England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL
Appeal by plaintiffs from judgment of
His Honour Judge Stockdale
at Westminster County Court
on 10th November 1971.

		Royal Courts of Justice.
		20th June. 1972.

THE MASTER OF THE ROLLS: This case is a sequel to a case already-reported in the Law Reports: Central Estates (Belgravia) Ltd. v. Woolgar, now reported in 1972 1 Q.B. 48. In 1930 the Duke of Westminster let No. 13 Denbigh Street, Pimlico, to a lessee on lease for 63 years. So it is due to end in the year 1993. The lease was at a ground rent which is now £40 a year, payable quarterly. The lessor's interest became vested in Central Estates (Belgravia) Ltd. In the lease there was this covenant by the tenant:

".......nor shall any act deed or thing be done in or about the demised premises which shall or may be or become a nuisance (whether indictable or not) or which may be grow or lead to the damage annoyance inconvenience or disturbance of the Landlord or the tenant or occupier of any adjacent or neighbouring hereditaments........".

There was the usual proviso for re-entry in case of breach of the covenant.

In October 1957, Mr. Sidney Woolgar took an assignment of that lease. He was then about 60. He is now 75. He is sick and aged. He is a pensioner from the 1914-18 War. According to a doctor, he is a harmless and ineffectual old man who supports himself by letting furnished rooms in his house. The landlords now seek to forfeit the lease.

On 22nd May, 1970, the police found out that he was keeping a brothel in the house - not for people of opposite sexes, but for people of the same sex - homosexuals. He was summoned before the Magistrate at Bow Street under the Acts which make keeping such a brothel - a homosexual brothel - a criminal offence, just as heterosexual brothels are. On 23rd June, 1970, at Bow Street, he was convicted. He pleaded Not Guilty, but he was found guilty. It was proved. But he was not punished. He was discharged conditionally for twelve months.

That conviction imperilled his possession of the premises. His solicitors applied quickly to the landlords' solicitors for permission to sell the premises. But the landlords did not agree to his selling his leasehold interest. Then the landlords' agents, not knowing of the conviction, notified him that they were going to inspect the premises for the purpose of a schedule of dilapidations. Before they had done it, they found out about the conviction.

Each side gave a notice which crossed in the post. On the one hand, on 22nd July 1970, the tenant gave notice to the landlords that he wanted to buy the freehold. That was under the Leasehold Reform Act 1967. On the other hand, on 23rd July, 1970 - the date is important - the landlords served notice on Mr. Woolgar complaining that he had been unlawfully keeping a brothel at the premises and had been convicted of the offence. That notice was served under Section 146 of the Law of Property Act 1925 preliminary to a forfeiture.

Seeing that the tenant had applied to buy the freehold, the landlords could not seek to forfeit without the leave of the Court. Leave was granted by the County Court Judge, and, on appeal to this Court, we affirmed the decision So the landlords were entitled to bring an action for forfeiture. They issued proceedings in the County Court which were served on 10th December 1970. The case was heard by the County Court Judge on the claim for possession. Two points arose for decision. First, had the landlords waived the forfeiture? Second, if they had not waived it, was the tenant entitled to relief? The County Court judge held that there was no waiver, but he granted relief.

Both sides appeal to this Court.

The first point is whether or no the landlords waived the forfeiture by accepting rent. The dates are these: The landlords by their agents knew of the conviction on 23rd July, 1970. That is the important date of knowledge. The partner instructed the clerks in his office to put a tab on the ledgers so as to make sure they did not accept any rent after knowing of this conviction. He circulated an office memorandum informing his subordinates of the decision and requiring them not to demand or accept any rent from the tenant in the circumstances. Something went amiss in the office. The instructions did not get down to the subordinate clerks in the office, who issued the demands for rents and received them. In consequence, in the middle of September 1970, the landlords' agents, through their office, sent out a demand for the, £10 quarter's rent, which was falling due on 29th September 1970. The tenant, on 22nd September, 1970, paid that £10. A receipt was issued by the agents through their office for that £10. It was quite unqualified:

"Received with thanks the sum of, £10".

That took place about 22nd September, 1970.

The landlords' agents, through some other part of their office, proceeded with the claim to forfeiture. On 10th December 1970, the plaint was issued in the County Court: and it was duly served. (The landlords' agents afterwards did demand and accept rent for one or two quarters, but those payments do not matter. If the landlords were entitled to re-enter when the plaint was served, the later payments do not affect it.) The material question is whether the demand and acceptance of rent in September 1970 was a waiver of the forfeiture. If it was, the landlords were not entitled to issue this plaint for possession as they did in December 1970. The Judge held there was not a waiver because, as he found, the tenant when he paid the rent knew full well that the landlord's intention to forfeit the lease remained unchanged.

The cases on waiver are collected in the notes to Dumper's case in Smith's Leading Cases at pages 39 to 44. Those notes show that the demand and acceptance of rent has a very different effect according to how the question arises. If it is sought to say there is a new tenancy by acceptance of rent; for instance, after a notice to quit has expired, the question always is, as Lord Mansfield said: "Quo animo the rent was received and what the real intention of both parties was" - see Doe v. Batten (1775) in Cowper's Reports, page 243; and Clarke v. Grant (1950), 1950 1 K.B. 104. But, if it is sought to say that an existing lease continues.....in existence by waiver of forfeiture, then the intention of the parties does not matter. It is sufficient if there is an unequivocal act done by the landlord which recognises the existence of the lease after having knowledge of the ground of forfeiture. The law was well-stated by Mr. Justice Parker in Matthews v. Smallwood (1910) 1 Ch. at page 786, which was accepted by this Court in Oak Property Co. v. Chapman (1947) K.B. at page 898:

"It is also, I think, reasonably clear upon the cases that whether the act, coupled with the knowledge, constitutes a waiver is a question which the law decides, and therefore, it is not open to a lessor who has knowledge of the breach to say 'I will treat the tenancy as existing, and I will receive the rent, or I will take advantage of my power as landlord to distrain; but I tell you that all I will do will be without prejudice to my right to re-enter, which I intend to reserve'. That is a position which he is not entitled to take up. If, knowing of the breach, he does distrain, or does receive the rent, then by law he waives the breach, and nothing which he can say by way of protest against the law will avail him anything."

I know that Mr. Justice Harman in Creery v._ Summersell and Flowerdew & Co. Ltd.(1949) 1 Ch. 751 at page 761, said that in waiver of forfeiture "the question remains: Quo animo was the act done". But that statement was explained by Mr. Justice Megaw in The Windmill investments (London) Ltd. v. Milano Restaurant Ltd. (1962) 2 Q.B. 373. He said that it meant only that "it is a question of fact whether the money tendered is tendered as and accepted as rent...........Once it is decided as a fact that the money was tendered and accepted as rent, the question of its consequences as a waiver is a matter of law".

Similarly Mr. Justice Sachs in Segal Securities Ltd v. Thoseby (1963) 1 K.B. 887 said (at page 898): "It is thus a matter of law that once rent is accepted waiver results. The question of quo animo it is accepted in forfeiture cases is irrelevant in relation to such acceptance."

So we have simply to ask: Was this rent demanded and accepted by the landlord's agents with knowledge of the breach? It does not matter that they did not intend to waive. The very fact that they accepted the rent with the knowledge constitutes the waiver. The position here is quite plain. The agents, who had full authority to manage these properties on behalf of the landlords, did demand and accept the rent with full knowledge. It may be that the instructions did not get down the chain of command from the partner to the subordinate clerk who issued the demands and gave the receipts for rent. That cannot affect, to my mind, the legal position. It comes within the general rule that the knowledge of the agent - and of his clerks - is the knowledge of the principal. A principal cannot escape the doctrine of waiver by saying that one clerk had the knowledge and the other received the rent. They must be regarded as one for this purpose. The landlords' agents knew the position and they accepted the rent with knowledge. That is a waiver.

I know that the Judge found that the agents had no intention to waive, and finds also that the tenant knew they had no intention to waive. That seems to me to make no difference. The law says that if the agents stated in terms: "We do not intend to waive", it would not have availed them. If an express statement does not avail a landlord, nor does an implied one. So it does not avail the landlords here.

For these reasons I hold that the forfeiture was waived by the demand and acceptance of rent.

In case I am wrong on this point, I go on to consider the next point about relief from forfeiture. It is settled law that, when a tenant keeps a brothel in breach of covenant, that breach is one which is not capable of remedy. So, if a landlord gives a notice under section 146, he need not require it to be remedied: see Rugby Schools (Governors) v. Tannahill (1935) 1 K.B. 87: and Egerton v. Esplanade Hotels London Ltd.(1947) 2 A.E.R. 88: and the same has been applied to a gaming case Hoffman v. Fineberg (1949) 1 Ch. 245. It has also been said that relief is not to be exercised in favour of persons who suffer premises to be used as a brothel, see Borthwick-Norton v. Romney Warwick Estates Ltd. (1950) 1 A.E.R. 362 by Mr. Justice Hilbery, affirmed by this Court in 1950, 1 A.E.R. 798. But I think that is going too far. In a somewhat parallel case under the Rent Acts, a County Court Judge allowed a tenant to remain in possession, and this Court affirmed his decision, see Yates v Morris (1951) 1 K.B. 77. It seems to me that in a proper case - I emphasise "in a proper case" - the Court can grant relief from forfeiture even for a breach of covenant against immoral user. After all, the Statute does give a discretion to the Court. It would not be right for the Court to take away that discretion by applying a fixed rule of law that relief could never be given where a tenant has been convicted of keeping a brothel. It is true, as I said when this case was previously before us: "forfeiture was the almost inevitable consequence: relief is rarely given for such a breach". But it may sometimes be given. Suppose there was a breach by a tenant four or five years ago - a conviction of immoral user - but never any breach since. The landlord did not know of it at the time. Then, after four or five years, he discovers it and he seeks to forfeit. I should say it was plain in such a case as that it would be open to the Court to grant relief. The present case is not nearly so strong a case, but the Judge, who saw the witnesses and considered the whole case, thought it was a case for relief. It is to be noticed that the past user has not affected the value of the premises. The stigma has not diminished the value of the landlords' estate. And there are many mitigating factors in favour of the tenant. The Judge put it this way:

"The defendant is both sick and aged. There is no evidence suggesting that the immoral user to which he put these premises continued over a long period. There is no evidence that he persisted in such user after a preliminary warning, for example, from his landlord, as happened in the Borthwick case. There is no suggestion that his illegal user continued after 27th May, 1970, which was the date offence proved against him. Indeed, all the evidence points to the opposite conclusion".

He pointed out that "in terms of hard cash, the defendant stands to lose and the plaintiff stands to gain a very substantial sum of money - (it was ,£9,000 at that time, we are told much more now) - "which is as it seems to me wholly disproportionate to the harm actual or potential that the deplorable lapse that this otherwise respectable old man can be said to have occasioned to the plaintiffs". After considering all those matters, the Judge came "to the conclusion that there are grounds upon which it would be proper for me to exercise my discretion and to give relief to the defendant from forfeiture".

I have had some hesitation about this point, but on the whole I would not interfere with the Judge's discretion. This old man has repented of his wrongdoing. He is doing all he can, and will do all he can, to keep the premises aright, and to see that they are properly used. There was material on which the Judge could exercise his discretion to grant relief. I would affirm his decision on this point also, if it were necessary to do so; but, as the forfeiture was waived, it seems to me that the action for possession fails. There is no need to exercise any relief.

LORD JUSTICE BUCKLEY: Mr. Whitworth for the tenant contends that by demanding and receiving rent on or about 22nd September 1970, the plaintiffs elected unequivocally to treat the lease as still subsisting and so waived the forfeiture. Mr. Bernstein for the plaintiffs admits that in a normal case that would be so, but he says that in the present case the demand and receipt of rent was not unequivocal. He bases this contention on the learned Judge's finding of fact that the defendant, when he made this payment, continued to believe that the plaintiffs intended to get him out of the premises, or, as the learned Judge put it later in his judgment, that the defendant paid what he was asked to pay, well knowing his landlords' intention to forfeit the lease remained unchanged. In my judgment, the effect in law of an act relied on as constituting a waiver of a right to forfeit a lease must be considered objectively, without regard to the motive or intention of the landlord or the understanding or belief of the tenant. It has long been accepted as law that a landlord cannot prevent accepting a payment of rent from operating as a waiver merely by stating at the time of payment that he accepts it without prejudice to his right to forfeit. (See Matthews v. Smallwood per Mr. Justice Parker 1910 1 Ch 777 at page 786: Oak Property Co. Ltd. v. Chapman 1947 1 K.B. 886 at page 898.) It must in my judgment be equally true that a landlord may by some act such as receiving rent after notice of a breach of covenant unequivocally and effectively waive his right of action in respect of that breach, notwithstanding that the tenant does not there and then appreciate the legal consequences of the act.

The landlords' right is a right to elect whether to treat the lease as forfeit or as remaining in force. Any election one way or the other, once made, in irretractable: Scarfe v. Jardine 7 A.C. 345, per Lord Blackburn at page 360. If the landlord by word or deed manifests to the tenant by an unequivocal act a concluded decision to elect in a particular manner, he will be bound by such an election. If he chooses to do something such as demanding or receiving rent which can only be done consistently with the existence of a certain state of affairs, viz., the continuance of the lease or tenancy in operation, he cannot thereafter be heard to say that that state of affairs did not then exist. If at the time of the act he had a right to elect whether to forfeit the lease or tenancy or to affirm it, his act will unequivocally demonstrate that he has decided to affirm it. He cannot contradict this by saying that his act was without prejudice to his right of election continuing or anything to that effect. In this respect his act speaks louder than his words, because the act is unequivocal: it can only be explained on the basis that he has exercised his right to elect. The motive or intention of the landlord, on the one hand, and the understanding of the tenant, on the other, are equally irrelevant to the quality of the act. The learned Judge's finding in the present case that the defendant when he paid the rent on 22nd September continued to believe that the plaintiffs intended to get him out of the property is consequently, in my judgment, irrelevant to the effect of the receipt by the plaintiffs of the rent.

The learned Judge treated the case as one in which it was legitimate to regard the receipt of rent by the plaintiffs as having occurred without their knowledge of the breach of covenant. In the course of his judgment he said this:

"The realities here are that the landlords, who were aware of their tenant's breach and had decided on forfeiture, took all necessary preliminary steps to implement that decision through their managing agents but a subordinate clerk in the office of these agents had collected rent as a routine matter in ignorance of the breach and in ignorance of the landlords' decision with regard to forfeiture. In my judgment the authorities do not require me to fuse these two situations by imputing to the landlords an intention to waive forfeiture by collecting rent which they never had and, at the same time, imputing to the subordinate clerk a knowledge of the breach and the landlords' intention to forfeit, of which, as I have found, he was unaware. In my view it would be wrong and unjust to do so when I am satisfied, as I am, that the tenant paid what he was asked to pay well knowing his landlords' intention to forfeit the lease remained unchanged".

Now, with the utmost respect to the learned Judge, I feel unable to agree with that view. The landlord here, through the firm of estate agents who managed the property on behalf of the landlord company clearly had knowledge of the breach of covenant. The rent was demanded and received by an employee of that same agent, and I do not think it is legitimate to divorce the one from the other, or, as the learned Judge said, to decline to fuse the two together. In my judgment, the act of the clerk who demanded the rent and received payment of it and issued the receipt for the rent was as much the act of the landlord as was the knowledge of the principal of the firm of estate agents who was aware of the breach of the covenant. In these circumstances, although it is no doubt a misfortune for the landlord company, I am clearly of opinion that the effect of the payment of rent was in law to operate as a waiver of the right of forfeiture and an exercise by the landlords of their right to elect to affirm the lease.

With regard to the other part of the case, that which relates to whether or not it would be right to permit relief from forfeiture if there were no waiver, the learned Judge relied upon the circumstances which my Lord has already detailed in his judgment. For myself, I find it difficult to accept that those circumstances were sufficient ground for departing from the general principle that the Court, in the exercise of its judicial discretion under section 146 of the Law of Property Act 1925, ought not to grant relief to somebody who has been guilty of a breach of covenant in the lease of the kind which is involved in the present case. I feel myself to be in agreement with the views which were expressed by Mr. Justice Hilbery in Borthwick-Norton & ors v. Romney Warwick Estates Ltd. 1950 1 A.B.R. 362 at page 366, and what was said in the Court of Appeal by Chief Justice Lord Goddard in the same case reported in 1950 1 A.B.R. 798 at page 801. In my judgment, exceptional circumstances need to be shown in a case in which the breach of covenant that is relied upon is a breach of covenant of this nature. But that, of course, is not to say that the section does not confer a discretion upon the Court in such cases. It is merely an indication of the way in which Courts in the past have thought it right to exercise that discretion in cases of this kind; and every case may be said to stand exclusively upon its own facts. Left to myself, I do not think I should have taken the course which the learned Judge took in the present case: I would I think have concluded that this was a case in which it was not right to grant relief from forfeiture; but the learned Judge was exercising a discretion: he was exercising a discretion in a case in which the covenant which was breached was not a covenant in terms not to use the property for immoral purposes, but was a covenant against using the property so as to occasion a nuisance; and in all the circumstances of the case and particularly having regard to the view which my Lord, the Master of the Rolls, has already expressed, I think perhaps it would not be right for me to say that I think the learned Judge's discretion should be overruled. I content myself, therefore, with saying that it was a discretion which I myself would have exercised otherwise had I been trying this case at first instance.

LORD JUSTICE CAIRNS: I agree that the demand for and acceptance of rent by the landlords did effect a waiver of the forfeiture. It is clear on the authorities that an unequivocal act is required to bring about a waiver. When money is demanded as rent after the landlord knows of the facts giving rise to the forfeiture and is paid as rent and accepted as rent, then the law regards the demand and acceptance as an unequivocal act. I regard this proposition as established by Matthews v. Smallwood, approved in this Court in Oak Property Co. Ltd. v. Chapman; and I consider that if the decision of Mr. Justice Harman in Creery v. Summersell and Flowerdew &_Co. Ltd., 1919 1 Ch. 751, can be supported, it must be on the basis suggested by Mr. Justice Megaw in Windmill Investments (London) Ltd. v. Milano Restaurant Ltd. 1962 2 Q.B. 373. This being so, the state of mind of the landlord is irrelevant; and if he acts through an agent who has actual or ostensible authority to demand and receive the rent, it does not seem to me that the state of mind of the agent can be enquired into. If I am wrong about that, I do not think that in this case there was any evidence that the clerk who dealt with the matter did so without knowledge of the breach of covenant. He was not called as a witness. The evidence of Mr. Haskins, principal of the landlords' managing agents, was that instructions were circulated to the staff not to ask for or accept rent from this lessee, but that a lot of routine mistakes were made in the office. This is quite an inadequate foundation, in my view, for the finding that the clerk did not know of the breach. Nor can I see that it is permissible to enquire into the state of mind of the tenant. The Judge at one point made the finding that the tenant made the payments "though he continued to believe that the plaintiffs intended to get him out of the premises"; and later the learned Judge said he was satisfied that the tenant "was asked to pay well knowing that his landlords' intention to forfeit the lease remained unchanged". It is certainly not necessary for waiver that the tenant should believe when he pays the rent that the landlord by demanding the rent is intending to waive. There must have been many cases where the tenant had no idea at the time of demand what the landlords' intention was or what the effect of demand and payment would be and where the forfeiture has nevertheless been held to have been waived. But I go further: even when the tenant knows perfectly well that the landlord intends to forfeit, he must be entitled to put him to election. I will assume that a demand for rent does not by itself effect waiver. If such a demand is made, the tenant is entitled to tender the rent and to say: "Now you must elect: you can refuse my rent and maintain the forfeiture, or you can accept the rent and waive the forfeiture". It is not, however, necessary for him to use such words or even to have such thoughts. The tender of rent by itself is by implication an invitation to the landlord to elect; and if he accepts the rent, he elects to waive the forfeiture. I can see no good answer to the contention that that is what happened in this case.

So far as the claim for relief is concerned, that was a matter for the exercise of the discretion of the County Court Judge. This Court would not interfere with the exercise of that discretion unless it reached the view that the learned Judge had taken into account matters which he ought not to have taken into account or omitted to consider matters which he ought to have considered, or that his exercise of discretion was clearly wrong. My Lord, the Master of the Rolls, has referred to various matters which the Judge recited as having been taken into account by him as reasons for granting relief. In addition to those to which my Lord referred, there was this further point, that there was no evidence suggesting that the good name of the plaintiffs or the value of their estate has in fact suffered at all by reason of the defendant's breach of covenant at the time or afterwards. The learned Judge might indeed have gone further than that: not only was there no evidence to show that the value of the estate had suffered: there was affirmative evidence to the contrary. In the course of his evidence Mr. Haskins said:

"If brothel keeping goes on it affects value of an estate. In this particular case provided it is stopped it would not materially affect value of area".

And a witness called on behalf of the defendant, an estate agent of long experience in this area, said:

"I read of defendant's conviction in news paper. My opinion is that this conviction had no effect on property values in locality".

In my view there is nothing that the Judge took into account which he was not entitled to consider; there was no material matter that he omitted to take into account; and I can see no ground for saying that the exercise of his discretion was clearly wrong. In those circumstances, I agree that his decision to grant relief was not one with which this Court ought to interfere.

Appeal dismissed with costs; cross appeal allowed with costs in the Court of Appeal and on Scale IV in the County Court. Leave to appeal to the House of Lords refused.