England and Wales Court of Appeal (Civil Division) Decisions

Court of Appeal

		21 June 1979

1. Giving judgment, LORD RUSSELL said: This is an interlocutory appeal from Walton J which raises a short point under section 146 of the Law of Property Act 1925. The plaintiffs granted a lease of certain business premises to the second defendant in 1975 for three years. Under that lease there was a covenant by the lessee, the second defendant, in a common form under which the lessee covenanted that he would not, inter alia, assign the terms of the lease without the written consent of the lessor, that consent not to be unreasonably withheld in the case of a respectable and responsible tenant.
2. The point for the purposes of the preliminary question can be shortly stated. The second defendant, without the lessor's consent, on September 23 1976 executed an assignment of the remainder of the term to the first defendant. Although that was without the consent of the plaintiff, it is, in my judgment, perfectly plain that that assignment operated to vest the remainder of the term in the first defendant. The fact that it was done by the second defendant in breach of his covenant not to do it cannot in any way affect that situation as a matter of law. From September 23, therefore, the owner of the term, whose relationship by privity of estate with the plaintiff was one of lessor and lessee, became the first defendant.
3. A notice was served--the terms of which I need not refer to--on October 1 1976, purporting to be a notice under section 146(1) of the 1925 Act. That section requires that, before any proceedings are launched for forfeiting the term on the ground of breach of covenant, such a notice should be served. That notice was served on the second defendant; and the one short point is whether it is correct to hold, as the learned judge held, that the notice should have been served on the first defendant, namely the assignee.
4. When you have a situation such as this where a lease is liable to be forfeited, section 146 makes provision for a notice to be served before a writ is issued by the lessor asking for forfeiture. If at the end of the day in those proceedings forfeiture is ordered--or rather no relief from forfeiture is granted--then the term will have been terminated with effect from the issue of the writ--whether it is 'issue' or 'service' matters not in this case. The person who is interested and concerned in whether the term should be forfeited or not is clearly the person to whom the term has been assigned; and, as I have said and I agree with the learned judge, it is perfectly clear that this term was assigned to the first defendant; it ceased to be vested in the second defendant; it became vested in the first defendant.
5. The first defendant is the person who is concerned to avoid forfeiture; and, quite apart from the language used in section 146 itself, one would have expected the notice under section 146(1) to be addressed to the person who has that concern and not to the person (the original lessee) in whom the term is no longer vested. He remains, of course, liable to fulfil the covenants under the lease after the assignment, but he is no longer the tenant or lessee of the lessor. When we come to look at the use of the word 'lessee' in section 146, this seems to me to be undeniable. I will not read the section in detail, but subsection (1) requires the notice to be served on 'the lessee.' Now the assignee is the person who is interested in getting the notice so that he can make up his mind what, if any thing, he can do about avoiding the forfeiture. Under subsection (2) the lessee may apply to the court for relief. Who is interested in that? The person who is interested in that is the assignee and not the original lessee. When you come to subsection (5), that provides under paragraph (b) that 'lessee' includes the persons deriving title under a lessee. It appears to me to be absolutely clear that an assignee in these circumstances is within the definition of 'lessee.' I am unable to fault the view of the learned judge that the notice in this case should have been addressed to and served upon the first defendant; and it was not. He concluded as a preliminary point that therefore the issue of the writ was premature because no proper notice had been served as required by section 146.
6. It is, I think, at the heart of the argument of counsel for the plaintiff that somehow this was not a valid assignment. He said, 'Well; it is effective and valid as between the assignor and assignee but not as between the lessor and the original lessee.' I am afraid that I am wholly unable to accept that. It is the fact, of course, that the assignment was in breach of covenant, but all that means is that there is an occasion offered to the lessor to forfeit the lease and put an end to it. It is of the nature of the creation of a term of years that the owner of the term is capable of dealing with it as a piece of property. The only way that that can be prevented or hampered is by virtue of the common form clause that he covenants not to do it and there may be a forfeiture of the term if he does it. But I stress 'if he does it'; and unless he has effectively assigned the term to the assignee there has been no breach of the covenant not to assign.
7. I am bound to say that, having listened, I hope carefully, to Mr Myers' argument, there is at the core of his argument some suggestion in some shape or form that the assignment was imperfect. That I do not accept. The assignment was a breach of covenant, but it was an effective assignment notwithstanding the fact that the very transaction put the term at risk of forfeiture.
8. We were referred to one or two cases which did not appear to me to conclude the matter, although three of them rather suggested to my mind that the judge was right in saying that it was the assignee to whom the notice should be addressed or upon whom the notice should be served in one way or another and not the assignor. Without going into detail, we were referred to the case of Kanda v Church Commisioners for England [1958] 1 QB 332. That was, in fact, a breach of a repairing covenant and there was no vice in the assignment--and I use the word 'vice' in a very general way. But the general implication, I think, in that case was that if after assignment there were a notice it should be served on the assignee. Similarly there was Church Commisioners for England v Ve-Ri-Best Manufacturing Co Ltd [1957] 1 QB 238 by Goddard LCJ; and also Cusack-Smith v Gold [1958] 1 WLR 611, a decision of Pilcher J in which he stated plainly that the person who had assigned is not entitled to receive a section 146 notice. Therefore the person on whom the notice should be served was the assignee. That was a case of a disrepair breach of covenant and not a case of an assignment in breach of covenant. But the tendency in all those three cases is towards--although I do not think they are conclusive on the point--the view formed by Walton J, and which I prefer.
9. Another case which was referred to was Dudley and District Benefit Building Society v Emerson [1949] 2 All ER 252, but that, as was said by Mr Myers for the appellant, seems to be somewhat analogous and does not, I think, help him at all. That was a case of a lease by a mortgagor not binding on the paramount title of the mortgagee; and it was said at p 255, and I think correctly said, that the mortgagor had not such an estate or interest as enabled him to grant the tenancy or the lease. Here there is no doubt at all that the second defendant had such an estate or interest as enabled him to assign the term. So I do not think that helps.
10. So in the end it seems to me that it is what one would expect from the general purpose of section 146, which was described as affording a putting-off period during which the person at risk of forfeiture can consider his position and see what offer he can make to prevent forfeiture; and also from the details of the language, the definition of 'lessee,' it seems to me really quite plain that the notice under subsection (1) in this case was required to be served not on the second defendant but on the first defendant. In those circumstances, I am of the opinion that this appeal has failed and should be dismissed.
11. What the ultimate outcome will be, of course, I do not know. It is taken as a preliminary point, and it may be, like so many preliminary points of law, that in the end it will not have done very much good, because I should think it likely that the plaintiff can start again and in the end the only effect will be something to do with costs. Then the real nub of the battle--when one gets down to the real nub of the battle--ranges over a fairly wide field as can be seen by anybody who has read the pleadings and the counterclaim in this matter. But for the time being I find myself only able to agree with the learned judge that the proceedings claiming forfeiture are premature because the proper notice required by section 146 has not been served.
12. I would therefore dismiss the appeal.
13. BROWNE LJ agreed.

The appeal was dismissed with costs.

The electronic text of this judgment was provided by Estates Gazette, whose assistance is gratefully acknowledged.