Roadside Group Ltd v Zara Commercial Ltd

This is an appeal from a decision and order of HH Judge Langan QC dated 2 July 2009 concerning the proper interpretation of a user covenant.

The appellant (“Roadside”) is the tenant of premises comprising a petrol station, car showroom (with two flats over it), service garage and hard standing on the west side of the Broadway on the Darras Hall Estate, Ponteland, Northumberland pursuant to an underlease dated 8 July 1963.

The respondent (“Zara”) is Roadside’s landlord, holding under an intermediate lease and a headlease. The demised premises under the headlease include land adjacent to and to the south of Roadside’s demised premises under the underlease.

Roadside has, in turn, granted a sub-lease of the car showroom and the service garage (but not the petrol station and hard standing) to a company called Triple Eight Motor Company Limited (“Triple Eight”) which for some time has parked cars for sale in certain areas around the perimeter of the site.

In this action Zara contended that, as a result of the activities of Triple Eight, Roadside was in breach of a covenant in the underlease not to use the demised premises “for the parking of motor vehicles for sale on any forecourt” (the “parking user covenant”) and that it was entitled to forfeiture of the underlease and possession of the demised premises. Roadside sought a declaration that there had been no breach, alternatively relief from forfeiture.

At trial, Zara was successful on the issue of the true construction of the underlease and so Roadside was held to be in breach. However, Zara failed in its bid to forfeit the underlease, the judge holding that the notice under section 146 of the Law of Property Act 1925 was invalid and, in any event, that this was a clear case for relief from forfeiture.

Triple Eight nevertheless wishes to continue to park cars for sale just as it has in the past. Accordingly, with the leave of the judge, Roadside appeals on two points:

The parking user covenant is contained in clause 2(xii)(b) of the underlease. This and certain other relevant covenants are set out below:

“2.

The company HEREBY COVENANTS with the Lessors as follows:

….

(xi)

Not to alter or permit to be altered any part of the buildings at any time on the demised premises or the fences or walls thereof without the plans and specifications thereof having been previously approved of by the Lessors and Superior Lessors

(xii)

(a) Not without the written consent of the Lessors and the Superior Lessors to use the demised premises or any part thereof or the buildings thereon nor to permit the same to be used for the display of advertisements other than the name and type of business carried on and type of oil and petroleum products sold from the demised premises provided that the Lessors and Superior Lessors shall not unreasonably withhold their written consent to the display thereon of the advertisements of motor cars and motor accessories and service of motor vehicles of any kind

(b)

Not to use the demised premises or any part thereof for the sale of motor vehicles by auction or for the parking of motor vehicles for sale on any forecourt or for the erection or maintenance thereon of temporary building huts caravans or moveable dwellinghouse or for the sale of ale beer wine spirits or other intoxicating liquors or for a club where intoxicating liquors are permitted to be consumed or distributed and further not to use the said piece of land otherwise than for a petrol and oil filling station service garage with showroom and residential accommodation therefor

(xiii)

Not to erect or permit to be erected any outside lighting except by attachment to a building and further not without the written consent of the Lessors to erect or permit to be erected any form of neon or tubular display or advertising lighting on any part of the demised premises or any building for the time being erected thereon

(xiv)

Not to do or permit to be done on the demised premises or any part thereof anything which may be or be likely to lead to be a nuisance damage grievance or annoyance to the owners or tenants of any of the adjoining property or to the neighbourhood ”

The underlease was granted out of the intermediate lease dated 1 July 1963 which demised the same premises. The intermediate lease contains what is, in substance, the parking user covenant at clause 2(xii).

The intermediate lease was in turn granted out of the headlease dated 2 February 1960. As I have mentioned, this demised larger premises which wholly encompass the premises the subject of the intermediate lease. It again contains what is, in substance, the parking user covenant at clause 2(xv), which applies to the entirety of the demised premises.

A plan of the premises demised by the underlease is attached to the order of the judge and is reproduced in the appendix to this judgment. The premises occupy a quadrilateral site fronting and to the west of the Broadway, which runs in a generally north-south direction.

In the middle of the site is the petrol station with pumps, canopy and kiosk from which Roadside carries on business. To the south of the site is a cluster of buildings which are sub-let to Triple Eight and comprise, to the front, the showroom and, to the rear, the service garage.

For some time Triple Eight has, with the consent of Roadside, parked cars for sale in the shaded areas coloured red along the northern and western perimeters of the site and in the shaded area coloured blue along the southern perimeter of the site.

The judge concluded that the areas coloured red, but not the area coloured blue, formed part of the forecourt of the premises within the meaning of the parking user covenant, and it is this finding which forms the second aspect of the appeal.

Before the judge, Roadside relied upon the proposition stated in Woodfall’s Law of Landlord and Tenant that a covenant not to do something is generally not broken if the prohibited thing is not done by the covenantor but by a third party, and also upon the contrast in language between the user covenant of clause 2(xii)(b) and the other covenants contained in clauses 2(xi), (xii)(a), (xiii) and (xiv), each of which is a covenant not to do various acts or permit them to be done.

Zara countered that Roadside’s construction made a nonsense of the parking user covenant. It was clear the original landlord regarded as objectionable the parking of cars for sale on any forecourt and that the original lessee must have known this. Yet, upon Roadside’s construction, the original lessee could, a day or two after the grant of the lease, have avoided the covenant by simply sub-letting the premises without imposing a corresponding negative covenant upon the sub-tenant.

The judge expressed his conclusion in concise terms in paragraph [27] of his judgment:

“[27] The choice between these two approaches is almost a matter of impression, and it is not one which I can pretend to make with great confidence. In my judgment, Ms Temple’s submission is to be preferred. The proposition taken from Woodfall is, no doubt correct, but it is a general proposition only and it must yield to particular considerations in an individual case. The real question here is whether the contrast in language on which Mr Bruce relies is so stark as to drive me to the conclusion that clause 2(xii)(b) should be given the restricted and literal construction for which he contends. In my judgment, the linguistic argument is not so powerful that it overwhelms the commercial sense which is the basis of Ms Temple’s submission. I have put the matter quite shortly, but it does not appear to call for further elaboration which would, in truth, be no more than repetition in other words of what I have said so far.”

On this appeal, Mr Small QC, who has appeared for Roadside, contends that the judge fell into error in failing to accept the submissions advanced on behalf of Roadside. Mr Gaunt QC, who has appeared for Zara, contends that judge was right for the reasons he gave and further, that his interpretation is confirmed and supported by section 79 of the Law of Property Act 1925 which reads, so far as relevant:

“(1)

A covenant relating to any land of a covenantor …. shall, unless a contrary intention is expressed, be deemed to be made by the covenantor on behalf of himself, his successors in title and the persons deriving title under him or them, and, subject as aforesaid, shall have effect as if such successors and other persons were expressed.

….

(2)

For the purposes of this section in connexion with covenants restrictive of the user of land “successors in title” shall be deemed to include the owners and occupiers for the time being of such land.”

Covenants in leases are to be construed in their own context and having regard to their ascertainable purpose and objective. Nevertheless, the distinction between a covenant expressed in the active voice, such as “not to use”, and a covenant expressed in the passive voice, such as “shall not be used”, is well established. As Atkin LJ said in Berton v Alliance Economic Investment Co [1922] 1 KB 742 at 759:

“It is clear that a person under a covenant not use premises in a particular way cannot commit a breach of the covenant except by his own act or that of his agent. The same is true of a covenant not to permit. The user in the one case and the permission in the other must be something which can be predicated of the defendant or the defendant’s agent. It is not sufficient to show that the premises have been used in a way which would constitute a breach of the covenant; it must further be shown that the user is by the defendant or his agent, or that it is permitted by the defendant or his agent.”

The crucial part of this passage was cited with approval by Lord Guest over 40 years later in Earl of Sefton v Tophams Ltd [1967] AC 50 at 68:

“In Berton v Alliance Economic Investment Co Atkin LJ said that a person under a covenant not to use premises in a particular way cannot commit a breach of the covenant except by his own act or that of his agent.”

In the case of the underlease in issue on this appeal, it is, I think, striking that all of the covenants contained in clauses 2(xi), (xii), (xiii) and (xiv) are cast in the active voice. In none of these covenants has Roadside purported to covenant on behalf of anyone except itself.

Moreover, there is, as the judge recognised, a clear distinction between the words of the parking user covenant contained in sub-clause (a) of clause 2(xii) and the covenants contained in clauses 2(xi), (xiii), (xiv) and sub-clause (b) of clause 2(xii). Each of these other clauses and sub-clause contains a covenant by Roadside not to do something or permit others to do the same. By contrast, this formulation is lacking from the parking user covenant. This would suggest the parking user covenant was intended to be narrower than the other covenants. Yet, if the interpretation contended for by Zara is correct, the parking user covenant is a good deal broader. Indeed, it becomes, in effect, a covenant expressed in the passive voice, meaning “shall not be used”. Subject to the points to which I must now turn, it seems to me to be most unlikely that this interpretation reflects the intention of the parties.

The judge appears to have seen the force of these points but nevertheless held that this interpretation had to yield to the commercial sense which underpinned the interpretation contended for by Zara. However, as Mr Small submits, and I accept, this ignores the fact that any sub-tenant or indeed any stranger to the land will be bound by the parking user covenant in equity, thus entitling Zara to take injunctive proceedings against the sub-tenant. It seems to me that this point therefore falls away.

Finally, I must deal with section 79. Mr Gaunt submits that the effect of the section is that the parking user covenant is deemed to have been made by Roadside on behalf of itself, its successors in title (which expression is deemed to include any occupiers for the time being of the premises) and on behalf of its undertenants. It follows, he continues, that Roadside is responsible for the acts of Triple Eight.

Section 79 was considered by the Court of Appeal in Morrells of Oxford Ltd v Oxford United Football Club Ltd and ors [2001] Ch 459. At paragraph [35] of his judgment, Robert Walker LJ expressed a “tentative view” that section 79, where it applies, and subject to any contrary intention, extends the number of persons whose acts and omissions are within the reach of the covenant in sense of making equitable remedies available, provided that the other conditions for equity’s intervention are satisfied; further, where the covenant is expressed in the active voice, that its normal effect is to turn “A covenants with X that A will not build” into “A (on behalf of himself and B) covenants with X that A (or, as the circumstances may require, B) will not build”.

Mr Small accepts, at least for the purposes of this appeal, that section 79, if applicable, would extend the scope of the parking user covenant to make Roadside responsible for the acts of Triple Eight. However, he continues, and as is apparent from the words of the section, it applies subject to the expression of any contrary intention. The approach to be adopted to this limitation was explained by Robert Walker LJ in Morrells in paragraph [24] of his judgment:

“Ultimately there is a single question to be answered, that is whether the words provisionally read in by the statute can, in the commercial context of the particular case and having regard to the words of the particular document, usefully supplement those words, or whether any extended meaning read in by those means would on a fair reading be “inconsistent with the purport of the instrument”…”

In my judgment the covenants in clauses 2(xi), (xii), (xiii) and (xiv) have been defined with some care and the distinction between the covenants contained in clauses 2(xi), (xiii), (xiv) and sub-clause (a) of clause 2(xii) on the one hand and the parking user covenant contained in sub-clause (b) of clause 2(xii) on the other is significant. For the reasons I have given, I believe it reflects the intention of the parties to limit the scope of the parking user covenant. To read the words of section 79 into the parking user covenant would be substantially to alter its scope and inconsistent with the purport of the underlease.

Finally, Mr Gaunt submits that the order and declaration made by the judge is still correct, it being accepted and asserted by Roadside that Triple Eight is bound by the parking user covenant in equity. I am unable to accept this submission. Triple Eight is not party to these proceedings and I believe it would not therefore be right for the declaration to stand.

The second aspect of the appeal concerns the scope of the term “forecourt” in clause 2(xii). At trial, Zara contended it comprises the whole of the demised premises with the exception of that part which is occupied by buildings; alternatively so much of the land as lies to the north and west of the showroom. Roadside contended it was limited to the area in front of the petrol station; alternatively the area in front of Triple Eight’s sales office; alternatively that part of the demised premises which lies between these buildings and the Broadway.

Various dictionaries were referred to before the judge, including the Shorter Oxford English Dictionary which defines “forecourt” as:

“1.

An enclosed space in front of a building, an outer court. (b) specThe part of a filling station where petrol is supplied.”

However, while dictionaries have their place, what is a forecourt in any given case must depend upon all the circumstances, as the judge fully appreciated.

The judge concluded the term “forecourt” in clause 2(xii) includes the areas which lie to the north and west of the demised premises and which are shaded red on the plan annexed to this judgment. But he held it does not include the area which lies to the south of the demised premises and which is shaded blue on the plan. He reasoned as follows in paragraphs [33] to [35] of his judgment:

“[33] Mr Bruce submitted that “forecourt” in clause 2(xii) (b) is limited to (1) the area in front of the petrol pumps; (2) alternatively, the area in front of Triple Eight’s sales office; (3) in the further alternative, only such part of the demised premises as lies between the buildings and the highway. Ms Temple submitted that “forecourt” is (4) the whole of the demised land save that part which is occupied by buildings; (5) alternatively, so much of the land as lies to the north and west of the showroom.

[34] There are real difficulties with several of these formulations. As to (1), “forecourt” cannot be restricted to the apron, because that simply is not an area where anyone would park cars for sale. I can see no rational basis for (2). As to (4), if the prohibition had been intended to be so sweeping, the lease would have said so: the forecourt must, in my view, be something less than the whole of the open land.

[35] (3) and (5) are more attractive propositions. Looking, as I am bound to do, at the particular circumstances of this case, I have come to the conclusion that (3) cannot be supported and that the right construction of the word, if it does not tally precisely with (5), comes very close to it. I referred earlier in this judgment to what I take to be the object of clause 2(xii) (b): that the site should not be, nor indeed appear to be, a used car lot. If, as I think must be the case, some limitation has to be put on the area regarded as forecourt, the criterion should be that forecourt must be something which can be seen from Broadway. On that basis, I conclude that the areas shown shaded on the plan at page 906, are, as regards the parts running around the northern end and the western side of the demised premises, to be regarded as forecourt; but, as regards the smaller part at the southern end, not to be so regarded.”

On this appeal, Mr Small contends that the judge fell into error and failed to have adequate regard to the relevant context which is that the demised premises contain a petrol station and car showroom which front the public highway. The showroom is of modest size but there are areas between these buildings and the Broadway where one could park cars for sale. There are also areas to the rear and to the sides of these buildings where one could park cars for sale.

In this context, Mr Small continues, there is ample scope to give the term “forecourt” its normal meaning, which is to say the open space in front of a building or structure. Further, the land let under the underlease was let for purposes including that of a showroom. It is usual for showroom proprietors to park cars for sale outside the showroom and that must be particularly so where, as here, the showroom is of modest size. Hence the more natural expectation of the parties would be that the showroom operator would park cars for sale at the sides and rear of the premises since he was forbidden to park cars for sale at the front.

Mr Small also submits there is a further contextual pointer in the same direction to which the judge did not refer at all. As I have explained, the underlease is carved out of superior leases which contain similar restrictions but which, in the case of the headlease, demised premises with a long frontage to the Broadway, extending some way to the south of the showroom. The submission continues that since the head lessor had a large piece of land which fronted the Broadway, the natural understanding is that he did not want cars parked for sale along that frontage. On the other hand, it is equally clear that the demised premises under the underlease were always to be used as a petrol station and showroom and, in the circumstances, there is no reason to suppose that the headlessor had any problem with the parking of cars for sale to the sides and rear of those buildings.

Attractively though these submissions were presented, I am unable to accept them. First and importantly, to the front of the petrol station and showroom there are large grassed areas which the judge described as the “apron”. These apart, there is only room between the buildings and the grass for a single vehicle to pass. Hence there is no part of the premises demised by the underlease which lies between the buildings and the Broadway which could sensibly be described as a “forecourt” and on which cars for sale could be parked.

Second, as a matter of English, the term “forecourt” is broad enough to encompass an outer court, not necessarily located at the front of a building or at a road frontage.

Third, the judge sought to ascertain the meaning of the term “forecourt” in the context of the underlease by asking himself what the parties must have intended the parking user covenant to restrict and what they must have understood its object to be. In my judgment he concluded, correctly, that the parties intended that the demised premises should not be, nor appear to be, a used car lot. Accordingly, he reasoned, the forecourt must be something that can be seen from the Broadway. He therefore concluded the forecourt encompasses the areas to the north and west of the demised premises shaded red on the plan annexed to this judgment, but not the area shaded blue because that is not visible. Accordingly, the parking of cars for sale is prohibited along the north and west perimeters of the demised premises but is permitted along the southern perimeter at the rear of the showroom.

Finally, whilst I accept that the premises demised in the headlease have a long frontage and it is a natural understanding that the lessor did not want cars parked for sale along that frontage, I also consider the parties must have been concerned particularly with that part of the premises ultimately demised by the underlease which were always intended to comprise a petrol station, service garage and showroom. The reasoning of the judge is therefore as apposite to the headlease as it is to the underlease.

It follows:

I will hear argument as to the appropriate form of order if it cannot be agreed.