Can tenants get away with a deliberate breach of their lease?

28 / 04 / 2016

The Court has held that relief from forfeiture may be granted even where a tenant has deliberately breached a lease. In considering whether to grant relief, the Court should take into account any advantage which a landlord would gain from forfeiting a lease.

Background

Landlords usually reserve the right to end, or forfeit, a lease where a tenant breaches its obligations in a lease. A tenant may apply to the Court for relief from forfeiture, i.e. for the lease to continue. This is a discretionary remedy, and in granting relief, the Court will consider whether the
tenant is able to remedy its breach and refrain from similar breaches in the future.

In Freifeld v West Kensington Court Limited [2015] EWCA Civ 806, the Court of Appeal granted a tenant relief from forfeiture where the tenant had deliberately breached its lease.

Facts

Mr and Mrs Freifeld were tenants of a long lease of seven commercial units in a block of residential flats in West Kensington. The Freifelds’ lease contained an obligation to obtain landlord’s consent (which was not to be unreasonably withheld) before underletting any of the units.

One of the units was let to a Chinese restaurant whose business had caused numerous complaints, none of which had been satisfactorily dealt with. Despite this, the Freifelds granted the restaurant a further sublease without obtaining landlord’s consent. The landlord forfeited the lease for breach of this tenant obligation. The Freifelds subsequently applied to the Court for relief from forfeiture.

The Court initially found that the breach was deliberate and the Freifelds  faced a “vertiginous climb” to get relief. This was despite the fact that the lease was worth between £1 million and £2 million, and the landlord would obtain a substantial windfall if relief was not granted (and the Freifelds would suffer substantial loss).

The Freifelds then proposed that relief be granted conditional on the sale of their lease within 6 months. Again, this was refused by the Court and the Freifelds appealed.

Conclusion

The Court of Appeal granted relief to the Freifelds for 6 months, to allow them to sell their long lease of the commercial units.The Court of Appeal decided that:

  • relief from forfeiture could still be granted even where a tenant had deliberately breached a lease;
  • a landlord should not be entitled to keep a windfall resulting from forfeiting a lease, where there was no lasting damage or loss to him; and
  • a tenant’s conduct and wilfulness of breach of a lease was a relevant consideration in granting relief from forfeiture. However, the proportionality of the loss to a tenant from a lease being forfeited (and the windfall to a landlord) when compared with the breach of tenant obligation in a lease and damage sustained to the value of a landlord’s interest in the property must also be considered. Neither are determining, or conclusive, factors.