5.1.7. Termination

162Property Law

interest to take the property interest back from the grantee on breach by the grantee of one of the terms of the grant. In principle, any property interest may be made forfeitable by the reservation or grant of such a right. In practice nowadays, a right of forfeiture is most likely to be made exercisable over a lease of land, or (less often) over a fee simple interest in land, or over a possessory interests in goods or (increasingly) over intellectual property rights. When the forfeitable interest is a lease of land or a possessory interest in goods (i.e. a bailment), the right to forfeit is exercised by the right holder either physically re-entering/retaking possession of the land or goods, or applying to the court for an order that will have the effect of terminating the forfeitable interest and/or ordering its return to the right holder. In other cases, for example the forfeiture of intellectual property rights, the holder of the right to forfeit will usually have to apply to the court for an order of specific performance of the contractual term requiring the forfeitable interest to be transferred back.

There are two important features of forfeiture to be noted here. The first is that the right to forfeit another property interest is itself a property interest (usually called a right of re-entry). This is incontrovertible where the right is to forfeit an interest in land, but probably also true in other cases (see Shiloh Spinners Ltd v. Harding [1973] AC 691 for a judicial analysis of the nature of the right of re-entry). Like most other private property rights, a right of re-entry is inherently assignable. When it is exercisable over a lease of land, the right of re-entry is appurtenant to the landlord’s interest in the land (i.e. only the landlord for the time being under the lease can forfeit it and the right of re-entry cannot be traded separately from the landlord’s interest: see section 5.1.3.3 above). Other types of right of re-entry are usually not appurtenant to any other property interest.

The second distinctive feature of forfeiture is its potentially Draconian effect. Rights of re-entry are usually exercisable only where the holder of the forfeitable interest has committed some breach, and the holder of the right of re-entry will usually exercise it only where the breach has caused or is likely to cause her harm. However, there is no necessary connection between that harm and the gain that will accrue to her by forfeiting the other person’s interest, nor between that harm and the loss the other person will suffer if his interest is forfeited. In practice, it is very likely that forfeiture will over-compensate the forfeiter and penalise the interest holder too severely. Take the example of a lease of office premises granted for twenty-five years at a rent of £12,000 a year, which contains a right for the landlord to forfeit the lease if the tenant misses a monthly payment of rent. If after ten years of the lease the tenant fails to pay a month’s rent, the landlord can either just sue for recovery of the rent or forfeit the lease. If by that time the rent of £12,000 a year is higher than the market rent for that kind of premises, the landlord will just sue for recovery of the rent: there will be no point in ending the lease and taking the premises back because she is not likely to be able to let them to anyone else at the same rent. If, on the other hand, the £12,000 a year rent is now lower than the market rent, the landlord has every incentive to forfeit the lease at the