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Forfeiture of lease

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Illegal use of premises and the landlord’s burden of proof in a breach of lease claim

The background

In Vanezis and another v Ozkoc and others [2018], the claimants held the freehold of a property which was occupied by tenants under leases which contained covenants including the prohibition of use of the property for illegal or immoral purpose, an obligation to keep the premises open at all times during normal shopping hours and an obligation not to share occupation or part with possession of the premises.

One tenant was convicted and imprisoned for conspiracy to supply class A drugs. A separate defendant then set up a company to take over the payment of rent for the premises. A number of rental payments made by such company were returned by the landlord, which maintained that it wanted to accept rent only from the contracted tenant. Following a meeting between the parties, the landlord learned about the imprisonment of the first tenant. The landlord brought a claim for forfeiture on the grounds of breach of covenant, including, amongst others, a breach of the covenant regarding illegal or immoral use of the premises.

The decision

The Court found against the landlord in its claim relating to illegal and immoral use. On the balance of probabilities, the landlord could not sufficiently prove illegal use of the premises which would breach the covenant; the landlord needed to prove that the property had been used for the purposes of conspiracy to supply class A drugs, but could not demonstrate sufficient connection between the conspiracy and the conduct of the defendants on the premises.

In relation to other breaches claimed, the landlord could not forfeit on the grounds of sharing possession, as it was held to have waived its right to do so by allowing the sharing of occupation to continue. Further, the Court found that there had been no breach of the covenant requiring the premises to be open during normal shopping hours. The shop part of the demised premises were operational during 11am-3pm, which were deemed to be normal shopping hours for that locality, and therefore the tenant was not in breach.

Advice and action for landlords

Even though the tenant in this case had clearly committed a criminal offence, the landlord was not able to forfeit without sufficient evidence to demonstrate that the premises had been used for illegal purposes. Conduct alone by the tenant was not enough; the landlord needed to be able to demonstrate a connection between the offence and the use of the premises.

Landlords are advised to carefully monitor their demised premises and undertake due diligence on their tenants, and this case stresses the importance of knowing and understanding tenants and how they are using properties. Careful and thorough drafting may also help to alleviate issues, for example including wording in a lease which allows a landlord to forfeit in the event that a tenant is imprisoned.

This case stresses the importance of knowing and understanding tenants. Landlords are advised to carefully monitor their demised premises and undertake thorough due diligence, both before a lease is signed and during the term.

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