by Delyth Williams
Forfeiture of the lease is a remedy for breach of a tenant’s covenants in the lease which is frequently a useful weapon in the landlord’s armoury. It is important to note, however, that the remedy is available only where a right of re-entry is expressly reserved in the lease. This article summarises the various developments in the law of forfeiture from the position discussed in the article entitled “Current problems in Forfeiture” at (1985) 275 EG 860.
Relief from forfeiture
The case of Hammersmith and Fulham LBC v Tops Shop Centres Ltd [9] 2 EGLR 66; [1989] 41 EG 121 was the last stage of litigation which had resulted in Official Custodian for Charities v Parway Estates Developments Ltd (1984) 270 EG 1077, Official Custodian for Charities v Mackey (No 1) [1984] 3 All ER 689 and Official Custodian for Charities v Mackey (No 2) [1985] 1 EGLR 46; (1984) 274 EG 398 (all of which were discussed at (1985) 275 EG 860). The facts of the present case were that a lease for 107 1/2 years, granted in 1961 to Parway Estates Developments Ltd, was forfeited and that the company was wound up. The forfeiture resulted in the cesser of all legal interests derived therefrom. In the event, neither the superior landlords nor the mortgagees had taken any formal steps to inform the underlessees of the position and rent continued to be collected from the underlessees by receivers appointed by one of the mortgagees. The forfeiture of the Parway lease was established by litigation and ownership of the land was divided between two subsidiaries of Tops Estates plc.
Subsequently, disputes arose between the defendants and some of the occupiers of the estate about the position of the former underlessees because, throughout the period of management on behalf of the receivers, the trustees and the defendants’ predecessors, the underleases had been treated as subsisting with rents being demanded and collected. The defendants contended that the plaintiffs only had tenancies from year to year terminable on the giving of six months’ notice and not tenancies for the original fixed terms.
Warner J rejected the submission that a vesting order under section 146(4) of the Law of Property Act 1925 had the automatic effect of reinstating all derivative interests, but accepted the plaintiffs’ submission that the demanding and receiving of rent and other actions gave rise to an estoppel precluding the defendants from denying the subsistence of the underleases.
In Silverman v AFCO (UK) Ltd [8] 1 EGLR 51; [1988] 14 EG 67 the tenants made an application for relief from forfeiture for non-payment of rent at a very late stage after a series of steps to delay giving up possession. In this case, the tenants at first stated that they would not contest the landlords’ proceedings for possession but would seek a stay in respect of any money judgment and the landlords had, on this basis, entered into negotiations with a third party for the grant of a new tenancy of the premises in question.
The following procedural events then occurred, namely (i) an application for a stay of execution of the money judgment (which was dismissed); (ii) a summons for relief from forfeiture and for a stay of all further proceedings (including the execution of the order for possession); (iii) an agreement by the landlords not to execute a writ of possession; (iv) a hearing before a master at which the tenants offered only a post-dated cheque (with the summons for relief being then dismissed); (v) a notice of appeal to a judge in chambers from the dismissal of the summons for relief (after the execution by the landlords of the lease to the third party); (vi) the proffer of a cheque for the amount due two days before the hearing by the judge. Turner J held that this action was too late and the Court of Appeal held that the judge had properly exercised his discretion. The case was one where the position of the parties had altered and the rights of a third party had intervened so that relief was properly refused.
Applications for relief from forfeiture were refused in St Marylebone Property Co Ltd v Tesco Stores Ltd [8] 2 EGLR 40; [1988] 27 EG 72 where the landlords sought to forfeit the leases of five lock-up shops which had been combined to constitute a single business (these leases being treated as a single lease). The lease contained a covenant restricting the user of the premises to that of “grocers provisions wine spirit and beer merchants”. When Tesco Stores Ltd ceased trading from the premises it obtained a licence from the freeholders to underlet to NP, but the underlease was granted with an apparent total disregard of all undertakings given in the licence. Subsequently, the underlease was assigned by NP to JP without the knowledge or consent of the landlords. JP carried out structural alterations to the premises and extended the user of the premises. The landlords brought proceedings against Tesco and Tesco and JP applied for relief. Hoffmann J held, inter alia, that it was clear that Tesco did not qualify for relief as, by granting the underlease on terms which disregarded the undertakings in the licence, they had put it out of their power to ensure that the undertakings would be preserved. The position of JP was more difficult but, in all the circumstances, he did not qualify for relief.
In Liverpool Properties Ltd v Oldbridge Investments Ltd [5] 2 EGLR 111; (1985) 276 EG 1352, the question before the Court of Appeal was the position of the tenant under a lease which was the subject of forfeiture where there was no issue as to breach but the possibility of relief.
In this case, the plaintiffs (who were the superior lessees of a block of flats) appealed against an order giving the defendant underlessees unconditional leave to defend under Ord 14 r3. The appellants had sought forfeiture, possession and other relief and the defendants (the respondents on appeal) had counterclaimed for relief. The appellants admitted that the respondents were entitled to relief but submitted that the judge should have made an order for possession, leaving the trial of the counterclaim for relief to proceed at a later date. The Court of Appeal was of the opinion that, in certain circumstances, it is clear that the tenant (despite forfeiture) preserves an interest in the premises. The Court of Appeal held that it was plain that a right to relief against forfeiture was a true equitable defense and that a counterclaim for such relief should result in unconditional leave to defend.
The decision in Liverpool Properties Ltd v Oldbridge Investments Ltd was followed in Sambrin Investments Ltd v Taborn [0] 01 EG 69. In this case, there were two summonses — the first seeking possession and the second, which was not in dispute, seeking interim payments on account of the defendant tenants’ use and occupation of the property. There were several disputes as to repairs stretching back over several years and new proceedings for forfeiture were commenced in 1988. The defendants alleged that all the works for which they were properly liable had either been completed before the proceedings were commenced or were in the process of execution and they sought relief from forfeiture. Peter Gibson J referred to the decision in the Liverpool Properties case (by which he was bound). The ratio of that case was that the claim for relief from forfeiture was an equitable counterclaim inextricably involved in the claim with the counterclaim being a genuine claim which might succeed. The learned judge held that it was quite impossible in the present case to say that a claim for relief from forfeiture was not genuine or that it had no prospect of success.
The position of a business subtenant following forfeiture of the tenancy was considered by the Court of Appeal in Hill v Griffin [7] 1 EGLR 81; (1987) 282 EG 85. In this case, the term of the superior tenancy had already come to an end, prior to the county court hearing, by reason of the forfeiture of the tenancy and the tenant’s bankruptcy. The tenant contended, following the decision in Cadogan v Dimovic (1984) 270 EG 37, that there was jurisdiction to grant a monthly tenancy by way of relief to the business subtenant. (It is to be noted that the restriction to the monthly tenancy is by reason of section 146(4) of the Law of Property Act 1925). The country court judge refused relief to the subtenant as the latter was not prepared to enter into repairing obligations of the extent under the forfeited lease. The Court of Appeal was of the opinion that there were not sufficient grounds for interfering with the exercise of the county court judge’s discretion.
In Smith v Metropolitan City Properties Ltd [6] 1 EGLR 52; (1985) 277 EG 753, the former tenant, against whom forfeiture proceedings had been completed and the landlords had re-entered, attempted to reopen the question of forfeiture by invoking the ancient equitable jurisdiction of the court. It was agreed that, although the statutory jurisdiction under section 146(2) of the Law of Property Act 1925 could not be relied upon, the court still had an equitable jurisdiction to grant relief. Walton J held that, following Shiloh Spinners Ltd v Harding [1973] AC 691 and as explained in Official Custodian for Charities v Parway Estates Developments (supra), such an argument was not sustainable.
In British Petroleum Pension Trust Ltd v Behrendt [5] 1 EGLR 97; (1985) 276 EG 199, the demised flat was used for the purposes of prostitution. The tenant of the flat was a businessman who spent time abroad and lived in other premises while in England. The flat had been occupied by licensees, two of whom the tenant had evicted after complaints by landlords about the use made of the flat by its occupants. It was clear that the flat was being used over the years for prostitution and the county court judge held that the tenant either knew of or acquiesced to the use of the flat. The county court judge held that the tenant was in breach of the covenant not to permit the flat to be used for any illegal or immoral purpose and that such a breach was irremediable. The Court of Appeal held that the county court judge had correctly applied the law and had properly exercised his discretion to refuse relief from forfeiture.
In Ladup Ltd v Williams & Glyn’s Bank plc [5] 1 WLR 851, Warner J was called upon to determine whether an equitable chargee was entitled to relief from forfeiture. In this case, the second defendant was the tenant of a flat whose reversion was vested in the first defendants. In September 1982, the plaintiffs recovered judgment against the second defendant. In March 1984, by virtue of a charging order absolute, the plaintiffs became the equitable chargees of the lease of the subject flat. In September 1984, the first defendants obtained judgment for non-payment of rent against the second defendant and obtained possession of the flat. The story continued in November 1984 when the plaintiffs claimed relief from forfeiture upon such terms as the court thought fit. Warner J was of the opinion that:
… a right to forfeit a lease for non-payment of rent … is regarded by equity simply as security for payment of the rent and that relief against forfeiture is granted in equity on the footing that in normal circumstances it would be unconscionable for a landlord who has received his rent in full, with any appropriate interest and costs, to insist (in the absence of any outstanding breach of any other covenant in the lease) on taking advantage of the right to forfeit …
Further, the learned judge went on to add that, although the plaintiffs as equitable chargees were not entitled to possession under the terms of the lease, there was no principle that prevented the court from exercising its inherent jurisdiction to grant them relief from forfeiture in circumstances where the first defendants had been paid the arrears of rent in full.
Several interesting questions were raised in the case of Ropemaker Properties Ltd v Noonhaven Ltd [9] 2 EGLR 50; [1989] 34 EG 39 where possession was claimed by the owners of premises after investigations into the conduct of two night clubs occupying parts of the premises (one of them by an underlease and the other by a licence granted by the defendants). There was “overwhelming evidence” that both clubs were used for the purposes of prostitution. There were clear breaches of the user covenants and the scale of the prostitutes’ activities made it impossible to believe that anyone involved in the day-to-day management and running was unaware of what was going on. The defendants were a private company, owned and controlled by a sole director who strongly denied knowledge of the conduct complained of. The judge was of the opinion that whether or not the sole director had knowledge of what was going on, he must be taken to have known of it which was sufficient to fix the defendants with knowledge. Millett J listed the following factors as influencing him in granting relief against forfeiture:
(1) the substantial value of the lease;
(2) a financial loss to the defendants out of proportion to their offence or to any conceivable damage to the plaintiffs;
(3) the immoral use had been ended and was unlikely to be renewed (the defendants, inter alia, would enter into a deed of variation banning hostesses from the premises);
(4) any “stigma” attaching to the premises would be short-lived and might already have disappeared;
(5) getting rid of the defendants would not help to remove any remaining stigma — those who ran the clubs had already gone;
(6) the grant of relief would not saddle the plaintiffs with unacceptable tenants, as in all respects, save the one complained of in this action, the defendants had been excellent tenants;
(7) the director of the defendant company was in seriously poor health and had been thinking of retiring and disposing of the lease; he had offered to use his best endeavours to find a purchaser within some appropriate time-scale if relief were granted. (The judge did not require an undertaking, but was satisfied that the intention to dispose of the lease was genuine.)
In Southern Depot Co Ltd v British Railways Board [0] EGCS 42 the plaintiffs covenanted, inter alia, not to use the premises for any purpose other than use as and for a storage and distribution depot and not to assign or underlet or part with possession without consent. In October 1987, the plaintiffs executed a trust in favour of BPCC plc without consent and the defendants served a section 146 notice alleging breaches of the user and alienation covenants. In June 1988, the defendants effected a peaceable re-entry and forfeited the lease but, prior to that date, the tenants had issued proceedings seeking relief from forfeiture. Morritt J held that the claim for relief would be granted on terms. The execution of the trust for the benefit of BPCC was not a breach of the alienation covenant, although allowing the beneficiary on to the site amounted to a parting with possession.
Although the plaintiffs had committed a “wilful” breach of the user and alienation covenants in the sense that the breaches were knowingly committed, there was no difference between such a breach and a breach of a repairing covenant where repairs were knowingly not carried out. Morritt J applied the dicta of Lord Wilberforce in Shilob Spinners Ltd v Harding (supra) to the effect that the legislative intervention in the form of section 146 had amplified the equitable jurisdiction to grant relief from forfeiture in the case of leases. This provision makes no distinction between wilful or other breaches of covenant and accordingly this was a proper case to give relief.
The application of section 138(9A) of the County Courts Act 1984 and Ord 37, r2 of the County Court Rules 1981 were in question in Haigside Ltd v Khan [9] 2 EGLR 239. This case concerned an appeal by the defendant tenant from an order of the county court judge dismissing the defendant’s application to set aside a possession order granted in favour of the landlords. The amended notice of appeal in the Court of Appeal was an application for a new trial under Ord 37 r2 on the ground that the defendant was ignorant of the proceedings and of the order for possession until some six months later. The judge, in exercising his discretion against the defendant’s application, did not have his attention drawn to section 138(9A) of the 1984 Act.
The real issue on appeal was whether the judge had erred in law in the exercise of his discretion because he failed to have regard to the provisions of section 138(9A), which enables a lessee, at any time within six months from the date on which the lessor recovers possession, to apply to the court for relief against forfeiture. The Court of Appeal was not satisfied that, if the judge’s attention had been directed to section 138(9A), he would have come to the same conclusion.
Re-entry
In Ashton v Sobelman [7] 1 EGLR 33; (1986) 281 EG 303 the question before Mr John Chadwick QC (sitting as a deputy judge of the Chancery Division) was whether the lease in question had been forfeited by peaceable re-entry and, if so, whether relief against forfeiture should be granted to tenants. The lease was for a term of 80 years from 1932 at a yearly rent of £50 and was, subject to the question of forfeiture, vested in the plaintiffs with the defendant being the present freeholder. A subtenancy for 10 years existed of the demised premises and the defendant’s predecessors in title devised a scheme to secure the forfeiture of the lease by peaceable re-entry, whereby they would enter the premises with the subtenant’s consent, change the locks and request that the subtenant pay the rent direct to them. The court held that these arrangements did not constitute re-entry. The freeholders and the subtenant were proceeding on the notion of the continuing validity of the subtenant’s underlease, which was wholly inconsistent with the determination by forfeiture of the superior lease.
In Hillgate House Ltd v Expert Clothing Service & Sales Ltd [7] 1 EGLR 65; (1986) 282 EG 715, the landlords obtained an order for possession on the ground of the forfeiture of the lease and went into possession, but the order was subsequently reversed by the Court of Appeal. The tenants brought an action against the landlords claiming damages of a substantial nature alleging breaches of the landlords’ covenants of quiet enjoyment and not to derogate from grant. Sir Nicolas Browne-Wilkinson V-C held that acts done pursuant to an order of the court, which is valid until it is reversed, cannot be wrongful.
Effect of liquidation etc
In Re National Jazz Centre Ltd [8] 2 EGLR 57; [1988] 38 EG 142, the registrar had ordered the liquidator of the National Jazz Centre Ltd (which was being wound up) to give immediate possession of the property to the London Residuary Body, notwithstanding the existence of the winding-up order. The liquidator did not object, but the receiver of the company’s property appointed by Lloyds Bank complained that he had not been given an opportunity of objecting to it. The receiver sought to be added to the summons before the registrar and sought to discharge the registrar’s order. The landlords, the London Residuary Body, wished to support the order and it was common ground that a “Blue Jeans order” was not justified unless there appeared to be no defence to the claim for forfeiture of the lease and an order for possession. The receiver submitted that there was an arguable defence, namely that the landlords had waived the forfeiture by entering into negotiations with the receiver. It was common ground that these negotiations were “without prejudice” and that there could be no disclosure of their content. Peter Gibson J held that the mere entering into and continuation of negotiations did not, in itself, constitute a waiver of the forfeiture. The registrar’s order, although made in the absence of the receiver, was correct.
In Re Brompton Securities Ltd (In Liquidation) [8] 2 EGLR 93; [1988] 49 EG 77, a possession order in favour of the landlords was made by the registrar in proceedings for the winding up of the tenant company, despite the fact that the guarantor of the company’s lease was in sole occupancy of the premises. The guarantor had paid the liquidator a sum for the assignment of the lease but the assignment had not been completed due to the landlords’ refusal of consent. The liquidator contended that, if the possession order could be set aside and the landlords brought proceedings for forfeiture, the tenant company might be able to offer terms for relief. Mervyn Davies J held that, in the light of the decision in Re Blue Jeans Sales Ltd [1979] 1 WLR 363, he ought to make a possession order. The position of the guarantor would not be prejudiced by the possession order as the order could not be enforced by a writ of possession without the guarantor being notified and being able to apply for relief.
In Re Brompton Securities Ltd (No 2) [8] 2 EGLR 94; [1988] 49 EG 78, the holder of the long leasehold interest in the premises, which was the subject of the litigation before Mervyn Davies J, applied for leave to issue a writ of possession in the Companies Court and served notice on the occupiers, including the guarantor. The liquidator made an application for relief against forfeiture.
Vinelott J was of the opinion that, so far as the merits of the case were concerned, there were no grounds for refusing relief. The learned judge was of the opinion that, without laying down any general rule, there was no reason against making such an order in the present case.
