Freifeld v West Kensington Court Ltd: What a relief

In many instances, the first involvement of lawyers in ?a forfeiture scenario, where acting for a tenant, is after ?the lease has been forfeit – a number of months later would be ideal. 

Often in such instances, no constructive dialogue with the landlord has taken place or ?even been attempted. Where the lease is of a commercial property, the client’s main concern is often their inability to continue trading if locked out. Even where forfeiture has been affected by service of proceedings for a possession order, once the possession order has been obtained, ?time is often very limited.

The starting point is to remember that the court almost always leans against forfeiture and in favour of granting relief. ?If a client can make good their breach of covenant and satisfy the court they are willing to fulfil their obligations in future, they are in a strong position. ?Certain factors will, however, point against relief being granted, such as:

• Deliberate breach;

• Immoral use; 

• Delay; 

• Lasting damage; 

• Conduct of the parties; and 

• Subsequent grant of lease.

As a general rule, if the tenant can return the landlord to the position it would have been in but for the breach (including by the payment of the landlord’s costs), relief is likely to be forthcoming. As demonstrated in the recent case of Freifeld v West Kensington Court Ltd [2015] EWCA Civ 806, however, it should not be taken for granted.

Freifeld was an appeal from ?a decision of His Honour Judge Gerald, who had refused to grant relief. The Freifelds owned a head lease of the retail units within ?a residential block, valued between £1–2m. 

One unit had been sublet to a Chinese restaurant, the lessee of which had been guilty of various acts of nuisance. The sublease had been granted without the consent of the landlord, contrary to the terms of the head lease. Notably, the grant had been ?after the nuisance had become an issue, and the fact that the landlord’s consent was required prior to assignment was known to the Freifelds.

At the trial of the application for relief, HHJ Gerald took account of the fact that if the lease were to remain forfeit, the landlord would receive a significant windfall, ?but took the view that the tenant knew that prior to breach and nonetheless deliberately breached the lease. The units were also poorly managed. 

Suitable tenant

After judgment, the Freifelds made a further application for relief, on the condition that they assign the lease within six months to a suitable alternative tenant. This was also refused.

The Freifelds applied to the Court of Appeal. By the time the appeal was heard, they had put new management in place. ?Their appeal, and thus relief, was granted, but on terms that the lease be assigned to a suitable tenant (as previously proposed). The fact that the lease had significant value was a consideration (although not ?an overriding one) in deciding whether to grant relief. It was ?a question of proportionality, ?to be ‘thrown into the balance with all the other circumstances’.

Of course, with just six months to sell the lease, the Freifelds ?are at risk of having to sell at ?a significantly reduced price; ?even so, that has to be preferable to losing the lease altogether. Lord Justice Briggs warned at paragraph 68 of the judgment that: ‘In every case a balance ?will have to be struck, and there may well be cases where even substantial value has to be passed to the landlord if no other way of securing the performance of the tenants’ covenants can be found’.

Key considerations

Aim to make a realistic offer to remedy the client’s breach as soon as that remedy becomes possible; 

Protecting against the high possibility the client will have to pay the landlord’s costs ?is difficult but important; putting the landlord at risk of paying costs by making that offer is often a good tactic (Bland v Ingram’s Estates Ltd (No2) [2001] 3 EGLR 34);

If a lender has an interest ?in the lease, they may be prepared (but generally only as a last resort) to assist in remedying the breach. ?If not, they are likely to seek ?a vesting order to avoid losing their security; and

While relief is generally granted, subject to payment of costs, if the breach is serious and difficult to remedy, look for creative proposals to ensure the client doesn’t lose the ?lease entirely.

Simon Allison is a barrister practising from Hardwicke @hardwickelaw www.hardwicke.co.uk