England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE UPPER TRIBUNAL, TAX AND CHANCERY CHAMBER
Judge Elizabeth Cooke
UT/2016/0143, [2017] UKUT 377 (TCC)

		Royal Courts of Justice Strand, London, WC2A 2LL
		12/10/2018

Lord Justice Lewison:

1. The issue on this appeal is whether Cheerupmate2 Ltd ("the landlord") has validly forfeited a long lease held by Mr Calce ("the tenant") by peaceable re-entry. Both the First-tier Tribunal, [2016] EWLandRA 2015_0625, and the Upper Tribunal, [2017] UKUT 377 (TCC), said "No" because of the effect of sections 166 and 167 of the Commonhold and Leasehold Reform Act 2002. With permission granted by Patten LJ the landlord appeals. Neither the landlord nor the tenant was legally represented; and neither appears to have had the benefit of legal advice at any stage of the story. At the outset of the hearing we gave permission for the landlord to be represented by Mr Hosny, one of its employees.
2. Section 166 provides, so far as relevant, as follows:

"166 (1) A tenant under a long lease of a dwelling is not liable to make a payment of rent under the lease unless the landlord has given him a notice relating to the payment; and the date on which he is liable to make the payment is that specified in the notice.

(2) The notice must specify—

(a) the amount of the payment,

(b) the date on which the tenant is liable to make it, and

(c) if different from that date, the date on which he would have been liable to make it in accordance with the lease,

and shall contain any such further information as may be prescribed.

(3) The date on which the tenant is liable to make the payment must not be—

(a) either less than 30 days or more than 60 days after the day on which the notice is given, or

(b) before that on which he would have been liable to make it in accordance with the lease.

(4) If the date on which the tenant is liable to make the payment is after that on which he would have been liable to make it in accordance with the lease, any provisions of the lease relating to non-payment or late payment of rent have effect accordingly.

3. The Landlord and Tenant (Notice of Rent) (England) Regulations 2004 prescribe certain additional information to be included in the notice. Regulation 2 (2) then states:

"A notice under subsection (1) of section 166 of the 2002 Act shall be in the form set out in the Schedule to these Regulations."

4. Compliance with section 166 is a condition precedent to a lessee's liability to pay rent under a long lease of a dwelling: Chasewood Park Residents Ltd v Kim [2010] EWHC 579 (Ch).
5. Section 167 provides, so far as relevant, as follows:

"167 (1) A landlord under a long lease of a dwelling may not exercise a right of re-entry or forfeiture for failure by a tenant to pay an amount consisting of rent, service charges or administration charges (or a combination of them) ("the unpaid amount") unless the unpaid amount—

(a) exceeds the prescribed sum, or

(b) consists of or includes an amount which has been payable for more than a prescribed period."

6. The Rights of Re-entry and Forfeiture (Prescribed Sum and Period) (England) Regulations 2004 prescribe £350 as the amount, and three years as the period.
7. The essential facts are as follows. The lease in question was granted on 10 July 1948. It contained a demise of property described as a "dwelling house situate in and numbered 121 Croft Street Hyde" for a term of 900 years from that date. The lease reserved a rent of £2 per annum payable by equal half yearly instalments on 25 March and 29 September each year. Clause 3 of the lease contained a forfeiture clause which entitled the landlord to re-enter if the rent was "in arrear for the space of two years after the same shall have become due (whether any formal or legal demand thereof shall have been made or not)". In fact there is now no dwelling on the land comprised in the lease; but no one suggested that that fact meant that sections 166 and 167 did not apply. I will proceed on the assumption (without deciding) that they do.
8. The tenant acquired the lease in 1997. The landlord was registered as proprietor of the reversion on 4 March 2015. On 12 March 2015 the landlord sent the tenant a letter in which (among other things) it informed the tenant that it was now the landlord and gave the tenant the address of its registered office. Enclosed with that letter was a notice on a printed form intended to take effect as notice under section 166 of the 2002 Act. That notice required the tenant to pay £11 on 20 April 2015 and stated that that rent was "payable in respect of the period" from 25 March 2010 to 25 March 2015. The printed form contained a number of notes, one of which read:

"Section 167 of the Commonhold and Leasehold Reform Act 2002 and regulations made under it prevent your landlord from forfeiting your lease for non-payment of rent, service charges of administration charges (or a combination of them) if the amount owed is £350 or less, or none of the unpaid amount has been outstanding for more than three years."

9. This note was part of the form prescribed by the Landlord and Tenant (Notice of Rent) (England) Regulations 2004 as originally made. However, by a correction slip dated April 2011 and issued by the Queen's Printer it was stated:

"Page 3, in the Schedule, within the form entitled, "FORM OF RENT DEMAND NOTICE", under the NOTES FOR LEASEHOLDERS, third paragraph, lines three and four:

"...if the amount owed is £350 or less, or none of the unpaid amount..." should read "...unless the unpaid amount is more than £350 or consists of, or includes, an amount that..."."

10. Thus as from April 2011 the note in the prescribed form reads:

"Section 167 of the Commonhold and Leasehold Reform Act 2002 and regulations made under it prevent your landlord from forfeiting your lease for non-payment of rent, service charges or administration charges (or a combination of them) unless the unpaid amount is more than £350 or consists of, or includes, an amount that has been outstanding for more than three years."

11. Accordingly, when the purported notice was served it was not in the form then prescribed. This was the first ground on which both tribunals decided against the landlord.
12. Following service of that notice the landlord purported to re-enter peaceably on 21 April 2015, the day after the date on which it had required the rent to be paid. On the same day it applied to close the leasehold title at HM Land Registry. The second ground on which the landlord failed was that both tribunals held that the effect of section 166 was to start time running again for the lapse of two years required by the forfeiture clause before a valid re-entry could take place in accordance with the terms of the lease. It followed that the purported forfeiture was premature. The final ground on which the landlord failed was that both tribunals held that section 167 itself precluded the landlord from forfeiting for a period of three years from the date of a valid notice under section 166. In order to succeed on this appeal the landlord needs to succeed on each of these three issues.
13. There is no doubt that both tribunals were right in saying that the notice given by the landlord was not in the prescribed form. However, that is not the end of the enquiry. The question remains: does that invalidate the notice? In the FTT Judge Michell held that regulation 2 (1) was mandatory. The notice was required to be in the prescribed form; and unlike similar regulations prescribing forms of notice it did not allow notices to be "substantially to the like effect". That distinguished this case from cases such as Ravenseft Properties Ltd v Hall [2001] EWCA Civ 2034, [2002] HLR 33 where the relevant regulations did allow a notice "substantially to the like effect" as the prescribed form. Thus the notice in this case was invalid for that reason. In the UT Judge Cooke held that the revised note was much clearer than the original version and that the original version was not clear enough for the tenant to understand it. Thus the notice was invalid but for a reason that differed from that which appealed to Judge Michell.
14. The courts have had to consider the validity of notices which fail to comply with legislative requirements on a number of occasions. The leading case is the decision of this court in Natt v Osman [2014] EWCA Civ 1520; [2015] 1 WLR 1536. In that case Etherton C observed at [25]:

"… the characterisation of the statutory provisions as either mandatory or directory really does no more than state a conclusion as to the consequence of non-compliance rather than assist in determining what consequence the legislature intended."

15. In analysing the cases Etherton C drew a distinction between two broad categories at [28]:

"(1) those cases in which the decision of a public body is challenged, often involving administrative or public law and judicial review, or which concern procedural requirements for challenging a decision whether by litigation or some other process, and (2) those cases in which the statute confers a property or similar right on a private person and the issue is whether non-compliance with the statutory requirement precludes that person from acquiring the right in question."

16. In the first category, substantial compliance could be good enough. But in the second category he said, at [31]:

"The Court of Appeal cases show a consistent approach in relation to statutory requirements to serve a notice as part of the process for a private person to acquire or resist the acquisition of property or similar rights conferred by the statute. In none of them has the court adopted the approach of 'substantial compliance' as in the first category of cases. The court has interpreted the notice to see whether it actually complies with the strict requirements of the statute; if it does not, then the court has, as a matter of statutory interpretation, held the notice to be wholly valid or wholly invalid …"

17. I tried to analyse that case in Elim Court RTM Co Ltd v Avon Freeholds Ltd [2017] EWCA Civ 89, [2017] 3 WLR 876. What I said at [52] was this:

"The outcome in such cases does not depend on the particular circumstances of the actual parties, such as the state of mind or knowledge of the recipient or the actual prejudice caused by non-compliance on the particular facts of the case: see [32]. The intention of the legislature as to the consequences of non-compliance with the statutory procedures (where not expressly stated in the statute) is to be ascertained in the light of the statutory scheme as a whole: see [33]. Where the notice or the information which is missing from it is of critical importance in the context of the scheme the non-compliance with the statute will generally result in the invalidity of the notice. Where, on the other hand the information missing from the statutory notice is of secondary importance or merely ancillary, the notice may be held to have been valid: see [34]. One useful pointer is whether the information required is particularised in the statute as opposed to being required by general provisions of the statute. In the latter case the information is also likely to be viewed as of secondary importance. Another is whether the information is required by the statute itself or by subordinate legislation. In the latter case the information is likely to be viewed as of secondary importance. In this connection it must not be forgotten that while the substantive provisions of a bill may be debated clause by clause, a draft statutory instrument is not subject to any detailed Parliamentary scrutiny. It is either accepted or rejected as a whole. A third is whether the server of the notice may immediately serve another one if the impugned notice is invalid. If he can, that is a pointer towards invalidity."

18. Unfortunately, neither of these cases was drawn to the attention of the tribunals.
19. In our case the important features seem to me to be as follows:

i) The discrepancy between the notice as served and the prescribed form lies not in the information provided but in the clarity of the information;

ii) The notice as served contained all the information required by the 2002 Act itself;

iii) The form of the notice is governed by a statutory instrument, and not by the Act itself;

iv) The form of the note in the notice as served was part of a prescribed form that was in force between 2004 and 2011; and must, therefore, have been regarded by Parliament at that time as sufficient to comply with the statutory requirement;

v) The change in the wording of the note was made, not by an amending set of regulations, but by a "correction slip" which would only have been used if the change was regarded as not altering the substance of the note;

vi) The explanatory notes are plainly subordinate to the purpose of the notice which is to inform the leaseholder that there are arrears of rent which must be paid by the date specified in the notice. The explanatory note describes the context in which the notice is served.

20. The combination of these features leads me to the conclusion that Parliament is unlikely to have intended that the minor discrepancy between the notice in fact served and the prescribed form was of sufficient importance to invalidate the notice. In my judgment, therefore, both tribunals were wrong in holding that the notice was invalid. The landlord thus succeeds on the first ground.
21. That makes it necessary to deal with the second issue: does time start running again for the purpose of the forfeiture clause? The forfeiture clause allows the landlord to forfeit when the rent is in arrear for two years after it "shall have become due". So the first question we need to answer is: when did the rent become due? Mr Hosny drew a distinction between the time at which rent became "payable"; and the time at which the tenant became "liable" to pay it. The first of these expressions, he said, meant that rent was outstanding; while the second meant that the debt was enforceable. However, section 166 does not use the word "payable". It consistently refers to the date on which the tenant is (or would have been) "liable" to make a payment. The supposed contrast between the two expressions does not feature in the section. In addition, the word "payable" is itself susceptible of different meanings. As Hoffmann J explained in Tea Trade Properties Ltd v CIN Properties Ltd [1990] 1 EGLR 155 it may mean either "accruing from time to time" or "falling due for payment". But as he went on to hold:

"… in the proviso for re-entry, the lease speaks of rent being unpaid for 21 days after becoming payable. That clearly does not mean accruing from time to time. It means falling due for payment."

22. In my judgment, section 166 (1) provides a clear answer to the question: when does the rent become due? A tenant under a long lease of a dwelling is not liable to make a payment of rent under the lease unless the landlord has given him a notice relating to the payment; and the date on which he is liable to make the payment is that specified in the notice. If a tenant is not liable to make a payment of rent, I cannot see how that rent can have become "due". This is borne out by two further features of section 166. First, section 166 (3) differentiates between the date on which the tenant is liable to make the payment and the date on which he "would have been liable" to make it under the terms of the lease. The phrasing is such that it implicitly recognises that the tenant is not in fact liable to make the payment in accordance with the terms of the lease. The second feature is section 166 (4). The drafter of the section must have been aware that any lease which permits the landlord to forfeit for non-payment of rent specifies a period of grace following the due date for payment which must elapse before the right to forfeit becomes exercisable. Commonly the period is measured in days or weeks. Here, unusually, it is measured in years. But in order to bring the right to forfeit within the overall scheme of the Act, the drafter had to modify the time constraints on the right to forfeit, otherwise much of the protection given to the tenant would be lost. Section 166 (4) provides:

"If the date on which the tenant is liable to make the payment is after that on which he would have been liable to make it in accordance with the lease, any provisions of the lease relating to non-payment or late payment of rent have effect accordingly."

23. It is clear, in my judgment, that section 166 (4) is designed to change the legal effect of provisions in the lease relating to non-payment or late payment of rent. What change can that be? The clue, to my mind, is in the word "accordingly". The contractual provisions relating to non-payment or late payment of rent must be adapted to take account of the fact that, in accordance with section 166 (1), the rent is not due until the date specified in a valid notice given under that section. The period of grace that must elapse before the right to forfeit can be exercised can only begin once the rent is due. It follows that section 166 (4) does start time running for the purposes of a period of grace given by a forfeiture clause. Indeed, it is difficult to suppose that Parliament intended that a lessee notified of a liability to pay rent should have no period of grace in which to pay. Since the Act does not itself provide for a period of grace, the only possible such period is that specified in the lease itself.
24. Mr Hosny drew our attention to the decision of this court in Rogan v Woodfield Building Services Ltd (1995) 27 HLR 78. That case concerned section 48 of the Landlord and Tenant Act 1987. Under that section a landlord must give the tenant a notice specifying an address in England and Wales at which he may be served with notices. Section 48 (2) provides:

"Where a landlord of any such premises fails to comply with subsection (1), any rent or service charge otherwise due from the tenant to the landlord shall … be treated for all purposes as not being due from the tenant to the landlord at any time before the landlord does comply with that subsection."

25. One of the arguments for the tenant was that rent which would otherwise have accrued due before the giving of notice under section 48 was forever irrecoverable. Ralph Gibson LJ gave that argument short shrift. He said at 85:

"The contention that rent "otherwise due" from a tenant which is to be treated as not due because of failure to comply with section 48(1) is forever irrecoverable, is misconceived. It is contrary to the clear words of section 48(2)."

26. I do not consider that that case assists the landlord. It is not suggested in this case that rent which would otherwise have accrued under the lease before the giving of notice under section 166 has become irrecoverable. It is plain that it became due on the date specified in the notice under that section. What is in issue is the consequence for the forfeiture clause of its becoming due on that day. For the reasons I have given I consider that the consequence is that the period of grace for payment specified by the lease began to run on that day.
27. I agree, therefore, with the conclusion of both tribunals that under the terms of this lease the landlord was required to wait for two years after the date specified for payment in the section 166 notice before the right to forfeit became exercisable. It follows that the purported re-entry was unlawful.
28. The third issue does not therefore arise; and is better left to a case in which it matters. As Mummery LJ put it in Housden v Conservators of Wimbledon and Putney Commons [2008] EWCA Civ 200 at [31]:

"In general, it is unwise to deliver judgments on points that do not have to be decided. There is no point in cluttering up the law reports with obiter dicta, which could, in some cases, embarrass a court having to decide the issue later on."

29. The final point that Mr Hosny wished to take related to an award of costs made by the FTT. It is by no means clear to me that an independent challenge to the FTT's award of costs was the subject of the permission to appeal to the UT granted by HHJ Purle QC. On that basis it is not before this court either, as the statutory right of appeal to us is limited to errors of law made by the UT. Moreover, we have been given no materials which explain why Judge Michell made the decision he did; nor any materials on which we could interfere with his discretionary decision. I would decline to entertain this argument.
30. For those reasons I would dismiss the appeal.
31. I add by way of postscript that even if the landlord had been correct in asserting that it had validly forfeited the lease for non-payment of rent, it is almost inevitable that if the tenant had applied for relief against forfeiture within six months after the re-entry he would have been entitled to it either under section 211 of the Common Law Procedure Act 1852, or under section 138 (9A) of the County Courts Act 1984 as interpreted by this court in Lovelock v Margo [1963] QB 786, or under the court's inherent equitable jurisdiction. By any of these routes the lease would have been reinstated on payment of the arrears of rent. However, it seems that HM Land Registry will close a leasehold title on being satisfied by evidence that a peaceable re-entry has been effected; and that even the existence of an application by the tenant for relief against forfeiture is not a sufficient objection to closure of the title: Ruoff & Roper Registered Conveyancing (loose leaf edition) para 25.040. Whether this is a sensible procedure may be open to question.

Lord Justice Peter Jackson:

32. I agree.

Lord Justice Newey:

33. I also agree.