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Forfeiture: Navigating the Minefield

Introduction

1. The law of forfeiture is frequently described as a minefield. Every article ever written

on the topic is littered with warnings about how badly things can go wrong when one of

those mines is activated. This article aims to provide an overview of the law,

highlighting the common pitfalls to avoid when acting for a landlord and the pressure

points for tenants who are seeking to avoid forfeiture, as well as some key practical tips.    

The Starting Point

2. When a landlord is contemplating exercising the right to forfeit, it is important to bear

in mind the drastic consequences of the remedy. Essentially, it will have the effect of

bringing the lease to an end prematurely, unless relief from forfeiture is granted.

3. This can operate as a windfall for the landlord if it is possible to re-let the property

quickly at an increased rent or for an additional premium. On the other hand, in times

of economic downturn, the landlord may be left with an empty property in respect of

which rates begin to accrue and no rent is received for a considerable period. It is

therefore always important to assess whether it is the most appropriate remedy.

4. It is also crucial to remember the dictum of Lord Mansfield C.J. in Goodright d. Walter

v. Davids (1778) cowp. 803 that the courts “always lean against a forfeiture”. As will

be seen below, this principle still remains firmly embedded nearly 240 years later.

The Minefield

Breach of Condition or Covenant

5. As a prerequisite to contemplating forfeiting a lease, the breach must be of either:-

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(i) a condition in the lease;

(ii) any covenant in the lease, providing that the lease contains a proviso for re-entry

(usually referred to as a forfeiture clause) for a breach of such covenant.

6. The latter is by far the most common as most modern leases contain a proviso for re-

entry. However, this is not always the case – as the landlord in Rainbow Estates

Limited v. Tokenhold Limited [1999] Ch 64 found to his peril.

7. Although rarely required, it is necessary to be able to identify when a condition might

enable the landlord to forfeit where the lease contains no express forfeiture clause:-

• In general, a mere agreement by the tenant will not amount to a condition.

• Therefore, where the lease provided “it is hereby agreed and clearly understood”

that the tenant would surrender part of the demised premises if called upon to do so,

this did not amount to a condition: Doe d. Wilson v. Philips (1824) 2 Bing 13.

• In contrast, a condition was held to have been created where the lease provided that

“it is stipulated and conditioned that the lessee shall not underlet” and therefore the

landlord was entitled to forfeit the lease when that occurred even though it did not

contain an express proviso for entry: Doe d. Henniker v. Watt (1828) 8 B & C 13.

8. Where the lease does contain a proviso for re-entry, it can usually be found after the

tenant’s and landlord’s covenants in the lease and will look something like this:-

“If the rent hereby reserved or any part thereof shall at anytime be unpaid for twenty-one

days after becoming payable whether formally demanded or not or if the covenants on the

Tenants part herein contained shall not be performed or observed or if the Tenant or any

of them being a person or persons or firm shall become bankrupt or if the Tenant or any

of them shall enter into any composition with his creditors or suffer any distress or

execution to be levied upon his goods or being a company shall enter into liquidation

whether compulsory or voluntary (except the voluntary liquidation of a solvent company

for the purpose of reconstruction or amalgamation) then and in any of the said cases it

shall be lawful for the Landlord at anytime thereafter to re-enter upon the Demised

Premises or any part thereof in the name of the whole and thereupon this demise shall

absolutely determine but without prejudice to the right of any action of the Landlord in

respect of any antecedent breach of any of the Tenants covenants herein contained”

9. Although often convolutely worded as seen in the above example, the forfeiture clause

can usually be broken down into a number of “triggering” events that enable the

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landlord to forfeit the lease. When construing the forfeiture clause to determine

whether the right to forfeit has arisen, the court usually adopts a two stage approach:-

(1) Construe the meaning of the proviso for re-entry;

(2) Analyse whether a triggering event has occurred.

10. Although the normal rules of contractual construction apply1, consistent with the

principle that courts will lean against forfeiture, Judges tend to apply a strict

construction to the proviso for re-entry, resolving any ambiguity in favour of the tenant.

Preliminary Steps

11. Due to the draconian nature of forfeiture, the common law and Parliament have

intervened to introduce a number of safeguards for tenants over and above the

requirement that the right to forfeit has arisen under the lease.

Section 146 Notice

12. In commercial lease cases, the most important safeguard for a tenant is the requirement

that the landlord serves a section 146 notice on the tenant where a breach other than rent

arrears is relied upon. The purpose of the notice is to provide the tenant with:-

“the opportunity of considering whether he can admit the breach alleged; whether it is

capable of remedy; whether he ought to offer any, and if so, what compensation; and

finally, if the case is one for relief, whether he ought not promptly for such relief. In

short the notice is intended to give the person whose interest it is sought to forfeit the

opportunity of considering his position before an action is brought against him”2

13. As the section 146 notice is a condition precedent for forfeiting for breaches other than

rent arrears, it is just as – if not more – important to get right as the forfeiture itself.

14. Section 146(1) of the Law of Property Act 1925 provides that a right of re-entry is not

enforceable unless and until the landlord serves on the tenant a written notice:

(i) specifying the particular breach complained of;

(ii) requiring the tenant to remedy the breach, if it is capable of remedy;

(iii) requiring the tenant to make compensation for the breach, if required;

and the tenant fails within a reasonable time thereafter to remedy the breach, if it is

capable of remedy, and pay reasonable compensation to the satisfaction of the landlord. 1 Investors’ Compensation Scheme Limited v. West Bromwich Building Society [1998] 1 All ER 98 2 Horsey Estate v. Steiger [1899] 2 QB 79 per Lord Russell of Killowen CJ

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15. The section 146 notice must set out the breach with sufficient particularity to enable the

tenant to know what conduct is complained of and how they can put it right. Recent

case law demonstrates that it is crucial that the correct breach is particularised. As a

practical example, in Anders v Haralambous [2013] EWHC 2676 (QB) the lease

prohibited (a) using the premises other than as a private dwelling for residential

purposes, and (b) assigning, underletting, parting with or sharing possession of part of

the premises. As a result of separate proceedings under the Commonhold and

Leasehold Reform Act 2002, a judge found that the tenant had “shared” possession of

part of the premises. The landlord then served a section 146 notice saying:-

“The above mentioned covenants have been broken and you have sublet the premises to

students and received payments therefrom, thus operating the premises as a business as

opposed to residential purposes only, as determined by the court…”

16. Technically, this was wrong as the court had actually found that the tenant had shared

with possession, not sub-let the property. Jay J rejected arguments that “subletting”

should be read without any technical legal interpretation and found that the recipient of

that notice would have believed that the court finding was of a breach of a covenant by

subletting alone. The section 146 notice was therefore held to be invalid.

17. Where more than one breach is alleged in the notice, failure to prove any or all but one

does not invalidate the notice: Pannel v. City of London Brewery [1900] 1 Ch 496.

Similarly, the inclusion of a reference to a non-existing covenant will not usually render

a notice invalid which is otherwise good: Silvester v. Ostrowska [1959] 1 WLR 1060.

18. However, where a section 146 notice misstates the terms of the lease by including two

non-existent covenants, and gives particulars of breaches which might have been

referable to those covenants, the notice is likely to be deemed invalid because the good

cannot be severed from the bad: Guillemard v. Silverthorne (1908) 99 LT 584.

19. The section 146 notice must require the tenant to remedy the breach, if it is capable of

remedy. A notice that fails to do so will be invalid.3 As a general rule of thumb:-

• The essential test of whether a breach is remediable or irremediable is whether the

harm that has been done to the landlord by the relevant breach is, for practical

purposes, capable of being retrieved within a reasonable period of time.

3 Expert Clothing Service & Sales v Hillgate House [1986] Ch 340

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• Ordinarily the breach of a positive covenant (whether once and for all or continuing)

will be capable of remedy, even where it is required to be complied with out of time.

• Traditionally, the courts treated the breach of a once and for all negative covenant as

being incapable of remedy. For example, in Scala House & District Property Co

Limited v. Forbes [1974] AC 575, Russell LJ regarded a “breach by an unlawful

subletting [as] no capable of remedy at all”.

• More recently, however, there has been a growing trend to focus on whether the

practical consequences of the breach can be remedied: Savva v. Hussein (1997) 73 P

& CR 150; Wickland (Holdings) Limited v Telchadder [2014] UKSC 57. Therefore,

more and more breaches are now considered to be remediable than were in the past.

• To avoid the problem that arises where the landlord fails to require the tenant to

remedy a breach where it was capable of remedy, it is good practice to state that the

tenant “…is required to remedy the breach insofar as it is capable of being remedied”.

20. The section 146 notice does not have to specify a time within which the breach is to be

remedied. All that the statute requires is that a reasonable time to remedy the breach

must elapse between the service of the notice and the exercise of the right of re-entry:

Billson v. Residential Apartments Limited (No 1) [1991] 3 WLR 264.  

21. What will constitute a reasonable time is a question of fact. As such, it will vary from

case to case. In the case of remediable breaches, the courts have held that:-

(a) Four working days was insufficient to remedy the breach where the covenant

allegedly broken was not to do anything which might be a nuisance to the lessor or

adjoining occupiers: Courtney Lodge Management v. Blake (2005) 1 P & CR 264;

(b) Where the breach involved the carrying out of alterations without consent, thirteen

days was sufficient for the tenant to stop work and either apply for consent or put

forward proposals for remedying the breach: Billson v. Residential Apartments

Limited (No 1) [1991] 3 WLR 264;

(c) Where the breach alleged was a failure to keep the property insured, a reasonable

time to arrange insurance cover was, on the evidence, four weeks: Cardigan

Properties v. Consolidated Property Investments [1991] 1 EGLR 64;

(d) Two months was insufficient where the works required to remedy the breach

included rectifying subsidence by underpinning: Bhojwani v. Kingsley Investment

Trust [1992] 2 EGLR 70;

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(e) Where the breach was a failure to repair, three months was sufficient to remedy the

disrepair: Penton v. Barnett [1898] 1 QB 276.

22. Where the breach alleged is an irremediable breach, the tenant still needs time to

consider his position and whether to make an application for relief. In Fuller v. Judy

Properties [1992] 1 EGLR 75, five days was held to be sufficient, as compared to two

days in Horsey Estate v. Steiger [1899] 2 QB 79 which was not. Fourteen days was

ample in Civil Service Co-operative Society v. McGreggor’s Trustee [1923] CH 347.

23. Given that forfeiting too early will be fatal, it is generally safer for landlords to err on

the side of caution in allowing a reasonable period to elapse before seeking to forfeit.

When acting for a tenant, carefully scrutinise whether sufficient time has elapsed. Be

prepared to take the point if it is arguable that insufficient time has been allowed.

Rent Arrears

24. In the context of commercial leases, seeking to forfeit the lease for non-payment of rent

is procedurally the most straightforward insofar as the preliminary steps are concerned

(the same cannot be said for long residential leases, as will be touched on below). In

particular, no section 146 notice is required before forfeiting for non-payment of rent.4

25. At common law, the only requirement is that the landlord has made a formal demand

for rent before exercising the right to forfeit. However, most modern leases (as in the

example above) dispense with this requirement by including words to the effect of

“…whether formally demanded or not” or “...whether lawfully demanded or not”. In

such a case, provided that the rent has remained unpaid for the period of time specified

in the forfeiture clause, the right to forfeit arises immediately that moment passes.

Failure to Repair

26. Where the landlord serves a section 146 notice relating to a breach of covenant to keep

or put in repair the premises during the currency of a lease to which the Leasehold

Property (Repairs) Act 1938 applies (essentially, a commercial or long residential lease

if the lease is for a term of at least 7 years and at least 3 years are unexpired), section

1(4) provides that the section 146 notice will be invalid unless it includes:-

4 Law of Property Act 1925, section 146(11)

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“a statement, in characters not less conspicuous than those used in any other part of

the notice, to the effect that the lessee is entitled under this Act to serve on the lessor a

counter-notice claiming the benefit of this Act, and a statement in the like characters

specifying the time within which, and the manner in which, under this Act a counter-

notice may be served and specifying the name and address for service of the lessor.”

27. Section 1(3) of the Leasehold Property (Repairs) Act 1938 provides that:-

“Where a counter-notice is served by a lessee under this section, then, notwithstanding

anything in any enactment or rule of law, no proceedings, by action or otherwise, shall

be taken by the lessor for the enforcement of any right of re-entry or forfeiture under

any proviso or stipulation in the lease for breach of the covenant or agreement in

question, or for damages for breach thereof, otherwise than with the leave of the court.”

28. Thus, where a tenant serves a counter-notice under section 1(1) of the Leasehold

Property (Repairs) Act 1938 following the service of a section 146 notice setting out

alleged breaches of repairing covenants in the lease, forfeiture will only be permissible

if the leave of the court is obtained first. By section 1(5), the court must not grant leave

unless the landlord establishes one of the following grounds:-

(a) that the immediate remedying of the breach in question is requisite for preventing

substantial diminution in the value of his reversion, or that the value thereof has

been substantially diminished by the breach;

(b) that the immediate remedying of the breach is required for giving effect in relation

to the premises to the purposes of any enactment, or of any byelaw or other

provision having effect under an enactment, or for giving effect to any order of a

court or requirement of any authority under any enactment or any such byelaw or

other provision as aforesaid;

(c) in a case in which the lessee is not in occupation of the whole of the premises as

respects which the covenant or agreement is proposed to be enforced, that the

immediate remedying of the breach is required in the interests of the occupier of

those premises or of part thereof;

(d) that the breach can be immediately remedied at an expense that is relatively small in

comparison with the much greater expense that would probably be occasioned by

postponement of the necessary work; or

(e) special circumstances which in the opinion of the court, render it just and equitable

that leave should be given.

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29. Although it may seem arduous for landlords, the policy behind the Leasehold Property

(Repairs) Act 1938 is to prevent tenants being harassed and put to expense as a

condition of being granted relief from forfeiture in forfeiture proceedings based on

trivial and unimportant breaches of the covenant to repair. It is therefore important to

carefully consider whether to include such breaches; are there other, stronger breaches

that may be relied upon instead which will not trigger the procedure under the Act?

Long Residential Leases

30. As noted above, special rules apply in the case of long residential leases. It is outside

the scope of this article to set out the provisions in detail. However, as an overview:-

(a) As a prerequisite to exercising the right to forfeit for non-payment of rent, the

landlord must first have served a notice upon the tenant under the Commonhold and

Leasehold Reform Act 2002 (“CLRA”), in the prescribed form and containing the

prescribed information5: CLRA, section 166. Otherwise, the rent will not be

lawfully due and any attempt to forfeit the lease based upon rent arrears will fail;

(b) The landlord of a long residential lease is unable to forfeit a lease for rent arrears

below the prescribed sum (currently £3506), unless the rent arrears consist of, or

include, a sum which has been outstanding for more than the prescribed period

(currently three years): CLRA, section 167;

(c) Where a landlord is seeking to forfeit the lease for non-payment of service charges

or administration charges, section 81 of the Housing Act 1996 (as amended by

section 70 of CRLA) provides that the landlord will be unable to do so unless:-

(i) It is finally determined by (or on appeal from) the First-tier Tribunal – Property

Chamber (Residential Property) or by a court, or by an arbitral tribunal, that the

amount of the service or administration charge is payable; or

(ii) The tenant has admitted that the amount outstanding is so payable.

(d) In respect of other breaches, the landlord is similarly unable to serve a section 146

notice unless it has been finally determined that a breach has occurred, or the tenant

has admitted the breach: CRLA, section 168. Once the breach has been determined,

the landlord is required to wait a further 14 days before serving a section 146 notice.

5 Landlord and Tenant (Notice of Rent) (England) Regulations 2004, SI 2004/3096 6 Right of Re-entry and Forfeiture (Prescribed Sum and Period) England) Regulations 2004, SI 2004/3086

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Waiving the Right to Forfeit

31. Where a right to forfeit arises the landlord must elect whether to exercise that right. In

essence, the landlord has a choice: (i) proceed to exercise the right to forfeit; or (ii)

allow the lease to continue, with or without seeking other redress against the tenant.

The landlord is essentially in the same position as someone who is faced with a

repudiatory breach of contact, who must accept the repudiation or affirm the contract.

32. In Matthews v. Smallwood [1910] 1 Ch 777, Parker J described waiver as follows:-

“Waiver of a right of re-entry can only occur where the lessor, with knowledge of the facts

upon which his right to re-enter arises, does some unequivocal act recognizing the

continued existence of the lease”

33. The unequivocal act in question must be communicated to the tenant in order to be

effective to waive the right to forfeit.7 It is irrelevant if the landlord intends to waive his

right to forfeit or is unaware of the legal consequences of doing so.8

34. The three essential ingredients of waiver are therefore:-

(i) Knowledge by the landlord of the relevant breach;

(ii) An act by the landlord unequivocally recognising the continuation of the lease;

(iii) Communication of that recognition to the tenant.

35. Breaking those ingredients down:-

Knowledge

The requisite knowledge is knowledge of “the basic facts that in law constitute a breach

of covenant entitling [the landlord] to forfeit the lease” 9 . Knowledge must be

distinguished from suspicion. Thus, where the landlord suspected that the tenant had

sub-let in breach of covenant but the tenant assured him that no sub-letting had taken

place, the court held that the landlord did not have knowledge of the breach.10

However, where the landlord suspects on reasonable grounds that the tenant has

committed a breach of covenant, but takes no step to establish the truth or otherwise, he

is likely to be considered to have sufficient knowledge for the purposes of waiver.11

7 Scarfe v. Jardine (1882) 7 App Cas 345 8 Osibanjo v. Seahive Investments [2009] 1 EGLR 32 9 David Blackstone v. Burnetts (West End) [1973] 1 WLR 1487 10 Chrisdell Johnson and Tickner (1987) 54 P & CR 257 11 Thomas v. Ken Thomas [2007] 01 EG 94

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It is important to note that the knowledge in question need not be that of the landlord

personally. Knowledge acquired by an employee of the landlord is likely to be imputed

to the landlord where it is part of the employee’s duty to report the matter.12 Whether

constructive knowledge is sufficient is unclear, as there are conflicting authorities. A

review of the authorities can be found in Cornille v. Saha (1996) 72 P & CR 147.

Unequivocal Recognition

The starting point is that merely standing by and witnessing the breach is insufficient.

Some positive act must usually be done by the landlord to constitute a waiver.

However, long continued acquiescence in repeated breaches may amount to waiver.13

The classic example of waiving the right to forfeit is demanding or accepting rent

falling due after the landlord becomes aware of the breach.14 This is also one of the

most common ways that the right to forfeit is lost, usually because the landlord is

unaware of the significance of accepting rent or someone in the office continues to send

out rent demands as they are unaware that the landlord is considering forfeiture.

Other examples include:-

• Relying upon other covenants in the lease, for example a right of access;

• Serving notices pursuant to other provisions in the lease15;

• Exercising an option contained in the lease16;

• The making of an offer, subject to contract, to buy the tenant’s interest17;

• Commencing proceedings for rent arrears (without claiming possession)18;

• Issuing an application for an injunction based upon other covenants19;

Communication

The final crucial ingredient is that the landlord’s recognition that the lease is continuing

is communicated to the tenant. As such, where the act of waiver relied upon is the

sending of a document, the waiver is not effective until the document is received.20

12 Metropolitan Properties v. Cordery (1980) 39 P & CR 10 13 Kelsey v. Dodd (1881) 52 LJ Ch 34 14 Expert Clothing Service & Sales v Hillgate House [1986] Ch 340 15 Doe d Rutzen v. Lewis (1936) 5 Ad & El 277 16 First Penthouse Limited v. Channel Hotels and Properties (UK) Limited [2004] EWCA Civ 1072 17 Bader Properties v. Linley Property Investments (1968) 19 P & CR 620 18 Dendy v. Nicholl (1858) 4 CB (NS) 376 19 Wheeler v. Kebble (1914) Limited [1920] 1 Ch 57 20 David Blackstone v. Burnetts (West End) [1972] 1 WLR 1487

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36. Waiver is by far the biggest risk area for landlords who may be contemplating

forfeiture. Aside from the above examples, there are a whole host of acts which may be

construed as amounting to waiver if they involve the landlord acting in such a way

which is consistent only with the lease continuing. The best advice to landlords is thus

usually to cease communicating directly with the tenant and put an immediate stop on

accepting or demanding rent whilst they consider whether to exercise the right to forfeit.

37. The risk of waiving the right to forfeit runs from the moment that the landlord has

knowledge of the breach until forfeiture is effected, either by peaceable re-entry or the

act of serving possession proceedings – this is generally known as the danger period.

38. Even where it appears that a landlord has waived his right to forfeit, however, this may

not be fatal. The effect of the waiver will depend upon whether the breach of covenant

was a “once and for all” breach or a “continuing” breach. In the former case, waiver of

the right to forfeit precludes the landlord from ever forfeiting for that breach.

Conversely, continuing breaches mean that fresh breaches will continue to accrue and

therefore it may still be possible to forfeit the lease notwithstanding an act of waiver.

39. The following are some common examples of once and for all and continuing breaches:

Once and for all breach Continuing breach

Unauthorised alterations Using premises in a prohibited manner

Failure to carry out repairs by set date Failure to keep premises in repair

Failure to erect building by set date Failure to keep premises insured

Rent arrears

Sub-letting / Assignment

40. Finally, it is important to remember that waiver of the right to forfeit is not the same as

waiver of a breach of covenant. The former depends on the principle of election and

only bars one remedy, leaving the landlord’s right to seek an injunction or damages

intact. The latter bars all of the landlord’s remedies in respect of the particular breach.

Exercising the Right to Forfeit

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41. In order to exercise the right to forfeit, the landlord must (a) intend to forfeit the lease;

and (b) undertake some final, positive and irrevocable act that manifests that intention.

There are two main methods of exercising the right of re-entry:-

(i) Peaceable re-entry (i.e. going in and changing the locks);

(ii) Issuing and serving a claim for possession.  

42. Peaceable re-entry is often attractive to landlords as it is viewed as a quick and cheap

way to recover possession. However, it has a number of limitations / disadvantages:-

(a) Peaceable re-entry is only available in relation to commercial premises. It is a

criminal offence to re-enter residential premises otherwise than with the authority of

a possession order: Protection from Eviction Act 1977. This includes mixed

residential and business premises: Pirabakaran v Patel [2006] EWCA Civ 685.

(b) Under section 6 of the Criminal Law Act 1977, any person who, without lawful

authority to do so, uses or threatens violence for the purpose of securing entry into

any premises either for himself or for someone else commits an offence if:-

• there is someone present on the premises at the time who is opposed to the entry

which the violence is intended to secure, and

• the person using or threatening the violence knows that that is the case.

A right to forfeit by re-entry will not constitute “lawful authority” for the purpose of

the Act and thus where someone is present on the premises violence must not be

used to secure entry. There is little judicial guidance on what constitutes violence in

this context. It will be a question of fact in each case and is therefore a grey area.

(c) If the tenant contends that forfeiture has been undertaken unlawfully, they are likely

to make an urgent application for an injunction to allow them to be re-admitted to

the premises whilst the court determines whether the right to forfeit has arisen.

Further or alternatively, the tenant may make an application for relief from

forfeiture. This inevitably leads to uncertainty and delay whilst this is determined.

(d) If a landlord acts precipitately by purporting to forfeit the lease before the right to

forfeit has arisen, the tenant may be able to claim damages for wrongful forfeiture.21

The distinction between effecting forfeiture by peaceable re-entry or by action is

particularly significant in this context. This is because damages would only be

recoverable where the landlord has physically re-entered. If, on the other hand, the

landlord had merely issued proceedings for possession, no claim will lie unless the

21 South Tottenham Land Securities v. R & A Millett (Shops) [1984] 1 All ER 614

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landlord acts maliciously. Furthermore, a landlord will not be liable if he enters

with the authority of a court order, even if the court order is reversed on appeal.22

43. In practice, wherever there is likely to be a dispute over whether the right to forfeit has

arisen, or the tenant is likely to make an application for relief from forfeiture, it is

usually safer to issue a possession claim, which is regarded as “the civilised method of

determining the lease”23, rather than simply re-entering and changing the locks.

Effect of Forfeiture

44. Ultimately, the effect of forfeiture is to determine the lease prematurely. Practically, the

consequences vary depending upon whether the forfeiture is executed by peaceable re-

entry or possession action:-

• Peaceable re-entry: Forfeiture by physical re-entry terminates the lease, subject to

any claim for relief from forfeiture. After forfeiture by peaceable re-entry the

tenant’s fixtures revert to the landlord and the tenant has no right to remove them.24

However, if relief from forfeiture is granted, their right to the fixtures are restored.

• Possession claim: The position is theoretically the same: “The effect of issuing and

serving a writ is precisely the same as the effect of re-entry; in each case the lease is

determined.”25 However, as against the tenant only, the lease is not terminated and

the covenants extinguished until judgment is given for possession, which then

relates back to the date of service of the claim. The period in between is usually

described as the “twilight period” or a “period of limbo”. During that period, the

landlord cannot rely upon the covenants in the lease. However, the tenant can:-

(i) apply for an injunction to enforce the landlord’s covenants26;

(ii) make an application to modify or discharge restrictive covenants27;

(iii) pursue a claim for the grant of a new business tenancy28.

The reasoning behind this curious state of affairs is that the tenant has not elected to

treat the lease at an end. The tenant is thus entitled to rely upon the covenants

during the limbo period or pending an application for relief, but the landlord cannot.

22 Expert Clothing Service & Sales v Hillgate House [1986] Ch 340 23 Jones v. Carter (1846) 15 M & W 718 24 Re Palmeiro [1999] 3 EGLR 27 25 Billson v. Residential Apartments [1992] 1 AC 494 26 Peninsular Maritme v. Padseal [1981] 2 EGLR 43 27 Driscol v. Church Commissioners for England [1957] 1 QB 330 28 Official Custodian for Charities v. Mackey (No. 2) [1985] 1 WLR 1308

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Relief from Forfeiture

45. As well as construing provisos for re-entry strictly, and developing rigid rules of waiver

of the right to forfeit, the courts’ propensity to lean against forfeiture gave rise to the

development of an equitable jurisdiction to enable tenants to seek relief from forfeiture.

This jurisdiction is now statutory in nature. The key provisions are as follows:-  

Rent Arrears

Section 138 of the County Courts Act 1984 provides the tenant with an automatic right

to relief from forfeiture in a forfeiture claim based upon rent arrears in two scenarios:-

1. The tenant pays into court or the landlord not less than 5 clear days before the first

hearing all the rent in arrears and the costs of the action. In such a case the

possession action will cease, and the lease will continue unaffected: section 138(2);

2. If the tenant fails to pay the above sums, a possession order will usually be made if

the court is satisfied that the forfeiture was valid but this shall not take effect until at

least four weeks after the date of the order or such period as the court thinks fit, and

only then if the tenant does not in the meantime pay the rent arrears and costs. If

that happens, relief from forfeiture will be granted automatically: section 138(3).

Other Breaches

Relief from forfeiture is not automatic in cases involving other breaches of covenant.

However, the court has a discretion to grant relief in such cases.

Section 146(2) of the Law of Property Act 1925 provides that:-

“Where a lessor is proceeding, by action or otherwise, to enforce such a right of re-

entry or forfeiture, the lessee may, in the lessor’s action, if any, or in any action

brought by himself, apply to the court for relief; and the court may grant or refuse

relief, as the court, having regard to the proceedings and conduct of the parties under

the foregoing provisions of this section, and to all the other circumstances, thinks fit;

and in case of relief may grant it on such terms, if any, as to costs, expenses, damages,

compensation, penalty, or otherwise, including the granting of an injunction to restrain

any like breach in the future, as the court, in the circumstances of each case, thinks fit.”

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In Chatham Empire Theatre v. Ultrans [1961] 1 WLR 817, it was said that section

146(2) confers “the widest discretion” on the court. Due to the wide nature of this

discretion, the courts have been reluctant to “lay down any rigid rules for guiding that

discretion”29. However, the following may be taken as useful maxims in general:-

“In the first place, the applicant must, so far as possible, remedy the breaches alleged

in the notice, and pay reasonable compensation for the breaches which cannot be

remedied. In the second place, if the breach is of a negative covenant…the applicant

must undertake to observe the covenant in the future, or at least must not avow his

intention to repeat the breach complained of. In the third place, if the act complained

of, though not a breach of a negative covenant, is of such a nature that the court would

have restrained it during the currency of the lease on the ground of waste, the applicant

must undertake to make good the waste if it be possible to do so. In the further place, if

the act complained of does not fall under either the second or the third head, but is one

in respect of which damages, other than nominal, might be recovered in an action on

the covenant, the applicant must undertake not to repeat the wrongful act or to be guilty

of a continuing breach.”30

Whilst no hard and fast rule can be applied to any application for relief, the following

factors are a good starting point as to what the court is likely to take into account:-

(i) Whether the breach was wilful or deliberately committed;

(ii) Whether the breach was inadvertent, or due to a mistake by the tenant’s agent;

(iii) Whether the breach was caused by circumstances beyond the tenant’s control;

(iv) Where the breach consists of doing something without the landlord’s consent,

whether that consent could have reasonably been refused if it was requested;

(v) Whether the tenant has made or will make good the breach of covenant and is

willing and able to fulfill his obligations in the future;

(vi) Whether the breach has occasioned lasting damage to the landlord’s reversion;

(vii) Any personal hardship to the tenant in the event that the application is refused;

(viii) Whether any third parties have acquired rights in the property;

(ix) Any stigma that may have attached to the Property as a result of the breach;

29 Hyman v. Rose [1912] AC 623 30 Rose v. Spier [1911] 2 KB 234

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(x) Whether the damage sustained by the landlord is proportionate to the advantage

he will obtain if no relief if granted.

As a general rule, if a tenant remedies the breach relied upon or offers to do so at some

point in the future (and the court is satisfied on the evidence that the tenant genuinely

intends and is able to do so), the court will usually give the tenant the benefit of the doubt

and grant relief from forfeiture, subject to such conditions as the court thinks fit.

It used to be thought that the courts would only grant relief from forfeiture in cases where

the breach was deliberate in exceptional circumstances. However, recent case law has

moved away from this approach and reiterates the wide discretion that is available.

In Friefeld v. West Kensington Court Limited [2015] EWCA Civ 806, the tenants held a

head lease of seven commercial retail units forming part of a block of flats in London.

They had sublet one of the units to a Chinese restaurant without landlord’s consent. The

restaurant caused a nuisance and annoyance to the local residents. At first instance the

judge found the breach of the alienation covenant on which the forfeiture action was

founded had been deliberate. Together with what the judge found to be the tenant’s

attitude to their responsibilities, he refused relief from forfeiture, finding that “the

Freifelds demonstrated a cynical disregard for their own obligations under their lease”.

The tenants appealed. They admitted that the sublease was granted in breach of their

lease but asked for relief to be given on condition that they be given 6 months within

which to complete a sale and assignment of the lease, failing which it would be

surrendered, and argued that there had been an injustice because the landlord gained a

windfall of £1m-£2m due to the forfeiture. On appeal, the Court of Appeal asked itself:-

(i) Did the judge direct himself correctly about what had to be shown to obtain relief

where the breach was deliberate? No. Even where the breach was wilful, the

question was whether the damage sustained by the landlord was proportionate to

the advantage he would obtain if relief were refused. The value of the leasehold

interest is a relevant consideration but it is not enough to find that the effect of

forfeiture would be a windfall to the landlord; it is to be balanced with all other

circumstances. The judge failed to do this and should have considered that there

should be no forfeiture if the leasehold interest could be sold on suitable conditions.

(ii) If there was a misdirection, what order should be made? The Court of Appeal

found that there had been a misdirection and that the tenants should be granted

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relief for the purposes of and conditional upon the sale of the head lease interest

within 6 months, failing which the order dismissing relief would be effective.

The Court of Appeal therefore confirmed that the court may still grant relief from

forfeiture even where the tenant has shown a “cynical disregard” for their obligations.  

A further recent illustration of the court’s readiness to exercise its discretion in relief

from forfeiture applications can be found in Safin (Fursecroft) Ltd v Estate of Dr Said

Ahmed Said Badrig (Deceased) [2015] EWCA Civ 739. Dr Badrig, who died in 2002,

had held a long lease of a flat owned by the Claimant. The Claimant commenced

proceedings against the Estate of Dr Badrig for possession and, on 5th April 2012, an

order was made to forfeit the lease and for the Estate to pay arrears of rent and service

charges amounting to £22,770.29. The Defendant applied for relief from forfeiture and

the order was stayed, with trial being set down in January 2014. Two days before trial,

the parties settled. The terms of the settlement were recorded in a consent order that

provided for relief from forfeiture if certain conditions were satisfied. In particular, the

consent order required the rent arrears and costs to be paid and for certain works to be

carried out by 6th March 2014. Time for compliance was expressed to be of the essence.

On 5th March 2014, the defendant sought permission to extend the time limit for

compliance with the consent order. The conditions were not satisfied by 6th March 2014

(i.e. the following day) and a warrant of possession was sought with a date for execution

of the warrant fixed. The defendant was eventually able to satisfy the conditions set out

in the consent order prior to the date of execution. At the hearing of the application for

an extension of time the judge allowed the extension and the Claimant appealed. The

appeal was leapfrogged from the County Court to the Court of Appeal. The appeal was

dismissed and the Court of Appeal upheld the decision to grant the extension of time.

The Court of Appeal acknowledged that the discretionary power to extend time should be

exercised "sparingly". There were, however, critical features in this case that supported

relief from forfeiture. For instance, the Defendant had applied for extension of forfeiture

before the deadline, all the conditions in the consent order had been satisfied by the time

the case was heard and forfeiture was in respect of a long lease of residential premises,

the value of which was almost £1m more than the £90,000 due to the Claimant.

As well as being a good illustration of how far the court is willing to intervene to grant

relief from forfeiture, the Safin case is an interesting reminder to all practitioners of the

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court's wide discretionary powers in extending time limits in consent orders, even where

the parties expressly stipulate that the time for compliance is to be of the essence.

Practical Tips

Landlords

• If the right to forfeit arises, carefully consider at the outset whether it is the most

appropriate remedy:-

o If the lease is forfeited, will it be possible to re-let the premises?

o Will any re-letting be on better or worse terms than the current lease?

o Is the tenant likely to dispute the breach of covenant or apply for relief?

o Remember that the court will “lean against forfeiture” and that the landlord will

have a number of hurdles to overcome with potentially protracted litigation.

o In the meantime, the landlord may not be able to accept rent or other payments

due under the lease for a considerable period of time pending forfeiture.

o Is there a better alternative remedy, such as an injunction or money claim?

• As soon as the landlord becomes aware of a potential breach of covenant giving rise to

the right to forfeit, exercise great caution to avoid waiving the right to forfeit:-

o Put an immediate stop on accepting or demanding rent falling due thereafter.

o Ensure that all employees are informed that the landlord is considering forfeiting

the lease, and amend all systems to prevent automatic demands being sent out.

o Cease communicating directly with the tenant, or acting in any way that may be

construed as treating the relationship of landlord and tenant continuing.

o Do not seek to rely upon any of the covenants in the lease, for example the

landlord’s right to gain access to the premises to undertake an inspection.

o Do not exercise any option in the lease, or take action based on the lease.

• Carefully check the statutory and common law requirements which apply to any

preliminary steps to be taken before seeking to exercise the right to forfeit:-

o In commercial rent arrears cases, is a formal demand necessary or has this been

dispensed with under the lease?

o If a section 146 notice is necessary, ensure that the contents are accurate and

comply with all statutory requirements.

o In residential long lease cases, ensure that all necessary steps are complied with

– be aware this will be a lengthy and complex process.

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• In anticipation of an application for relief from forfeiture being made, compile evidence

in support of why relief should be refused (if appropriate):-

o What damage has been caused by the breach of covenant?

o Has irreparable damage been caused to the landlord’s reversion?

o Has a stigma been attached to the premises due to the breach of covenant?

o Assess the proportionality of the landlord recovering possession vs. the tenant’s

losing the lease – is it possible to argue against any windfall to the landlord?

• Consider whether the forfeiture should be exercised by peaceable re-entry or by action.

Whilst superficially attractive, remind landlords of the potential problems that may be

encountered down the line if they decide to forfeit by way of peaceable re-entry.

• If forfeiture is effected by action, ensure that the Claim Form and Particulars of Claim

are served on the tenant – as this is the moment at which forfeiture takes place, it is

crucial to ensure that this is done properly – do not leave it to chance with the court.

Tenants

• Do not breach the lease in the first place!

• If an inadvertent breach occurs of which the landlord becomes aware, immediately

apologise and agree to put it right – early communication with the landlord may prevent

the landlord from even applying his mind to the possibility of forfeiting the lease.

• If served with a section 146 notice:-

o Carefully check the contents to ascertain whether the breaches of covenant (if

made out) do give the landlord the right to forfeit the lease;

o If the section 146 notice is good, take steps to remedy the breaches of covenant

as soon as possible and notify the landlord of the steps being taken;

o Consider whether any compensation ought to be offered to the landlord;

o Consider whether to make an immediate application for relief from forfeiture.

• Carefully check whether any statutory requirements have been complied with by the

landlord – if not, challenge the landlord’s ability to forfeit the lease on this basis.

• Scrutinise the landlord’s actions to assess whether any act of waiver may have occurred.

• Compile evidence in anticipation of an application for relief from forfeiture being

necessary as to why relief should be granted:-

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o Have the breaches been remedied?

o Has all damage to the landlord’s reversion been made good?

o Is the tenant able and willing to comply with the covenants in the future?

o Can the court have confidence that the breaches will not be repeated?

o Would forfeiture provide the landlord with an unjustified windfall?

• If the landlord seeks to peaceably re-enter the premises, consider making an application

for an injunction to secure re-entry and/or an application for relief from forfeiture.

• If the landlord has forfeited the lease unlawfully, consider whether the tenant may have

a claim for damages, for example in relation to any disruption to their business.

• If the landlord proceeds to forfeit the lease by action, file a Defence to the claim (if any)

early and/or make an immediate application for relief from forfeiture.

• Try to keep the lines of communication open – if the tenant wishes for the lease to

continue, they will need to be able to work with the landlord in the future.

• On the other hand, the tenant may not wish to continue with the lease – in that scenario

come up with an exit strategy early to try and extract the tenant with minimal liability.

Whittall Street, Birmingham, B4 6DH

22nd July 2016

MICHELLE CANEY

© Michelle Caney, 2016

Whilst every effort has been taken to ensure that the law in this article is correct, it is intended to give a general overview of the

law for educational purposes. Readers are respectfully reminded that it is not intended to be a substitute for specific legal

advice and should not be relied upon for this purpose. No liability is accepted for any error or omission contained herein.