6 Forfeiture

4.15 If the landlord wishes to terminate the tenancy during the fixed term for breach of tenancy he will have to rely upon the general law of forfeiture. Forfeiture was rarely used to terminate older farm tenancies under the Agricultural Holdings Act 1986, for a variety of reasons: most 1986 Act tenancies are yearly periodic tenancies (not fixed terms), and as such are terminable by notice to quit; the 1986 Act includes statutory possession procedures which are clearly defined, and in some respects more draconian; and the tenant has no right to relief from forfeiture if the statutory procedures in the 1986 Act are invoked.²⁸ This must be seen against a background, however, where the tenant of an agricultural holding under the 1986 Act has very substantial security of tenure, and can refer a notice to quit to the first tier tribunal for its consent.

4.16 The law of forfeiture has long been regarded as in need of reform. The Law Commission published a critical report in 1985,²⁹ and a draft Bill was published in 1994. The introduction of the Human Rights Act 1998 rendered some of the provisions in the draft Bill obsolete, but the need to reform the law of forfeiture has remained a priority. Instructions were given to parliamentary counsel by the Law Commission to draft a new Bill in 2004, and the Termination of Tenancies Bill was ordered to be printed by the House of Commons.³⁰ At the time of writing, a timetable for its introduction has not been agreed or established.

(a)Proviso for re-entry

4.17 There is no implied proviso for re-entry. The lease must therefore include an express proviso permitting re-entry where the tenant is in breach of any of the covenants in the lease, or becomes bankrupt, or where the rent is unpaid for a fixed period.³¹ There is no provision in the Agricultural Tenancies Act 1995 for the subsequent insertion of a proviso for re-entry cf. the position under the Agricultural Holdings Act 1986, which provides for arbitration to settle the terms of the tenancy if it is oral, or if it is in writing but does not contain a proviso for re-entry.³² There are no arbitration provisions in the 1995 Act with comparable application to farm business tenancies. An express proviso for re-entry and forfeiture must therefore be taken in the farm business tenancy agreement itself, and the provisions of the general law of landlord and tenant will govern its exercise. The chief drawback, from the landlord’s point of view, is the availability to the tenant of relief from forfeiture if the tenant pays the outstanding rent (or remedies the other breaches of tenancy complained of) during the forfeiture proceedings, pays costs and gives appropriate undertakings to the court for his future performance of the terms of the tenancy.

4.18 Forfeiture must be effected by either peaceful re-entry or proceedings for forfeiture.³³ The tenancy is terminated on judgement, which then relates back to terminate the tenancy from the date of issue of the writ.³⁴ The statutory restrictions on forfeiture vary according to whether forfeiture is sought for non-payment of rent, or for breach of other covenants in the lease.

(b)Forfeiture for non-payment of rent

4.19 Unless the lease dispenses with the need to make formal demand, a formal demand for rent due must be made before proceedings can be commenced.³⁵ By virtue of s 210 of the Common Law Procedure Act 1852 this is not necessary where six months’ rent is in arrears and insufficient distress is to be found on the premises. Sections 16–18 of the Agricultural Holdings Act 1986³⁶ limit the goods on which distress can be levied by excluding agisted stock, and machinery and stock on hire from third parties. Where forfeiture is invoked against a tenant of an agricultural holding governed by the 1986 Act, therefore, there must be insufficient distrainable goods to cover the rent owing, excluding those items protected by the 1986 Act. The Agricultural Tenancies Act 1995 places no restraints upon the goods that can be distrained upon for rent, or upon the rent that is recoverable by distress. These considerations will not, therefore, apply in forfeiture proceedings involving a farm business tenancy.

4.20 Whether proceedings are pursued in the County Court or High Court the tenant will be entitled to relief if he pays into Court the rent owing and the landlord’s expenses. Equity regards forfeiture as merely security for non-payment of rent.³⁷ Where six months’ rent is in arrears, and proceedings are in the High Court, sections 210–212 of the Common Law Procedure Act 1852 apply.³⁸ The tenant can stay the proceedings at any time up to trial by paying into court the rent owing and landlord’s costs. If he is unable to pay the rent prior to judgement, he has six months after execution of the judgement in which to apply for relief, after which relief against forfeiture is barred. If less than six months’ rent is owing, the tenant must fall back on the general equitable jurisdiction to grant relief.

4.21 In the County Court the tenant’s right to relief is governed by s 138 of the County Courts Act 1984.

(c)Forfeiture for breach of other covenants

4.22 Section 146 of the Law of Property Act 1925 requires service of a formal written notice before forfeiture proceedings can commence. The notice must:⁴²

(i)specify the breach complained of;

(ii)if the breach is capable of remedy, it must require the tenant to remedy the breach, and

(iii)it must require the tenant to make compensation in money for the breach.

4.23 If the breach alleged is capable of remedy, the landlord must give the tenant a reasonable time after service of the notice in which to effect its remedy. If the tenant fails to remedy the breach within a reasonable time and make reasonable compensation to the landlord’s satisfaction, then the landlord can proceed to enforce the proviso for re-entry in forfeiture proceedings. All joint tenants must be served with a s 146 notice.⁴³ It follows that the s 146 notice fulfils a different purpose dependant on whether the breach of tenancy alleged is capable of remedy or is irremediable. Where the breach is capable of remedy the procedure gives the tenant two opportunities to avoid forfeiture of the lease: the s 146 notice will give him an opportunity to remedy the breach within a reasonable time; and (secondly) he can subsequently throw himself on the court’s discretionary jurisdiction and apply for relief from forfeiture if the landlord proceeds with forfeiture.

(i) Remediable and Irremediable Breaches of Tenancy

4.24 The distinction between breaches that are capable of remedy and those that are irremediable is of fundamental importance. If the breach complained of is remediable an omission in the statutory notice to require it to be remedied will invalidate the notice, as will failure to allow a reasonable period for the tenant to remedy it. On the other hand, if the breach is irremediable the landlord will not have to specify a period for compliance in the notice; but the landlord must still leave a reasonable period after the service of the notice before issuing proceedings.⁴⁴

4.25 It used to be the case that the distinction between remediable and irremediable breaches was equated with that between breaches of a single obligation as opposed to a continuing one. In one sense, any breach of tenancy is irremediable, in the sense that where a breach occurs, even if only once, what is done cannot be undone. Where the obligation is a continuing one, however, past breaches can be remedied by resumption of observance of the obligation and the making of appropriate compensation. Reference to a ‘continuing’ breach simply means a breach of a continuing obligation and does not refer to the tenant’s ability to remedy a single breach.⁴⁵ More recently, however, the courts have moved towards a more pragmatic view, concentrating on whether the effect of a breach is capable of remedy within a reasonable time, in a way that will put the landlord in the position he would have been in had the breach not occurred.⁴⁶ It follows that breach of a positive covenant will usually be capable of remedy; for example, breach of a covenant to reconstruct the premises within a specified time will be ‘capable of remedy’ by the subsequent performance of the covenant, even if it takes place outside the time set for performance in the covenant itself.⁴⁷

4.26 Assignment or subletting the holding (or part of it) in contravention of an alienation covenant will be treated as an irremediable breach of tenancy entitling the landlord to forfeit the lease.⁴⁸ A covenant against parting with possession, or sharing possession, will however be capable of remedy by the tenant – and if remedied within a reasonable time of the service of statutory notice of forfeiture⁴⁹ cannot subsequently support forfeiture proceedings by the landlord.⁵⁰ On the other hand, breach of a covenant to lay out insurance moneys in reinstating the property, being subject to an implied obligation to do so within a reasonable time, has been held to be an irremediable breach of covenant.⁵¹ A breach of covenant to keep premises insured, to reinstate after damage by fire, or to keep in good and tenantable repair, will be remediable and the landlord will have to allow a reasonable period for remedy before proceeding for possession.

4.27 Where the breach of covenant is by a sub-tenant, such breach not having been known to, caused or permitted by an intermediate tenant (his immediate landlord), the breach by the intermediate tenant is not irremediable. The tenant’s remedy is to take immediate steps to stop the breach as soon as it becomes known to him, and to initiate the commencement of an action for forfeiture of the sub-lease within a reasonable period thereafter.⁵² Whatever the nature of the breach complained of, the tenant must be clear as to what is required of him.⁵³ The landlord can avoid the problems caused by the distinction by phrasing his statutory notice in the alternative, specifying the breach complained of and requiring its remedy ‘if it is capable of remedy’.⁵⁴ If he waits for a reasonable period before instituting proceedings his notice cannot then be challenged on the ground that the breach in issue is remediable, rather than irremediable.

(ii) Relief Against Forfeiture

4.28 Section 146(2) provides that at any time while the lessor ‘is proceeding, by action or otherwise’, to enforce a right of re-entry the tenant has the right to apply to the court for relief. The court can grant relief on such terms, if any, as to costs, expenses, damages, compensation, penalty or otherwise as it thinks fit. If the landlord effects peaceably re- entry without a court order, the tenant’s right to apply for relief remains intact, as the landlord is still ‘proceeding’ to enforce his right of forfeiture and cannot cut off the tenant’s right of relief unilaterally by physically repossessing the premises.⁵⁵ The tenant’s right to apply for relief is only lost if the landlord has obtained an order for possession forfeiting the lease, and the possession order has been lawfully executed, for the landlord is then no longer ‘proceeding’ with forfeiture – he has effected it.⁵⁶ The court’s discretion to award relief to the tenant is only cut off where there is ‘a final, unappealed and fully executed judgement’ for possession.⁵⁷ It follows that if the landlord obtains an order for possession, but has not executed it by physical re-entry, the tenant may still apply for relief.⁵⁸

4.29 Section 146(4) extends the right to apply for relief to sub-tenants, and gives the Court power to ‘make an order vesting, for the whole term of the lease or any less term, the property comprised in the lease or any part thereof in any person entitled as underlessee to any estate or interest in such property’. The court can grant relief to the sub-tenant on such terms as it thinks fit, although it cannot grant a term longer than that which the sub-tenant enjoyed under his original sublease. It has also been held that an equitable assignee of a subtenant can also apply for relief against forfeiture, even though he is not in a relationship of privity of estate with the landlord.⁵⁹

4.30 The discretion of the court to grant relief is wide, and it is not possible to set down clear guidelines within which it will be exercised. Cozens-Hardy MR laid down the following general principles upon which the court will act in Rose v Hyman.⁶⁰ On appeal the House of Lords granted cautious approval to these principles, but stressed that rigid rules could not be laid down to guide the exercise of the court’s discretion, and that they might therefore be departed from in appropriate cases:⁶¹

(a)the tenant must, as far as possible, remedy the breaches alleged and pay reasonable compensation for those which cannot be remedied.

(b)if the breach is of a negative character the tenant must undertake to observe the covenant in future, and

(c)if the act complained of is of such a nature that the court would have restrained it during the currency of the tenancy on the ground of waste, the tenant must undertake to make good the waste if it is possible to do so.

(d)if the breach is one for which damages might be recovered in an action on the covenant, the tenant must undertake not to repeat the wrongful act or to be guilty of a continuing breach.

4.31 The fact that the tenant has remedied the breach, or that it occurred without his knowledge or consent,⁶² are factors the court will take into account when weighing its discretion. The court may also refuse relief where the personal qualifications of the tenant are important for the preservation of the value or character of the property.⁶³ Agricultural property falls within this category, and s 146(9) expressly excludes the protection of s 146 where a landlord seeks to enforce a proviso for forfeiture on bankruptcy of the tenant in a lease of agricultural land.

(iii) Breach of Repairing Covenant

4.32 The Leasehold Property (Repairs) Act 1938 imposes further restrictions on the landlord’s right to enforce a proviso for re-entry for breach of repairing covenants. By virtue of para 8 of the Schedule to the Agricultural Tenancies Act 1995, the 1938 Act does not apply to farm business tenancies or agricultural holdings. It follows that the landlord of a farm business tenancy who seeks forfeiture for breach of repairing obligations does not have to serve the additional notices required by the 1938 Act, or seek leave of the court to proceed.

4.33 It is not possible to exclude, by agreement or otherwise, the tenant’s right to apply for relief against forfeiture. So, in Richard Clarke & Co. Ltd v Widnall⁶⁴ a clause purporting to give the landlord a right to terminate the tenancy, on giving three months’ notice, where the tenant was in breach of covenant was held to be in substance a proviso for re-entry. As such it was only enforceable if s 146 was complied with, and subject to the tenant’s right to relief.

(d)Waiver

4.34 One of the dangers for the landlord in forfeiture proceedings is that he may waive his right to forfeit by either communicating to the tenant his intention not to forfeit, or in some way committing an act which acknowledges the continued existence of the tenancy.⁶⁵ Demanding or accepting rent accruing due after proceedings have commenced will amount to a waiver,⁶⁶ as will levying distress for rent falling due.⁶⁷ Waiver is not such a danger where the tenant’s breach is of a continuing nature, such as breach of a user covenant or of the tenants repairing obligations. The waiver of any breach up to a certain date by the landlord, where the breach is a continuing one, will not act as a waiver of future breaches. Continuing breach after a waiver will furnish a fresh cause of action.⁶⁸ Moreover, it is unnecessary to serve a second s 146 notice, following waiver, where the breach is a continuing one eg continuing disrepair in breach of covenant.⁶⁹ Where forfeiture is for breach of covenant to repair, entry by the landlord to do the necessary work followed by his distraining for his expenses will be a waiver. An agreement to allow a tenant more time to execute repairs does not act as a waiver, however, but merely as a suspension of the landlord’s right to forfeit.⁷⁰