Forfeiture - update

Most leases, particularly commercial leases, will contain a clause that gives the landlord a right to bring the lease to an end under certain circumstances. This is known as forfeiture and it can be a rather daunting subject.

Relief from forfeiture is a remedy that courts can grant at their own discretion on an application made by the tenant. Its main aim is to ensure that the tenant complies with their obligations under the lease.

The approach that the courts should take when granting relief was considered in a recent Court of Appeal ruling in Freifeld and another v West Kensington Court Ltd [2015].  The lease in question was granted at a premium with 66 years left to run. This made the lease highly valuable. The tenant had granted an underlease knowingly breaching the terms of their own lease. The Court of Appeal ruled that they would still grant relief to the tenant even though the tenant had deliberately and wilfully breached their obligations. The reasoning behind this decision was that the landlord would make a considerable gain of between £1 - 2 million if they were allowed to forfeit the lease as this would enable them to lease the premises out to another party.

However, the court did not want the landlord to be stuck with a tenant who had intentionally ignored his obligations in the lease. This conundrum lead to a rather creative solution. The court granted the tenant relief from forfeiture on the condition that the tenant would sell their lease to another party within a specified period.

In this recent case the court concluded that in every case that involves an application from forfeiture by the tenant, courts must try and strike a balance when exercising this remedy.  The court also in this case confirmed that there may be cases where properties with high value had to be passed to the landlord if there is no other way of obligating the tenant to perform their covenants in the lease.