HOW TO GET AWAY WITH FORFEITURE

 

A presentation to

The Property Litigation Association Autumn Training Day

in London on 2 November 2017

 by

 Robert Bowker and Niraj Modha

Tanfield Chambers

 

Robert Bowker was called to the Bar in 1995 and completed pupillage in Chambers in 1997. From 1997 to 2007, he practised in Chambers exclusively in property litigation. Between 2007 and 2012, he practised as a solicitor and barrister in Australia primarily in construction litigation (being dual-qualified; England/Wales and Australia). In 2012 he returned to Chambers and resumed his practice exclusively in property litigation. Robert’s practice combines commercial and residential property cases including boundaries, building and development. He has worked with expert witnesses in a wide range of disciplines.

His recent cases include: Pineport Ltd v Grangeglen Ltd [2016] EWHC 2170 (Ch) – relief against forfeiture (costs); Pineport Ltd v Grangeglen Ltd [2016] EWHC 1318 (Ch) – relief against forfeiture; Preedy v Dunne [2015] EWHC 2713 (Ch) – proprietary estoppel and trustees’ powers/duties; McLeod v Gold Harp Properties Ltd [2015] 1 WLR 1249 – rectification of land register; Gold Harp Properties Ltd v McLeod [2014] EWCA Civ 532 – conditional permission to appeal; and Pry v Cutter [2014] – UKUT 0215 (LC) – enfranchisement & terms of acquisition.

 

Niraj Modha was called to the Bar in 2010 and has practised at Tanfield since 2011. He specialises in property and commercial litigation and arbitration. He deals with all property matters, but he particularly enjoys tricky real property claims involving easements, boundary disputes, rent charges, land registration, and receivership, and landlord and tenant claims involving insolvency and forfeiture.

Within the last twelve months, Niraj has successfully represented clients in four multi–day trials involving prescriptive rights and trusts of land in the Chancery List at Central London, and in the First–tier Tribunal (Property Chamber).

 

These notes are intended to compliment the slide presentation and, as such, will follow the slides in sequence.

 

The writers’ experience is that the courts are increasingly astute to the use of forfeiture in order to obtain a windfall and disproportionate gain.

 

The session has 3 basic aims:

 

  1. To review the recent case law, in particular 3 decisions (one of which is pending in the Court of Appeal). Each decision has generated a considerable amount of interest and debate among property practitioners.

 

  1. To identify the key pitfalls facing a landlord who intends to forfeit either by issuing and serving proceedings or by instructing bailiffs to change the locks, and either in a rent or non-rent case.

 

  1. To discuss 2 key legal concepts – buzz words, if you like – which are increasingly familiar in the language of the law of forfeiture: ‘proportionality’ and ‘windfall’.

 

There is a short discussion topic to be covered at the end of the session, if time allows.

 

The 3 recent cases (the latter 2 of which included separate costs decisions) are –

  1. Freifeld v West Kensington Court Limited [2015] EWCA Civ 806
  2. Pineport Limited v Grangeglen Limited [2016] EWHC 1318 (Ch) and [2016] EWHC 2170 (Ch)
  3. General Motors UK Limited v The Manchester Ship Canal Company Limited [2016] EWHC 2960 (Ch) and [2017] 1 Costs LO 71

 

The writers’ recent experience suggests that landlord clients are at risk of falling into 3 main traps. Many landlord clients have unrealistically high expectations. The notion that forfeiture is merely security for a breach of covenant is unfamiliar and, when explained, dismissed as being unduly pessimistic. The expectation is that, under a conventional costs covenant, every pound spent will be recovered. That might not be correct, as Pineport only too obviously demonstrates. Landlords also expect not to face any real risk of a liability to pay the tenant’s costs. Again, Pineport shows that this might turn out to be a grave error of judgement.

It is convenient to separate the jurisdiction into the 2 methods by which the landlord may forfeit – by proceedings and by changing the locks. Most landlord clients are, for obvious reasons, anxious to avoid proceedings. In each case, it is necessary to separate the jurisdiction into rent and non-rent cases.

 

Where the landlord enters by proceedings

In rent cases, both the High Court and the County Court are restricted to granting relief only within the 6-month period where more than six months’ rent is in arrear. The 6-month period begins after the execution of the possession order. In certain circumstances, there is an automatic right to relief from forfeiture. If less than six months’ rent is in arrear, there is no time limit for seeking relief.

In non-rent cases, both the High Court and the County Court have jurisdiction to grant relief at any time from the service of a section 146 notice up to the execution of the possession order. The only way to obtain relief thereafter is if the tenant appeals or sets aside the possession order.

 

Where the landlord enters peaceably

In rent cases, the High Court has jurisdiction to grant relief outside the 6-month period, but the County Court does not.

In non-rent cases, both the High Court and County court have jurisdiction to grant relief outside the 6-month period. The jurisdiction to grant relief is contained within section 146(2) Law of Property Act 1925.

In Freifeld, the landlord forfeited commercial premises for the tenant’s breach of alienation provisions. The trial judge was highly critical of the tenant’s conduct and refused relief. The judge took the view that the tenant had been the author of its own misfortune. The Court of Appeal overturned the trial judge’s decision principally on the basis that the judge had failed to assess correctly the relationship between the tenant’s conduct and the question of windfall.

 

In Pineport, the landlord forfeited commercial premises by peaceable re-entry for the tenant’s failure to pay a modest amount of service charge reserved as rent. The lease was long, had been acquired at a substantial premium and was valuable. The premises, which were a garage, had been used by the tenant for MOT fraud which resulted in the tenant director being given a substantial custodial sentence. The tenant director suffered from depression and gave this as his reason for waiting 14 months before applying for relief. In this period, the landlord had not closed title and re-let. At the trial, the judge granted relief on the basis that the delay had been explained and justified, and refusing to grant relief would result in a significant and disproportionate windfall.

 

In a separate judgment on costs, the judge granted the landlord its costs on the standard basis up to the date of an open offer to pay the landlord its costs of the forfeiture and its costs of the proceedings to that point, an offer which the landlord had rejected. From the date of the offer to the conclusion of the trial, the judge granted the tenant its costs on the standard basis. Each set of costs effectively cancelled out the other. In short, the landlord unreasonably rejected the tenant’s offer, went to trial, failed to better the offer and was penalised.

 

In the Manchester case, a licensor forfeited a licence by which the licensee was permitted to discharge material into the Canal in perpetuity for a small fee. The licensee missed a payment and offered to pay the arrears and costs. The landlord insisted that, as a term of relief, the licensee was required to pay a fee based on a current valuation. The trial judge rejected this, holding that it was not within the court’s power when granting relief effectively to give the licensor a windfall by re-opening the parties’ original bargain. The Court of Appeal is due to hear the licensor’s appeal early next year.

 

In a separate judgment on costs, the court found an offer by the licensor had fallen short of providing for the licensor’s remedies in their entirety and, therefore, had not been beaten at trial. The costs decision demonstrates the importance of properly anticipating the landlord’s gains at trial and making an offer which accurately provides for these in their entirety.

 

When advising either a landlord or tenant client, the writers’ views are that there are 4 salient strategic considerations. Does the landlord’s conduct cross a line between forfeiture as security for a breach of covenant and a commercially-motivated endeavour intent on gaining a windfall? Does the landlord understand the possible consequences of deciding to forfeit by peaceably re-entering and that those consequences might not manifest themselves until many months down the line? Have the costs and offer (of the type demonstrated by Pineport) risks been understood and evaluated? When should a landlord apply to close title and what prior warning is it appropriate to give the tenant?

 

 

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