Issues on the Edges: Potential Problems for a Section 146 Notice 

In this edition of Lay of the Land, Harry Marriott explores the overlooked complexities surrounding Section 146 of the Law of Property Act 1925.

(A) Introduction

1. Practitioners will of course be familiar with the requirements that appear at section 146 of the Law of Property Act 1925 (“the Act”) and the consequences of failing to comply with the same. However, a number of peculiar situations arises in the context of this statutory requirement which are often overlooked. This article aims to explore some of these potential pitfalls. 

(B) The Basics

2. Section 146 of the Act provides that a right of re-entry or forfeiture, for breach of any covenant or condition in a lease is not enforceable unless, and until, the lessor serves on the lessee a notice: 

2.1 Specifying the particular breach complained of; 

2.2 If the breach is capable of remedy, requiring the lessee to remedy the breach;

2.3 In any case, requiring the lessee to make compensation in money for the breach. 

3. There are of course some exceptions to this rule, and additional requirements in cases such those involving dilapidations, long residential leases and non-payment of residential service charges. However, in all cases, the purpose of the statutory requirement at section 146 of the Act is constant: 

“In short the notice is intended to give the person whose interest it is sought to forfeit the opportunity of considering his position before an action is brought against him”. (Horsey Estate Limited v Steiger [1899] 2 Q.B. 79, 91 per Lord Russell)

(C) An Agreement for a Lease 

4. The requirement to serve a section 146 notice in respect of a lease includes both an original lease and a derivative under-lease. Significantly, this reference to a lease, also includes an agreement for a lease where the lessee has become entitled to have his lease granted. Thus, there is some authority that where there are outstanding obligations to be performed by the tenant, before the grant of the lease takes place (such as carrying out repair works), the agreement will not fall within the scope of section 146 (Cornish v Brook Green Laundry [1959] 1 Q.B. 394). Practitioners should therefore be mindful as to whether the facts of a particular case involving an agreement for a lease give rise to an obligation to serve a section 146 notice. 

(D) Assignment

5. Generally, any assignee of the lease is the relevant party to be served with a section 146 notice. A noticeable, and perhaps obvious, qualification is where the assignee has himself assigned the lease again. In such circumstances, it the ultimate assignee that must be served with the section 146 notice (Cusack Smith v Gold [1958] 1 W.L.R. 611). However, more interesting questions arise in the context of where the assignment itself is unlawful and constitutes a ground for forfeiture. 
6. Before simply serving a section 146 notice upon a purported assignee, consideration should be given to wider issues that may have an impact upon the validity of a purported assignment. Practitioners should be mindful of decisions, such as Brown & Root Technology Ltd and another v Sun Alliance and London Assurance Co Ltd [2000] 2 W.L.R. 566, where it was accepted that the failure to register the transfer of the lease meant that the legal title had not been assigned. Such an invalid assignment will of course have significant implications upon who is the appropriate individual to serve any section 146 notice upon. 
7. It may be considered somewhat of a surprise that there is authority that when a tenant assigns the remainder of the term of a lease, in breach of a covenant not to assign without the landlord’s written consent, a section 146 notice should be served upon the ‘new’ tenant (Old Grovebury Manor Farm Ltd v W. Seymour Plant Sales and Hire Ltd and another (No. 2) [1979] 1 W.L.R. 1397). The reasoning of the Court of Appeal was as follows: 

“It is the fact, of course, that the assignment was in breach of covenant, but all that means is that there is an occasion offered to the lessor to forfeit the lease and put an end to it. I tis of the nature of the creation of a term of years that the owner of the term is capable of dealing with it as a piece of property. The only way that it can be prevent or hampered is by virtue of the common form clause that he covenants not to do it and there may be a forfeiture of the term if he does it. But I stress “if he does it”; and unless he has effectively assigned the term of the assignee there has been no breach of the covenant not to assign. 

8. Practitioners should therefore be aware that the mere fact that an assignment took place in breach of covenants requiring the consent of the lessor does change the identity of the individual upon which a section 146 notice should be served. It must be the ‘new’ lessee.
9. In situations where there is doubt about who is the appropriate person upon which to serve a section 146 notice, it should be noted that (by virtue of section 196(2) of the Act) a section 146 notice need not name the particular lessee. It is sufficient to address any section 146 notice simply to “the lessee”, or generally to the persons interested, without any given name.

(E) Joint lessees

10. In a case involving joint lessees, all of the joint lessees must be served with any section 146 notice (Wilson v Hagon [1958] 12 WLUK 10). This may seem to be an obvious point, but can easily be overlooked in cases where one joint lessee takes a more active involvement than another. 

(F) Mortgages 

11. The cases of Smith v Spaul [2002] EWCA Civ 1830 and Church Commissioners for England v Ve Ri Best Manufacturing Co Ltd [1957] 1. Q.B. 238 have provided absolute clarity on the position where the tenant’s interest is subject to a mortgage. Although “lessee” was defined in wide terms by the Act, the lessee who must be served under section 146(1) is the individual who is required to remedy the breaches of covenant, or pay compensation to the landlord for the breaches. The existence of the mortgage does not change who is subject to such obligations and is therefore the appropriate party to be served with a section 146 notice. It should be noted that the Court of Appeal in the case of Smith v Spaul [2002] took the view that there was no need to serve a section 146 notice on a mortgagee even in a case where the mortgagee has taken possession. 

(G) Remediable and Irremediable breaches

12. Section 146 of the Act distinguishes between remediable and irremediable breaches. In the case of a remediable breach, in order for any section 146 notice to be valid, it must require the lessee to remedy it. Given that there is no such requirement in respect of irremediable breaches, disputes can arise as to whether a breach is remediable and therefore any section 146 notice must require remedy. In cases on the borderline as to whether a breach is, or is not, remediable it may assist to simply require remedy of all breaches, in so far as they are remediable. 
13. In cases of remediable breaches, landlords must be mindful of being too proactive and potentially invalidating any section 146 notice that they may intend to serve. There are authorities that a section 146 notice must pre-date the breach being remedied. For example, in the case of S.E.D.A.C Investments Ltd v Tanner and others [1982] 1 W.L.R. 1342 a lessor exercised his rights of entry under the lease, and completed works himself, where a lessee had allowed a property to fall into disrepair in breach of covenants. In such case, the section 146 notice served after the breach had already been remedied was found to be invalid. Landlords may find that it is contrary to their own interests to be too proactive. 

(H) Dilapidations

14. It should not be forgotten that section 18(2) of the Landlord and Tenant Act 1927 imposes particular requirements in respect of the service of a section 146 notice relying upon breaches of a covenant or agreement to keep or put premises in repair. In relation to such a breach, the lessor must prove that the fact a section 146 had been served on the lessee was known either to:

14.1 the lessee;

14.2 or an under-lessee holding under an under-lease which reserved a nominal reversion only to the lessee; or 

14.3 the person who last paid the rent due under the lease either on his own behalf or as agent for the lessee or under-lessee. 

15. It must also be shown that a time reasonably sufficient to enable the repairs to be executed had elapsed since the time when the fact of the service of the notice came to the knowledge of any such person. 
16. It should be noted that the Law of Property Act 1927 expressly provides that where the section 146 notice has been sent by registered post addressed to a person at his last known place of abode in the United Kingdom, then for the purposes of this subsection, that person is deemed (unless the contrary is proven) to have had knowledge. As a consequence of section 1(1) of the Recorded Delivery Service Act 1962, sending by recorded delivery has the same effect. Practitioners should, however, be aware that in a case of a tenant whose last known place of abode was outside of the United Kingdom, proving knowledge for the purposes of section 18(2) of the Landlord and Tenant Act 1927 may require some further thought. 
17. Practitioners should also be mindful of the provisions at the Leasehold Property (Repairs) Act 1938, and the potential application of the same, however the same falls beyond the scope of this article. 

(I) Residential Long Leases 

18. In respect of a long lease of a dwelling, the implications of section 168 of the Commonhold and Leasehold Reform Act 2002 on the service of a section 146 notice cannot be forgotten. A section 146 notice cannot be served in respect of a breach of a covenant unless: 

18.1 It has been finally determined on a landlord’s application to the First-Tier Tribunal that the breach has occurred; 

18.2 The tenant has admitted the breach; or 

18.3 A Court in any proceedings, or an arbitral tribunal in proceedings pursuant to a post-dispute arbitration agreement, has finally determined that the breach has occurred. 

19. Should proceedings be progressing in respect of a determination that rent has not been paid, practitioners are likely to wish to ensure that section 166 of the Commonhold and Leasehold Reform Act 2002 has been complied with and that a tenant is liable to pay rent. 
20. In respect of a section 146 notice for non-payment of a residential service charge, practitioners may want to ensure that section 81 of the Housing Act 1996 (as amended by the Commonhold and Leasehold Reform Act 2002) has been complied with and that the service charge has been properly demanded in accordance with section 21B of the Landlord and Tenant Act 1985.  

(J) Conclusions

21. Whilst on the face of it the provisions at section 146 of the Act may appear to be simple, as is discussed in this article, a number of situations can give rise to potential difficulties. Hopefully, this article will assist practitioners in navigating these issues with greater confidence. 

Whilst every effort has been taken to ensure that the law in this article is correct, it is intended to give a general overview of the law for educational and/or informational purposes. It is not intended to be a substitute for specific legal advice and should not be relied upon for this purpose.

This article represents the opinion of the author and does not necessarily reflect the view of any other member of St Philips Chambers.