The lead up to this year’s Christmas storyline in Eastenders has involved a lot of doom and gloom on Albert Square. Due to financial problems, the Carter family were forced to sell the freehold to their beloved Queen Vic pub to Grafton Hill (property developers) who would then lease it back to the family in a desperate attempt to release much needed equity. Unbeknown to the Carters, Grafton Hill wanted to take the Queen Vic and demolish it to build a block of luxury flats for a high profit.
Grafton Hill’s tactic to get rid of the Carters was to survey the premises and serve a schedule of dilapidations requiring the Carters to pay £60,000 within five weeks, knowing they wouldn’t be able to afford this. However, nothing was put in writing and no one obtained legal advice.
The writers of Eastenders have unfortunately glossed over a number of legal issues. When selling the freehold and entering into the lease of the property, the pub’s landlord, Mick Carter’s signature was forged; effectively making the whole transaction void. Grafton Hill knew about the forged signature and are blackmailing the Carters with the threat of reporting this to the police.
Life is not a soap opera so assuming that there was a valid transaction and that the lease contained typical terms which would be found in a lease of this type of pub, there are a number of issues which need to be considered
The schedule of dilapidations was clearly overinflated to ensure that the Carters would not be able to raise the necessary funds. However, no question was raised as to whether the works contained in the schedule were actually necessary or how much they would cost. The Carters would have been well advised to instruct their own surveyor to challenge the schedule of dilapidations as the cost of a surveyor would likely be much less than what they would have saved by challenging the charges.
Where there is a dispute between a landlord and tenant which cannot be resolved between themselves, most leases contain an arbitration clause. Such a clause would allow for the appointment of an independent expert who would be able to determine whether the repair work is actually needed and/or the cost of such work. Also, there are rules under Section 18(1) of the Landlord and Tenant Act 1927 which limit the amount of damages which a landlord can claim for breach of a tenant’s covenant to repair, which may have helped the Carters limit the repair bill.
Eventually, Grafton Hill said they would accept £50,000 rather than £60,000 to cover the repair works, an amount the Carters managed to raise. Rather foolishly, the Carters did not get anything in writing and Grafton Hill subsequently denied having offered a reduction. However, there were many witnesses in the pub when the offer was made and so the Carters may have had a case to have the landlord stopped from denying this agreement.
A landlord’s right to recover the property during the term of the lease is limited if the lease was for a term of at least seven years and still has more than three years left to run. Under Section 1 of the Leasehold Property (Repairs) Act 1938, the Carters could have served a counter notice which would then require Grafton Hill to obtain a court order before they could have taken action to forfeit.
As it stands, Grafton Hill has served notice to forfeit the lease, for the failure to pay the cost of the dilapidations, meaning the Carters have been served with an eviction notice to vacate the pub. However, repairs are a breach which can be remedied so the notice served on the Carters (which must comply with s146 of the Law of Property Act 1925) should have given them an opportunity to remedy the breach, rather than simply requiring them to vacate the pub.
Differing rules apply to forfeiture of commercial and residential leases. The question arises as to what the correct procedure is when the property is considered mixed use, as with the Queen Vic. Section 2 of the Protection from Eviction Act 1977 (the Act) states that if a premises are let ‘as a dwelling’ then a landlord will need to obtain a court order to evict a tenant. The Court of Appeal in Pirabakaran v Patel  EWCA Civ 685;  36 EG 260 considered the position in relation to mixed use premises. It was held that the reference to ‘let as a dwelling´ in Section 2 of the Act means “let wholly or partly as a dwelling”.
Therefore, in the case of the Queen Vic, the correct procedure which Grafton Hill should take is to issue proceedings and obtain a court order for possession. Otherwise, if they take steps to remove the Carters from the pub they will be committing a criminal offence.
If we were advised to instruct the Carters, we would be telling them to stay put and not ‘get out of my pub’!