Borough wins café lease forfeiture ruling in first Capped Costs List Pilot case to reach trial

Burnley Borough Council was entitled to treat a café lease as forfeit when a cafe operator sublet the property, the High Court has found.

HHJ Halliwell, sitting as a judge of the High Court, said the case of Mohammed Majeed Faiz Shakeela Faiz SASSF Ltd v Burnley Borough Council [2020] EWHC 407 (Ch) was the first in which proceedings subject to the Capped Costs List Pilot had reached trial.

Mohammed Majeed Faiz and Shakeela Faiz sought declaratory relief in relation to their rights in a café in the Old Stables building at Towneley Hall, a historic country house whose freehold is owned by the council. SASSF, their sub-tenant, was also a claimant.

Burnley said that since it was entitled to the reversionary estate on the termination of the lease, this should happen as granting a sub-tenancy to SASSF was a breach of covenants.

The judge said the case turned on whether the council had waived its right of forfeiture by the time it sought to exercise it by knowingly accepting rent from SASSF.

In his judgment, HHJ Halliwell said the tenants' obligation to pay the insurance rent was incurred before Burnley was notified about the sublease.

“A landlord does not generally waive its rights of re-entry by demanding and accepting rent in respect of a liability incurred before it has notice of the relevant breach regardless of whether the liability is in respect of future expenses,” the judge said.

He said Mr and Ms Faiz “must be taken to have been aware they had entered into the 2017 sublease in breach of covenant and there was a risk the council would thus take steps to forfeit the lease”.

It would have been “apparent to a reasonable recipient” that a revised invoice sent by Burnley limited its demand for insurance rent to the period before it knew of the breach.

The judge said: “In these circumstances, it cannot reasonably be suggested that, by delivering the revised invoice, the council were acting consistently only with the continuation of the lease.”

Mark Smulian