Generally, settlement agreements are designed to resolve disputes and prevent further legal actions, including forfeiture, unless explicitly stated otherwise. If the landlord initiated forfeiture proceedings despite the existence of a prior settlement agreement that addresses the same issues, they may have acted inconsistently with the terms or intentions of that agreement.
In this appeal case, the court reaffirmed that settlement agreements should be interpreted according to their plain language and legal context.
Background
This case involves a dispute over whether the Landlord Company could seek forfeiture of the Tenant’s lease of a flat, or whether a settlement agreement from December 2021 prevented such action. The Tenant occupied the flat under a lease from 1980 for a duration of 999 years. The lease includes covenants to keep the premises in repair and provisions for re-entry if breached. In 2020-2021, water leaks from the Tenant’s flat caused damage to the flat below. Investigations identified issues with the shower area, including faulty grouting and possible structural cracks.
The Landlord Company issued notices demanding repairs, but delays occurred. Notably, the Leasehold Reform Act 2002 and the 1938 Act restricts the ability of landlords to serve notices or pursue forfeiture for breaches related to repairs, especially if breaches are disputed or settled. After the Landlord Company filed three applications in the First-tier Tribunal (FTT) alleging breach of repairing covenants, the parties reached settlement in December 2021 which included the Tenant admitting breach, paying £75,000, and covenants not to sue or pursue claims related to the dispute.
Legal Issue
The core issue on appeal is whether the Landlord Company was barred from seeking forfeiture due to the settlement agreement, or whether the agreement effectively prevented it from continuing proceedings. The appeal also concerns the costs awarded.
The Court found that the agreement released the Tenant from claims related to the proceedings and prohibited either party from suing the other regarding the same. However, there is debate over whether this release includes or excludes forfeiture proceedings.
The lower court’s decision was that the settlement did not prevent forfeiture proceedings, but the Judge granted the Tenant relief on costs.
The Tenant appeals, primarily challenging the costs order, with the legal question cantered on whether the settlement agreement barred the Landlord Company from seeking forfeiture and related proceedings.
Decision
The Judge emphasised that the Tenant’s admission of breach under clause 4 of the settlement agreement was crucial in favour of the Landlord. However, the analysis of section 168 revealed that its primary purpose is to determine whether a breach has occurred, serving as a step towards potential forfeiture but not constituting a forfeiture itself. The case highlighted that remedies like injunctions or damages remain available alongside or instead of forfeiture, and that a breach determination under section 168(4) does not automatically lead to forfeiture, especially if the breach has been remedied or if the right to forfeit has been waived.
The Court also clarified that in this case, the benefits gained from the section 168 application—such as additional obligations and deadlines—were significant and cannot be dismissed as insubstantial. Furthermore, the parties’ legal context suggested that forfeiture was unlikely due to protections under the Leasehold Property (Repairs) Act 1938, which makes forfeiture of long leases challenging.
The dispute centred on whether the breach of clauses 3(1) and 5.3 of the lease or the settlement agreement justified forfeiture. The Court concluded that the agreement reshaped the parties’ rights, discharging claims related to lease breaches and limiting future claims to breaches of the agreement itself. Consequently, the Landlord was not entitled to forfeit the lease based on breaches of clauses not incorporated into the lease obligations. The Tenant succeeded in contesting the cost for forfeiture claim by the Landlord.
Our thoughts
This case is a demonstration and reminder on the principle of settlement agreement, and it is crucial for disputed parties to clarify key provisions and to comply with them, when such an agreement is reached.
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