach on the construction issue, but refused forfeiture because the section 146 notice was invalid and relief from forfeiture would in any event have been appropriate.