Tenant in arrears of rent – Tenant declared bankrupt – Landlord exercising right of re-entry and forfeiture of lease – Whether exercise of right of re-entry constituted enforcement by secured creditor of security – Whether right of re-entry constituted remedy against property of bankrupt forbidden without leave – Master holding forfeiture valid – High Court granting relief from forfeiture
By a lease dated July 14 1986 277 Green Street, London E7, was let for a period of 14 years. The lease contained a repairing covenant and provided that if the rent reserved was in arrears for 21 days, or there was any breach of the covenants contained in the lease, the lessor was to have a right of re-entry. On September 16 1992 the lease was assigned to the plaintiff who thereafter carried on the business of a shop at the premises. The freehold reversion became vested in the defendants. On January 9 1996 the defendants served on the plaintiff a section 146 notice requiring certain breaches of the repairing covenant to be remedied. The plaintiff defaulted in payment of the quarter’s rent due on June 25 1996. On August 13 1996 a bankruptcy order was made against the plaintiff. On September 13 the plaintiff successfully applied to have the bankruptcy annulled. The defendants informed the plaintiff that they intended to re-enter and forfeit the lease for non-payment of rent and re-entered the property. Later that day the plaintiff sent the arrears of rent which the defendants accepted. The defendants informed the Official Receiver of the re-entry and the Official Receiver removed the plaintiff’s stock from the premises. The plaintiff issued proceedings and claimed the alleged forfeiture was void because, by virtue of section 285(3) of the Insolvency Act 1986, no person who was a creditor was to have any remedy against the property of the bankrupt except with leave of the court. The defendants contended that leave of the court had not been required because under section 285(4) of the Act subsection (3) did not apply to the rights of a secured creditor to enforce his security. The plaintiff applied for summary judgment on the issue of whether the relief should be granted against the forfeiture by re-entry for non-payment of rent. A master refusing the application held that the forfeiture had been valid. The plaintiff appealed.
Held The appeal was allowed.
1. The landlord’s right of re-entry did not constitute a security and therefore subsection (4) of section 285 of the Act did not apply. The scheme of the Act confirmed that the word “security” was used in its strict legal sense.
2. A right of re-entry did not constitute a remedy against the property or persons of the bankrupt since the exercise of the right of forfeiture did not remedy any preceding breach of covenant; it merely prevented its recurrence and afforded relief to the landlord. Therefore leave of the court should have been sought before that right had been exercised.
3. However, the peaceful re-entry did not amount to wrongful interference with the possessions of the Official Receiver or the performance of his duties because the Official Receiver, the plaintiff and the defendants had not regarded it as such. Accordingly, the plaintiff was to be granted relief from forfeiture subject to the giving of undertakings.
John Machell (instructed by Michael Amy & Partners) appeared for the plaintiff; Martin Hutchings (instructed by Salusburys Robinson & Turnor, of Leicester) appeared for the defendants.
