Brittany Pearce recently acted for a landlord in a forfeiture claim in which an interesting point arose for argument as to whether an application for relief from forfeiture is still required when the tenant remedies the breaches complained of but fails to make payment of the reasonable compensation demanded as part of the section 146 notice.
In Brittany’s case the landlord had served a section 146 notice in respect of various continuing breaches, including use of the premises for purposes not permitted by the user clause and causing a nuisance and/or annoyance to neighbouring tenants. The landlord had also demanded payment of reasonable compensation. At trial the judge determined that the breaches had been remedied within a reasonable period of time but that the tenant had failed to make any payment in respect of compensation. The tenant’s position was that no payment was necessary as the landlord had failed to identify an appropriate figure or evidence loss. The judge held that, notwithstanding this, the landlord was entitled to forfeit due to the tenant’s failure to pay reasonable compensation and that an application for relief was necessary.
A landlord is entitled to demand reasonable compensation even if it has not suffered loss; this is clear from a reading of section 146. Further, a landlord is not required to specify a sum and can leave it to the tenant to quantify what is reasonable in the circumstances. A landlord who has suffered loss is advised to quantify the same, as this is likely to inform what is reasonable. A landlord who fails to specify an appropriate sum must also be aware that it is leaving it to the tenant to arrive at a figure and that a tenant is more likely than not to arrive at a figure at the low end of what is likely to be considered reasonable. A tenant who settles on a sum which is not obviously outside of the range of what is reasonable is likely to find favour with the court. However, a tenant would be wise not to ignore the demand for payment of reasonable compensation as it may find that on this basis alone it is required to make an application for relief from forfeiture.
In most cases if the breaches have been remedied or the appropriate undertakings offered then relief from forfeiture will be granted if failure to pay reasonable compensation is the only outstanding section 146 matter. However, a tenant who fails to make payment, perhaps taking the view that the same is unnecessary because the landlord has not suffered any loss, faces the risk of having to pursue an application for relief. If breaches have been remedied or suitable undertakings offered such an application may not be particularly risky (although this will always be fact sensitive). However, even if the court accedes to the application for relief there is a greater risk as to what the failure might mean in respect of costs. The usual order when the landlord’s right to forfeiture is proven is that the tenant pay the landlord’s costs on the indemnity basis, even if the tenant successfully applies for relief. If the only reason that a tenant is required to apply for relief is due to the failure to make payment of reasonable compensation, this may be a circumstance in which the court is willing to make a different order as to costs. However, there is a very real risk that a court would be inclined to make the usual order. With such a range of orders falling within the remit of what might be considered reasonable it is difficult to predict costs orders in such circumstances. It would be prudent for tenants to avoid the risk altogether by making a payment of a sum which is likely to be considered reasonable.
The lessons for landlords are to quantify and evidence loss, if suffered, and to consider demanding a sum which a court is likely to agree as being reasonable (i.e. do not overegg the demand) as if the matter is left to the tenant they are likely to come back with a payment which is at the lower end of the scale of what might be considered reasonable. For tenants, the lessons are, firstly, to make the payment if it is demanded, and secondly, to make payment of a sum which is within the ambit of what a court is likely to order. Payment of a reasonable sum is likely to be far less costly than the costs order that might arise in the event of failure.
Brittany specialises in property and trusts law. She has been identified as a leading junior by the Legal 500 and is ranked in Chambers UK. Find out more about Brittany here.
This article is provided for general information purposes only. It does not constitute legal advice and reliance should not be placed on it. Specific advice should be obtained in relation to any case or matter.