Forfeiture

Citation

Dowden, M. (2000), "Forfeiture", Journal of Property Investment & Finance, Vol. 18 No. 6. https://doi.org/10.1108/jpif.2000.11218fab.002

Forfeiture

Landlord and tenant update – July 2000

Malcolm DowdenNabarro Nathanson

2. Forfeiture

During the term of a lease a key sanction open to a landlord is the threat of forfeiture. Given its draconian nature, the operation of this remedy is closely circumscribed by statute – in particular section 146 of the Law of Property Act 1925 and, where applicable, by the Leasehold Repairs Act 1938. These statutes give the Court ample discretion to protect a tenant from forfeiture where that tenant is willing and able to remedy the breaches of covenant which have triggered the landlord's right to forfeit.

Against this statutory background, a fairly common approach is for the parties to agree upon a consent order whereby forfeiture is ordered but the tenant is able to obtain relief provided that it complies with conditions set out in the order. Those conditions are usually subject to a time limit, and time is usually expressed to be of the essence. The intention is that should the tenant fail to comply with the agreed conditions within the agreed timescale then an order for possession will be made against it. In two recent cases the Courts have been called upon to consider whether time is in fact of the essence in these circumstances, or whether the Court has discretion to order an extension.

The first case, Crawford v. Clarke [2000] EGCS 33 concerned a claim for forfeiture where the tenant had made unauthorised alterations. The landlord served a section 146 notice and obtained leave under the Leasehold Repairs Act 1938 to bring proceedings complaining of disrepair, damage and alteration to the premises. The consent order which emerged from the parties' negotiations ordered forfeiture but granted relief on condition that the tenant complied with a detailed schedule of works to be completed by October 1998.

At first the works progressed satisfactorily. However, the tenant failed to make its scheduled payments promptly and so the works were not completed within the specified timescale. The tenant sought, and obtained, two extensions of time. The third application was refused, the County Court holding that, although it was unusual to refuse such an application, it was not appropriate in the circumstances to grant further relief from forfeiture. The matter then came before the Court of Appeal, with the tenant arguing that the judge had failed to take into account the fact that the works were nearly completed and that a substantial windfall would accrue to the landlord if relief from forfeiture were not granted.

The appeal was rejected. Indeed, it was pointed out that the tenant's argument amounted to an attack on the judge's exercise of discretion and that such an appeal would be entertained only on very limited grounds – for example, where the Court was satisfied that the judge had failed to take account of a factor that he should have. In this case, the judge had been entitled to balance the tenant's points against all the other factors – including that substantial, prolonged and lamentable failure of the tenant to comply with the agreed conditions – and to conclude that forfeiture should be allowed.

Perhaps in part because of the Court's strong words in Crawford a different tack was tried by the tenant in Ropac Ltd v. Inntrepreneur Pub Company (CPC) and another [2000] PLSCS 136. In this case the forfeiture proceedings stemmed from non-payment of rent. The total arrears amounted to £70,000. A consent order was made under which the landlord would become entitled to possession unless the tenant paid £1,137.46 to the landlord on or before 9 December 1998. Half of that sum was paid before the deadline but the balance did not reach the landlord until 18 December 1998. Accordingly, the landlord claimed possession and the tenant's application for a stay of the possession order and for relief from forfeiture was rejected by a High Court Master.

The tenant appealed to the Chancery Division arguing that the deadline imposed by the consent order could and should be extended under powers conferred upon the Court by the new Civil Procedure Rules (introduced in April 1999 to implement the Woolf reforms). In particular, the tenant argued that Part 3.1(2)(a) (extending or shortening time for compliance) and Part 3.9 (relief from sanctions) ought to be applied in its favour.

Neuberger J acknowledged that the Parts of the CPR cited by the tenant could be read as giving the Court the wider jurisdiction contended for – particularly when read in the light of the overriding objective to deal with cases justly set out in CPR Part 1 rule 1.1. However, the judge considered that it would not be appropriate to exercise that power in the tenant's favour in this case. The tenant's allegation of breaches by the landlord of Article 85 of the European Treaty had been dealt with on appeal, and the consent order had set out a strict timetable for payment of the agreed sum. Against that background the Court would not interfere with a contractually binding order.

Having reached that conclusion in respect of the consent order, Neuberger J nonetheless made it clear that the tenant was not precluded from applying for relief against forfeiture and, having regard to the severe hardship which would be occasioned by forfeiture, relief would be available on condition that the tenant paid the total arrears within seven weeks.