Shebelle Enterprises Ltd v The Hampstead Garden Suburb Trust Ltd

A covenant for quiet enjoyment is prospective and is construed by ordinary contractual principles. The fact that the parties did not foresee a later statutory scheme does not prevent the covenant applying to that situation; the court asks what reasonable parties would have intended. A landlord’s proper and bona fide performance of public duties under a High Court-approved scheme made with statutory authority does not substantially derogate from the grant or interfere with quiet enjoyment. That remains so where the landlord is a private company exercising powers for a local public interest. The covenant cannot be used to fetter the scheme’s lawful operation.

Shebelle held a long lease of a property from the Trust, which also owned the freehold. The Trust operated a statutory scheme of management governing enfranchised properties in the Hampstead Garden Suburb. Shebelle sought an interim injunction preventing the Trust from consenting to a neighbouring basement development unless a Basement Impact Assessment and safeguards were provided, alleging breach of the lease’s covenant for quiet enjoyment.

Henderson J dismissed the injunction application and, on the Trust’s cross-application, dismissed the claim: [2013] EWHC 948 (Ch). The appeal concerned whether the proper exercise of the Trust’s powers under the scheme could constitute a breach of the covenant, particularly where the scheme arose after the lease was granted and served a local public interest.

The Court of Appeal unanimously dismissed the appeal. Kitchin LJ gave the leading judgment, with McCombe and Arden LJJ agreeing.

1. Nature of the covenant. A covenant for quiet enjoyment protects lawful possession against substantial interference by the lessor or those lawfully claiming under the lessor. It operates prospectively. Its scope is determined by ordinary contractual construction and is confined to the subject matter of the grant. The court relied on the reasoning in Southwark LBC v Mills; Baxter v Camden LBC (No 2), sub nom. Southwark LBC v Tanner [2001] 1 AC 1, Johnston & Sons Ltd v Holland [1988] 1 EGLR 264 and Bromarin BV v IMD Investments Ltd [1999] STG 301.
2. Unforeseen later events. Construction is not confined to circumstances the parties actually anticipated. The court must ask what reasonable parties should be taken to have intended by the words used, viewed in the context of the whole agreement, its purpose and the unforeseen event.
3. Public function of the Trust. Although the Trust was a private company, its powers under the High Court-approved scheme were exercised to maintain the character and amenities of the Suburb for the public benefit. Under the Leasehold Reform Act 1967, the scheme’s statutory purpose required attention primarily to the benefit of the area as a whole. The court also relied on Zenios v Hampstead Garden Suburb Trust Ltd [2011] EWCA Civ 1645.
4. Application. Reasonable parties could not have intended the covenant to prevent or fetter the Trust’s proper and bona fide performance of those public duties. Such performance was not a substantial derogation from the grant or substantial interference with Shebelle’s rights. The authorities on statutory powers and public duties, including Manchester, Sheffield and Lincolnshire Railway Co v Anderson [1898] 2 Ch 394, Commissioners of Crown Lands v Page [1960] 2 QB 274 and Molton Builders Ltd v City of Westminster LBC [1975] 30 P&CR 182, supported that construction.
5. Pleading and disposition. Shebelle’s case rested solely on the covenant and did not allege that the Trust had acted improperly, irrationally or otherwise in breach of its duties under the scheme. Henderson J was therefore right to refuse the injunction and dismiss the claim.

• Court of Appeal (Civil Division): Appeal dismissed. The court upheld the refusal of an interim injunction and the dismissal of the claim, [2014] EWCA Civ 305.
• High Court of Justice, Chancery Division: Henderson J dismissed Shebelle’s injunction application and, on the Trust’s cross-application, dismissed the claim in its entirety, [2013] EWHC 948 (Ch).