Metropolitan Properties Co Ltd v Cordery and another

Landlord and tenant–Subtenancy granted by tenant in breach of covenant–Subtenant ignorant of covenant–Subtenant moved into flat and lived there openly for about three years to the knowledge of the landlord company’s porters, but without the knowledge of the company’s management–Rent continued to be paid by the tenant–Whether knowledge of porters to be imputed to landlord company–Duty of porters to inform management of changes noticed in occupation of flats–After a reasonable time for porters to appreciate facts and communicate them to the management the landlord company is deemed to know that which the porters knew and were under a duty to tell–Breach of covenant waived–Subtenancy lawful and protected under Rent Act This was an appeal by Miss Nita Cordery from a decision of Judge Llewellyn at Bloomsbury and Marylebone County Court in favour of Metropolitan Properties Co Ltd, the plaintiffs in the county court and the respondents to the present appeal. The second defendant in the county court action, the tenant, John G Scarth, was not a party to the appeal. The plaintiffs had claimed against both defendants possession of a flat which had been let to Mr Scarth at 15 St Mary’s Mansions, St Mary’s Terrace, London W2, also damages and/or mesne profits. Ronald Bernstein QC and Christopher Drew (instructed by J D Spicer & Co) appeared on behalf of the appellant; John Colyer QC and M J Curwen (instructed by Tobin & Co) represented the respondent company. Giving judgment, MEGAW LJ said: This is an appeal from the judgment of Judge Llewellyn given in the Bloomsbury and Marylebone County Court on November 3 1978. It arises out of an action in which the plaintiffs, Metropolitan Properties Co Ltd, made a claim against Miss Nita Cordery as the first defendant and Mr John G Scarth as the second defendant for a variety of relief in respect of a residential property, namely. 13 St Mary’s Mansions, St Mary’s Terrace, in the W2 district of London, a property which was unfurnished residential premises. I shall refer to it as ‘the flat.’  The plaintiffs are the owners of the property, which includes the flat. By a lease made on May 12 1972 for a term of three years beginning on June 1 1972 the plaintiffs let the flat to Mr Scarth, who was the second defendant in the action. He is in no way concerned in this appeal. The original rent was £900 a year. It was later increased by stages so that by September 29 1977 it had become £300 a quarter, £1,200 a year. Presumably Mr Scarth occupied the flat as tenant of the plaintiffs, but in April or May 1975–that is, shortly before Mr Scarth’s contractual tenancy was due to expire–he purported to grant a subtenancy to Miss Cordery, who was the first defendant in the action. This was despite a clause of the lease from the plaintiffs to Mr Scarth, clause 3, subclause 9, the effect of which is that the tenant covenants not to assign the tenancy, nor underlet nor part with nor share the possession or occupation of the flat or any part of it. Miss Cordery was not aware of that covenant nor did she know anything about the plaintiffs or about Mr Scarth’s lease from them. In May 1975 Miss Cordery moved into the flat. Mr Scarth had already moved out. Miss Cordery originally occupied the flat along with a lady called Miss Scott who, it would seem, had acted as Mr Scarth’s agent in making the arrangements for the subtenancy between Mr Scarth and Miss Cordery. During the period from May to August 1975 Miss Cordery made payments of rent to Miss Scott in her capacity as agent for Mr Scarth. Then Miss Scott moved out. Miss Cordery’s sister moved in to join her in the flat but Miss Cordery continued to be, as she thought, the subtenant of Mr Scarth. After Miss Scott left Miss Cordery continued to pay rent monthly direct hereafter to Mr Scarth. That continued until May 1978. There were, during that time, negotiations, which I think are irrelevant for the purposes of this appeal, between Mr Scarth and his solicitors on the one hand and Miss Cordery and her solicitors on the other hand directed towards the possibility of Mr Scarth selling a long lease of the flat to Miss Cordery. Nothing came of those negotiations. During all this time, Mr Scarth apparently continued to pay rent to the plaintiffs. On May 5 1978 Miss Cordery’s solicitors wrote to the landlords, the plaintiffs, saying that they had discovered that the tenant, so far as the landlord was concerned, was Mr Scarth. The letter goes on to say: In point of fact our client has been in occupation since May 1975 innocently paying rent to Mr Scarth on the basis that he was her landlord. We are writing to inquire whether or not our client can now commence paying rent direct to you in accordance with the rent already registered. The plaintiffs replied on May 25 1978 saying: We regret that our clients are not prepared to accept your client Miss Nita Cordery as their tenant and, indeed, we have instructions to issue proceedings for possession against this lady forthwith. So the proceedings followed. The plaintiffs claimed against Miss Cordery as the first defendant and Mr Scarth as the second defendant. They claimed, against both defendants, an order for possession of the flat, and they claimed damages and/or mesne profits from March 25 1978 at the rate of £1,200 per annum until possession is yielded up. The defence of the first defendant, Miss Cordery, which has been accepted in all respects for the purposes of this appeal as being correct in its statement of facts, referred to the negotiations which had taken place whereunder Miss Cordery originally moved into the flat, the negotiations having taken place between Miss Scott as agent for Mr Scarth and Miss Cordery herself. Then it is pleaded: From the month of May 1975 until the commencement of these proceedings the first defendant openly lived in the flat, entering and leaving the building in the full view of the plaintiffs’ porters without challenge by them. and by para 8 of the defence it is alleged: For a period of approximately 18 months the first defendant had negotiated with the plaintiffs’ servants, Tucker and Raphael, who were porters in the block of flats, concerning a persistent leak in the bathroom of the flat and that there had been no challenge to her right to occupy the flat. In the premises Miss Cordery averred by her defence that she was a lawful subtenant of the second defendant, or if the subletting by Mr Scarth to her amounted to a breach of covenant ‘the plaintiff has acquiesced in the breach for over three years and is not now entitled to rely upon it as a ground for possession.’ Substantial further and better particulars were given of the allegation that the plaintiffs’ porters knew about Miss Cordery’s occupation of the flat from May 1975 onwards. It is not necessary to read the whole of those particulars, which were, at the trial, accepted on behalf of the plaintiffs as being factually accurate. They include allegations, to summarise79 them, that the porters employed by the plaintiffs had seen the first defendant and her sister, who occupied the flat, on an almost daily basis, both in the common parts of the block of flats and in the car park; that the head porter, during 1975, had assisted the first defendant, Miss Cordery, on a number of occasions which involved, necessarily, the head porter knowing that she was in occupation of this particular flat. It was also alleged that the current head porter had been in the flat in January 1977 and in June 1977 in answer to the first defendant’s complaints about the flat, and that the other porter, Mr Raphael, had been in the flat on at least six occasions during Miss Cordery’s tenancy of it. The reply and defence to counterclaim, so far as it is relevant for the issue before us, sets out: It is denied that the matters alleged in paras 7 and 8 of the defence– that is the alleged knowledge on the part of the porters– would amount to acceptance of the first defendant as a subtenant or acquiescence in the breach of covenant by the second defendant. At the hearing before Judge Llewellyn at the Bloomsbury and Marylebone County Court evidence was given on behalf of the plaintiffs by Colin Richard Harris, who was the management assistant employed by the plaintiffs with responsibility for St Mary’s Mansions in which this flat was. In his evidence-in-chief he said that before May 5 1978 he had no knowledge of the existence of the first defendant, Miss Cordery. That may be accepted without hesitation as being true and accurate. So far as actual knowledge was concerned, Mr Harris had no knowledge of the existence of Miss Cordery nor of her occupation of the flat. In cross-examination he agreed that he had control of the general day-to-day management of this block of flats. He was then asked questions which resulted in this evidence: Porters do not have a list of tenants. If they noticed or knew from personal knowledge that a change had taken place in the tenancy they would report it to the management office, that is, to me. Later in the evidence that was amplified: I have never made inquiries of the porters as to whether they have noticed any apparent change of faces among the people using the flats. It is within their duties to tell me if they had noticed any change in personnel. . . . The porters never told me of any change. There are about 120 flats in this block. In re-examination Mr Harris said: It is the duty of porters to pass on knowledge about unauthorised persons in flats. Porters do not always do this unless there is an obvious case of foreign visitors. At the end of his re-examination he said: There are often cases when we have only discovered strangers when porters have neglected to report strangers to us and we have made a discovery of strangers from other sources. The learned judge in a brief judgment–and when I say ‘brief,’ that is no criticism of it–held in favour of the plaintiffs and made an order for possession against the first defendant. His judgment, as recorded by himself, was this: I hold that a porter’s knowledge of change of personnel using one of these flats in this large block of flats does not fix the management of the plaintiffs with knowledge of a subtenancy not reported to them by the porters of a flat and, in particular, of this flat. Accordingly the first defendant is not a lawful subtenant of the plaintiffs but is a trespasser. There will be an order for possession. A slightly fuller note of the judgment, agreed by counsel and approved by the judge, reads: If it was to be the law that the knowledge of a porter of a block of flats was to be imputed to the management it would result in the position whereby it would be for the porter rather than the management to decide whether an interloper (I use the expression to denote the change) was to be a subtenant. Even though the porter realises there is a change of personnel, I could not believe it would be right in principle to fix the management of a block of 120 flats with knowledge that the tenant has departed and has let in on a subtenancy someone unknown to the management. Since the management are not fixed with knowledge . . . the plaintiffs are entitled to possession. In this court Mr Bernstein, on behalf of the first defendant, submits that the learned judge was wrong. He submits, first, that there is a general principle of the law of agency equally applicable in this case as in any other type of case, under which, on the facts of this case, the knowledge of the porters became, or is to be deemed to have been, the knowledge of the plaintiffs themselves. The principle is set out in Article 106 of the 14th edition of Bowstead on Agency. In Rule 2 under that article part of the first sentence reads: (2)  When any fact or circumstance, material to any transaction, business or matter in respect of which an agent is employed, comes to his knowledge in the course of such employment, and is of such a nature that it is his duty to communicate it to his principal, the principal is deemed to have notice thereof as from the time when he would have received such notice if the agent had performed his duty and taken such steps to communicate the fact or circumstance as he ought reasonably to have taken. Then there is a proviso which exempts the principal from being affixed with that knowledge if there is fraud on the part of the agent in which the party who seeks to assert the knowledge has colluded. That proviso is not relevant here. Mr Bernstein says that the conditions of this principle are satisfied so that the knowledge of the porters as to the facts relating to Miss Cordery’s occupation of this flat is the knowledge of the plaintiffs. I agree that that is so. The business in respect of which the agents–the porters–were employed is the business of the plaintiffs in the management and running of those flats. There came to the knowledge of these porters the matters which have been set out in the defence and in the further and better particulars of the defence. That knowledge came to them in the course of such employment–that is, their employment as porters in respect of the management and running of the flats. Was that information of such a nature that it was the duty of the porters to communicate it to their principal?  He, in this case, would be Mr Harris as representing the plaintiffs–what is sometimes, inartistically, called their alter ego. I stress that this case is a case which depends upon its own evidence and its own facts. It is shown, in my judgment, by the evidence of Mr Harris himself that it was a part of the duty of the porters to their employer–their principal–that they were to report to Mr Harris if they had noticed any change in personnel. In the circumstances of this case there can be no doubt what is meant by ‘any change in personnel.’  If somebody, who was not there before, has been seen to be occupying one of the flats in such a way as to suggest that there has been a change in the occupancy it is the porters’ duty to report the facts. That that is so appears not only from that passage in the evidence but also from the passages in re-examination which I have read about it being the duty of the porters to pass on knowledge about unauthorised persons in flats. At one stage in the argument before us it was suggested on behalf of the plaintiffs that there was no evidence that the porters had known that Mr Scarth had been in this flat before, and therefore that there was no evidence that their knowledge of Miss Cordery’s occupation involved a ‘change of personnel.’  The point was not taken below. When that was pointed out, it was not pressed before us. In any event, I think it lacked substance. When the porters saw Miss Cordery regularly using that flat–it does not matter whether the realisation came to them after weeks or months–it was quite apparent that she was in occupation of the flat and that Mr Scarth was there no more. They had noticed a change in personnel, and according to the evidence of Mr Harris himself it was the duty of the porters to tell Mr Harris. So it seems to me that, on the particular facts of this case, it has to be assumed that the plaintiffs, this body corporate, did have the knowledge which the porters had with regard80 to Mr Scarth’s disappearance from the flat and that they had it a long time before May 1978. By ‘disappearance’ I do not suggest anything discreditable, but the known fact was that he was no longer occupying the flat. Miss Cordery was occupying it, an occupation which continued for a period of some three years before the plaintiffs obtained actual knowledge as distinct from the knowledge which was in the possession of the porters and which is to be imputed to the plaintiffs as having been their knowledge for, at least, the greater part of three years before they took any action. During that time they continued to accept payment of rent by Mr Scarth. In those circumstances what is the position about waiver?  The plaintiffs, being deemed to have known that Mr Scarth had ceased to be in occupation, and that Miss Cordery had come into occupation, had the right when they acquired the deemed knowledge to elect between two courses: they could elect to allow Miss Cordery to continue in her occupation, an occupation which had come into being as a result of a breach of covenant by Mr Scarth; or they could take steps by legal proceedings, if Miss Cordery refused to move out, to have it determined that she was not a lawful subtenant under section 137 of the Rent Act 1977. By their continuing acceptance of rent from Mr Scarth (while Miss Cordery, in her continuing ignorance of the true position, continued to pay rent to Mr Scarth under the purported subtenancy) they elected, or must be deemed to have elected, not to take steps to have her removed but, on the other hand, to accept her occupation. That being so it appears to me that it was not open to them, when their notional knowledge turned into actual knowledge in May 1978, to turn round and say: ‘Now, although for three years, with this notional knowledge we have accepted rent from Mr Scarth despite his breach of covenant, and have allowed you to remain here and to pay your supposed rent to your supposed landlord Mr Scarth, nevertheless we say that you have got no rights whatsoever, and we do not recognise the subtenancy which Mr Scarth purported to create and under which you have been imagining that you were occupying and paying a rent to Mr Scarth during all these years. You are not a ‘lawful subtenant’ for the purposes of section 137.’ It is a simple case in which the breach of covenant, which resulted in Miss Cordery coming into occupation, has been waived in accordance with the ordinary principles of waiver. Mr Colyer, on behalf of the plaintiffs, submits that if the plaintiffs are deemed to have had knowledge at all from what the porters knew they did not have sufficiently precise knowledge to give rise to acquiescence or waiver. For all that they knew there had not been the creation, or purported creation, of a subtenancy by Mr Scarth: there might merely have been a breach by way of sharing occupation, or parting with occupation, not amounting to the purported creation of a legal estate on the part of Miss Cordery. Mr Colyer submitted, on the basis of two authorities reported in ESTATES GAZETTE,* that that would not be sufficient to create an acquiescence which would result in the plaintiffs being bound to accept that Miss Cordery had become a statutory tenant as a result of the subtenancy purported to be created by Mr Scarth. *Cuppa v Stewart (1947) 149 EG 115 and Tamplin v Garson (Newsagent) Ltd (1948) 152 EG 308. With all respect, I think that is much too narrow a view. It appears to me that, with the knowledge which the plaintiffs must be deemed to have had, it was upon them, at that stage, to make their choice. They could, if they wished, investigate and find out the precise nature of the breach of covenant. But if, with that deemed knowledge, they do not take any steps I do not think it is open to them to say, three years later, not having taken any steps during that time: ‘Oh well, but the breach of which we were aware was not necessarily a breach which would result in the creation of a subtenancy which, as a result of the waiver, would become a lawful subtenancy under section 137.’ In my judgment, with great respect to the learned judge, the conclusion that he arrived at on the facts of this case cannot be supported. I would allow the appeal. Agreeing, BRIDGE LJ said: It is impossible, it seems to me, on a fair reading of the evidence given for the plaintiffs in the county court by Mr Harris, not to reach the conclusion that it was the duty of the plaintiffs’ porters to report to their employers, in the person of Mr Harris, the managing agent, any change of occupation of any of the relevant flats. Given that the porters were under that duty, and applying the principle stated in Article 106, Rule 2, in Bowstead on Agency which my Lord has read, the knowledge of a change of occupation on the part of the porters is to be imputed to the plaintiffs as landlords. Given that imputed knowledge, and given the admitted facts as to the scope of the knowledge of the porters which were pleaded in the defence and counterclaim and the further and better particulars, it inescapably came to the notional knowledge of the landlords that there here had been a change of occupation amounting to a breach of the stringent covenant in clause 3(9) of Mr Scarth’s lease. Mr Colyer nevertheless argues that the breach might not have gone so far as to amount to a subletting, and accordingly the landlords are not to be held to have waived a breach in the form of a subletting so as to be precluded from arguing today that Miss Cordery’s subletting is unlawful. I cannot accept that argument. Once the landlords had notice, as notionally they had in the circumstances of this case, of a breach of the covenant in question it was for them to inquire as to the nature of the breach. Of course, if they had been misled a different situation would have arisen; but if they choose to make no inquiries and it turns out that in the event the breach did amount to a subletting, in my judgment they are held to have waived that breach of covenant. I, too, would allow the appeal. Also agreeing, TEMPLEMAN LJ said: The porters knew long before the landlords ceased to accept rent that Mr Scarth had departed and that Miss Cordery had entered into occupation of the flat. The porters’ duties included telling the landlords’ manager that Mr Scarth had departed and that Miss Cordery had entered into occupation. If this duty had not been expressed it would have been implied. Porters are employed to keep strangers out, not to look after them if they come in. After the lapse of a reasonable time for the porters to appreciate the facts and communicate them to the management, the landlords are deemed to know that which their porters knew and were under a duty to tell. The departure of the tenant Mr Scarth and the entry into occupation by Miss Cordery pointed to a breach of the tenant’s covenant not to assign, underlet or part with or share the possession or occupation of the flat. The landlords accepted rent over a substantial period with knowledge, through their porters, of facts which pointed to a breach of that covenant. The landlords thereby waived the breach of covenant, which consisted of, or included, the grant of a subtenancy to Miss Cordery. The landlords, having waived the breach of covenant, cannot now claim that Miss Cordery’s subtenancy is unlawful. In these circumstances, as appears from the decision of this court in Carter v Green [1950] 2 KB 76, Miss Cordery became and is now protected by the Rent Act. The appeal was allowed with costs of the appeal and below up to and including the trial on Scale 3. There was a declaration on the appellant’s counterclaim that she held the premises as a statutory tenant. Legal aid taxation was ordered of the appellant’s costs of the appeal and the proceedings below.