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The recent case of Chug & Anor v Dhaliwal & Anor provides a High Court example of when and how a Judge must weigh up factors for relief from forfeiture and why it is a bad idea to unlawfully sublet commercial premises.
The Facts
Mr Chug was a tenant of Mr Dhaliwal of a commercial property in Hounslow.
Chug had the benefit of a 20-year lease with a rent of £57,000 per annum. The lease contained the usual covenants about not subletting the property, parting with possession, altering the layout, and paying the rent on time.
Mr Chug had attempted to sell his business during the lease term and entered into discussions with a third party, Mr Darwan.
Initially, Mr Chug sought to abide by the lease terms and sought permission to assign the lease to Mr Darwan.
However, nothing came of it. Mr Chug then sold his business to Mr Darwan for the sum of £175,000.
Mr Darwan then took over the shop, turning it into a mobile phone shop and paid rent to Mr Chug each month, which was passed onto Mr Dhaliwal. Mr Dhaliwal was unaware of this subletting.
Mr Dhaliwal became aware of the subletting in 2019 when he attempted to secure a loan against the property as the bank sent a surveyor to value the property. The surveyor then reported this back to the bank.
Before this, rent was also not paid in full, and there was an issue as to whether the shop had been altered without consent.
Despite Mr Dhaliwal being made aware of the subletting and breaches of the lease, he continued to accept rent on another four occasions.
Mr Dhaliwal eventually served a section 146 notice on Mr Chug, stating that there were lease breaches that needed to be rectified or otherwise the lease would be forfeited.
As there was no response to the section 146 notice, Mr Dhaliwal took back possession of the property by changing the locks, thus excluding Mr Darwan.
Following this action, Mr Chug responded to Mr Dhaliwal, setting out that he would remedy the breaches.
Despite a brief re-entry period into the property, Mr Dhaliwal finally obtained absolute possession again.
The Claim
Mr Chug and Mr Darwan brought an action to declare that the re-entry was unlawful, or alternatively, relief from forfeiture.
The claims were dismissed, and the parties appealed the decision.
The appeal was made on three grounds:
- There had been no breaches of the lease at the time Mr Dhaliwal instructed the bailiffs to re-enter the property.
- The alterations did not require consent.
- Despite there being rent arrears, Mr Dhaliwal had waived his right to forfeit because he had continued to accept rent after the date.
There was also a complaint that the Section 146 notice was not sufficiently precise and that the Judge had failed to exercise his discretion properly regarding whether to grant relief from forfeiture.
The Appeal
The High Court rejected the tenant’s arguments but also held, in any event, on the findings of the county court judge, that the tenant, through its actions, had accepted the forfeiture.
The tenant had agreed to set aside any claims concerning the property in return for the landlord forgoing any claim to dilapidations.
Waiver, notice defects and relief were therefore not relevant.
Comment
In summary, the case provides the following insights:
- That the decision is based on a finding that the tenant has agreed to accept the forfeiture of the lease and relinquish any further interest in the property in return for the landlord agreeing not to pursue him for dilapidations. The facts found by the county court indicated that the continued occupation of Mr Darwan after the time Mr Chug had accepted the forfeiture was as a licensee or tenant at will from the landlord.
- That there is some leeway for imprecise Section 146 notices where the situation ‘on the ground’ has been obscured by the tenant, and the tenant was aware of its obligations.
- That alienation and unauthorised subletting are continuing breaches on which the landlord’s right to forfeit, subject to notice, arises each day that it continues.