Many of our readers will have been involved in conversations and negotiations over the huge wave of rent arrears that inevitably built up in the wake of the Covid pandemic and the government’s associated measures.
The aftershocks of this build-up of rent arrears continue to reverberate and December 2022 saw the resolution of one in the High Court – the clash between Hush Brasseries and its landlord, regarding the popular Mayfair restaurant and hospitality destination.
After over 20 years of happy trading following its lease being granted in 1999, Hush looked forward to many more, despite its lease term expiring in 2024. This was because in 2011 the landlord’s predecessor had entered into an option agreement with Hush.
The option was for a new lease substantially on the same terms as the existing lease, but for a term expiring at the end of 2030. It could be exercised by the landlord or the tenant during the final year of the existing lease’s term. The option was registered at the Land Registry.
However, the option included the usual provision entitling the landlord to bring it to an end if any of the events that would entitle the landlord to forfeit the lease were to arise during the term of the lease.
When the Covid pandemic forced Hush to close and it fell into rent arrears, the landlord legitimately terminated the option on the basis that non-payment of rent was (as you would expect) a ground for forfeiture in the lease. The landlord chose not to seek to forfeit the lease though, and instead entered into a rent concession agreement with the tenant for the remainder of the term. The landlord’s approach here can be understood by reference to its intention to demolish and redevelop the property, but to secure the income until 2024 while its redevelopment plans were being worked out.
The tenant responded to the landlord’s position in two ways. First, it sensibly complied with its obligations in the rent concession agreement associated with the existing lease. Second, it claimed relief from forfeiture regarding the termination of the option. The High Court considered the second and granted Hush’s claim.
The reasons the High Court allowed the claim were that it considered that:
- an option to take a lease grants a sufficient proprietary interest in the premises to entitle Hush to apply for relief from forfeiture – any proprietary interest would be sufficient;
- the termination clause in the option agreement was there to secure the performance of primary obligations, being the tenant covenants in the lease, even though they were capable of separate operation; and
- it ought to exercise its discretion to grant relief from forfeiture in this case, because it would be unconscionable for the landlord to rely on its strict legal rights in this case.
This is more evidence of courts being sensitive to businesses who were unwilfully put into breach of their contracts by the Covid pandemic. In this case, it mattered that the arrears arose in this context and that the tenant otherwise appeared to have been a good one.
Landlords should be careful before they go to great lengths seeking to forfeit legal interests in land. Good tenants have a good chance of securing relief.
