Relief from forfeiture: when is late too late?

This article was produced by Nabarro LLP, which joined CMS on 1 May 2017.

Forfeiture can take place either by peaceable re-entry (i.e. the landlord changing the locks to the premises) or by proceedings. The tenant can ask the court to grant relief from forfeiture. If the lease has been forfeited for non-payment of rent, relief will normally be granted subject to the tenant paying both the arrears and the landlord's costs of recovering the arrears.

In the case of forfeiture by proceedings, there is a statutory six-month deadline on any application by the tenant for relief from forfeiture. Where forfeiture is effected by peaceable re-entry, the court must decide whether the tenant has acted with reasonable promptness in seeking relief from forfeiture.

The recent High Court decision in Pineport Ltd v Grangeglen Ltd concerned a claim for relief from forfeiture for non-payment of rent of a long lease of garage premises. The lease was forfeited by peaceable re-entry in April 2014 on the basis of unpaid arrears of about £2,000. However, the tenant's application for relief from forfeiture was not made until 14 months later.

The tenant had paid a premium for the grant of the lease which was for a term of 125 years and subject to the payment of a nominal annual ground rent together with insurance rent and service charge. The parties agreed that the current value of the leasehold interest was £275,000 in its actual condition.

The tenant company was owned by two equal shareholders, although only one, Mr Jadunandan (J) was actively involved in managing the business. At around the time of the forfeiture, J was prosecuted and subsequently convicted of offences relating to the improper issue of MOT certificates.

Clearly, the application had been made very late and was opposed by the landlord. The question for the High Court was whether relief from forfeiture should be granted in the circumstances, particularly bearing in mind the tenant’s delay in making the application.

The court had to consider a number of questions:

1. Would the tenant be able to pay the arrears of rent and landlord’s costs of forfeiture within the immediately foreseeable future. The court was persuaded in this case that J’s family would be able to raise the money within 12 to 16 weeks of the trial date and this would constitute the immediately foreseeable future.
2. Should the court take the tenant’s illegal activity into account? The court held that although J had been found guilty of an offence involving dishonesty, there was no real risk of the premises being used for such unlawful or illegal activity because the tenant had lost its licence to grant MOT certificates and there was only very limited evidence of the possibility of the premises having been tainted by the tenant’s past conduct. The court held this was not a relevant factor in this case.
3. The court was of the view that the fact the lease was granted for a substantial premium at a ground rent was an important factor which weighed heavily in the balance. The court had regard to the fact that the arrears amounted to about 1% of the capital value of the lease and the landlord would obtain a windfall if relief from forfeiture were to be refused. In the court’s view this gave the tenant a powerful case for relief. The court made the point that different considerations could well apply in relation to a lease at a rack rent.
4. Could the landlord demonstrate that it would suffer prejudice as a result of the tenant’s failure to pay the rent, the forfeiture or the tenant’s delay in making the application? In this case, it was not clear that the landlord had suffered any particular prejudice. The arrears which had accrued were relatively small and the landlord had awaited events, rather than seeking a new tenancy immediately.
5. Could the tenant overcome the lengthy period of delay between the date of forfeiture and the date on which the application for relief was made? The court concluded that there was an explanation for the long delay which was due to a combination of J's ill health (resulting from the stress of the criminal proceedings) and a restraint order obtained by the Vehicle and Operator Services Agency which caused financial hardship which made it more difficult to obtain specialist advice. The court also seemed to accept J’s claim that he did not believe it was possible for the lease to be taken away from him given it was a valuable asset.

The court held that relief from forfeiture would be granted subject to the tenant paying arrears and costs related to the forfeiture, totalling about £24,000, within a reasonable period.

These costs did not include the costs of the relief from forfeiture proceedings, which were dealt with separately. About six weeks before trial, the tenant had offered to pay the landlord about £26,000 together with the landlord’s reasonable costs of the proceedings. This offer was not accepted by the landlord. The court held that in the circumstances, it would be appropriate for the tenant to pay the landlord’s costs up to the date the offer should have been accepted and the landlord should pay the tenant’s costs from that point onwards.

The case serves as a useful illustration of the extent of the court's discretion in dealing with relief from forfeiture cases. Clearly, the court was influenced in this case by the fact that the lease was granted for a premium and the arrears involved were comparatively small. Another factor was the lack of evidence that the landlord would be prejudiced by the delay in the tenant seeking relief from forfeiture. It is easy to imagine different circumstances in which a landlord would be prejudiced by delay (for example, if the premises had been re-let in the intervening period) and landlords in those circumstances should consider carefully the evidence that will be required to establish that prejudice will be caused by delay.