England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM
His Honour Judge Michael Rich QC
The Lands Tribunal

		Royal Courts of Justice Strand, London, WC2A 2LL
		13 December 2004

SIR WILLIAM ALDOUS :

1. This appeal from the Lands Tribunal is concerned with the decision of the Tribunal that it had jurisdiction in a dispute between the Church Commissioners for England whom I will refer to as the landlord and Alexis Blumenthal whom I will refer to as the tenant.
2. The Lands Tribunal's jurisdiction is contained in s.84 of the Law of Property Act 1925. Upon an application by a person interested in any freehold land the Lands Tribunal may discharge or modify any restriction arising under a covenant or otherwise as to user thereof. The tenant's application to modify certain covenants was challenged by the landlord on amongst other things the ground that the Lands Tribunal had no jurisdiction as the relevant covenants were not restrictive covenants. The Lands Tribunal in its decision given, by HH Judge Michael Rich QC, rejected that contention and held that it had jurisdiction to decide the dispute.

The Background Facts

3. The lease the subject of these proceedings is of a large house called No 1 Hyde Park Gardens in Paddington. The head lease of the premises was dated 5 October 1951 and was made between the trustees of the Paddington Estate, the Church Commissioners for England and Mr Donald Hamilton. It stated that in consideration of the surrender of a former lease of the premises, the premises were demised to Mr Hamilton for a term of 95¾ years from the 24 June 1951. That lease contained an obligation upon Mr Hamilton to "complete the works necessary to convert the demised premises for use as specified in clause 14 of the schedule". Clause 14 contained covenants restricting the way that Mr Hamilton would keep and use the demised messuage:

"1. As to part of the Basement and the Ground floor and First Floors as the headquarters of the Royal Society of Literature with Club rooms on the said ground and first floors and with part of the basement as a self-contained flat for private residential occupation by the Society's secretary.

2. As to the second floor as a self-contained flat in one private residential occupation only.

3. As to the third and fourth floors as a self-contained maisonette in one private residential occupation only and

4 as to the remainder of the said basement as a self-contained flat for the lodging of one housekeeper or caretaker only employed by their Secretary in or about the messuage and such housekeeper's or caretaker's husband or wife as the case may be but having no other person living with him or her and no consideration by way of rent or any other payment or return shall be received other than actual service as housekeeper or caretaker.

…"

4. By an underlease dated 18 December 1951 made between Mr Donald Hamilton and the Royal Society of Literature the ground floor and first floor of the premises and part of the basement were demised to the Royal Society of Literature for 44 years less 3 days from 29 September 1949.
5. By a lease dated 20 May 1952 Mr Donald Hamilton sublet the premises to Mr John Hamilton for a term of 95¾ years less 1 day from 24 June 1951. It therefore expires in March 2047.
6. It seems that sometime around 1958 Mrs Margaret Isabella Lowenthal acquired Mr John Hamilton's interest and that sometime thereafter the Royal Society of Literature ceased to occupy the property. In consequence Mr Stephen Blumenthal, the personal representative of Mrs Blumenthal, sought from the landlord a variation of the covenants. Agreement was reached, the terms of which are contained in a Deed of Variation made 20 June 2001. In about November 2001 the lease as varied by the Deed of Variation was transferred to Alexis Blumenthal the tenant.

The Dispute

7. Clause 2 of the lease contains a covenant that the lessee covenants with the lessor "in manner set out in the first and second schedules hereto, and also that each and all of the restrictions imposed by the covenants agreements and provisions set out in the said schedule hereto as to the use of the demised premises and against or in respect of the assigning underletting or otherwise disposing of the demised premises or any part thereof and against alterations of or additions to the demised premises and buildings shall at all times during the said term be duly observed and complied with."
8. By paragraph 13 of the first schedule the lessee covenanted:

"13. That neither the demised premises nor any part thereof shall be used for any illegal immoral or improper purpose or for or as a hospital or charitable institution or for the teaching of singing or music of any sort or for any trade business or manufacture or profession whatsoever but that the Lessee will keep and use the demised messuage and any additions thereto as follows:

(1) As to part of the Basement and the Ground Floor and First Floors as the headquarters of the Royal Society of Literature with Club rooms on the said Ground Floor and First Floors and with the part of the Basement as a self-contained flat for private residential occupation by the Society's Secretary.

(2) As to the Second floor as a self-contained flat in one private residential occupation only.

(3) As the Third and Fourth floors as a self-contained Maisonette in one private residential occupation only.

(4) As to the remainder of the said Basement as a self-contained Flat for the lodging of one Housekeeper or Caretaker only employed by the Lessee in or about that part of the messuage occupied by them and such Housekeeper's and Caretaker's Husband or Wife as the case may be but having no other person living with him or her and no consideration by way of rent or any other payment or return shall be received other than actual service as Housekeeper or Caretaker.

And will not further sub-divide the demised premises or use the same for any other purpose whatsoever.

And also will keep maintain and treat the entrance hall … and any other parts … which are intended to be used in common by tenants in a style and manner suitable and appropriate for high class residential Flats and Maisonettes and will in particular cover and keep covered with carpet or other material in good condition suitable for Flats and Maisonettes of the class aforesaid the said staircase and hall and any other such parts of the demised premises as are usually so covered … keep the front door or doors always closed excepting only when required to be opened and keep such door or doors and the outside entrances generally in such condition as to appear from the outside to be the door or doors and entrances to a high class private dwelling house in one occupation …

And also will keep and use any forecourt garden or ground forming part of the demised premises as and for private ornamental forecourt garden and ground only in connection with the demised messuage."

9. The Deed of Variation of 20 June 2001 substituted new covenants for two out of the four numbered paragraphs set out above. It stated:

"1.2.1 In lieu of paragraph 13(1) aforesaid

'1. As to the part of the basement and ground and first floors of the Premises formerly occupied by the Royal Society of Literature

1(a) As to the part of the basement as a self-contained flat in private residential occupation

1(b) As to the ground floor as a self-contained flat in private residential occupation

1(c) As to the first floor as a self-contained flat in private residential occupation and

1(d) Without prejudice to the foregoing as to the part of the basement and ground and first floors of the premises normally occupied by the Royal Society of Literature as a self-contained flat in private residential occupation

1(e) without prejudice to the foregoing as to the part of the basement and the ground floor of the premises formerly occupied by the Royal Society of Literature as a self-contained flat in private residential occupation.

1(f) Without prejudice to the foregoing as to the part of the ground and first floors of the premises formerly occupied by the Royal Society of Literature as a self-contained flat in private residential occupation

1.2.2 In lieu of paragraph 13(4) aforesaid

(4) As to the remainder of the basement as a self-contained flat in private residential occupation … "

10. As the judge said, the effect of the substituted paragraphs was to permit the area previously sublet to the Royal Society of Literature to be used for private residential occupation as:

i) three flats, one on each floor, or

ii) one dwelling on all three floors, or

iii) two dwellings, one on the basement and the ground floors and the other on the first floor, or

iv) two dwellings, one on the ground floor and first floors and the other in the part basement.

Additionally the caretaker's flat, as designated in the lease, in that part of the basement not let to the Royal Society of Literature was permitted to be used as a self-contained flat in private residential occupation.

11. The application to the Lands Tribunal sought further modification so as to permit additionally the part of the basement not previously let to the Royal Society of Literature to be incorporated either into a single basement flat or into a single dwelling on all three floors.
12. The jurisdiction of the Lands Tribunal is contained in the s.84 of the Law of Property Act 1925 the relevant parts of which are in these terms:

"84. Power to discharge or modify restrictive covenants affecting land

1. The Lands Tribunal shall (without prejudice to any concurrent jurisdiction of the court) have power from time to time, on the application of any person interested in any freehold land affected by any restriction arising under covenant or otherwise as to the use thereof or the building thereon, by order wholly or partially to discharge or modify any such restriction on being satisfied"

13. There follow four grounds upon which an applicant can satisfy the Lands Tribunal that modification or discharge is appropriate.
14. The landlord's contention was that the premises were not "affected by any restriction arising under covenant." In essence the case was that the relevant user covenants were positive obligations not restrictive covenants. That contention was ordered to be heard as a preliminary point. It was decided by HH Judge Rich sitting as a member of the Tribunal that the Lands Tribunal did have jurisdiction and it is that decision which is challenged.

The Judgment

15. HH Judge Rich in a full judgment set out the history, the covenants, the parties` contentions, the authorities cited to him and the factual background against which the lease needed to be construed. He then concluded:

"20. I turn therefore to consider the factual context in which the lease was granted. It followed the wording already contained in the head lease granted to Donald Hamilton on 5 October 1951. If the covenants had been only those contained in sub paragraphs (2) and (3) referring to the second floor and to the third and fourth floors respectively, I do not think that one would naturally read those obligations as positive, amongst other reasons because of the use of the adverb 'only'. Mr Thom correctly points that the adverb may qualify 'in one residential occupation only' rather than a whole covenant 'to keep and use as a self-contained flat in one residential occupation only'. Nevertheless, on balance I think that the covenants at sub paragraphs (2) and (3) are more naturally read as negative rather than positive, and certainly there is no such change of language as to make it sensible to read sub-paragraphs (1) and (4) as positive if one reads (2) and (3) as negative. But the head lessee was entering into the covenant at sub paragraph (1) before, as far as the evidence of the documents goes, there was any obligation on the part of the RSL to occupy at all. At the date when the applicants' predecessors entered into the 1952 lease an underlease had been taken by the RSL but for a term less than half the term granted to and taken by the applicant's predecessors. It is improbable that the parties intended that the covenantor should enter into an obligation which he had no power to comply with, and I would not so construe the covenant unless the words used compel such construction.

21. That it should not be so construed is, in my judgment, reinforced by further consideration of the documents. Firstly the form of covenant itself, though pointing to activity rather than restraint in using the active rather than a passive voice introduces an inconsistency in specifically referring to 'the Lessee', because the only active keeping and using that the Lessee can do on premises as the Headquarters of the RSL is to keep them available by not using them for other purposes. The underlease, subject to which the lease was granted meanwhile contained a covenant in non-matching form, 'will not use or permit or suffer to be used the demised premises or any part thereof for an illegal or immoral purpose nor as a hospital for teaching or singing or music of any sort nor for any trade business manufacture or profession whatsoever but will keep and use the demised premises for the general as and for the general purpose of the tenant and its members'. The underlying obligation in the underlease is less specific than the requirements of sub paragraph (1) at paragraph 13 of the lease which the lessee had no right to enforce. The RSL moreover had a right to assign. There is room for argument, which is not necessary to resolve, as to whether this was limited to the circumstances of the RSL being unable to continue its activities. At the least to construe the obligation in the lease as a positive obligation rendered the Lessee liable to find himself in breach of the covenant for circumstances which he had no power to prevent. That at least makes an intention to create a positive intention unlikely.

22. Although, having regard to the agreed position of counsel I have directed my attention firstly to the original provisions of paragraph 13, I think that the substituted provisions as drafted point the same way. The revised sub-paragraph (4) does not use the word 'only' as sub-paragraphs (2) and (3) do. That would be more consistent with a positive covenant. But the formulation of the substituted paragraph (1) is far from clear to impose a positive obligation. The expression 'without prejudice' to introduce alternative uses which are acceptable is, I think, a misuse of language, on any basis, but it must mean that the alternative which it introduces may be substituted for the 'foregoing'. If the foregoing was intended to be an obligation rather than a permission, the use of 'without prejudice to the foregoing' seems to me to be particularly inapt.

23. For the above reasons I conclude that the user covenant is not a positive covenant but accordingly is a restrictive covenant, and that the Tribunal does have jurisdiction to modify in accordance with s.84 of the Act."

The Appeal

16. Mr Thom QC for the landlord drew attention to s.84 of the 1925 Act and that it only applied where there was a restriction arising under covenant. He went on to submit that the jurisdiction of the Lands Tribunal did not extend to a case where the covenants were positive in nature. The dispute, he submitted, was in essence one of construction of the covenants and turned on whether it would be a breach of those covenants if the property was left idle for a term excluding the time spent for redecoration and the like. He accepted that he could only succeed on the appeal if, upon the proper reading of the covenants, the tenant would be in breach of the covenants if the property was idle.
17. In support of his submission as to the distinction between positive and restrictive covenants, Mr Thom drew attention to Re: Blythe Corporation's Application (1962) 14 PLCR 56 where the Lands Tribunal declined jurisdiction. The covenant in that case required the purchasers to erect and maintain a chain link fence. The covenant was held to be a positive personal covenant between the original vendor and the original purchaser and was not a restrictive covenant.
18. To similar effect was the judgment of Harman J in Westminster City Council v Duke of Westminster [1991] 4 ALLER 136. In that case there was a covenant that the premises should not "be used for any art trade or business or profession whatsoever …" but should be "kept and used only for the purposes of the Grosvenor Housing Scheme as dwellings for the working classes …". Harman J held that the first part imposed a restrictive obligation, but that the second part, obliging the premises to be used for the working classes, was a positive covenant enforceable by the Lessors which did not fall within the jurisdiction of the Lands Tribunal. He said at page 146:

"As I have said, the covenant falls into several parts. The first part is plainly restrictive. Mr Lightman argued that the second part is not restrictive but positive. He pointed to the words 'shall be kept and used' and said that those words amounted to a continuing obligation to carry out the purposes. That cannot, he submitted, be called a restrictive covenant. The law is familiar with positive covenants in leases, perhaps especially in user covenants. A covenant to use a particular shop for some particular trade requires the tenant not to leave the shop empty but to actively carry on the trade. Obviously a covenant to carry out some purpose, as here to provide dwellings for the working classes, does not require that every part of the demised premises should always be occupied by such persons. Premises can legitimately stand vacant between the tenancies. Premises may be required to be vacant for purposes of redecoration. It is even possible that a whole block of flats might be required to be empty for a considerable period of time if that were necessary for the purposes of repair to the block, or for better equipping the block to provide adequate dwelling. Such intervals would not mean that the City of Westminster was not keeping and using the blocks for the proper purpose. The City of Westminster merely needed an interval while the purpose was pursued.

But in my judgment the obligation here undertaken is a positive obligation. The word 'used' carries to my mind a connotation of a duty to use. The whole phrase suggests to me, what in my view is shown by the heads of agreement and other material in evidence to be the case, that the purpose of the grant was to provide buildings in which the City of Westminster would keep tenants. It is not a covenant that could be performed by keeping the buildings empty with a view to reducing expenditure on maintenance. In my judgment the contrast in wording between the negative prohibition in the first lines of the covenant followed by the words 'but that' shows a clear shift of meaning from restraint to activity. It is of course true that a duty to use land for some purpose necessarily means that the land shall not be used for other purposes. Nevertheless the duty to use remains a positive obligation although a negative implication may flow from it … It is not in dispute that the Lands Tribunal can only modify restrictive covenants. In my judgment this part of sub-clause (IX)(a) is a positive covenant and as such cannot be the subject of an application to the Lands Tribunal."

19. Mr Thom also drew to our attention the judgments of the Court of Appeal in Abbey Homesteads (Developments) Limited v Northamptonshire County Council [1986] 1EGLR 24. That was a compensation case where clause 1 of an agreement between a company and the District Council required that the land should be subject to the conditions restricting and regulating the development. Paragraph 5 of schedule 1 provided:

"An area of 1.3 hectares adjacent to the playing field and amenity open space areas shall be reserved for school purposes."

20. The Court of Appeal decided unanimously that that paragraph was a restrictive covenant running with the land. Parker LJ said at page 26K-L:

"It is said to be positive because it involved a positive obligation to define the area and reserve it. I have had some difficulty in following this argument and I reject it without hesitation. One only has to ask the question: 'were the respondents free to build residential houses on the land?' to get the answer: 'No they were not!' If that is not restrictive I do not know what is."

21. Lawton LJ and Nourse LJ came to the same conclusion for slightly different reasons. Lawton LJ concluded that on a natural reading of the agreement the developers had covenanted with the District Council for the benefit of the land that 1.3 hectares should be not used other than for school purposes. He said that that covenant was just as restrictive as the seminal one in Tulk v Moxhay (1848) 2 Ph 774. Nourse LJ considered whether the parties intended that the term of the agreement should create a restrictive covenant whose burden was to run with the land or did they intend that its obligation should exist only in contract. He concluded that it was clear that it should run with the land and that, in the terms of the agreement, the land was to be subject to conditions and restrictions which regulated the development. He posed this question: "How then can it be said that such of those conditions as are negative in substance were not intended to run with the land, but to exist only in contract?"
22. In Montross Associates Investments SA v Moussaieff [1990] 2EGLR 61 Mr Thomas Morison QC sitting as a deputy judge of the Chancery Division had to consider whether there was breach of a covenant which prohibited the lessee from carrying on a number of unacceptable trades and activities but ended, "but will use the demised premises either for the business of high class retailers of jewellery and/or antiques and/or luxury goods and/or travel agency or recognised bank the authorised name of which includes the word 'Bank'". The judge concluded at page 65 that the words in the covenant "were emphatic negative than positive in effect". The Montrose Associates Investments SA case went to the Court of Appeal, [1992] 1 EGLR 55, and the appeal was dismissed. But this Court did not have to decide whether the deputy judge's conclusion was right as they held that there was no breach of the covenant whether it was positive or negative.
23. For my part I have not found the authorities cited to be of any real help in deciding whether the covenants in this case are such as to place a restriction on the use of the premises. Each covenant has to be construed in the context of the particular lease and therefore cases in which particular, but dissimilar covenants have been considered are not usually helpful. However they do show that positive obligations enforceable in contract do not come within the jurisdiction of the Lands Tribunal.
24. I turn back to s.84 of the 1925 Act. It confines the Land Tribunal's jurisdiction to covenants which restrict user. Thus it would be natural when deciding this case to consider whether the covenant related to use of the land and then go on to decide whether it was restrictive. There is no dispute about user. In one sense all covenants as to user are restrictive. For example the covenant to paint a house blue is a positive obligation requiring the tenant to paint the house a particular colour and it is also a negative obligation preventing the tenant painting the house any other colour. The fact that positive covenants have a negative effect was recognised by Harman J in the Westminster case in the passage of his judgment set out above. The authorities show that the Lands Tribunal and the Courts have excluded from the jurisdiction of the Lands Tribunal covenants which are positive even though they also contain a restrictive element. No doubt that is because the Lands Tribunal's jurisdiction is confined to modifying restrictive covenants.
25. Mr Thom submitted that the original covenants in clause 13 imposed a positive obligation. He accepted that that meant that a part of the basement had to be occupied by the Royal Society of Literature and that the remainder of the basement had to be kept as a lodging for a housekeeper or caretaker. He also accepted that the tenant would be in breach of the covenant if, as had happened, the Royal Society of Literature moved out or a housekeeper had not been engaged to live in the remainder of the basement. He also accepted that upon the facts that existed the tenant was in breach of covenant but he submitted that relief from forfeiture would be available.
26. Mr Reynolds QC for the tenant reminded us that the Royal Society of Literature's lease was for a period of about half the tenant's lease. If the Royal Society of Literature moved out at the end of their lease, the tenant would be in breach and liable to have the lease forfeited. The suggestion by Mr Thom that the tenant would obtain relief from forfeiture did not mean that the suggested construction of the covenants was sensible as the breach would be continuing. Thus the landlord could continue to seek to forfeit the lease for breach.
27. Mr Reynolds reminded us of the statement of Lord Reid in F.L.Schuler AG v Wickman Machine Tools Sales Limited [1974] AC 235 at 215:

"The fact that a particular construction leads to a very unreasonable result must be a relevant consideration. The more unreasonable the result the more unlikely it is that the parties can have intended it, and if they do intend it the more necessary it is that they should make that intention abundantly clear."

28. Mr Reynolds submitted that to construe the covenants as containing a positive obligation led to an unreasonable result which the parties could not have intended. If they had intended such a result then they could have easily made that clear in the lease.
29. Counsel agreed that the Court's task was to construe the lease to ascertain the intention of the parties at the time that it was entered into. The court should look at the substance of the covenants and not confine consideration to the form.
30. Mr Thom told us that at the time the covenants were entered into in 1951 the Paddington area was run down. It was, he submitted, not surprising that there were positive covenants requiring that the premises should be occupied rather than left boarded up. Also it was not surprising that there should be a positive requirement that a respectable sub tenant, like the Royal Society of Literature, should occupy part of the premises.
31. Mr Reynolds accepted that in 1951 it was the parties' intention that Mr Hamilton should carry out a conversion of the property so it could be used by the Royal Society of Literature. Even if it was desirable for the premises to be occupied by a respectable tenant, to conclude that there would be a breach of covenant if the Royal Society of Literature failed to occupy the premises led to an unreasonable result. The covenants were restrictive which meant that the tenant needed, when the Royal Society of Literature vacated, to go to the landlord and seek a variation. He submitted that it was ridiculous to believe that the landlord, which might not be the Church Commissioners, could refuse to vary it and there was no recourse to the Lands Tribunal.
32. I believe the judge came to the correct conclusion for the right reasons. I do not believe it right to construe the obligation in the lease as a positive obligation rendering the tenant liable to finding himself in breach of covenant in circumstances which he had no power to prevent. The parties could not have intended that result in 1951 . If they had, it would have been clearly spelt out. If estate management considerations were behind the covenants then provision would have been made for another respectable tenant to be substituted.
33. Both parties drew attention to particular words in the covenants to support their contentions. I did not find that meticulous analysis of the words helpful to decide what the parties intended. The covenants, when read in context, are of the type that appears to be restrictive which should be within the jurisdiction of the Lands Tribunal.
34. I would dismiss the appeal.

Lord Justice Waller I agree.

Lord Justice Carnwath: I also agree.

ORDER: Appeal dismissed (Order does not form part of approved Judgment)