Termination of Tenancies for Tenant Default - Law Commission

according to the lease without any new lease”. 15 Although these words might be
thought to empower the court to assign the forfeited tenancy to a sub-tenant, this
interpretation has been strongly doubted. 16 The better view appears to be that the
effect of relief under these provisions is to reinstate the forfeited tenancy and,
with it, the sub-tenancy and any other derivative interests.
6.22 Some consultees 17 sought to draw a distinction between “lawful” and “unlawful”
derivative interests, arguing that where a sub-tenancy had been granted in
breach of a covenant against assignment it would be inappropriate to grant relief;
entitlement to apply should therefore be limited to lawful sub-tenants. Others,
such as Lovells, advocated a more flexible approach whereby unlawful subtenants
would not be prevented from applying for relief but unlawfulness would
be a factor taken into consideration when the court decided whether to grant
relief.
6.23 We agree with Lovells that the unlawfulness of the interest should be no more
than a factor in determining the grant of relief and that it would be unduly
inflexible to deny the right to apply solely on that ground. 18 This is particularly
important in view of the fact that the doctrine of waiver will be of no further
application under the statutory scheme. Landlords with notice of an unlawful subtenancy
may therefore accept rent or otherwise act in a way that indicates
acceptance of the sub-tenancy until such time as they choose to take termination
action (within the default period). It would, in our view, be wrong to deny subtenants
the opportunity to protect their interests, for which they may have paid a
considerable premium.
6.24 As explained in Part 5, the court should take into account the circumstances in
which the sub-tenancy was created before making any order. The fact that the
interest was created in breach of covenant will therefore be a relevant factor in
determining what order to make. If the tenant default complained of is breach of a
covenant that prohibits the creation of a sub-tenancy and there is nothing to
indicate that the landlord has accepted the sub-tenancy, the sub-tenant is, in the
absence of special circumstances, likely to receive little sympathy from the court.
Mortgagees and chargees
6.25 Historically, mortgages were created by demise and sub-demise (that is, by the
mortgagor granting the mortgagee a tenancy or sub-tenancy). A mortgagee of a
tenancy was therefore an under-lessee and entitled to seek relief from forfeiture.
15
County Courts Act 1984, s 138(2), (5) and (9B). Similar provisions are contained in the
Supreme Court Act 1981, s 38(2).
16 Woodfall’s Landlord and Tenant (Reprint 63 January 2006) para 17.184, n 14.
17 Vegoda & Co, Slough Estates Plc and the National Housing Federation.
18 This has been our policy since 1985: see First Report, para 10.27; CP, para 7.11. It also
represents the current law: see Factors (Sundries) Ltd v Miller [1952] 2 All ER 630.
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