The case of Derwent Lodge Estates Ltd v Signature Living Hotel Ltd & 54 others [2025] 3 WLUK 402 provides crucial insights into the legal principles surrounding relief from forfeiture, sub-tenants' rights, and the impact of the Building Safety Act 2022.
The case concerned a well-known building in Liverpool named West Africa House, home to 'Oh Me, Oh My'. Signature Living Hotel Limited held the headlease of the building until such time as they became insolvent and the headlease was forfeited on the grounds of non-payment of rent by the head landlord, Derwent Lodge Estates Limited.
Following forfeiture of the headlease, the legal position is that all sub-leases under it are automatically terminated, so when Derwent forfeited Signature's headlease, this also terminated all sub-leases in the building, including 42 residential apartments.
Pursuant to s146(4) of the Law of Property Act 1925, the sub-tenants applied for relief from forfeiture seeking to reinstate their leases. However, they sought relief for the residential units only, excluding the commercial units. Derwent opposed this on the basis that this would impose building safety obligations on them, under the Building Safety Act 2022 (BSA 2022).
At first instance, the court found in favour of Derwent. It was held that the sub-tenants should be entitled to relief, albeit by way of the grant of a new headlease that mirrored the previous headlease of the whole building. That would see the sub-tenants under that headlease becoming landlord to commercial units in the building and taking on all of the repairing obligations and paying the headlease rent in full.
The sub-tenants appealed on the basis that the Judge failed to take into consideration material facts, including their rights under Article 1 of the First Protocol of the Human Rights Act 1988, and other material factual matters, and that the Judge made an error of law in her decision.
The decision was upheld at appeal and HJJ Cadwallader held that there was no error of law and the Judge at first instance was well within the remits of her discretion in the decision she made.
Below are the key takeaways from this significant ruling:
- The court's discretion in relief from forfeiture
The outcome emphasised the extent of the court's wide discretion when granting relief from forfeiture and, in particular, the terms on which relief may be granted.
- The impact of the Building Safety Act 2022
Before forfeiture had occurred in this case, Signature Living Hotel Ltd (as headlease holder) was responsible for the building safety obligations under the BSA 2022.
One of the key issues in this case was the impact of the BSA 2022, and in particular, the designation and burden of the “Accountable Person” who is responsible for managing extensive fire and structural safety risks/duties and non-delegable liabilities, which would have fallen to Derwent if relief from forfeiture was granted as to part of the building.
This aspect of the case significantly influenced the court's decision, as it determined how responsibilities for building safety would be allocated post-forfeiture, and it was clear that the freehold landlord would definitely be in a worse position than it was pre-forfeiture, by inheriting such significant safety responsibilities.
- Relief from forfeiture must not place a landlord in a worse position
The decision emphasises and reinforces that any terms of relief granted must not place a landlord in a worse position compared to their position before the forfeiture occurred.
