Case No. HC-2016-002870

This is my reserved judgment following the hearing before me on 18 September 2017. This judgment is concerned only with the Defendant’s application by notice dated 30^th March 2017 to strike out claim no: HC-2016-002870. That application was directed by the court of its own initiative on 11^th May 2017 to be treated also as an application under CPR 24 for summary judgment.

By a lease dated 9^th September 2013 the premises at unit 3 Wolsey Business Park , Tolpits Lane, Watford WD18 9BL were demised by the Claimant to the Defendant for a 5 year term commencing on 5^th August 2013 and expiring on 4^th August 2018.

The Defendant is a non-profit making academy trust funded by the Education Funding Agency which is an executive agency acting on behalf of the Secretary of State for Education. The lease was taken by the Defendant in order to provide temporary premises from which to operate a new secondary school pending the design and construction of a permanent building to house the school known as “The Reach Free School”. The temporary premises were in an office building situated on a large industrial estate.

The lease reserved an annual rent of £534,945 together with service charge and insurance rent. The rent was payable quarterly in advance.

The permitted use under the lease was use “for the provision of educational services and community use within use class D1”. The school has occupied the premises since September 2013. On 2^nd October 2013 permission was granted for a temporary change of use from offices (Class B1) to a non-residential institution (Class D1) for use as a secondary school for 3 years and for associated minor works. This was on the basis that the school would take 120 pupils a year reaching 360 pupils in its third year of operation from the premises.

So far as material to these proceedings, the lease contained tenant’s covenants:-

Not to do or omit anything as a result of which any policy of insurance of the Property may become void or voidable or otherwise prejudiced; or the payment of any policy money may be withheld, nor (unless the Tenant has previously notified the Landlord and has paid any increased or additional premium) anything as a result of which any increased or additional insurance premium may become payable (clause 8.4(b))

Not to make any external or structural alteration or addition to the Property (clause 26.1)

Not to apply for any planning permission for the Premises without the Landlord’s consent (clause 30.3)

The lease reserved to the Landlord a right of re-entry, so far as material to these proceedings, if there was “any material breach” of any condition or tenant covenant in the Lease (clause 36).

The lease provided that the Tenant might terminate the lease on 5^th August 2016 by serving no less than 6 months prior written notice on the Landlord. This term was included no doubt because it was hoped at the time when the lease was negotiated that the school would at the end of the third school year at the premises be in a position to move to its intended new permanent site.

The break clause was not exercised because the school’s intended permanent site off Long Lane in Rickmansworth was not granted planning permission until December 2016. Instead an application was made on behalf of the school in May 2016 to vary the existing temporary permission so as to extend the period of time for the temporary change of use until 31^st October 2017. Permission for this extension was granted on 13^th June 2016.

One complaint made by the Landlord in these proceedings is that before that application was made to vary the existing temporary permission its consent was not sought.

It appears from a report prepared for the school by Robert West dated May 2016 in relation to The Reach Free School Travel Plan that the school was not fully subscribed in its first two years of occupation at Tolpits Lane but that by May 2016 its popularity was increasing and that it was anticipated for the 2016/2017 school year the school was needing to cater for up to 410 pupils with up to 44 staff.

Also in May 2016, a licence to alter was sought from the Claimant and proposed works were submitted for approval. The proposed works were referred by the Claimant to its architects. They described the works as “primarily moving or installing internal partitions” for which consent was not required but I proceed on the basis that the works included a structural element which was not permitted. In addition, under the terms of the lease, the tenant required consent to alter the route of any service media at the premises. The works involved re-routing of service media, although as I shall mention the re-routing of service media was not specifically particularised as a breach in the section 146 notice.

From the point of view of the school, there was an urgency in starting the works so that they would be completed in time for the new school year starting on 5^th September 2016. On 14^th July 2016 the school’s solicitors informed the Claimant that the school intended to start the works that did not require consent and to instruct contractors to start works which did require consent from 18^th July 2016 having executed a form of licence which they annexed.

The Claimant was by this stage concerned about the increased pupil numbers. In this context, it offered to let to the school the first floor of the nearby unit 4 within an additional 20 car park spaces. This led to two sets of negotiations going on in parallel: negotiations over the terms of the licence to alter; and negotiations over the terms on which the first floor of unit 4 would be made available to the school. The former negotiations were conducted through solicitors (Ms Hundal of Pictons LLP for the Claimant and Ms Unadkat of Trowers & Hamlins for the school). The latter negotiations were conducted between the Claimant and the Education Funding Agency (EFA) mainly through its Project Director Neil Stamps.

By 30^th August 2016 the terms of the licence for alterations had been agreed between the solicitors “subject to other amendments that may be required before completion: see the exchange of emails on 30 August 2016 between Ms Hundal and Ms Unadkat (bundle page 153). The licence was never executed. According to the witness statement of Mr Ambi Singh, a director of the Claimant, dated 25^th August 2017, the negotiation failed because on or about 8^th September 2016 the school declined to agree the amount of rent and service charge being sought by the Claimant in relation to the proposed new lease of Unit 4.

In the meantime, on 30^th August 2016 a rent invoice for the quarter period 29^th September 2016 to 25^th December 2016 was sent by the Claimant’s accounts department based as unit 4 to the Defendant. The rent invoice was accompanied by an email addressed to Mr Richard, presumably Mr Richard Booth the Head Teacher, which said “kindly do the needful and process remittance in due time”. The rent invoice was for £133,736.25 plus VAT of £26,747.25 making an invoice total of £160,483.50. Terms were stated at the foot of the invoice to be 15 days from invoice date. The invoice was dated 01-09-2016.

On 8^th September 2016, Mr Ambi Singh sent at email at 22.59 to Mr Neil Stamps of the EFA in which he stated:-

The reference to the external works was to the car parking area which it is common ground was not carried out.

On 9^th September 2016, the Claimant’s solicitors, Pictons, wrote to the Defendant saying that there had been a number of breaches of the lease and that they had been instructed on behalf of the Claimant to prepare a formal notice in relation to those breaches to be served “at the earliest opportunity next week should those breaches not be remedied”. The letter itself did not specify the breaches.

By letter dated 14^th September 2016 Pictons wrote saying that full particulars of the breaches were incorporated into the notice under section 146 of the Law of Property Act 1925 enclosed with that letter. The letter included the following paragraph:-

The substantive parts of the section 146 Notice read as follows:-

The Lease contains covenants by the tenant not to apply for any planning permission for the Property without the Landlord’s consent (clause 30.3), not to carry out any structural alterations to the property (clause 26.1), and not to do anything as a result of which any increased or additional insurance premium may become payable (clause 8.4(b)). Consent can only be given by writing in the form of a deed.

You are in breach of the covenants contained in clauses 8.4(b), 26.1 and 30.3 of the Lease. The breaches specified in the schedule to this notice have been allowed to accrue in breach of those covenants.

The matters complained of in paragraph 2 above constitute breaches of covenant that are incapable of remedy

You are required to pay compensation in money for the breaches and also to pay all costs, fees, charges, disbursements and expenses incurred by us, and any VAT payable on them, in relation to or incidental to the preparation and service of this notice.

At the end of seven days from the date of this notice, we intend to enforce the right of re-entry or forfeiture that has arisen by reason of the facts set out in this notice by action or otherwise and also claim damages.”

The Schedule to the notice referred to the covenants breached in reverse order. It reads:-

Proceedings were issued on 7^th October 2016 in the form of a claim form for possession of property (Form N5). It was stated that the claim was for forfeiture of a lease dated 9 September 2013 in respect of Unit 3 Wolsey Business Park, Tolpits Lane, Watford WD18 9BL. The claim form was accompanied by Particulars of Claim. These pleaded the breaches alleged and the service of the section 146 notice on 14 September 2016. In paragraph 19 of the Particulars of Claim it was pleaded:-

By paragraph 20 it was pleaded that by service of these proceedings, the lease is forfeit.

By paragraph 23 it was pleaded that the Claimant was entitled to damages for loss caused by the Defendant’s breaches of covenant, in particular the alterations made by the Defendant to the top floor of the Property.

A Defence and Counterclaim was filed on 10^th November 2016. A defence of waiver is pleaded at paragraphs 16 to 18 inclusive of the Defence. In paragraph 20 it is denied that the section 146 notice was valid and/or contained all the breaches complained of. Further or alternatively, it is pleaded that the notice is invalid because it stated that the breaches were incapable of remedy when in fact they were capable of remedy. By Counterclaim, the Defendant in the usual way claimed relief from forfeiture if the Claimant was found to be entitled to forfeit the lease on any grounds, on such terms as the court sees fit.

On 7^th December 2016 the Claimant served its response to the Defendant’s Part 18 request dated 18 November 2016 having been ordered to do so by Deputy Master Lloyd on 22 November 2016.

The Defendant issued its application to strike out the claim, which is the application before me on 30^th March 2017. It sought to strike out the claim on three grounds “because (1) the section 146 notice is invalid and/or (2) the Claimant has in any event waived any right to forfeit and/or (3) the statement of case is embarrassing.”.

The Defendant’s application came before Deputy Master Nurse on 11^th May 2017. The Claimant and the Defendant were on that occasion represented by the same counsel as before me (Zia Bhaloo QC for the Defendant and Clive Woolman counsel for the Claimant). The order contains a recital recording that the court of its own initiative decided to exercise its power to treat the application as an application also under CPR 24. Instead of hearing the application, the Deputy Master gave directions for the filing and service of evidence in response to the application by the Defendant and in reply by the Claimant. The Claimant’s evidence in response was to be filed by 4pm on 1^st June 2017. The time for the filing of evidence in response by the Claimant was extended by orders made by consent on two occasions. The first extension was until 4pm on 7^th July 2017, the second until 4pm on 25^th August 2017. The latter extension was made subject to an order that unless the Claimant served its evidence by that date it should be debarred from relying on that evidence on 18^th September 2017. A signed version of the witness statement of Mr Amarjit Singh Hundal was served on 25^th August 2017 at 4.09pm. I have nevertheless taken its content into account.

It is convenient to deal first with a procedural point taken by Mr Wolman on behalf of the Claimant in relation to the Defendant’s application. Relying on Ministry of Defence v AB & Others [2010] EWCA Civ 1317 he submitted first that the power to strike out under CPR 3.4(2) was to be exercised on examination of the pleadings themselves and not after examination of the evidence. Secondly, he submitted that the Defendant should not be granted summary judgment on procedural grounds in the absence of any formal application. That case involved a claim by a group of 1011 claimants comprising mainly former UK servicemen claiming damages for the adverse consequences to health which had allegedly resulted from exposure to ionising radiation deriving from a series of atmospheric tests. The case was listed for a hearing at which limitation issues would be decided. Ten individual lead claims were allowed to proceed. At the hearing, and without issuing an application, the MOD invited the judge to strike out the claims as showing no reasonable cause of action under CPR 3.4 or to dismiss them summarily under CPR 24.2. The Court of Appeal held that the power under CPR 3.4(2) was intended to be exercised on examination of the pleading itself, and not after examination of evidence supporting it. The Court of Appeal refused to grant summary judgment in the absence of a formal application. Lady Justice Smith, giving the judgment of the court, said that the Claimants should have been left in no doubt that they faced summary judgment if they could not show an arguable case on causation. She said that it was “simply not appropriate in a case of this importance and complexity to place on the judge the decision as to whether or not to exercise the jurisdiction under Part 24 of his own motion”.

In the present case, I do not know whether it was the Deputy Master who of his own initiative decided to treat the application as also under CPR Part 24 or whether this arose as a result of submissions made to him. In either event, there can be no question of the Claimant being taken by surprise. The Claimant was represented by Mr Wolman of counsel at the hearing before Deputy Master Nurse. The Claimant has had three and a half months in which to file its evidence in answer. In paragraph 4 of his witness statement dated 25^th August 2017, Mr Amarjit Singh Hundal records that his statement is made additionally “in response to the Defendant’s application to strike out the claim dated 30^th March 2017 and the court order of May that the application also be treated as one for summary judgment (underlining added)”. In my view the position is plainly quite different to that before the Court of Appeal and there is no merit in the point.

In his written skeleton argument prepared for the hearing on 18^th September 2017 Mr Wolman said at paragraph 9 that “C [the Claimant] now openly concedes for the benefit of the court and D [the Defendant] that it no longer has any real prospect of obtaining possession of the Property before the lease ends on 5^th August 2018 i.e until the end of the 2017-18 school year. It does however maintain that it has a right to possession subject to D’s right to claim relief from forfeiture ..which it now accepts.”

Although it is no longer claiming possession, the Claimant is in effect seeking to establish that the lease is forfeit. The Claimant is also seeking to keep alive its claim for damages.

On behalf of the Defendant, Ms Bhaloo QC advanced a combination of three grounds on which she said the claim disclosed no reasonable grounds for bringing the claim and further that the Claimant had no real prospect of succeeding on the claim and why there was no compelling reason for allowing the claim to be disposed of at trial.

Ms Bhaloo QC referred to the terms of section 146 itself. This provides that:-

Specifying the particular breach complained of, and

If the breach is capable of remedy, requiring the lessee to remedy the breach, and

In any case, requiring the lessee to make compensation in money for the breach;

Ms Bhaloo QC submitted that the section 146 notice served on 14 September 2016 was invalid because two of the three breaches alleged, carrying out alterations, and doing something which increased insurance were clearly remediable breaches. Ms Bhaloo QC accepted that the failure to seek the landlord’s consent before applying to vary the temporary planning permission if it was a breach (which she did not accept on the ground that the application was merely to vary an existing consent) could not be classified as a remediable breach once the application to vary had been granted.

In Savva v Hussein (1996) 73 P & CR 150 the breaches by the lessee were of negative covenants not to change the exterior sign and not to alter the premises without consent. The Court of Appeal held that the breaches were remediable. The answer to the question whether a breach is remediable was stated to be found by a practical inquiry whether and if so how the mischief can be redressed: per Lord Wilson JSC in Wickland (Holdings) Ltd v Telchadder [2014] 1 WLR 4004 at para 31 following the suggestion of Neuberger LJ in Akici v LR Butlin Ltd [2006] 1 WLR 201 that the proper approach to the remediability of a breach should be practical rather than technical.

The Claimant’s argument as advanced by Pictons LLP in its letter of 14^th September 2016 enclosing the s146 notice was that none of the breaches were capable of remedy because the school year had started and the pupils were in attendance.

I do not accept this argument in relation to clause 8.4(b). If in so far as the additional number of pupils led to the increase of the insurance premium, prima facie the breach was remediable by the payment of any increased or additional insurance premium unless the insurance had already been invalidated.

In relation to the reinstatement of the premises, the Claimant’s argument is that this could not have been done until at the earliest the school holidays and that this was not a reasonable period to expect the Claimant to wait to have the alterations removed.

On one view of the matter, this overlooks what was said by Slade LJ in Expert Clothing Ltd v Hillgate [1986] Ch 340 at 357H – 358A that the Claimant’s solicitors in drafting the section 146 notice were not entitled to pre-judge issues of practicability. The same approach was applied by Aldous LJ in Savva and Savva v Hussein at p157 to negative covenants. Aldous LJ said that an important purpose of section 146 is to give tenants, who have not complied with their obligations, one last chance to do so before the landlord re-enters. It can be argued that the landlord is not entitled to arrogate to itself the decision whether the breach is capable of remedy.

Mr Wolman submitted that because the test as to whether a breach of a covenant against alteration was remediable was a question of fact involving a practical inquiry, it was not suitable for summary determination. I have concluded that in this evolving area of law I ought to proceed on the basis that approach is correct and to accept that in the context of unauthorised alterations the question of whether the alleged breach by the school is remediable is a question of fact. I conclude on this issue that the section 146 notice was partially invalid in not requiring the alleged breach of clause 8.4(b) to be remedied but that the Claimant should be regarded as having a realistic prospect of success in upholding the validity of the notice in relation to the other two covenants in respect of which breaches are alleged.

I turn then to the issue of waiver. It is well established that the occurrence of a breach or an event alleged to give rise to a forfeiture puts the landlord to his election. The landlord may either treat the lease as continuing to exist or to exercise a right to forfeit and treat the lease as being at an end. As put forward by Ms Bhaloo QC in her skeleton argument, waiver takes place where with knowledge of the facts upon which the right to forfeit arises, the landlord does some unequivocal act which recognises the continued existence of the lease, and that act is communicated to the tenant.

The principal unequivocal act relied upon by the Defendant is the demand for rent made by the Claimant on 30^th August 2016 for rent for the September to December 2016 quarter.

After reviewing the authorities, it was decided by Sachs J. in Segal Securities Ltd v Thoseby [1962] 1 Q.B. 887 at 899 that a demand for rent could operate as a waiver in the same way as an acceptance. He quoted Bramwell B. in Croft v Lumley (1858) 6 H.L.C. 672 at 705 who stated:-

In Blackstone v Burnetts (West End) [1973] 1 WLR 1487 Swanwick J. stated at page 1498:-

It was assumed by Slade LJ in Expert Clothing at page 359 without finally deciding that a demand for rent had the like effect as acceptance of rent and that a landlord cannot prevent the acceptance of rent from operating as a waiver merely by stating that he accepts it without prejudice to the right to forfeit. A distinction was drawn between an unequivocal demand for rent and the sending of a request to execute a deed of variation. After referring to the speech of Lord Blackburn in Scarf v Jardine 7 Ap. Cas. 345, 361 where he defined an unequivocal act as meaning “an act which would be justifiable if he had elected one way and would not be justifiable if he had elected the other way”, Slade LJ said at 361F

At page 360 Slade LJ said that the legal effect of an act relied on as constituting a waiver of a right of forfeiture must be considered objectively, without regard to the motive or intention of the landlord or the actual understanding or belief of the tenant. Slade LJ observed that the doctrine of waiver was “thus quite capable in some instances of operating harshly, most particularly where there has been acceptance of rent by the landlord”. Slade LJ put cases involving an acceptance of rent into a special category. He also was prepared to put cases involving a demand for rent into that same special category saying:-

The correctness of the proposition that an unqualified demand for rent has the same effect as the acceptance of rent was left undecided by the Court of Appeal in Greenwood Reversions Ltd v World Environmental Foundation [2008] EWCA Civ 47. The Court chose to proceed on the assumption that an unqualified demand for future rent would operate a waiver and the strict rule applicable to receipt of rent applied. In that case, the demand relied on was not made to the current lessee and was held in any event not to be an unequivocal demand.

The demand made by the Claimant on 30^th August 2016 plainly was an unequivocal demand. It was for rent for the next quarter in a substantial amount.

It was not open to the Claimant to treat the lease as existing conditionally on the successful outcome of the negotiations relating to unit 4 or to reserve to itself the right to forfeit the lease in respect of alleged breaches of which it was by then aware. In Matthews v Smallwood [1910] 1 Ch 777 at 786 Parker J. in a passage accepted by the Court of Appeal in Oak Property Co. Ltd v Chapman [1947] K.B. 886, 898 stated:-

It is accepted on behalf of the Claimant that by the time when rent was demanded on 30 August 2016 it was aware that the Defendant had made an application to extend the temporary planning permission. An email sent on 31^st July 2016 by Sam Budhdeo, a director of the Claimant refers to Reach Free School as “currently being in breach of the lease on the following terms, a) No notice being given for the planning application being submitted.” This is confirmed in answer to request 21 of the RFI which reads:-

It is clear that the alleged breach of clause 30.3 of the lease was waived by the demand for rent on 30^th August 2016.

No such admission is made by the Defendant in relation to the works undertaken to allow a school hall to be created on the top floor for assemblies and sports to take place with additional classrooms. The evidence that the Claimant knew that the works were progressing and the nature of the works by 30^th August 2016 is overwhelming. In summary it is as follows:-

Details of the proposed works were provided for approval by the Defendant’s solicitors on 10 May 2016 (bundle page 127);

They were commented on by the Claimant’s senior architects on 21 June 2016 (bundle page 128);

On 14 July 2016 the Claimant was told the Defendant intended to instruct contractors to progress works from 18 July 2016 (bundle page 133);

On 5 August 2016 Abigail French, the Assistant Project Manager, informed Mr Budhdeo: “We have designed a number of classrooms to accommodate Symbio point to offer the school the flexibility they require to provide their timetabled curriculum, the schools high traffic classrooms are those located in the East Wing on the ground floor, designated as Year 7 home base classrooms which will be occupied with 120 new pupils this September 2016. Leaving the remaining 300 pupils to occupy the ground floor West Wing and the entire first and second floors. The school will be operating at 86% and will have classroom sizes of 20-30 pupils.”

On 19 August 2016 Mr Ambi Singh in an email to Neil Stamps stated: “Given the works you are carrying out on the site are not authorised, we are slipping back into a situation next week where we face a decision as to whether we have to ask you to stop any works pending the conclusion of the pending matters as clearly the closure of the legals is not being given high enough priority.” (bundle page 141);

On 25 August 2016 the Defendant’s solicitors sent to the Claimant’s solicitors work details for annexing to the licence (bundle page 142)’;

On 26 August 2016 a copy entry from the school visitor log book records a visitor report by Mr Ambi Singh (bundle page 143);

On 1^st September 2016, two days after the rent demand, Ambi Singh sent an email at 20:07 to Neil Stamps copied to Sam Budhdeo in which he stated “I am aware from Richard Booth that the works are now all complete bar the external works. Hence, we have been more than accommodating by letting the works continue without formal approval as it was contingent upon structural investigations, review of the various reports and the lease on unit 4 being concluded.” (bundle page 157).

Detailed plans and drawings were provided to the Claimant’s solicitors on 25 August 2016. The Claimant knew the works were being carried out albeit without formal approval having been granted. By 30^th August 2016 the licence to alter had in principle been agreed, subject to minor alterations. Mr Singh had visited the school on 26^th August 2016. On 1^st September he confirmed that he knew from the head teacher that the works were now all completed. All concerned were aware that the new school year began on 5^th September 2016.

It was argued by Mr Wolman that as the Defendant may not have completed the works on 30 August 2016, the Claimant had not waived breaches thereafter. In my view the answer to this point is that the Claimant knew the works were being carried out and would be completed within a few days if not already completed. In my view that was sufficient knowledge on the part of the Claimant. Nor do I accept that the Claimant had insufficient knowledge of the nature of the works. It had on 25^th August by the latest been provided with full details of the works for annexing to the proposed licence whose terms had in principal been agreed.

It also knew that the number of pupils at the school from September 2016 was going to increase. It was told on 5^th August 2016 that there would be 120 new pupils in September 2016.

It is plainly right that I should follow the decisions at first instance concerning demanding rent after having knowledge of the breach. The correctness of these decisions was assumed and endorsed in Expert Clothing Service & Sales Ltd v Hillgate House Ltd by the court of appeal. In any event, it does not avail the Claimant to ask the court in the present case to look at the wider circumstances. If one does, all one sees is consistent with the Claimant treating the lease as in existence. It was not open to the Claimant to say ‘ we will disregard these breaches if a lease of unit 4 is taken up, but if for any reason the deal falls through, we reserve our right to rely on the breaches as grounds for forfeiture of the lease of unit 3”. I reject Mr Wolman’s arguments as set out in paragraphs 31 and 32 of his skeleton argument that because it had not yet been resolved between the parties as to whether the Defendant was operating with or without consent in carrying out alterations, that the right to rely on a breach could be reserved whilst at the same time making an unqualified demand for rent.

In my view the Claimant has no realistic prospect at trial of overcoming the defence of waiver. It is in my view a complete defence to the claim for forfeiture and possession. The Claimant may regard this as an example of waiver operating harshly. I do not. The Claimant may well have been aggrieved at the decision of the EFA not to lease part of Unit 4 but that did not justify the Claimant turning round and seeking to forfeit the lease of Unit 3. I should record although it is not relevant to the issue of waiver that the Claimant accepted the rent demanded in January 2017 after the claim was issued.

On behalf of the Claimant, Mr Wolman submitted that there was in any event no grounds for striking out the claim for damages. In paragraph 23 of the Particulars of Claim it is pleaded:-

Clause 28.1 of the lease provides:-

The claim for damages is unparticularised and in my view premature. The Defendant is under an obligation to restore at the end of the term. It is suggested that potential buyers will be put off by seeing a “reconfigured school building teeming with 500 pupils”. Absent any breaches as are alleged, the demised premises would have been let on the terms of the lease as a temporary school establishment for a term not expiring until 4 August 2018.

In Savva and Savva v Hussein at page 154 Staughton LJ said:-

The Claimant has not pleaded any immediate damage to the freehold reversion. There is the further problem for the Claimant that it has since assigned its freehold interest to Moors Properties Limited.

For those reasons, I shall dismiss the claim including the damages claim. This will not prevent the Claimant or its successor in title from bringing a claim for damages in the event that the property is not returned in the repair and condition required by the lease including the removal of alterations.