Landlords seeking to forfeit commercial leases for rent arrears are not required to serve section 146 notices requiring their tenants to pay up – and, if there is no one in the premises, can physically re-enter a property and bring the lease to an end, without having to go to court first. But the court may subsequently grant relief from forfeiture on terms that will typically include payment of the arrears, as well as the landlord’s legal fees and any other associated costs.
Keshwala v Bhalsod [2021] EWCA Civ 492[2021] PLSCS 71 concerned the forfeiture of a lease of a shop in Leicester, with living accommodation above. One of the two joint tenants, who had spent significant sums on refurbishment prior to opening a new business, had entrusted the payment of the quarterly rent of £2,000 to his sister. Unfortunately, she mistakenly paid only £1,500 in June 2018, leaving the rent £500 in arrears.
The landlords subsequently forfeited the lease by peaceable re-entry and, although the tenants eventually applied to the county court for relief from forfeiture, the judge rejected the application because the court’s ability to grant relief where a landlord has peaceably re-entered is available only to those who act with “reasonable promptitude” – and there had been a delay in seeking relief, which had not been sufficiently explained.
The High Court disagreed. The decision to forfeit a 20-year lease, with 10 years left to run, for £500 arrears was “very harsh” – and, because the tenants’ application for relief had been brought within the six month-period that was available under statute, it should be treated as having been brought with “reasonable promptitude”.
But the Court of Appeal has overturned the judgment. It doubted whether the legislative policy is that landlords must sit on their hands for six months while tenants decide what to do – and decided that there is no principle that a tenant will be deemed to have acted with reasonable promptitude if an application for relief from forfeiture is made within six months.
Lord Justice Nugee observed that a tenant who waits for nearly six months, keeps the landlord in the dark about his intentions, and fails to provide the court with an explanation for the delay, might well find that the court concludes that he has not acted with reasonable promptitude. And if the landlord, acting reasonably and not precipitately, has altered his position, or the rights of third parties have intervened, it may be unjust to grant relief from forfeiture.
Nugee LJ accepted that the landlords had made it difficult for the tenants to contact them. But he rejected the notion that a landlord, who has forfeited and has heard nothing from his tenant for over three months, is obliged to contact the tenant to ask if it intends to apply for relief – especially if the tenant has failed to respond to Torts (Interference with Goods) Act notices, as was the case here.
No attempt had been made to notify the landlords of the possibility of an application for relief – and, although the tenants had made their case eloquently and it was quite possible that they would have succeeded at first instance, had the case been heard by a different judge, the tenants had been unable to show that the county court judge who did hear the case had erred in principle. Consequently, the Court of Appeal was bound to respect the way in which the county court judge had exercised her discretion.
Allyson Colby is a property law consultant
