Planning Law Breach Insufficient for Lease Forfeit

July 27, 2015

Planning Law Breach Insufficient for Lease Forfeit

When the tenants of a commercial property held on a 125-year lease allowed their subtenant to use it in breach of planning permission, the owner of the freehold of the premises applied to the court for the head lease to be forfeited on the ground that the tenants were in breach of covenant in allowing the premises to be used in contravention of planning law.

The tenants had allowed the premises to be used as a pizza takeaway, which was not a permitted use. Following the issue being raised in 2010, it was agreed between the freeholder and the tenants that the latter would either obtain planning permission for the takeaway or, if that were not possible, secure a surrender of the sub-lease and the cessation of the business.

The tenants failed to achieve either outcome and the freeholder therefore went back to court seeking forfeiture of the lease. The court ruled that this was to be granted if the business did not cease by 11 February 2011. The freeholder's legal costs were also to be paid by the tenants.

When those terms were alleged not to have been complied with, the freeholder went back to court again to enforce the forfeiture of the lease. This application was contested all the way to the Court of Appeal.

The Court found that the pizza business had in fact ceased, albeit after 11 February 2011. The failure to comply with the ruling of the lower court was based on a genuine mistake of understanding by the tenants. Crucial to the Court's decision was the finding that the freeholder would gain a substantial windfall if the lease was forfeit.

It is surprising that a case like this could proceed all the way to the Court of Appeal, but having done so, it will come as a relief to tenants that such a draconian outcome as forfeiture was not ordered by the Court after taking into account all the circumstances.