A recent Court of Appeal decision concerned the construction of the terms of a settlement agreement entered into between a landlord and tenant of a long residential lease. The Court of Appeal decided that the terms of the settlement agreement precluded the landlord from seeking forfeiture. It reinforced the principle that settlement agreements are to be interpreted based on their ordinary terms and the legal context.
The tenant owned a flat on the second floor of a building divided into four flats. The lease contained a repairing covenant in the usual form. In the period from 2020 to 2021, there were six recorded instances where the tenant of the first floor flat experienced leaks which emanated from the bathroom of the second floor flat.
Various investigations were undertaken to establish the source of the leaks and repairs were carried out but without successfully remedying the problem.
The landlord commenced three separate applications in the First Tier Tribunal seeking determinations in respect of disputed service charge and administration charge arrears and also a determination that the tenant was in breach of the repairing covenant in his lease. The day before the hearing in the First Tier Tribunal the parties compromised these claims in the settlement agreement. The settlement agreement contained a release clause (clause 6) and an agreement not to sue clause (clause 7.1) in standard terms. Clause 7.2 provided that clauses 6 and 7.1 would not apply to “any claims in respect of any breach of this agreement.”
The tenant paid the sums agreed in respect of service charge and administration charge. The settlement agreement required him to complete the repairs to his bathroom by a specified date. He failed to do so in time, partly because he was awaiting the agreement of the building insurers to cover the cost of the works but also because he decided to carry out a complete refurbishment of the bathroom. This went beyond what was required to comply with the repairing covenant in the lease.
The landlord served a section 146 notice and six weeks later commenced a claim for possession seeking to forfeit the lease based on the breach of the repairing covenant. The Particulars of Claim referred to the tenant being in breach of the repairing covenant in the lease (as opposed to the relevant clause in the settlement agreement requiring the repairs to be completed by a specified date).
The tenant defended the claim on the basis that the settlement agreement prevented the landlord from issuing a claim for forfeiture.
By the time pleadings closed, the refurbishment of the bathroom had been completed and there were no more instances of leaks into the first floor flat. In its Defence to the Counterclaim, the landlord confirmed that it would not resist the tenant’s application for relief from forfeiture. The issues in dispute therefore were whether the landlord was entitled to have issued a claim for forfeiture and if so on what terms should relief be granted.
There were three judgments in the case. The judge in the County Court found in favour of the tenant. That decision was then reversed on appeal in the High Court where the tenant was ordered to pay the landlord’s costs on the indemnity basis.
The Court of Appeal overturned the High Court decision and reinstated the decision of the County Court judge. It focused on particular wording in the settlement agreement which made clear that the parties had settled their differences. This meant that they intended to draw a line under the matters which were the subject of the landlord’s applications to the First Tier Tribunal and start afresh.
The fact that the remedial works went beyond what was required to comply with the repairing covenant meant that the landlord could not rely on the alleged breach of the repairing covenant in the lease as a ground for forfeiture.
Clause 7.2 only applied to breaches of the settlement agreement and did not extend to breaches of the lease.
The Court of Appeal also raised a point that had not been argued by either party in the previous hearings; namely the restrictions on forfeiture for breaches of repairing covenants imposed by the Leasehold Property (Repairs) Act 1938. This was stated to be an important part of the legal background at the time the settlement agreement was entered into by the parties. The tenant could have served a counternotice under that Act once the section 146 notice had been served. This would have required the landlord to apply for leave of the court before it could issue the claim for forfeiture. The landlord would have had considerable difficulty obtaining leave and the reasonable reader of the settlement agreement would assume that forfeiture would not be an option for the landlord in the event that the tenant was in breach of the terms of the settlement agreement.
For some reason, the tenant’s original solicitors failed to serve the counternotice. Had they done so, it would have saved him a considerable amount of stress and cost.
The landlord sought to argue that allowance should be made in its favour in the interpretation of the relevant clauses for the fact that the settlement agreement was drafted at the last minute. This was not accepted by the Court of Appeal and the case is a good example of the need to take particular care in drafting settlement agreements to ensure that it clearly preserves any rights that a party may require.
White v 29 Buckland Crescent Management Company Limited [2025] EWCA Civ 814.
