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01/08/2021

Damages for breach of lease? Possibly not…

Almacantar Centre Point Nominee No.1 Ltd & Anor v CID Investments Ltd & Ors (2021) EW Misc 10 (CC)

This is a county court case, so not a binding precedent, but it is a) fascinating (if hardly uncommon in London as a situation), and b) a judgment by HHJ Luba QC, so carries the weight of a highly experienced housing/landlord and tenant judge.

Almacantar (1) and (2) were joint freeholders of Centrepoint, the iconic London towerblock. In 2004, a 120 year lease of a residential flat in the tower was granted to CID. The lease contained covenants by the tenant:

“Not to use the Apartment or any part thereof nor permit or suffer the same to be used otherwise than as a single private residence for the occupation of one family only.”

“3.15.1 Not to assign charge underlet or part with or share possession of part only of the Apartment

3.15.2 Not to underlet the whole of the Apartment save upon terms that the undertenant shall be liable throughout the term of such underlease to pay rent and other payments totalling no less in any year than the aggregate of the rent and Service Charge from time to time payable hereunder and otherwise subject to the same covenants and regulations as are contained or referred to herein and are to be performed or observed by the Tenant hereunder

3.15.3 Subject as aforesaid not to assign underlet or part with the possession of the Apartment without first obtaining the written consent of the Landlord (such consent not to be unreasonably withheld)

3.15.4 To cause to be inserted in any underlease of the Apartment a covenant by the undertenant with the Landlord to observe and perform the Regulations with a condition permitting re-entry by the Landlord in case of any breach thereof”.

“3.15.5 Upon any assignment of the Apartment to cause the assignee to enter into a direct covenant with the Landlord (to be contained in the licence permitting such assignment) to observe and perform the covenants on the part of the Tenant and the conditions herein contained”.

In 2016 CID, via its agents Planet International,, granted a 24 month sub-tenancy to A.M.M. Properties Ltd (director Mr Mohamed Mohsen Hamdi Ahmed). No consent was sought from Almacantar. The sub lease variously prohibited use other than as a private residence and any further sub-letting without consent. Within 48 hours, A.M.M. Properties had, without seeking consent, granted a sub-sub-lease to Welk Homes Ltd and three of its directors jointly.

The document used was prepared by the second defendant (A.M.M.) and is headed “Company let tenancy agreement”.  It is quite plain that this is a very poorly prepared document.  It is in fact a cannibalised version of what might have been described as an ordinary assured shorthold tenancy.  Indeed, by paragraph A on the first page of the document it is said to create an unknown species of tenancy called “an assured company let tenancy”.  As I say, there is no such thing.

Soon after this, it became apparent to CID (the first defendant) that A.M.M. (second defendant) had sub-let the property.

Welk’s term ended in January 2017. A.M.M.’s term ended in January 2018, but it appears that A.M.M simply held over. In Apri l2018, adverts for short lets of the property appeared on booking.com and similar sites. Then

On 15 April 2018, in that capacity, it  (A.M.M.) sublet the flat to yet another limited company, the third defendant.  That letting is shown, by a tenancy agreement, as letting for a term commencing on 15 April 2018 and ending one year later.  The parties to that agreement were, as landlord, the second defendant and, as tenant, a limited company AGP Properties.  There were two other joint tenants, both of them with the surname Greza, and they thus became the three joint tenants of the flat.  In due course AGP Properties and the two Messrs Greza were to become the third to fifth defendants in this claim.

Of course, A.M.M. had no basis to grant such a tenancy.

AGP continued short lets for the property. Then AGP unlawfully granted two six month terms to three individuals:

Raoul Russ(?), Adela-Georgiana Man and Briegita Victoria Sandru.  These were two back-to-back, six month lettings, each at a rental of £3,300 per calendar month. These individuals then continued to use the flat for short-term lettings on Booking.com and other platforms and, of the three, Ms Man advertised and offered sexual services from the flat. 

Finally, in late 2018, the freeholder’s agents cottoned on to the use of the flat. Their solicitors wrote to the CID and their agents, Planet International, setting out the short let use. Mr Hava of Planet International first responded that “we have an AST (attached) with a business owner and were under the impression that it was as long let”. (This is, as HHJ Luba QC points out, a nonsense, as any competent agent should know.) Mr Hava then said, without explanation, “We will be getting back possession of the flat on 7 May 2019”.

The freeholders brought these proceedings, with an application for an interim injunction. The short lets continued until two injunctions had required the second defendant, and the sub-sub-tenants to surrender their interests and occupation on 5 April 2019.

The claim then proceeded. However, on 4 July 2019, Plant International as agents for CID granted an AST to two unrelated Chinese nationals. Planet International then sent a supposed draft tenancy agreement to the freeholder for ‘prior consent’, without telling them the tenancy had been granted. When consent was refused, as not ‘a single family’, After the freeholder’s agents had found both of the sub-tenants in occupation,  Planet International sent a faked tenancy agreement dated August 2019 supposedly in the name of one of the Chinese nationals only. The freeholders found that both remained in occupation and CID/Planet International eventually moved them out in early 2020.

CID subsequently sought and was granted consent by the freeholder for an AST sub-let of the flat.

At this trial hearing, the freeholders sought:

i) Damages for breach of lease against CID, expressed in two ways, on a ‘disgorgement basis’, or on a ‘negotiating basis; and

ii) a continuation of the injunction against the first defendant.

CID did not present any witness evidence. Instead they relied on the evidence of Mr Hava of Planet International, their agents. It is fair to say that his evidence was not well received by the court.

I record immediately that I found both his witness statement and his oral evidence wholly unsatisfactory.  His written and oral evidence was vague and lacked detail on matters in respect of which, as he admitted, his agency would have had records had he cared to inspect them or make them available.  Far from being anxious to assist the court, Mr Hava’s evidence was given casually, almost flippantly, notwithstanding the seriousness of the allegations made against his client.  He confirmed that the agency held, as one would expect, a property file for this apartment and for all the other properties it managed and operated, and indeed that it maintained a computer-based information management system.  The material in that file and on that system contained the very detail that would be needed to assist the court and to answer the questions being put to Mr Hava.  That material should also have been used to frame his witness statement, but it was, with no good explanation, simply not disclosed and not used by Mr Hava.

Despite his confirming in oral evidence that his agency were managing agents for the property, his witness statement said that it was only a letting agent.  Any competent property manager would know and understand the difference between a letting agent and a managing agent.  I am not at all sure, having listened to his evidence over a number of hours, that Mr Hava has the least understanding of the difference between those two important and different concepts.  But, if he does, his reference in his witness statement to “letting agents” demonstrates the gross carelessness which was a hallmark of his evidence. (…)

He had at least the good grace to acknowledge that he was “possibly wrong” in his evidence.  That may be recorded as ‘the understatement of the year’.

In short, all the breaches of lease that are apparent from the history above, including the false August 2019 agreement, were found to be the case.

On the claims for damages.

a) Disgorgement damages. These were sought on the basis that the first defendant’s conduct was so bad as to make this an exceptional case in the terms of Attorney General v. Blake [2001] 1 AC 268 such that the claimant was entitled to “damages in respect of that breach calculated at the amount of the profit made from the breach”.

HHJ Luba considered the very limited precedent cases and found this was not an exceptional case that would merit disgorgement damages. The relevant factors were:

  • This was an ordinary lease. It established no fiduciary relationship between the parties. The lease did not speak about preventing the tenant from making a profit, if anything the reverse.
  • There was no legitimate interest in preventing profit.
  • There was no contract not to sub-let, albeit that consent was required – it was that obligation that had been broken.
  • The “deliberate and cynical nature of the conduct” of CID, while true, was not sufficient by itself to justify disgorgement damages, pace Lord Nicholls in Blake.
  • ‘Deterrence’ of abuse of property was not sufficient reason. Vigilance by the lessor and the threat of forfeiture of the lease applied.

b) ‘negotiating’ or licence fee damages. In effect damages for the equivalent of a licence fee for permission for the defendant to do what it had done. Following One Step (Support) Limited v. Morris-Garner [2019] AC 649, these were not restitutionary damages, or profit stripping, but a new approach, in which “the case must be one in which loss of, or damage to, a valuable asset has been caused by a breach of rights.  To put it another way, there must be present a right which the claimant could waive in knowledge that it would lead to possible or actual damage to an asset and waive it for a notional fee that would at least compensate for that harm”.

Crestfort Limited v. Tesco Stores [2005] EWHC 2480 (Ch) would be precedent for compensatory damages based on the ‘negotiating’ principle to apply to breach of lease cases.

However, the claimant had not put forward any evidence as to how such damages could be established or assessed, and the first two approaches argued for by the claimant were in effect restitutionary, not compensatory, amounting to stripping the first defendant of its profit.

The claimant also argued for negotiating damages, that the court

should award to the claimants the figure that would have been achieved by the hypothetical negotiation between the parties of an authorisation legitimising the wrongdoing.  So I have to ask myself: what would a willing landlord extract from a willing tenant as the cost of being freed (for example, as in this case) from highly restrictive covenants limiting, for example, the use of the premises to use by one family only (instead of more general residential use) and strictly regulating the terms on which the sub-tenancy would be held.

But there was no evidence, or expert evidence as to what the value of such a licence may have been.

Further, the claimant

is asking me to assess what a reasonable landlord would charge for the prospect of ending up in a situation where its property, and the quality of it, was traduced to the extent that it was occupied by a successive chain of back-to-back unattractive tenants, including those offering sexual services.  To my mind, no reasonable or responsible landlord is likely to entertain any such negotiation.  It seems to me, therefore, that it is extremely difficult to extrapolate from the evidential material — or I should say the evidential void before the court — any reasonable basis for assessing compensatory damages by reference to a negotiated or hypothetically negotiated fee.

So, although this was a class of case in which negotiating damages might, in principle, have been awarded, there was not enough on the facts and evidence to make an award.

Both forms of damages claim were therefore dismissed.

c) Continuation of the injunction. CID argued that the situation was regularised, the breach was over, and CID had sought and been granted consent in advance for a sub-tenancy. There was no need to continue the injunction. However, HHJ Luba QC was not impressed.

I have had nothing at all from the first defendant: no statement and nor oral evidence from any of the directors of the first defendant, any of its officers or any of its employees.  That is notwithstanding the grave seriousness with which the issues in this case have engaged and the likelihood of a possible adverse remedy at a very considerable level for the first defendant.  I have had from that defendant not a whisper of an explanation as to why all this has happened, no apology, no contrition. 

I also must bear in mind that, notwithstanding the clear terms of the interim injunction against the first defendant, it permitted its agents to proceed to grant the underleases to the sixth and seventh defendants in clear breach of the terms of the lease and in clear knowledge that they did not have the requisite consent under the lease. Not only did the first defendant take its eye off the ball to that extent, but it is then burdened with the misconduct of its own agent who created the fabricated August 2016 letting. This, to my mind, is ample demonstration of the need for the court’s injunctive orders to remain in place. Indeed, it is in part the availability of these powers that has persuaded me that this is not a case for disgorgement damages, or rather it is one feature that has persuaded me that it is not a fit case.

Even when dealing with a potential legitimate subletting, the first defendant could not get its house in order. The events of July 2020 (2019? NL)  show that it had taken no approach of contrition or understanding of its obligations under the lease.  Mr Hava unsurprisingly told me in blunt terms that he did not understand the provisions of the head lease and he did not even understand the provisions of the injunction.  Notwithstanding that the first defendant must have known that that is what he was likely to say, it has taken no steps over the course of the last two years to displace Mr Hava or his agency from responsibility for managing this property or any part of it. 

I am satisfied that, without an injunction continuing to restrain the first defendant from breaching the terms of the lease, it is highly likely that further future breaches will occur.  In the circumstances, I consider that it is just and convenient for the court to order that the injunction shall continue.  I am not satisfied that it should run virtually indefinitely, as suggested by Ms Mattsson; that is, until “further order”, or until the first defendant lawfully assigns away its lease.  But I am satisfied that the injunction should remain in place for a significant period so that compliance can be established and so the court can see evidence of the measures that the first defendant is actually going to take to ensure that incidents of this type are not repeated.

Costs to be decided – balancing the first defendant’s breach and conduct and that the claimant had lost on the most time consuming issues at trial.

Comment

This kind of breach of lease – unauthorised sub-letting and/or short letting in breach of covenant – is rampant. Landlords believe (and often with justification) that lessees have behaved cynically and badly, and that they should be punished in damages.

However, as this case makes clear, there is no real basis for punitive damages. Unlike social tenancies, where subletting is a criminal offence and the profits can be made subject to a Proceeds of Crime Act order, breach of lease is fundamentally a contractual issue. Unless there are clear (and evidenced!) losses to the landlord, there will be no damages.

That said, the ‘negotiating basis’ may be available. But it is unlikely in a claim where the landlord’s intention throughout has been to stop the offending breach, not to restrain it simply because it wasn’t licensed for a fee.

 

 

 

Giles Peaker is a solicitor and partner in the Housing and Public Law team at Anthony Gold Solicitors in South London. You can find him on Linkedin and on Twitter. Known as NL round these parts.

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  1. Unauthorised sublets in breach of the lease – can you claim damages? | Brady Solicitors - […] recent case of Almacantar & Anor v CID Investments (reported in detail here at Nearly Legal) considered a situation…

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