It is common place in leases for a landlord to reserve a right to forfeit the lease in the event of a breach of covenant by a tenant. This gives a landlord the right to bring the lease to an end and re-enter the leasehold premises. Upon an application by a tenant, the courts have a discretionary remedy to allow a tenant relief from forfeiture. The courts will consider whether the tenant is able to remedy its breach and refrain from similar breaches in the future.
The above case concerned a tenant of several commercial units who held the lease for a substantial term of years. The tenant had wilfully sublet part of the premises to a third party in deliberate contravention of the alienation provision which stated that the tenant must obtain the consent of the landlord before any subletting of part. The use of these sublet premises had provoked various complaints from neighbours. Given previous problems with noise pollution in the local area, consideration was given to whether the landlord would have been reasonable to refuse consent had an application for consent been made.
The landlord sought to forfeit the lease and, in response, the tenant applied for relief from forfeiture.
Generally, the courts will have consideration as to the seriousness of the breach, the value of the lease, the circumstances under which the breach occurred and the likelihood of rectification. The court of first instance found it difficult to sympathise with the tenant’s application for relief on the basis that the tenant had been indifferent to the alienation provision and had knowingly let the premises without seeking the consent of the landlord. Should an order for forfeiture be declared, the landlord would have been free to re-let the premises at a premium. Relief was rejected.
In response to the first decision, the tenant made a further application for relief on the basis that the tenant would employ efforts to assign the lease within a fixed period and accepted that if it failed to do so the lease would be surrendered to the landlord. At this stage, the tenant argued it would be unjust to allow the landlord to profit so significantly from a forfeited lease emphasising that forfeiture is a method for enforcing compliance with covenants rather than securing a windfall for the landlord. Given the long history of acrimony between the landlord and tenant, the tenant contended that the option to assign the lease to a new tenant would resolve the landlord’s objections (given the history of persistent and reoccurring breaches) to the current tenant’s behaviour.
Prior to the appeal, the tenant procured the surrender of the contentious sublease but the application continued on the basis that the freeholder had little faith that the tenant would refrain from future breaches.
On appeal, the proportionality of forfeiture and likely profit of the landlord was taken into account with all the other circumstances. In accordance with the precedent set in Southern Depot v British Railways Board (1990), a wilful and a deliberate breach would not preclude the court from granting relief and the tenant was under no greater obligation to persuade the court that relief was appropriate. Yet it was found that the first decision had been correct in taking into account the deliberate nature of the failure to acquire consent. The courts will have regard for repeat breaches, the damage sustained by the landlord and whether that damage could be repaired.
The appeal was successful on the condition that the lease was successfully assigned within six months with the consent of the landlord in the usual way (not to be unreasonably withheld).
Care must be paid to tenant covenants contained in leases, particularly where that lease is for a long term and of considerable worth. It is clear from this decision that a tenant’s loss of a lease and a landlord’s financial gain will only be a consideration rather than a determining factor for relief from forfeiture and not conclusive.
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