Snapshots from Commercial Property: April

In this special feature, our commercial property team provide snapshots of the latest commercial property law news throughout April.

Termination clause or right to forfeit?

If they are to avoid a potential application for relief from forfeiture when seeking to terminate a lease, landlords will need to consider carefully whether they are exercising a contractual right to terminate the lease (such as a break right) or are in fact claiming a right to forfeiture.

Although not strictly a commercial case, the recent case of Croydon London Borough Council v Kalonga called on the Supreme Court to consider this issue, which will have implications for those seeking to terminate commercial leases. If the landlord seeks to end the lease based on a right of forfeiture, there is a possibility that the tenant could apply for relief from forfeiture which would not be available when the termination arises from exercising a contractual termination right.

It is key to note that for these purposes it is irrelevant how the clause is referred to in the lease. That is to say, that merely because a clause is named a “break clause” from which you would infer a contractual right to terminate, if the substance of the clause the landlord is exercising suggests otherwise, then it could still be interpreted by a court as a right to forfeiture.

An older case of Clays Lane Housing Co-Operative Ltd v Patrick (1984) was cited to conclude that a right of forfeiture is most likely being exercised if:

1. exercising the clause brings the lease to an end earlier than its “natural” conclusion
2. the clause is exercisable in the event of some default by the Tenant.

In addition, the 1976 case of Richard Clarke & Co Ltd v Widnall demonstrates that even where a break right is exercisable on notice (in this case three months), this will not prevent the clause from being deemed a forfeiture clause if, in substance, it is exercisable on breach of the tenant’s covenants.

Landlords should therefore be wary of dismissing the possibility that the tenant could apply for relief where the termination has been “triggered” by a breach of tenant covenant.

Restrictive Covenants: Nuisance or Annoyance?

The erection of a two-storey extension was held not to be a nuisance or annoyance in the recent case of Di Silvo v Sharp. The claimant was granted a declaration that the erection of their proposed extension did not breach a restrictive covenant affecting their property which prohibited them from causing: “annoyance nuisance or disturbance” to other owners on the estate. The court applied the test of whether the action complained of would be an annoyance to a reasonable person.

It should be noted that the courts have acknowledged that the presence of a restrictive covenant to prevent “nuisance or annoyance” shall provide wider protection and additional remedies than the common law of nuisance. The test to be applied is whether a reasonable person would be aggrieved and not, as the defendants claimed in this recent case, whether annoyance “fell within the reasonable range of reactions one person may have”.

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