September 14, 2015

Why landlords and tenants need to know about forfeiture

The Court of Appeal has become very familiar with the law relating to relief from forfeiture in the last few months having dealt with at least two cases on the point.

In the first case, Magnic v Ul-Hassan, both the head lease and sub lease in respect of the property contained covenants to comply with the Town and Country Planning Acts. The sub tenants had applied for planning permission to operate the property as a takeaway but could not install the ducting on which the permission was conditional. The planning permission therefore lapsed and the sub tenant was in breach. The sub tenant however continued to trade.

The County Court made an Order that forfeiture would be granted unless the sub tenant stopped trading by 11 February. That Order was subsequently stayed and the sub tenant, wrongfully, carried on trading until 31 May. The landlord applied for forfeiture again on the basis that the stay did not apply to the sub tenant’s obligation to stop trading.

The Court of Appeal retrospectively extended the date for trading to stop to 31 May, but held that it was not limited to considering events as they were at the date of forfeiture when deciding whether or not to grant relief. Actions post the forfeiture were also relevant.

In the second case, Freifeld v West Kensington Court Limited the landlord had forfeited the lease on seven commercial units as the tenant had, in breach of lease, granted a sub lease of one unit. The tenant applied twice for relief from forfeiture and then appealed the Court’s refusal to grant relief to the Court of Appeal.

The Court of Appeal said the lease was discretionary and that there were no rigid rules to be considered. The Court should consider the tenant’s conduct (the County Court judge had described the conduct as “a cynical disregard for the tenant’s obligations under the lease”), but would also consider whether refusing relief would provide a windfall for the landlord. The Court had to balance the tenant’s position and the landlord’s.

Relief could still be granted if a breach was deliberate, but relief might be refused even if the landlord received a windfall as a result. Here the windfall for the landlord if the lease was forfeit would be in the region of £1 - £2 million! However, the windfall had to be considered on its own merits, separately, and then weighed against the tenant’s action. Forfeiture in effect had to be proportionate.

The Court granted relief to allow the tenant to sell the head lease within six months (this was a proposal that the tenant had put forward voluntarily), but the Court said that if the sale did not take place within that period of time then the lease would be forfeited.

Both cases make it clear that although the lease might be granted if the landlord’s interests had not been irreparably damaged, the relief is discretionary and all circumstances will be considered by the Court. The best advice to a tenant of a valuable lease is to be scrupulous in ensuring that all the terms of the lease are complied with.

Learn more about cases like this at our Surveyors’ Seminar in Bath, Oxford or Swindon.

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