Factual and Procedural Background
29 Buckland Crescent is a Victorian house divided into four flats. Company A is the registered proprietor of the freehold. The lessee of Flat 2, the top floor flat, is the Defendant. The dispute concerns whether Company A was entitled to initiate forfeiture proceedings against the Defendant's lease, or whether such proceedings were barred by a Settlement Agreement dated 5 December 2021, which compromised an earlier dispute between the parties.
The initial judge, HHJ Dight CBE, held that Company A was precluded from seeking forfeiture, but Richards J disagreed, granting the Defendant relief against forfeiture on payment of costs on an indemnity basis. The Defendant appeals with permission, and this appeal focuses on the issue of costs.
The Defendant's lease was granted in 1980 for 999 years. It included a covenant to keep the premises in good repair and a proviso allowing re-entry upon breach of covenant. Between 2020 and 2021, serious leaks from the Defendant's flat were identified as originating from the bathroom, and the Defendant had also failed to pay service and administration charges demanded by Company A.
Company A issued three applications to the First-tier Tribunal (FTT) in May 2021: for a determination of breach of covenant under section 168(4) of the Commonhold and Leasehold Reform Act 2002, and for determination of unpaid service and administration charges. These applications were compromised by the Settlement Agreement.
The Defendant failed to complete agreed remedial works by the deadline in the Settlement Agreement. Company A then served a draft section 146 notice and subsequently a claim form seeking forfeiture on grounds of breach of the lease covenant. The Defendant contended that the claim was precluded by the Settlement Agreement.
Legal Issues Presented
- Whether Company A was entitled to commence forfeiture proceedings against the Defendant's lease despite the Settlement Agreement.
- Whether the Settlement Agreement precluded forfeiture claims arising from breaches of the lease covenant.
- The proper interpretation of the Settlement Agreement, including its release and non-suing clauses, in the context of the lease and relevant statutory provisions.
- The effect of section 168 of the Commonhold and Leasehold Reform Act 2002 and the Leasehold Property (Repairs) Act 1938 on the right to forfeit the lease.
- Whether costs on an indemnity basis were properly awarded against the Defendant.
Arguments of the Parties
Defendant's Arguments
- The Settlement Agreement precluded forfeiture proceedings based on breaches of the lease covenant because it released all claims arising out of or connected with the prior proceedings.
- The "carve out" in the Settlement Agreement allowing claims for breach of the agreement itself did not extend to breaches of the lease.
- The forfeiture clause in the lease applies only to breaches of covenants contained within the lease, not to breaches of the Settlement Agreement.
- Section 168 and the 1938 Act restrict the landlord's ability to forfeit; the Settlement Agreement must be interpreted against this legal background.
- The claim for forfeiture was effectively barred by the Settlement Agreement's release and non-suing provisions.
Company A's Arguments
- The admission of breach in the Settlement Agreement entitled Company A to serve a section 146 notice and pursue forfeiture if the Defendant did not comply with remedial obligations.
- The "carve out" clause allowed claims for breaches of the Settlement Agreement, including failure to perform the remedial works, thus permitting forfeiture proceedings.
- The Settlement Agreement did not extinguish the right to forfeit for breach of the lease covenant.
- The forfeiture clause in the lease was broad enough to include breaches arising from failure to comply with the Settlement Agreement.
- The Defendant's failure to serve a counter-notice under the 1938 Act was a procedural default that did not preclude forfeiture.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| BCCI v Ali [2001] UKHL 8, [2002] 1 AC 251 |
Ordinary principles of contractual interpretation apply to settlement agreements. |
The court applied standard contractual interpretation principles to the Settlement Agreement. |
| The Financial Conduct Authority v Arch Insurance UK Ltd [2020] EWHC 2448 (Comm) |
Contextual interpretation of contracts including relevant legal background. |
The court considered the legal context, including the 1938 Act, in interpreting the Settlement Agreement. |
| Croft v Lumley (1858) 6 HL Cas 672 |
Forfeiture clauses must be strictly construed and clearly intended to include the breach alleged. |
The court held that forfeiture rights are limited to breaches of covenants contained in the lease. |
| Bedford v Paragon Asra Housing Ltd [2021] UKUT 266 (LC), [2022] L & TR 7 |
Section 168 applications are not forfeiture proceedings but determinations of breach that may lead to various remedies. |
The court emphasized that section 168 determinations serve multiple purposes beyond forfeiture. |
| Eastpoint Block A RTM Co Ltd v Otubaga [2023] EWCA Civ 879, [2023] 1 WLR 3896 |
Section 168 applications are discrete steps distinct from forfeiture proceedings and may be pursued even if forfeiture is not an option. |
The court reinforced that section 168 determinations can be sought independently of forfeiture rights. |
| Termhouse (Clarendon Court) Management Ltd v Al-Balhaa [2022] 1 WLR 1529 |
Determinations under section 168 cannot be enforced as forfeiture proceedings without further steps. |
The court noted that a breach determination does not itself enforce forfeiture. |
| Crestfort v Tesco [2005] L & TR 20 |
Alternative remedies such as injunctions or damages may be sought alongside or instead of forfeiture. |
The court recognized alternative remedies available for breach of covenant. |
Court's Reasoning and Analysis
The court examined the Settlement Agreement's clauses in the context of the lease and relevant statutory provisions. Clause 6 broadly released all claims arising out of or connected with the prior proceedings, including unknown claims. Clause 7.1 prevented either party from initiating proceedings concerning those matters, effectively barring forfeiture claims based on the lease covenant.
The "carve out" in clause 7.2 was limited to claims for breach of the Settlement Agreement itself and did not extend to breaches of the lease. The court distinguished the continuing obligation in the lease (clause 3(1)) from the one-time obligation in the Settlement Agreement (clause 5.3), noting that breach of clause 5.3 did not equate to breach of the lease covenant.
Interpretation principles required reading the Settlement Agreement against the legal background, including the Leasehold Property (Repairs) Act 1938, which restricts forfeiture rights following a tenant's counter-notice. The court acknowledged that forfeiture of a valuable long lease is virtually impossible in practice.
While the admission of breach in the Settlement Agreement was significant, the court found that the parties could not have intended to permit forfeiture if the Defendant failed to comply, given the statutory protections and the Settlement Agreement's broad release and non-suing provisions.
The court agreed with HHJ Dight’s view that the Settlement Agreement reshaped the parties' rights, discharging original claims and confining future claims to breaches of the Settlement Agreement itself, enforceable by specific performance or damages, but not forfeiture.
Holding and Implications
The court held that the carve out in clause 7.2 of the Settlement Agreement did not entitle Company A to forfeit the lease. The appeal was allowed.
Holding: The claim for forfeiture was precluded by the Settlement Agreement, and Company A was not entitled to forfeit the lease for breach of either the lease covenant or the Settlement Agreement's remedial obligation.
Implications: The decision directly prevents Company A from pursuing forfeiture based on the current dispute and affirms the binding effect of the Settlement Agreement’s release and non-suing provisions. No new precedent was established beyond the application of established principles of contractual interpretation and statutory context to these facts.