Grand Junction Co v Bates [1954]

Grand Junction Co v Bates [1954] 2 QB 160

The effect of forfeiture of a lease on a mortgage.

Facts:

The plaintiff, Grand Junction Canal Co, granted a lease to the first defendant, Bennett. This lease contained a covenant not to use the premises for any illegal or immoral purpose. The defendant assigned the lease with the plaintiff’s consent to the second defendant, Bates. He also granted Bates a mortgage secured as a legal charge against the lease. Subsequently, Bates was convicted of running the premises as a brothel. The plaintiff applied for forfeiture of the lease due to the breach of covenant. Bennett, the mortgagee, asked for relief against forfeiture.

Issues

If the plaintiff had been able to forfeit the lease Bennett’s charge would have been destroyed, as the lease would no longer have existed. Bennet had created the mortgage by executing a deed. Under s.87 Law of Property Act 1925 a mortgage created in this way has the same ‘protection, powers and remedies’ as if it was a lease or sublease. Under s.146(4) of the 1925 Act, a sublessee can claim relief against forfeiture. Therefore, Bennett claimed that he should be treated as a sublessee.

Decision/Outcome

The effect of s.87 of the 1925 Act was to give the mortgagee the same rights as if they were a sublessee. The court held that under s.146 the mortgagee could claim relief from forfeiture by the landlord as if he were a tenant or subtenant. The defendant Bennett had not known about the brothel and was in every way satisfactory as a tenant. Therefore, he was allowed to claim relief against forfeiture.