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Superior Lease Forfeiture

QUESTION: “We have a 99 year of a property. Our freeholder has granted a lease to a third party who appears to be in our immediate landlord. What happens to our lease if the freeholder forfeits that ‘superior’ lease?”

In practice the freeholder will now treat you as a subsequent. Ostensibly a lease has been inserted above yours in the chain, and a new head tenant has become your landlord.

The legal position is different. That new lease is a concurrent lease. The new tenant is entitled to the benefit of the rents payable by you, and you owe obligations to it to comply with your covenants. During that concurrent lease the freeholder cannot recover rent from you.
However, you do not become a subtenant of the tenant who holds the concurrent lease. On termination of the concurrent lease your original tenancy continues and you will again hold your interest directly from the freeholder. You concern arises from the effects of forfeiture on a sublease. The law was established in the Great Western Railway case of 1876. If a tenant has sublet and its lease is then forfeited, the sublessee also loses its lease.

However, that is not the position here. Yours is not a sublease and if the concurrent lease is forfeited, that will not result in your lease ‘falling in’, as it would have had it been created out of a head lease. Your lease was created out of the freehold, not out of the lease that has been granted to the third party.

Legal commentary on this principle does not appear to have altered since the Landlord and Tenant (Covenants) Act 1995.

That act affects who can enforce covenants contained in your lease during the concurrent lease, but there is nothing in the act to suggest that principles have changed concerning the effect of forfeiture of the concurrent lease. Should disaster strike your new immediate landlord, therefore, you should not be adversely affected.

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