Forfeiture of Lease: Whether grant of relief from forfeiture could be made in a dispute relating to an option agreement

Where an option registered against the freehold of a property contained pre-conditions to allow a grant of relief from forfeiture to be made, had such conditions been satisfied and could relief from forfeiture be granted in respect of an option agreement?

The background

Hush Brasseries Ltd v Rlukref Nominees (UK) One Ltd and another [2022] concerned premises in Mayfair in London of which the restauranteur claimant was tenant under a 25-year lease completed in 1999. The lease was granted by the Co-operative Insurance Society Ltd as original landlord, with the claimant the original tenant.

A call option was granted by the original landlord to the tenant in March 2011 which was protected by a unilateral notice registered against the freehold title for the property. The option granted the claimant the right to call for the grant of a new lease of the premises on materially the same terms.

The option contained a provision at clause 14.1 that “The Landlord may determine this agreement by written notice to the Tenant if: (a) the Tenant is in breach of any of the provisions of this agreement… (b) any of the events set out in clause 5.1 of the Lease occurs”.

The defendants acquired the freehold in October 2017 subject to the lease and option. As a result of the COVID19 pandemic, the claimant fell into arrears of rent. The landlord served notice on the claimant to terminate the option on the grounds that the claimant had breached its obligation under the lease to pay rent, but did not seek to forfeit the lease. The claimant applied for grant of relief from forfeiture, agreeing that it needed to establish:

1. That the option had given the claimant a sufficient proprietary interest in the premises; and
2. That clause 14.1 had secured the performance of the tenant covenants in the lease, particularly relating to payment of rent.

The decision

The High Court found in favour of the claimant, agreeing that the two pre-conditions were met and granting the claimant unconditional relief from forfeiture.

The court considered the pre-conditions specified at clause 14.1 of the option. Before the option was terminated by notice, the claimant had enjoyed a relevant interest in the land by virtue of the registered unilateral notice on the freehold title. The first pre-condition was therefore met.

In assessing whether clause 14.1 secured performance of tenant covenants in the lease, the court considered that this clause had been intended to secure, and was security for, performance of the tenant’s covenants in the lease. The second pre-condition had been met.

The court concluded that the defendants’ termination of the option could not be upheld and decided in favour of the claimant, granting relief from forfeiture.

Advice and action for landlords

This decision sets a useful point of reference on a technical legal aspect, finding that grant of relief from forfeiture could be made in respect of a provision contained in an option, not limiting such a grant to forfeiture exercised in respect of lease provisions.

Landlords and managing agents should benefit from thorough knowledge of options granted to leaseholders. In this case, the termination provision at clause 14.1 operated sufficiently as a forfeiture provision to allow the court to grant relief to the claimant.