Chug v. Dhaliwal

On 28 March 2023, the High Court heard an appeal brought by Mr. Chug in the case of Chug & others v. Dhaliwal. The case illustrates the risks that derive from any unlawful subletting (meaning any subletting not in compliance with the leases’ alienation provisions) and reiterates the fact that such breaches are treated as continuous and that the landlord’s ability to forfeit the lease is not limited to one occasion, but can be utilised continuously so long as the breach occurs.

Summary of facts

Mr. Chug was the tenant of Mr. Dhaliwal and during his occupancy, sought to sell his business and sublet the lease to Mr. Darwan. Mr Chug confirmed he initially attempted to follow the correct legal procedure and seek formal consent to the subletting, but soon after, proceeded to underlet the lease without obtaining the landlord’s consent. The landlord was none the wiser to this arrangement, particularly as the rent continued to be paid by Mr. Chug (the unlawful tenant paid his rent to Mr. Chug who in turn paid the landlord). The unlawful arrangement only came to light when the landlord applied to obtain a loan and used the property as security for the loan. The bank’s surveyors, and consequently, the landlord, became aware of the arrangement following an inspection of the property.

The landlord served a s.146 notice to the tenant setting out three breaches: unlawful alterations, unlawful subletting and failure to pay the rent in full. The landlord, shortly after, re-entered the property and as a result, the lease was deemed to have been forfeited. The tenant commenced action in the County Court and disputed the lawfulness of the re-entry, or, in the event that argument failed, sought relief from the forfeiture, something which is within the remit of the courts. The tenant’s argument dealt in turn with the breaches and argued:

• That the alterations carried out did not require formal consent.
• That although there was a shortfall in rent, the right to forfeiture was waived when the landlord continued to accept rent after the notice.
• That whilst there was unlawful subletting, the right to forfeiture was waived when the landlord continue to accept rent after becoming aware of the arrangement.

Appeal

After the County Court rejected the arguments posited above, the High Court heard the appeal, again dealing with the above three arguments. The High Court reaffirmed the County Court’s ruling and in reaching its decision, explained the difference between a “once and for all breach” and a continuous breach and its effect on a s.146 notice.

A “once and for all breach” does place a restriction on the landlord’s ability to use its right to forfeit the lease as they would have a once and for all opportunity to forfeit the lease in the event of an applicable breach [48]. The example used by the Judge was the payment of rent on a specific day: “If it involves paying rent on a particular day then the breach is complete once and for all if the date comes and goes and the rent is not paid”  [54]. In such instance, the landlord would have an opportunity (“once and for all”), following failure to pay at the specific payment date to either forfeit the lease, or to continue with the lease notwithstanding the breach.

A continuous breach, on the other hand, presents the landlord with a continuous opportunity to forfeit the lease. Subletting of the property is invariably treated as a continuous breach – each day the unlawful subtenant remains in occupation is a new opportunity for the landlord to seek to forfeit the lease. Accepting of rent after service of the s.146 notice therefore did not, and does not, invalidate the right of re-entry a landlord so long as the breach is continuous.

What do we know from this?

Well, aside from the fact that you should not be underletting contrary to the terms of your lease, we now know that, as a tenant, you would also not be able to rely on acceptance of rent being construed as a waiver of forfeiture should the breach in question be continuous and not limited to a “once and for all” decision by the landlord. In such instances, each day is the dawn of a new opportunity for the landlord to forfeit the lease.