Lawbite: Conditional relief following unauthorised change of use

• United Kingdom

• Litigation and dispute management
• Real estate
• Real estate litigation - LawBite

18-02-2021

Zash Properties Ltd v Mayworth Ltd and Landau Consulting and Investments Limited [2020]

The claimant, Zash, owned a building in Streatham consisting of flats above a shop.  The shop was let to the defendant, Mayworth, under a long lease (the “Lease”).  When Zash discovered that Mayworth had converted the premises into two flats in breach of the Lease it served a section 146 notice on Mayworth with a view of forfeiting the Lease if the breaches were not remedied.

The breaches were not remedied and Zash commenced forfeiture proceedings.  In response, Mayworth challenged forfeiture alternatively applied for relief from forfeiture. 

By the time the matter came before the County Court the two flats had been let and the Lease had been assigned, twice, more recently to Landau, who was joined as the second defendant. 

During the hearing Landau dropped its waiver argument and conceded the breaches. It persisted, unsuccessfully, with its claim that the s146 notice was invalid on the basis of s.168 of the Commonhold and Leasehold Reform Act 2002. The court found that s.168 did not apply as that section related to a “lease of a dwelling”.  The purpose of the Lease (i.e. a shop) had not changed due to the residential conversion as there was no express or implied consent to such a change of use. The Court further stated that, even if that was incorrect, s168 did not apply as the section anticipated a single dwelling and there were multiple residential units in the property concerned

As such the Lease was forfeit and all that was left to consider was the relief from forfeiture application.

The Court exercised its discretion by granting relief but on the condition that Landau reinstate the property as a shop and make a payment to Zash representing a share of the rent during the period when the flats were let in breach of covenant. 

Relevant to the court’s decision was:

• the nature of the breaches.  With the absolute prohibitions (e.g. on external alterations and alienation of part) it was not the case that, had consent been sought, that consent could not reasonably have been refused.  With the qualified covenants, Zash may have been able to rely on the consequent breach of other covenants as a valid reason for refusing consent
• allowing the flats to remain would potentially change the relevant statutory regimes applicable to the building, including in respect of service charges and enfranchisement
• the wish to discourage Landau from believing that it could buy its way out of a forfeiture.  Landau had offered to pay £10,000 as a condition of relief. The Court thought damages could extend to negotiating damages, in all likelihood a substantial sum assessed by reference to a share of Landau’s gain from the breaches
• Landau’s conduct up to and including the hearing
• that Zash would secure a windfall should relief not be granted (even if that was not Zash’s object with the proceedings)

Key points

• Landau was given 12 months to carry out the reinstatement works and a reasonable sum was judged to be £15,000, representing a significant share of the net rent, akin to negotiating damages for the breach during the limited period of residential use
• the court’s finding that s 168 does not apply to a long lease of multiple dwellings will be relevant to a number of residential cases
• the court reinforced the message from the 2020 case of Sequent Nominees Ltd v Hautford Ltd that the risk of enfranchisement can make it reasonable for a landlord to object to applications to change use