Robert Highmore and James Davies address the circumstances where the court may grant relief from forfeiture
Question
In 1981 I let my premises to a garage business on a 75-year lease for a market premium. My tenant disappeared four months ago without explanation, leaving the premises empty, in disrepair and with unpaid ground rent and service charge. I forfeited the lease by re-entry without proceedings three months ago. Am I now safe to refurbish and re-let the premises?
Answer
Once you have waited at least six months from re-entry and have made all reasonable efforts to track down the tenant and inform it that you have forfeited and intend to re-let, the risk is low. The tenant would need an exceptional case to be granted relief in such circumstances.
Explanation
Generally a tenant should apply for relief from forfeiture within six months of forfeiture. However, after a commercial landlord has forfeited by re-entry, a tenant may seek relief from forfeiture from the High Court without time limit. The court has jurisdiction to grant relief on terms that would typically include payment of arrears of rent and service charge, legal fees and other costs.
Before re-letting the landlord should make all reasonable efforts to contact the tenant and any interested parties to give them an opportunity to apply for relief. The court will recognise that a landlord cannot be expected to leave property vacant for too long, but in the absence of reasonable explanation will apply a guideline period of six months even if it is not mandatory in the particular case.
Pineport Ltd v Grangeglen Ltd [2016] EWHC 1318 (CH); [2016] PLSCS 172 gives useful guidance. A commercial tenant, whose 125-year lease granted in 1998 for a premium had been forfeited by peaceable re-entry for non-payment of rent, applied to the High Court for relief despite a 14-month delay in making the application.
The tenant’s application was successful notwithstanding the significant delay which in other circumstances would have led the court to conclude that the tenant had not acted with reasonable promptitude. The judge stated: “Reasonable promptitude is an elastic concept which is capable of taking into account human factors… Although 14 months is more than double the guide period of six months (and near to the breaking point for the concept’s elasticity), I am satisfied it will be wrong to bar the claimant from obtaining relief in the circumstances of this case.”
The unusual explanation of the tenant’s delay included ill health, a restraint order, lack of money and the absence of specialist advice. Of major significance too was the capital value of the lease and the disproportionate windfall benefit to the landlord if relief were refused. The tenant’s position would have been significantly weaker if the lease was at a rack rent, for a shorter term or if the premises had been re-let.
Question
I purchased a long residential lease as a buy-to-let investment. Over the past few years I have had difficulty in letting the flat and have been unable to pay ground rent and service charges. In March this year, the freeholder obtained a county court judgment for £8,596 which I cannot afford to pay. In May, the freeholder served a notice on me under section 146 of the Law of Property Act 1925 (“section 146 notice”). In July, the freeholder issued and served possession proceedings. I want to sell the lease so that I can pay off the arrears. What should I do?
Answer
The lease will have been forfeited by the service of the proceedings. To preserve the value of the lease, you should make an application for relief in the possession proceedings and ask the court to grant relief from forfeiture on terms that the lease be sold in order to pay the arrears.
Explanation
Sections 167 and 168 of the Commonhold and Leasehold Reform Act 2002 (“CLRA 2002”) contain restrictions upon the circumstances in which a landlord under a long residential lease (defined by sections 76 and 77 of the CLRA 2002) can forfeit that lease.
Section 167 prevents a landlord from exercising a right of re-entry or forfeiture for failure by the tenant to pay an amount consisting of rent, service charges or administration charges unless the unpaid amount is more than £350 or consists of or includes an amount that has been payable for more than three years. In the present case, given that the arrears amount to £8,596, this section will not prevent the landlord from forfeiting the lease.
In order to forfeit for any breach of covenant other than the covenant to pay rent, the landlord must serve a section 146 notice. By section 168, the landlord cannot serve a valid section 146 notice unless either there has been a final determination by a court or an appropriate tribunal that the breach of covenant has occurred or the tenant has admitted the breach. Here, due to the arrears judgment, the landlord was entitled to serve a section 146 notice and the lease will have been forfeited when you were served with the possession proceedings.
However, pursuant to subsection 146(2) of the Law of Property Act 1925, the court has a wide discretion to grant relief from forfeiture and will normally do so on terms that the breach of covenant is remedied and the landlord’s costs are paid by the tenant.
In the recent case of Freifeld and another v West Kensington Court Ltd [2015] EWCA Civ 806; [2015] EGLR 60, the Court of Appeal granted relief from forfeiture for the purposes of, and conditional on, the sale of the lease within six months. You should apply for relief from forfeiture in similar terms in the landlord’s possession proceedings.
Robert Highmore is a partner and head of property litigation at Charles Russell Speechlys LLP and James Davies is a barrister at Enterprise Chambers
Questions on any topic can be e-mailed to egq&a@crsblaw.com and egq&a@enterprisechambers.com
