Forfeiture of Lease

15 April 2013

Author: Victoria O'Hara
Practice Area: Real Estate
Sector: Retail

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There have been few forfeiture decisions in Northern Ireland and so the decision in this recent case of Shah Din & Sons Limited (Company Voluntary Arrangement) –v- Dargan Properties Management Limited (2012) NI CH34 is a welcome reminder to all as to the position of the forfeiture of a Lease in Northern Ireland.

The Facts

Dargan Properties Management Limited (“the Defendant”) held a leasehold interest in premises at Dargan Estate, Belfast (“the Estate”), the Defendant granted a lease out of its leasehold interest of a portion of the Estate which by virtue of various assignments was eventually assigned to Shah Din & Sons Limited (“the Plaintiff”) in October 2001.  

From the outset, the Plaintiff did not pay the rent or service charge due despite constant reminders from the Defendant, this led the Defendant to issue proceedings in 2004 in the Small Claims Court.  There was a continuing pattern of failure to pay rent the Plaintiff making payment once in August 2010, and from then, arrears began to accrue.  In 2006 the Plaintiff had stopped trading from the premises and subsequently that year had begun to market its interest in the premises.  The directors of the Plaintiff’s company also advised the Defendant that they were in receipt of social security benefits and had no other form of income.  The Plaintiff also had further debts due to others which resulted in the Department of Finance and Personnel, Land & Property Services, securing judgement against the Plaintiff and later issuing a winding up petition.

In November 2011 the Defendant commenced further proceedings against the Plaintiff in the to recover the rent arrears and in February 2012 a default decree was obtained against the Plaintiff.  These proceedings failed to secure any payment and so the Defendant advised the Plaintiff that if full payment of arrears was not made within 7 days that “further action would be taken.”  By March 2012 the Defendant had for more than 10 years, been constantly demanding payments, which in their roles as tenant of the Estate under their head lease with Belfast City Council, it was responsible for paying.  At this point, it could be concluded that the Plaintiff’s default was wilful and so in April 2012 the Defendant re-entered and recovered possession of the premises by changing the locks.

Options available to the Defendant  

The Court stated that when the Defendant warned the Plaintiff that it was going to take “further action” it then had a number of options, either a) institute enforcement of proceedings for payment of rent accumulated since the date of rent referred to in the Default Decree, the Plaintiff would have to be fully aware of the previous defaults to make payment OR b) recover the premises either under statutory or contractual provision.  

Statutory Provisions

The Plaintiff argued the Defendant was should have complied with Section 14 of the Conveyancing Act 1881 which requires the Landlord to serve a notice on a tenant; a) specifying the breach b) if the breach is capable of remedy c) requiring the tenant to remedy the breach and d) in any case requiring the tenant to make compensation in money for the breach.  The Court held that the provisions under Section 14 did not apply in this matter as the Court was satisfied that Section 14 only relates to forfeiture or re-entry for breach of covenants relating to matters other than non-payment of rent.

Contractual Rights

The Court then turned to the rights of the landlord under the terms of the Lease and the provisos set out in the Lease for re-entry.   Standard re-entry provisions were contained in the lease that if the rents or any part of them are in arrears for 21 days after the sum shall become due (whether formally demanded or not) or in the event of the breach of any of the tenant’s covenants and stipulations it shall be lawful for the landlord at any time thereafter to re-enter the premises and hold and enjoy the same as if this Lease had not been made.  Furthermore the provisions of the Lease also provided that if the Landlord wanted to give the Tenant a chance to make good the breach that it could give the tenant one week’s notice in writing expiring at any time determining the Lease unless all rent and other monies due have been paid and any breach remedied.

The Court held that the Defendant would have been open to serve a notice under those provisions of the lease if the Defendant had wished to afford the Plaintiff the opportunity to make all the payments due and to the allow the lease to continue.  However the Court stated that it was not hard to understand why the Defendant did not take that approach, given the Plaintiff’s continuous non-compliance for payment of rent.  The Court was therefore satisfied that the taking of possession by the Defendant in accordance with the re-entry provisions in the lease in itself was lawful and completed the act of forfeiture.  

Relief Against Forfeiture

The Court then came to consider relief against forfeiture sought by the Plaintiff and in considering how it should approach wilful for breaches of covenant and whether or not to grant a relief against forfeiture, it adopted the approach in the case of Southern Depot & Co Limited –v- British Railways Board 1990 2EGLR.  Such approach was that the Court must take into account the following matters including, the conduct of the parties; the wilfulness of the breach by the tenant; general circumstances particular to the case; the nature of the commercial transaction; the subject of the lease; whether the essentials of the bargain can be secured; the value of the property in question; the extent of equality between the parties; the future prospects for the relationship; the fact that even in cases of wilful breach it is not necessary to find an exceptional case before granting relief against forfeiture. General equitable principles in must be applied in reaching a conclusion.

DECISION

In adopting the approach in the British Railways case and considering all the facts in this case, the court concluded that it would not exercise discretion to grant relief of forfeiture to the Plaintiff.  Setting out  the reasoning that the conduct of the parties in this matter are in total contrast to each other; the Defendant had carried out all its obligations where the Plaintiff had singularly failed to carry out its obligations in respect of payment of rent, and other sums due under the lease in respect of the premises; the breaches by the Plaintiff had been wilful and extended over many years; the parties were of equal standing as the Plaintiff had throughout and, should it have wished to do so, the benefit of legal advices; with regards to the future prospects of the relationship, the Court regarded the attitude of the Plaintiff to be vague and uncertain and it was unreasonable to expect the Defendant to deal with a company and directors who had failed to address their responsibilities in the past.  In this case the Plaintiff’s attitude towards it responsibilities in the face of legal proceedings and warnings had been culpable to the highest degree.  Therefore with regards to equitable principles the Plaintiff seeking an equitable remedy in circumstances where it had come to Court against the backdrop of such culpable and wilful non-observance of its obligations, leaving the Defendant to incur its responsibilities highlighted the fact that it would not be equitable to grant the Plaintiff relief against forfeiture.

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