The limitations of forfeiture

Conceptually forfeiture is perhaps the landlord’s ultimate sanction against tenants who do not comply fully with the terms of their lease.  And from the tenants’ side, a serious motivator to comply! However, a recent Court of Appeal case has highlighted how tricky it can in fact be to deploy.

The case concerned a tenant that had granted a fresh sub-lease to an existing restaurant, without landlord’s consent, wilfully in breach of terms of its lease. That sub-tenant had a history of behaving badly and causing a nuisance to the occupiers of surrounding properties. All told this was arguably damaging the reversion. Clear cut? Not a bit!

The Court of Appeal underlined the principle that a deliberate breach does not mean that a tenant is to be denied relief from forfeiture: in all cases the Court has a wide discretion. And perhaps the clincher: forfeiture should not be a means by which the landlord obtains a windfall. In this instance the value of that windfall would have been in the region of £1m -2m.

So does this give tenants carte blanche? The teeth taken out of the remedy? Not at all. The Court of Appeal was keen to stress this. Cases will always turn on their facts and are a balancing act. In this instance, the tenant proposed a conditional sale of its lease within six months, as part of the grant of relief. It had also by the time of the appeal terminated the future sub-lease. The landlord would not be saddled with either of them for too long!

So, whilst it may instinctively seem correct that certain wilful or deliberate actions by tenants should entitle a landlord to the return of their property, the position is not that straightforward.

In this case the result ultimately suited both sides, albeit after a lengthy, and costly, spell down at the Court House. And perhaps that it is the real lesson here: where possible, explore and keep open all the available options, particularly the ones which avoid your having to spend a long time in Court!

This guide is for general information and interest only and should not be relied upon as providing specific legal advice.  If you require any further information about the issues raised in this article please contact the author or call 0207 404 0606 and ask to speak to your usual Goodman Derrick contact.