Magnic Ltd v Ul-Hassan & Anor

A right of re-entry secures performance of a tenant’s covenants. Forfeiture is an ultimate sanction protecting the landlord’s reversion from continuing breaches, rather than an additional penalty.

When asked to extend time for compliance with conditions previously imposed for relief, the court must scrutinise the application carefully and balance all relevant circumstances. Repeated default may reduce the weight of factors favouring relief, but the court must still consider the nature and reasons for the particular non-compliance. A reasonable legal mistake should not be treated as conscious defiance.

Where the breach has been remedied and forfeiture would be disproportionate, relief may be granted on terms restoring the landlord to the position it would have occupied had the breach not occurred.

The tenants operated a takeaway business in breach of planning-related covenants. Possession proceedings were compromised by an order granting relief from forfeiture on conditions. A later order again granted relief if the business ceased by a specified date.

The tenants obtained a stay pending an appeal and continued trading because they and their solicitors believed that the stay postponed the deadline. The belief was mistaken, but the business ceased immediately after the appeal failed. District Judge Jenkins subsequently refused a retrospective extension of time and declared the head lease forfeited. HH Judge Powles QC dismissed the tenants’ first appeal.

The central question on this second appeal was whether the District Judge had exercised his discretion lawfully and, if not, whether relief should be granted and on what terms.

1. Appeal allowed. The District Judge’s exercise of discretion was set aside. His reasons did not adequately address the circumstances in which trading continued during the appeal. The failure to meet the deadline had been mischaracterised as deliberate non-compliance.

2. A court considering further relief must scrutinise the application with particular care. Persistent failure to observe previously imposed conditions may reduce the weight of considerations which ordinarily favour relief. Nevertheless, the court must conduct a balancing exercise which gives proper weight to the reasons for the particular default. The earlier breaches of covenant formed relevant background, but they were distinct from the later failure to satisfy the condition governing relief.

3. The purpose of a right of re-entry is to secure performance of the tenant’s covenants. Forfeiture is not an additional penalty. It is an ultimate sanction protecting the landlord’s reversion from continuing, unremedied breaches: Shiloh Spinners Ltd v Harding [1973] AC 691 applied. Although serious and irremediable breaches may justify refusing relief, relief will ordinarily be granted when the breach has been remedied, subject to appropriate terms and costs.

4. The tenants’ belief, based on legal advice, that the stay postponed the deadline was not unreasonable. They ceased trading promptly when their appeal failed. The additional trading caused no identified damage and did not show defiance of the court. Depriving them of the lease for that legal error would have been disproportionate and unjust. Time was therefore extended retrospectively to the date on which trading ceased.

5. Restoration of the lease was conditional upon placing the landlord in the position it would have occupied without the breaches. The tenants were required to pay recoverable repair costs and the rent, rates and insurance outgoings for which they were liable. Disputed repair issues could be determined by a District Judge. Under section 146(2) of the Law of Property Act, payment of the certified costs of the original proceedings, with interest, was also made a condition of relief. The costs of the two appeals were to be addressed separately and were not conditions of relief.

1. Court of Appeal (Civil Division): The tenants’ second appeal was allowed. The refusal of relief was set aside, time was extended retrospectively, and relief from forfeiture was granted on financial conditions: [2015] EWCA Civ 224.
2. Brentford County Court, HH Judge Powles QC: The tenants’ appeal against District Judge Jenkins’s order was dismissed.
3. Brentford County Court, District Judge Jenkins: The tenants’ application for relief from forfeiture was dismissed and the head lease was declared forfeited.