Termination of Tenancies for Tenant Default - Law Commission

5.55 The power to make an order for sale received the strong support of the Society of
Legal Scholars:
In cases of long residential leases, making such an order would allow
the defaulting leaseholder to recoup any inherent capital value in the
estate, after deduction of the costs of the sale and payments due to
the landlord. The landlord would obtain payment in full, and, perhaps
more importantly, a new tenant willing and able to perform the
covenants in the lease. The availability to order an assignment would
mean that termination did not result in a windfall asset (high capital
value remaining) vesting in the landlord, and it might be expected that
it would replace an absolute termination order in many cases. The
order would strike an excellent balance between the landlord’s right
not to remain saddled with a difficult tenant, against the rights of the
defaulting tenant to realise the capital value of the asset demised.
5.56 HH John Colyer QC offered a different rationale for the introduction of such a
power:
There are collusive forfeitures (which are not easy to spot, even if
they come to court), and I was left in the gravest suspicion several
times that some dubious entrepreneurs incorporate Company L to be
landlord and Company T to be tenant, and use the forfeiture of the
lease granted by L to T to leave T’s creditors unpaid for their work to
the premises (probably developed by T) with L and its promoters
taking the loot. For this reason alone – although there are many other
good reasons – I would like to see the Court given power to order
sale of the leasehold interest as one of its available remedies for
tenant default. (Emphasis in original.)
Reform recommendations
5.57 We do not consider that an order for sale would be a panacea. Indeed, we expect
that relatively few such orders will be made. However, we do see the order for
sale as being a particularly useful remedy where the tenancy has a significant
residual capital value considerably in excess of the sums owed to the landlord. In
such circumstances, it may sometimes be appropriate and proportionate to make
such an order.
5.58 We are therefore persuaded that this type of order would be a valuable addition
to the range of powers available to the court under the statutory termination
scheme. Although there was no provisional proposal to this effect in the CP, the
responses we received both before and after the 2004 seminar have convinced
us that a power of this sort would be broadly welcomed.
5.59 There is judicial precedent for the sale of a tenancy as a condition for the grant of
relief from forfeiture. 38 Providing a similar power as an alternative to the
38 Khar v Delbounty (1998) 75 P & CR 232: the court granted relief against forfeiture on
condition that the tenancy (a long residential lease granted at a substantial premium) was
sold and that the landlord was paid a sum to compensate him for the breach of covenant
and his costs. The balance outstanding was to be paid over to the tenant.
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