Patel & Ors v MRD Property Developments Ltd

In this case the tenants of demised premises sought a declaration that the lease was not forfeit by reason of unpaid arrears of rent, alternatively they sought relief from forfeiture. The Recorder, Stephen Jourdan QC, sitting in the Central London County Court on 18th July 2011, refused to grant the declaration but he did allow relief from forfeiture on terms. There was a dispute as to how those arrears of rent should be calculated. The tenants’ case is that the arrears wrongly included sums in respect of insurance rent which had not been properly demanded and so were not due from them. The landlord contends that the insurance rent was in fact paid and did not form any part of the arrears which led to the forfeiture of the lease.

The material facts are these. By a lease made on 16th December 2005 the respondent, the freehold owner, demised property in Forest Gate to Mr Kumara Mardaymootoo, the third appellant, and Mr Subash Ahgun for a term of 15 years at an initial rent of £54,000 per annum. Crucially for this appeal, clause 4.2 of the lease provided that the tenants pay “by way of further rent, the Insurance Rent payable within 14 days of written demand.” As defined in Clause 1.9 “Insurance Rent” was “the sums which the Landlord shall from time to time pay by way of a premium for insuring the Premises against [specified] risks set out [the Lease].” In clause 2.20 “Insurance Rent” was defined to mean “The gross sums that the Landlord from time to time pays … by way of premium for insuring the Premises …” Under clause 5.1 the Tenant covenanted with Landlord “to pay the rents on the days and in the manner set out in clause 4 …” There was the usual proviso in clause 9 that “if at any time during the Term the rents (or any of them or any part thereof) shall be in arrears and unpaid for 14 days after becoming payable (whether formally demanded or not) … the Landlord may at any time thereafter … re-enter the Premises …”.

On 21st December 2007 the Landlord granted licence to the Tenants to assign the lease to the three appellants, Rajesh Patel, Syed Rizvi and Mr Mardaymootoo. The lease was duly assigned and the appellants were registered as proprietors of the lease on 28th January 2008.

Also on 27th December 2007 the Tenants paid the Landlord a rent deposit of £50,000 and executed a Rent Deposit Deed, expressed to be supplemental to the Lease, governing the terms on which that sum was to be held by the Landlord. It permitted the Landlord to draw down from that deposit sums necessary to satisfy arrears of rent. It permitted the Landlord to serve notice requiring payment of any arrears of rent on demand. The Tenants were required to maintain a deposit in the sum of £50,000. The deed provided that the right of re-entry contained in the lease should also be exercised in the event of any breach by the Tenants of the provisions of the deed.

The premises were destroyed by a fire on 31st May 2009 and, the buildings having been demolished, the Landlord left the property as a cleared site with access barred by hoardings. There was a provision in the lease for the abatement of rent if the property was destroyed by an insurance risk such as fire which left the premises unfit for occupation or use.

By the time of the fire substantial arrears of rent had accrued. On 23rd February 2010 the Landlord’s solicitors wrote to the Tenants’ solicitors informing them that the Landlord had drawn down £20,107.50 under the Rent Deposit Deed requesting the Tenants to make up that sum failing which the right of re-entry reserved under the Rent Deposit Deed would be exercised. The Tenants failed to make good the deficiency under the Rent Deposit Deed. On 11th March 2010 the Landlord’s solicitors sent notice under section 146 of the Law of Property Act 1925 pursuant to which the Landlord re-entered the property on 22nd March 2010 and determined the Lease. As already set out the Recorder held that the Landlord was entitled to forfeiture but that the Tenants were entitled to relief on terms specified in the order.

One of the major issues before the Recorder was whether the insurance rent was due. The property was insured by Aviva. The premium for the renewal of the insurance for the year December 2006 to December 2007 was £2,221.07. This related to a period before the lease was assigned to the appellants but the third appellant was jointly and severally liable as an original pre-assignment tenant. After the assignment the premium for the renewal of the policy for the year from December 2007 to 2008 was in the sum of £2,383.05 and for the year from December 2008 to 2009 the premium was £2,503.15. The total for the three years was £7,107.27.

The Recorder made these relevant findings of fact.

In order to determine whether the Lease was forfeited the Recorder had to determine, first, where the rent had been increased pursuant to rent review provisions in the Lease, and, secondly whether there was a written demand for the insurance rent and, if not, did it matter. On the second issue he decided:

“27.

The second issue is this: was there a written demand for the Insurance Rent, and if not, does that matter? The Lease is a lease of the whole of the building, and the building as a whole was insured by the Landlord with Aviva. The Lease does not set out any particular requirement which a written demand must satisfy. It does not say, for example, that the written demand must have a date on it or that it must contain any particular information or satisfy any particular formalities. In my judgment, the minimum that is needed is that there is a document of some kind served by the Landlord on the Tenants which would indicate to a reasonable recipient in the position of the Tenants that the Landlord was asking the Tenants to pay a specified sum by way of Insurance Rent. So if a document is sent by the Landlord to the Tenants which says “Please pay the following sum by way of Insurance Rent” that is plainly sufficient. If it does not use express words of that kind, but a reasonable reader knowing the terms of the Lease would appreciate that the document was requiring the Tenants to pay a specified sum in respect of insurance then I think that would suffice. … So the evidence is that these [insurance demand notes] each described as a “renewal notice” were given to Mr Mardaymootoo and that is not disputed.

28.

Mr Davies on behalf of the Tenants points out correctly that there are two separate contracts with which we are concerned – the contract between the Landlord and the insurance company under which the insurance company is entitled to demand payment from the Landlord, and a quite separate contract between the Landlord and the Tenants under which the Landlord is entitled to payment of the insurance premiums but only 14 days after making a written demand. Mr Davies accepts that if Mr Kholsa had written on the Renewal Notices “please pay” and then had handed that document with those words on it to Mr Mardaymootoo that would suffice, because the words “please pay” would convey to the recipient that the Landlord wanted payment of the amount set out in the documents. But he says that in the absence of those words simply handing the document over does not suffice to constitute a written demand. In my judgment read against the background of the Lease, which tells the Tenant that the Tenant is expected to pay the insurance premiums on receiving a written demand to do so, a reasonable person in the position of the Tenants on being handed a Renewal Notice by a representative of the Landlord would appreciate that the Landlord was, by handing the document over, demanding that the Tenants pay the sums set out in the document. As Mr Stone said in his submissions, the purpose of requiring the written demand is to ensure that the Tenant has a piece of paper which clearly sets out the amount that he should pay, and as Mr Stone said, a letter that said please pay £2,383.05 would do; handing over the document that shows that amount being demanded by the insurance company is better, since it shows the Tenant very clearly the provenance of the demand and the accuracy of the demand. Handing over a renewal notice is better from the Tenant’s point of view than receiving a letter from the Landlord that demands a payment of an amount which the Tenant cannot verify. Where there are three joint Tenants, and there is nothing to indicate any of them requires separate service, I consider that delivering a written demand to one of them would suffice and the contrary has not been suggested.

29.

If that is right, then that disposes of this point …”

He went on to deal with an alternative submission advanced by Mr Stone, counsel for the Landlord, that as £7,500 had been paid by the Tenants for the insurance premiums, the insurance rent should be treated as having been paid and the fact that no written demand had been made for payment was therefore irrelevant. He decided that given his findings on the need for a written demand, he need not decide that issue. Mr Davies, for the tenants, had argued that that would only be the case if the tenants had waived the right to a written demand but waiver would not be possible unless it could be shown that the tenants were aware that they had a right to insist on a written demand and had proceeded to make the payment even though they knew they could be asked for such a written demand. Having found that the tenants were not aware of the need for a written demand, the Recorder nonetheless did not think it was necessary or appropriate for him to decide as a matter of law whether waiver was the right legal concept and, if so, whether waiver occurred on the facts, as he found them. He concluded:

“That would be an entirely hypothetical issue, given my findings on written demand and I would need time to consider it. I think it is sufficient for me to find the facts in the way I have and to decide the point in the landlord’s favour on the basis that handing over the Renewal Notices did constitute delivery of a written demand.”

He did, however, give permission to appeal limited to the issue:

“of whether the Defendants’ actions in providing insurance renewal documents to one of the Claimants amounted to valid demands for Insurance Rent pursuant to clause 4.2 of the Lease so that Insurance Rent was properly due and owing from the Claimants to the Defendants.”

By its respondent’s notice, the Landlord seeks to uphold the Recorder’s findings on the additional ground that the fact that payments were specifically made and accepted in respect of insurance premiums amounts to a waiver of the right to require a formal demand in writing.

By an application made very shortly before this case was listed to be heard in February 2012, and for the first time formally made at the hearing before us, the appellant sought permission to amend the grounds of appeal by adding a new ground:

“The learned Recorder erred in law in holding that, where there are three joint tenants, notice to one is sufficient and that notice need not be given to each of the three.”

We refused permission to amend the grounds of appeal. The application for leave to amend was very late. The point was never taken in the court below and if it was not technically conceded, no argument to the contrary was suggested as the judge observed at the end of paragraph 30 of his judgment. Moreover if the point had been taken, the Landlord would almost certainly have wished to have led evidence to deal with the matter.

I turn, therefore, to the ground of appeal permitted by the Recorder: was the Landlord’s action in providing insurance renewal documents to one of the Tenants a valid demand for Insurance Rent pursuant to clause 4.2 of the Lease so that the Insurance Rent was properly due and owing?

Turning to the Lease, clause 4 is the conventional clause by which the Landlord demises the premises to the Tenant “yielding and paying to the Landlord the Rent” which in this case means, per clause 2.2, “the rent ascertained in accordance with the 5th Schedule and such terms shall not include the Insurance Rent …”. The 5th Schedule provides for the Initial Rent of £54,000 per annum subject to periodic reviews which permit increases of the rent from time to time. We need not concern ourselves further with the 5th Schedule. For our purposes it is enough tritely to say that the Lease imposes the liability on the Tenants to pay the rent.

Clause 4.2 tells the Tenants that in addition to the Rent thus defined they must pay “by way of further rent” something in addition, namely the “Insurance Rent”. The meaning of Insurance Rent is clear from clauses 1.9 and 2.20. The additional amount payable is the sum which the Landlord must pay by way of premium for insuring the premises. The Tenants must reimburse the Landlord to keep the premises covered. The best evidence of what has to be paid is the renewal notice issued by the insurers. That will inform the Tenants precisely of the amount of their additional liability.

So far clause 4.2 is plain enough. The tenants will know how much they have to pay. The words “payable within 14 days of written demand” inform the tenants when that additional demand becomes payable. It must be paid within 14 days (understandable enough) of “written demand”. So the crucial question is this: what is meant by “written demand”?.

Clause 4.2 does not specify any particular form for that demand or specify any particular requirements for it other than it must be written. Of course the clause can be construed as meaning a letter written by the Landlord to the Tenants in terms demanding payment of the insurance premiums which the Landlord has paid to insure the premises. That would be one way of complying with clause 4.2. But this is a commercial contract and “words are therefore interpreted in the way in which a reasonable commercial person would construe them. And the standard of the reasonable commercial person is hostile to technical interpretations and undue emphasis on niceties of language.” See Lord Steyn in Mannai Investment Co. Ltd v Eagle Star Life Assurance Co. Ltd [1997] AC 749, 771B. Since the clause does not state “… written demand made by the Landlord of the Tenant” it is enough that there is a document the terms of which amount to a demand for what is Insurance Rent. Any written demand will suffice provided that, viewed objectively, a reasonable recipient would understand that the writing amounts to a request for payment of the further rent, account being taken of “the relevant objective contextual scene” (per Lord Steyn in Mannai at p. 767H) and of the purpose to be served by requiring the demand to be in writing (see Lord Steyn’s third point in Mannai at p. 768D/E).

The context is that the Tenants will have no personal knowledge of the amount which the Landlord must pay the Insurer and so are entitled to some written notice setting out the further amount to be paid. The purpose to be served is to provide the Tenants with a more lasting and certain record of the amount than can be conveyed by an ephemeral oral demand. The writing avoids confusion about what has to be paid.

A commercially sensible construction of clause 4.2 requires the Landlord to present the Tenant with a “written demand” (in the wide way this phrase is to be understood). The Recorder’s finding is simply that the renewal requests “were given to Mr Mardaymootoo”. There is no finding as to what was said when these documents were provided. Nevertheless the implication arising from the circumstances is inescapable. “The standard of reference”, said Lord Clyde in Mannai at p. 782C, “is that of the reasonable man exercising his common sense in the context and in the circumstances of the particular case”. What would the reasonable man have understood to be the purpose of being handed Aviva’s renewal notice? He would know his obligation to pay the additional Insurance Rent as prescribed by clause 4.2. It is irrelevant that the Recorder was not satisfied that the Tenants were aware that they needed to be given a written demand for the test is an objective one. What does the renewal notice tell a reasonable recipient?

The renewal notice specifies the policy number of “your property owner policy” and gives “your policy details” in particular the time of the expiry of the cover, the renewal date and the amount of the annual premium. It states:

“The Premium to renew this policy from the Renewal Date shown should be paid by the Renewal Date or within 15 days thereafter …”

Under “Your Details” the Landlord is named as the policy holder. The meaning and effect of this notice is as plain as can be. It informs the Landlord as policy holder that to renew the policy the specified premium must be paid before the renewal date or within 15 days thereafter. The renewal notice is, therefore, the best evidence the Landlord can provide of the Insurance Rent, i.e. the sum which the Landlord must pay by way of a premium for insuring the premises.

What would the reasonable tenant understand to be the purpose of the Landlord providing him with this document? Even if nothing explicit is said the reason is obvious: “Here is a written demand of what I have to pay Aviva: I am giving it to you so that you can reimburse me as I now ask you to do”. Reasonable persons placed in a position of the actual parties would understand that the renewal notice was a sufficient written memorial of the amount due, that the Landlord was requesting payment and that taken together this was a demand in writing for payment of the Insurance Rent.

The proof is in the pudding. The Tenants did in fact pay the Insurance Rent. In his speech in Mannai, Lord Hoffmann referred to Mrs Malaprop’s problem and gave the example of the acquaintance who asks “And how is Mary?” when it is obvious that he is referring to one’s wife even if she is in fact called Jane. As he said, one may even, to avoid embarrassment, answer “Very well thank you” without drawing attention to his mistake. As Lord Hoffmann observed, “The message has been unambiguously received and understood.” So it was here.

In my judgment the Recorder came to the right conclusion for the right reasons. I would not allow the appeal on the ground which he left to us. In the same way as he declined in those circumstances to paddle in the murky waters of waiver and estoppel, I would decline to dip my toes into the respondent’s notice. It would be a totally hypothetical and therefore unnecessary exercise and I am relieved to be spared it. I would simply dismiss this appeal.

I agree.

I also agree.