Scala House and District Property Co Ltd v Forbes [1974] QB ...

Facts

• The case involved a commercial property lease containing a covenant prohibiting the lessee from sub-letting or granting possession to third parties without the landlord's prior consent.
• The lessees intended to use the premises as a restaurant but entered into a management agreement with third parties for running the business.
• The management agreement inadvertently created a sub-tenancy, which placed the lessees in breach of the lease.
• Upon discovering the unauthorized sub-letting, the landlord served a notice under section 146 of the Law of Property Act 1925, requiring the lessees to remedy the breach.
• Fourteen days after the notice, the landlord initiated repossession proceedings.
• The dispute centered on whether the breach was capable of remedy, and if the time given to the tenant to rectify the breach before forfeiture was sufficient.

Issues

1. Whether the breach of covenant (unauthorized sub-letting) was capable of remedy under the Law of Property Act 1925.
2. Whether the fourteen-day period provided by the landlord was a sufficient and reasonable amount of time for the lessee to remedy the breach before the commencement of forfeiture proceedings.
3. Whether equitable relief should be granted to the tenant to avoid forfeiture in these circumstances.

Decision

• The Court of Appeal reversed the trial judge’s verdict, holding in the landlord’s favor regarding the breach by sub-letting, but granted the tenant relief from forfeiture.
• It was held that the unauthorized sub-letting constituted a breach that was not readily remediable within the meaning of the Law of Property Act 1925.
• The court found that the fourteen-day period was insufficient and did not provide a realistic opportunity for the tenant to rectify the situation.
• The Court exercised its discretion to grant equitable relief, acknowledging the need for fairness in the process.

Legal Principles

• Not all breaches of covenant are remediable; unlawful sub-letting generally creates a new contractual relationship that cannot be simply rectified by termination of the sub-tenancy.
• There is a legal distinction between breaches easily remedied (such as non-payment of rent) and those like unauthorized sub-letting, which are more severe and less susceptible to cure.
• The Law of Property Act 1925 s 146 requires landlords to give reasonable notice and opportunity to remedy before forfeiture proceedings.
• The court has discretion to grant equitable relief from forfeiture to prevent disproportionate outcomes and ensure fairness between landlord and tenant.

Conclusion

Scala House and District Property Co Ltd v Forbes [1974] QB 575 is a key authority confirming that unauthorized sub-letting is not a breach easily remedied, and adequate time and equitable remedies are essential prior to lease forfeiture. The judgment continues to influence the resolution of landlord-tenant disputes involving forfeiture under the Law of Property Act 1925.