Freifeld & Anor v West Kensington Court Ltd

Under section 146(2) of the Law of Property Act 1925, relief from forfeiture is a broad discretionary remedy. A deliberate breach is a weighty factor but does not require exceptional circumstances before relief may be granted.

The court must separately assess the value which forfeiture would transfer to the landlord. That windfall must be balanced against the tenant’s conduct and the need to secure future compliance. Where continuing the existing landlord-and-tenant relationship is unsuitable, relief may be granted solely and conditionally to permit a protected sale and assignment of the leasehold interest.

The appellants held a valuable 99-year head lease of seven commercial units. They deliberately granted a future sublease of one unit without the respondent landlord’s consent, in breach of an alienation covenant. The County Court found sustained and serious failures in their management of the units and refused relief from forfeiture under section 146(2) of the Law of Property Act 1925.

After judgment, the appellants procured surrender of the unlawful future sublease. They also proposed that relief should be granted only to enable a sale and assignment of the head lease within a fixed period. The appeal concerned whether the judge had correctly approached deliberate breach and the substantial benefit which forfeiture would confer on the respondent.

1. Appeal allowed unanimously. Lady Justice Arden, with whom Lords Justice Ryder and Briggs agreed, held that the County Court had erred in its post-judgment exercise of discretion. The judge was entitled to treat the appellants’ deliberate breach, concealment and poor management as serious matters. Those findings justified refusing relief which would restore the parties to their previous, dysfunctional contractual relationship.

2. A deliberate breach is relevant to relief from forfeiture but does not impose an exceptional-circumstances threshold. The discretion under section 146(2) of the Law of Property Act 1925 remains broad and depends on all the circumstances. This was consistent with Hyman v Rose [1912] AC 623 and Southern Depot Co Ltd v British Railways Board [1990] 2 EGLR 39.

3. The judge nevertheless failed to give separate and proper weight to the substantial value which forfeiture would transfer to the respondent. The windfall was a self-standing aspect of proportionality. It had to be weighed against the appellants’ misconduct, rather than treated as eliminated because forfeiture had become increasingly likely. A right of re-entry is security for performance, not an additional penalty.

4. Relief could therefore be fashioned to achieve both objectives. Following the approach illustrated by Khar v Delbounty Ltd (1998) 75 PC & R 232, the court set aside the dismissal and granted conditional relief solely for sale. The appellants were to obtain the respondent’s consent, not to be unreasonably withheld, and execute a sale contract within six months from 1 September 2015. Professional agents were to conduct the sale after consultation with both sides. The managing agent was to remain appointed during the sale period, and the proceeds were to meet sums due to the respondent before any balance was paid to the appellants.

5. Fresh evidence was admitted. If the sale condition was not achieved, the refusal of relief and forfeiture would take effect.

• Court of Appeal (Civil Division) Allowed the appeal in [2015] EWCA Civ 806, set aside the dismissal of relief, and granted conditional relief solely to permit a sale and assignment within six months.
• Central London County Court HHJ Gerald refused relief from forfeiture by an order dated 5 December 2013 and subsequently refused the appellants’ post-judgment applications for further evidence and for relief conditional on sale.