Relief From Forfeiture Of A Commercial Lease

• Published date: 25 May 2023
• Subject Matter: Real Estate and Construction, Landlord & Tenant - Leases
• Law Firm: Myerson Solicitors LLP
• Author: Myerson Solicitors LLP

The recent case of Chug & Anor v Dhaliwal & Anor provides a High Court example of when and how a Judge must weigh up factors for relief from forfeiture and why it is a bad idea to unlawfully sublet commercial premises.

The Facts

Mr Chug was a tenant of Mr Dhaliwal of a commercial property in Hounslow.

Chug had the benefit of a 20-year lease with a rent of '57,000 per annum. The lease contained the usual covenants about not subletting the property, parting with possession, altering the layout, and paying the rent on time.

Mr Chug had attempted to sell his business during the lease term and entered into discussions with a third party, Mr Darwan.

Initially, Mr Chug sought to abide by the lease terms and sought permission to assign the lease to Mr Darwan.

However, nothing came of it. Mr Chug then sold his business to Mr Darwan for the sum of '175,000.

Mr Darwan then took over the shop, turning it into a mobile phone shop and paid rent to Mr Chug each month, which was passed onto Mr Dhaliwal. Mr Dhaliwal was unaware of this subletting.

Mr Dhaliwal became aware of the subletting in 2019 when he attempted to secure a loan against the property as the bank sent a surveyor to value the property. The surveyor then reported this back to the bank.

Before this, rent was also not paid in full, and there was an issue as to whether the shop had been altered without consent.

Despite Mr Dhaliwal being made aware of the subletting and breaches of the lease, he continued to accept rent on another four occasions.

Mr Dhaliwal eventually served a section 146 notice on Mr Chug, stating that there were lease breaches that needed to be rectified or otherwise the lease would be forfeited.

As there was no response to the section 146 notice, Mr Dhaliwal took back possession of the property by changing the locks, thus excluding Mr Darwan.

Following this action, Mr Chug responded to Mr Dhaliwal, setting out that he would remedy the breaches.

Despite a brief re-entry period into the property, Mr Dhaliwal finally obtained absolute possession again.

The Claim

Mr Chug and Mr Darwan brought an action to declare that the re-entry was unlawful, or alternatively, relief from forfeiture.

The claims were dismissed, and the parties appealed the decision.

The appeal was made on three grounds:

1. There had been no...