Croydon sought possession of Ms Kalonga’s secure fixed-term tenancy without forfeiting it. The Supreme Court held that an exercisable contractual right to terminate was required for early possession. Where the landlord relied on a tenant’s default and the relevant contractual right was forfeiture, the landlord had to use the statutory procedure for termination in lieu of forfeiture.
Background
Croydon London Borough Council granted Ms Kalonga a ‘flexible’ secure tenancy of a dwelling for a fixed term of five years from 25 May 2015, under the Housing Act 1985 (‘the 1985 Act’). Approximately two years into the term, Croydon served notice of its intention to seek possession on grounds of rent arrears and anti-social behaviour. Croydon did not allege forfeiture of the tenancy, expressly stating in its Reply that its claim did not rely upon forfeiture. The tenancy expired by effluxion of time on 24 May 2020 during the proceedings, rendering the dispute academic between the parties, but the case continued due to the importance of the underlying legal issues to public sector landlords and secure tenants alike.
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The Issue(s)
The appeal raised two principal issues:
First Issue
Whether the existence of a provision for forfeiture and its exercise by obtaining a termination order under section 82(3) of the 1985 Act was the only way a secure fixed-term tenancy could be brought to an early end by the landlord, or whether the landlord could simply seek a possession order on statutory grounds without first terminating the fixed term.
Second Issue
Whether Ms Kalonga’s tenancy agreement in fact contained a provision for forfeiture.
Lord Briggs framed the determinative underlying question more broadly: whether the secure tenancy regime in the 1980 and 1985 Acts merely added statutory security to existing contractual and proprietary rights, or whether it replaced (and thereby potentially reduced) those rights.
The Parties’ Key Arguments
Croydon’s Case
Croydon argued that the phrase ‘subject to termination by the landlord’ in section 82(1)(b) encompassed any means by which a fixed-term tenancy could be brought to an end, not limited to forfeiture. On this reading, section 82(1A) provided a menu of options — possession order, termination order in lieu of forfeiture, or demotion order — from which the landlord could freely choose. Croydon contended it could bring the tenancy to an early end simply by seeking possession on statutory grounds, provided the tenancy contained some provision for early termination.
Ms Kalonga’s Case
Ms Kalonga’s primary case was that termination in lieu of forfeiture was the only means of early termination under the Act. Her alternative case, advanced in the Supreme Court, was that ‘forfeiture’ should be construed broadly to encompass all methods of early termination, including break clauses. She also contended that her tenancy agreement contained no forfeiture clause at all.
The Court’s Reasoning
Rejection of Both Parties’ Constructions
Lord Briggs, with whom all other Justices agreed, found force in both parties’ submissions but ultimately rejected both as giving rise to ‘unpalatable alternatives’. He identified fundamental difficulties with each position through worked examples. On Croydon’s construction, a model tenant with a five-year fixed term (subject only to forfeiture) would be exposed from the outset to eviction under non-default grounds such as ground 10 (redevelopment), undermining the very contractual security the fixed term conferred. On Ms Kalonga’s construction, a landlord who had contractually reserved a break clause for redevelopment could never use it.
The Court’s Solution
The Court adopted a construction not advocated by either party. Lord Briggs held:
The key to this conclusion lies in close attention to section 82(1) … and in particular the phrases ‘subject to termination by the landlord’, followed by ‘cannot be brought to an end … except …’. The latter phrase assumes that, apart from the Act, the fixed term tenancy could at the relevant moment in time be brought to an end by the landlord under the terms of the tenancy agreement. It is framed in negative terms, as a prohibition upon what the landlord could otherwise then lawfully do, not in enabling terms, so as to create a right of termination which did not then otherwise exist.
Crucially, the Court held that a tenancy for a term certain is not ‘subject to termination by the landlord’ under section 82(1)(b) merely because the tenancy agreement contains some provision for early termination. It only becomes subject to termination when such a provision becomes exercisable:
A landlord’s break clause becomes exercisable only when the conditions for its exercise are first satisfied. A forfeiture clause becomes exercisable only when there has been a qualifying breach of the terms of the tenancy and (if the breach is not rent arrears or the tenant’s bankruptcy) the landlord has served a section 146 notice.
Lord Briggs grounded this interpretation in the principle that legislation designed to improve tenants’ security should not lightly be construed as having taken away pre-existing contractual and proprietary rights:
Parliament is not to be supposed to have taken those security rights away otherwise than by clear express words or a clear necessary implication.
Application to the Facts
On the assumed facts, Croydon sought to terminate the tenancy only on default grounds (rent arrears and anti-social behaviour). The only relevant provisions for early termination were therefore forfeiture provisions. Since Croydon had expressly abjured forfeiture — declining to seek a termination order in lieu of forfeiture under section 82(3) — Croydon could not recover possession on the alleged default grounds by bypassing the procedure in section 82(3).
The Second Issue: Forfeiture Clause
Disagreeing with both the High Court and the Court of Appeal, the Supreme Court held that Ms Kalonga’s tenancy agreement did contain forfeiture provisions. Lord Briggs adopted the test from Clays Lane Housing Co-operative Ltd v Patrick (1984) 17 HLR 188:
a right to determine a lease by a landlord is a right of forfeiture if (a) when exercised, it operates to bring the lease to an end earlier than it would ‘naturally’ terminate; and (b) it is exerciseable in the event of some default by the tenant.
The tenancy agreement’s provisions permitting eviction action ‘at any time’ upon breach of tenancy conditions were held to be forfeiture provisions as a matter of substance. Lord Briggs emphasised that classification as forfeiture depends on substance, not form, citing Richard Clarke & Co Ltd v Widnall [1976] 1 WLR 845. However, the non-default grounds for possession incorporated into the tenancy terms (grounds 9–12) were characterised as a ‘rather complicated break clause’ rather than forfeiture provisions.
Practical Significance
This decision establishes several important principles for the management of secure fixed-term tenancies:
- The secure tenancy regime does not detract from the contractual and proprietary security of tenure enjoyed under a fixed-term tenancy agreement.
- A fixed-term tenancy is only ‘subject to termination by the landlord’ within section 82(1)(b) when a contractual right to terminate early has actually become exercisable — not merely because such a provision exists in the agreement.
- Where the only available means of early termination is forfeiture, the landlord must seek a termination order in lieu of forfeiture under section 82(3), preserving the tenant’s right to seek relief from forfeiture.
- Where a non-forfeiture right to terminate, such as a break clause, has become exercisable, the landlord may exercise it and seek possession on an available statutory ground. Exercising that contractual right permits the statutory route without itself ending the fixed term.
- Whether a termination clause constitutes a forfeiture provision is a question of substance, not form.
The decision resolves a question of construction that had remained dormant since the secure tenancy regime was first introduced in 1980, and is of considerable importance to public sector landlords and the large number of tenants holding secure fixed-term tenancies.
Verdict: The appeal was allowed in part. The Supreme Court upheld the dismissal of Croydon’s possession claim, since Croydon had not sought a termination order in lieu of forfeiture under section 82(3) and no non-default ground had been alleged. However, the Court disagreed with both lower courts on two points: (1) termination in lieu of forfeiture is not the only means of early termination of a secure fixed-term tenancy — statutory possession grounds may be used where a non-forfeiture contractual right to terminate has become exercisable; and (2) Ms Kalonga’s tenancy agreement did contain forfeiture provisions. The declarations made by the High Court were held to be only partly correct, and counsel were invited to submit a revised form of declaration reflecting the Supreme Court’s reasoning.
Source: Croydon London Borough Council v Kalonga [2022] UKSC 7
Reported citations [2023] AC 1, [2022] 2 WLR 592, [2022] 3 All ER 885, [2022] HLR 23.
