B2/2005/1874
Neutral Citation Number: [2006] EWCA Civ 511
IN THE SUPREME COURT OF JUDICATURE 
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM MAYOR’S & CITY OF LONDON COUNTY COURT
(HIS HONOUR JUDGE MARR JOHNSON)
Royal Courts of Justice 
Strand 
London, WC2 

Monday, 20th March 2006
 
B E F O R E:

LORD JUSTICE CHADWICK

LORD JUSTICE SEDLEY

LADY JUSTICE ARDEN

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WAYCOURT LTD
CLAIMANT/APPELLANT
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(1)	VISCOUNT CHELSEA
(2)	CADOGAN ESTATES LTD
DEFENDANTS/RESPONDENTS
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  (DAR Transcript of 
Smith Bernal Wordwave Limited
190 Fleet Street, London EC4A 2AG
Tel No:  020 7404 1400  Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
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MR T WALKER (instructed by Messrs Jones Day, LONDON, EC4A 0DJ) appeared on behalf of the Appellant.

MR K MUNRO (instructed by Messrs Pemberton Greenish, LONDON, SW1X 0BX) appeared on behalf of the Respondent.
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J U D G M E N T
1.	LADY JUSTICE ARDEN:  The issue raised by the appeal in this case is whether in the events which have happened there has been a breach of the lease dated 7 February 1982, made between the appellant’s predecessor  in title and the respondents for the demise of 22/24 Sloane Street, London, SW1, including the vaults and cellars beneath those properties.  There is a subsidiary question as to whether the breach, if there was a breach, was specified in a notice served pursuant to section 146 of the Law of Property Act 1925.  

2.	This issue arises in a forfeiture action.  The judge, HHJ Marr Johnson, sitting in the Mayor & City of London County Court, held that forfeiture had occurred but granted relief on terms set out in his order.  The appellant contends that there was no breach, alternatively that the section 146 notice was defective.  The appellant accepts that it must succeed in showing that there was no breach and therefore that neither of the alleged breaches occurred.  If the appellant fails to show that there was no breach then the question arises as to the adequacy of the section 146 notice.  

3.	I now turn to describe the properties in breach.  The properties are 22/24 Sloane Street, which are two very substantial houses divided into flats.  They do not themselves have gardens attached to them but the tenants have use of a large communal garden running at the back of these houses and other houses in the same street.  There is an area, known in these proceedings as the “light well”, which is directly behind the houses and between the houses and the communal gardens.  This light well area is accessible from the basement to the houses only and it is below the level of the garden.  There are vaults behind the house originally used by the occupiers for storage purposes.  

4.	As I have said, at the time that the lease was granted the properties were divided into a number of flats, including a caretaker’s flat.  In brief, the caretaker’s flat was originally located in part of the basement of each of the houses.  In the course of time it was reduced from three rooms and a store in, as I say, both basements, by the removal of one room and the store.  The flat then comprised a kitchen-diner and a bedroom and a bathroom in the basement of 24 Sloane Gardens.

5.	This flat proved inadequate for the caretaker and her family and accordingly at the end of 2001, or early 2002, the husband of the caretaker altered the premises, but without the consent of the claimant, so as to convert the two subterranean vaults outside the basement where the caretaker’s flat was located into a kitchen and dining area.  The question which then arises was whether this resulted in a breach of the terms of the lease.  

6.	I return now to the lease dated 7 February 1982.  Clause 1 defined the demised premises as:
“All those pieces or parcels of land and the messages or tenements and premises thereon erected and the vaults and cellars belonging thereto known as Nos. 22 and 24 Sloane Gardens in the Royal Borough of Kensington and Chelsea which said premises (hereinafter called “the demised premises”) are delineated in the plan attached hereto and thereon coloured light and dark pink and green (the demise of the premises coloured green at the basement level only).”

Then there were some exceptions, which I need not read.  That extract appears on page 47 of the appeal bundle. 

7.	There was a plan attached to the lease which shows the vaults but does not show the internal arrangement of the houses in any detail; it looks like an extract from the ordinance survey with some additional colouring as stated in the clause I have just read.

8.	The lessee’s covenants were contained in clause 2 of the lease; the relevant parts of clause 2 are paragraphs 10 and 11 on page 49 and 50 of the bundle:

“(10) NOT at any time during the said term to cut or injure or permit to be cut or injured any of the walls, timbers or roof of the demised premises and not to alter or permit to be altered the plan, layout, height or elevation of the demised premises or the architectural appearance or the architectural decoration thereof and not to erect or permit to be erected any additional building upon the site of the demised premises and not at any time during the said term to fix or permit to be fixed any projecting flue pipe fan or ventilator on or through the external face of the walls or windows of the demised premises PROVIDED THAT the Lessee may make internal alterations to the demised premises with the previous consent in writing of the Company such consent not to be unreasonably withheld.

(11) NOT to carry on or permit to be carried on upon the demised premises or any part thereof any trade business or profession and not to use or permit the demised premises or any part thereof to be used for any illegal or immoral purpose or otherwise than as follows each self- contained flat to be used as a private residence in one family occupation only

No. 24 Sloane Gardens
First Floor				A self-contained flat
Second Floor				A self-contained flat
Third Floor				A self-contained flat
Fourth Floor 				A self-contained flat

No. 22 Sloane Gardens
First Floor				A self-contained flat
Second Floor				A self-contained flat
Third Floor				A self-contained flat
Fourth Floor 				A self-contained flat

Nos. 22 and 24 Sloane Gardens
Rear part of the ground floor 		A self-contained flat
Front part of the ground floor 		A self-contained flat
Rear part of  the basement		A Caretaker’s flat
Remainder of the basement		As tenants stores

“But subject as to the basement of No. 22 Sloane Gardens to the provisions contained in a Licence dated the fifth day of October One thousand nine hundred and seventy nine and made between the Company of the one part and Donum Investment Company Limited of the other part which permitted the right hand rear room and the front part of the said basement to be used as a flat in the occupation of Charles Leslie Ross and members of his family only and after the said Charles Leslie Ross and members of his family cease to occupy the said premises the said right hand rear room to be used only as a part of the Caretaker’s flat in the rear part of the basement and the front part  of the said basement to be used only as tenants stores.”

9.	It will be seen that clause 2(11) is of a negative kind, as indeed is clause 2(10).  It refers to the basement of both properties, it states that the rear part of the basement can be used only as a caretaker’s flat and that the remainder of the basement can be used only as tenants’ stores, but there is no definition of basement or of the rear part of the basement.  However the tenor of clause 2(11) is that it appears to deal with the use of the whole of the demised premises.  I return however to clause 2(10).  The two directly relevant covenants are the covenant not to cut or injure or permit to be cut or injured any of the walls of the demised premises, and the covenant not to alter, or permit to be altered, the plan, layout, height or elevation of the demised premises.  It would be noted that clause 2(10) contains a number of separate covenants and that they appear to overlap each other in some respects; for example putting up internal partitions could amount to altering the layout or plan of the demised premises.

10.	The expression “plan” is not defined, nor indeed is the word “layout”, and as I have said the plan attached to the lease does not give us any picture of the internal arrangement of the property.  We have seen in the course of this appeal a plan as at 1964, approved in 1966, and a further plan which was used for the purposes of a licence to alter the basement of number 22 in 1987, but neither of those plans in fact makes it clear, for instance, whether the caretaker’s flat, as reduced, included the vaults which are an issue in these proceedings.    

11.	I return to the question of what the expression “layout” means.  Mr Timothy Walker, for the appellant, submits that there can be no change of layout unless there is a change of footprint of the building.  Mr K Munro, for the respondents, submits that the meaning of the word “layout” in a lease depends on its context; the context here is plan, layout, height or elevation of the demised premises.  He submits that the expression “plan” in this context would more naturally refer to the external walls or footprint, and that indeed accords with the plan attached to the lease, and the expression “layout” in his submission means more in the way of an internal arrangement of the premises.  He goes on to submit that if a tenant wished to change the location of the bathroom or kitchen in the premises, that would amount to a change of the layout; but he also accepts that he does not have to go that far, but there may be some other change of arrangement which amounts to a change of layout, so that it is not an inevitable part of his submission that merely changing the location of the kitchen would alter the layout for the purposes of this clause.  Mr Munro also relies on the proviso to clause 2.  He submits that in effect the parties clearly contemplated that some internal alterations would be within clause 2(10) and that they would be alterations in respect of which the lessor would be willing to give a licence.   

12.	I pause there to express my agreement with Mr Munro’s general approach.  In my judgment the expression “layout” must mean something which at least in part adds to the expression "plan".  The meaning which is put forward by Mr Munro, namely an internal arrangement of the premises, accords with the dictionary meaning of layout, which in the Shorter Oxford English Dictionary is given as a plan or disposition of a house, factory, garden, etc.  In my judgment that meaning, disposition or arrangement, also accords with what one would normally expect the word “layout” in relation to a house to mean.  

13.	I then turn to ask: when the vaults were altered in this case, was what occurred an alteration of the layout of the demised premises for the purposes of clause 2(10)?  In my judgment the answer to that question was clearly: yes.  Before the alteration took place the vaults were merely storage space, if they were used for anything.  They were accessed by a door leading off the light well area.  After the alteration, they became a dining room and a kitchen area.  There was, as I have said, an entrance to the vaults from the light well area, but after the alteration there was a further additional entrance, namely the converted vault could be accessed by a door from a corridor leading along the wall between 24 and 26 Sloane Gardens.  The corridor had not previously been there.  This combination of changes in my judgment constituted a change in layout for the purposes of clause 2(10).  

14.	As Mr Walker fairly accepted, for this purpose it does not matter whether the vaults were properly part of the caretaker’s flat for the purposes of the lease.  Nor, as I see it, would it matter whether or not there was a further breach in terms of the opening part of clause 2(10) in opening up the entrance, which had previously been blocked up at a date subsequent to the grant of the lease.  In my judgment, one must look to see what actually happened as a result of the alterations and what one finds is that the vaults have become accessible by a new entrance and have become part of the living area of the caretaker’s flat.  In my judgment, those changes amount to a change of layout for the purpose of clause 2(10).

15.	Then the question arises whether this breach was within the section 146 notice served by the respondents on 22 November 2002.  The relevant part of the notice sets out clause 2(10) of the lease and then states:

“In breach of that covenant you have carried or permitted to be carried out alterations to two storage vaults at the rear of the Premises to create a kitchen and dining room accessed through a new opening created within the rear wall of the light well area.”  

16.	Mr Walker submits that the notice complains of an event which was not a breach; there always was an entrance into the vaults from the “light well area”.  But at the same time he fairly accepts that the test as to the interpretation of the notice is what it would mean to a reasonable man knowing the terms of the lease and of the notice.  This test is derived from the decision of the House of Lords in Mannai Investment Co Ltd v Eagle Star Insurance Co Ltd [1997] AC 749; there we are told that it has not previously been applied in the context of a section 146 notice. 

17.	Applying the test accepted by Mr Walker, I prefer Mr Munro’s submission; the parties were under no illusion about the breach being the conversion of the vaults into living area and the unblocking of the other entrance into the vaults.  In the light of the background known to those parties at the time the notice was served, the notice should in my judgment be interpreted on the basis that the words “accessed through a new opening created within the rear wall of the light well area” are descriptive of the breach but not a statement of the breach itself.  The fact that the words speak of the new opening as being within the rear wall of the light well area, when it was in fact within the area of wall which was at the end of a corridor in the caretaker’s flat, to my mind would not have caused any difficulties to a reasonable person with the knowledge specified above. Reading the notice, he would have taken that opening to be the one which had been unblocked and he would know of the unblocking on the test put forward.

18.	On this basis it is not necessary to decide whether there was an injury to the walls for the purposes of clause 2(10), although I would express provisionally my sympathy with the judge’s conclusion on this point.  Nor is it necessary to decide whether the vaults were in fact part of the caretaker’s flat for the purposes of the lease.  I would add that there has been some discussion in the course of the hearing of the appeal about the licence dated 18 March 1987, which permitted certain alterations to the basement of number 22 Sloane Gardens and resulted in some reduction of the caretaker’s flat.  That records, in clause 5, that the caretaker’s flat is situated in the rear part of the basement of 24 Sloane Gardens and not in both basements together.  But, apart from that, as I see it, it does not add to the resolution of the issues in these proceedings.  

19.	In the circumstances, I have come to the conclusion that the judge was correct in his conclusion that there had been a breach of the lease and in those circumstances I would dismiss the appeal.

20.	LORD JUSTICE SEDLEY:  For my part I am not sure, given the repetitious and over-cautious prose used by conveyancers, that the words “plan” and “layout” necessarily bear different meanings.  But my doubt about this does not affect my agreement with the reason given by my Lady, Arden LJ, for dismissing this appeal, namely that there was an unauthorised alteration of the layout of the caretaker’s flat.  I agree too that the section 146 notice was sufficient to draw the claimant’s attention to the breach, which is all that a notice is meant to do, and that more was not required.

21.	LORD JUSTICE CHADWICK:  I agree that this appeal should be dismissed. 

22.	Clause 2(10) of the lease of 7 February 1982 contains a covenant by the tenant not at any time to alter or permit to be altered the plan, layout, height or elevation of the demised premises, subject to a proviso that the lessees may make internal alterations to the demised premises with the previous consent in writing of the landlord, such consent not to be unreasonably withheld.  By its claim in the action, the tenant sought a declaration that consent to the alterations made to the basement and vaults at the property had been withheld unreasonably.  In addition the tenant sought an order that there had been no breach of the covenant in clause 2(10).  

23.	That claim was met by a Pt 20 claim, in which the landlord sought forfeiture.  Forfeiture for breach of covenant must be preceded by the service of a notice under section 146 of the Law of Property Act 1925.  The notice must specify the particular breach of which complaint is made.  

24.	In the present case, the notice under section 146, served on 22 November 2002, relied on  alterations to two storage vaults at the rear of the premises “to create a kitchen and dining room accessed through a new opening created within the rear wall of the light area.”  Those alterations (without consent) were said to be in breach of Clause 2(10) of the lease.

25.	The first question before the judge was whether alterations, as specified in the section 146 notice, had (in fact) been carried out; or, to put the point the other way, whether the alterations which had been carried out were properly specified in the notice.  The second question was whether those alterations, as specified, were in breach of covenant.  For the reasons which Arden LJ has given, the answer to each of those questions must be ‘Yes’.  The judge was right to reach that conclusion.

26.	The claim for a declaration was not pursued, it apparently being accepted that if consent was required, consent had not been refused unreasonably.  So the judge found, correctly, that the landlord was entitled to forfeit the lease.  He gave relief from forfeiture on conditions as to which there had been no issue.  
  
Order: Appeal dismissed.