Hill Dickinson succeeds on behalf of landlord on multiple applications for relief from forfeiture by residential sub-tenants of part

Hill Dickinson succeeds on behalf of landlord on multiple applications for relief from forfeiture by residential sub-tenants of part

In Derwent Lodge Estates Ltd -v- Signature Living Hotel Ltd & 54 others (2025) the court endorsed the overarching principle that a landlord should be in no worse position than pre-forfeiture of the headlease, even though the outcome presents the sub-tenants with an unpalatable result. The case seems to be the first reasoned judgment in many years on the approach to exercising discretion when considering applications for relief by multiple sub-tenants of part.

The case concerned West Africa House, a seven-storey building in Liverpool that has mixed commercial and residential use. The building was subject to various leases, including a headlease of the entire building which placed responsibility for insuring and maintenance of the structure of the building on the tenant as well as reserving a substantial head rent of £80,000 pa and rising. Below this sat a sublease of 1st – 7th floors (which contained several residential apartments and common parts), and individual sub-leases for those residential apartments which has been granted at a premium by the head tenant. 

The headlease of the building was forfeited following the insolvency of the tenant in September 2022 on the grounds of non-payment of rent. This resulted in all the sub-leases being terminated. Those who held the 42 residential apartments in the building, and their mortgagees, applied for relief from forfeiture under s.146(4) of the Law of Property Act 1925.

Derwent did not object to relief being granted, but opposed the relief sought by the sub-tenants as it would have resulted in the grant of a new headlease of only part of the building. The result of a new headlease in this manner would have imposed obligations on Derwent which, in practical terms, it had not been subject to in the previous structure, such as maintenance obligations for the building structure and responsibility as the “Accountable Person” for the purposes of the Building Safety Act 2022.

Derwent proposed that any relief be upon the same terms as the headlease, i.e., vesting the whole building with full repairing and insuring obligations falling upon the apartment owners as “tenant” under the headlease and at the same head rent. The only covenant Derwent would give would be quiet enjoyment. The apartment owners proposed that relief be upon the basis of a lease in the same terms as the sublease of 1st-7th floors, with repairing and insuring obligations for the main structure and common parts falling upon Derwent.

At first instance, District Judge Johnson found in favour of Derwent. The District Judge noted that there was no authority particularly close to the facts of this case. Her decision was that the apartment holders should be entitled to relief, but only by way of the grant of a new headlease that mirrored the previous headlease of the whole building.  That would see the apartment holders as “tenant” under that headlease becoming the landlord to commercial units in the building, taking on all repairing obligations and also paying the head rent in full. They could then assign the new headlease to a new Manco which could then grant new residential sub-leases to the apartment holders. This was obviously an unpalatable result for the 42 apartment holders.

Permission to appeal was granted by the Judge as the subject matter was an issue of importance not only to the current tenants but also to others in similar situations.

The apartment owners appealed on the grounds that DJ Johnson erred in making an order vesting a new lease of the whole building as the Judge failed to approach the question of relief sought by an underlessee in line with authority, took into account immaterial factual matters, and failed to take into account material factual matters, including the apartment holders rights under Article 1 of the First Protocol of the Human Rights Act 1988. 

The matter came before HHJ Cadwallader upon appeal, sitting as a Circuit Judge of the County Court, who considered the principles upon which a court should grant relief where the application has been made by sub-tenants of only part of the premises demised by a head-lease.

HJJ Cadwallader dismissed the appeal and held DJ Johnson’s decision fell well within the bounds of her discretion and proceeded upon no error of law. Accordingly, he upheld the decision at first instance in favour of Derwent. It should be remembered that HHJ Cadwallader is the s.9 High Court Judge for the Business and Property Court in Liverpool, and therefore his judgment is worthy of consideration and respect. 

The decision in this matter is a reminder that whilst the discretion of the court in granting relief from forfeiture is broad, the ‘overarching’ principle is to be applied: the right to forfeit is a landlord’s security for the performance of the tenant’s covenants, principally in this case the payment of an investment ground rent for 999 years rent. Provided that the landlord can be put in the same position as before both the breach and the forfeiture occurred, relief should usually be granted on those terms. It is then a decision for the tenants as to whether to accept said terms.  It is also a reminder that taking a long sublease at a premium out of a headlease which itself reserves a large rent is inherently dangerous, as the headlease is precarious. 

As at the time of this article the apartments holders have indicated an intention to seek permission to appeal from the Court of Appeal.

The full judgment can be found here.

Derwent were represented by Kevin Lee and James McHugh, instructing Andrew Williams of Exchange Chambers.