Termination of Tenancies for Tenant Default - Law Commission

PART 6
QUALIFYING INTERESTS
INTRODUCTION
6.1 Under the current law, the forfeiture of a tenancy terminates all interests derived
from the tenancy. 1 The principle is expressed by the maxim that “the branches
fall with the tree”. The potential for this principle to operate unfairly is ameliorated
by permitting those who hold certain derivative interests – primarily sub-tenants
and mortgagees, but also in some circumstances equitable chargees – to apply
for relief from forfeiture. Relief may take the form of the reinstatement of the
forfeited tenancy (and, with it, all derivative interests) or, more commonly, the
grant of a new tenancy of the demised premises to the applicant.
The CP’s provisional proposals
6.2 The CP provisionally proposed that the effect of an absolute termination order
would, in this respect, be similar to the effect of forfeiture: to terminate the
proceedings tenancy, together with all interests which derive out of it. 2 Certain
holders of derivative interests, referred to as members of the “derivative class”,
would be entitled to “claim relief” from the effect of termination of the tenancy.
Their applications would be heard concurrently with the landlord’s application for
a termination order.
Consultation
6.3 Responses to these provisional proposals were overwhelmingly supportive. Peter
Smith of the University of Reading supported the proposal. He noted that, as
explained in the First Report, 3 although this would expose mortgagees to the loss
of their security, this had to be the effect of a termination order. Otherwise,
landlords would be less likely to enter into tenancy agreements which allowed
tenants to mortgage their interests. The same can be said for sub-tenancies and
for any other interest which is created out of the tenancy.
6.4 The Bar Council felt it “plain” that holders of relevant derivative interests must
have a right to apply to the court for relief. This sentiment was common to those
who agreed with this proposal.
Reform recommendations
6.5 The termination of a tenancy must have the effect of terminating all interests
which derive from it. To provide otherwise would go against fundamental legal
principle and create untold uncertainty.
1 Great Western Railway v Smith (1876) 2 Ch D 235; Viscount Chelsea v Hutchinson [1994]
2 EGLR 61. There are two statutory exceptions: the Rent Act 1977, s 137, and the Housing
Act 1988, s 18 provide protection for any lawful sub-tenants whose immediate landlords
hold tenancies under the Acts that are forfeited.
2 See CP, para 7.2.
3 First Report, para 10.4.
104