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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.

Held:

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.


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