Allyson Colby explains how a tenant secured relief from forfeiture despite more than a year’s delay
Key points
- The court’s equitable jurisdiction to relieve a tenant from forfeiture after peaceable re-entry is not circumscribed by strict time limits
- A 14-month delay came close to the breaking point, but did not prevent the court from granting relief
- Issuing legal proceedings may be a preferable, but more costly, alternative if landlords or incoming tenants need to be certain that vacant possession can be given
Tenants seeking relief from forfeiture generally have to comply with strict time limits laid down by statute. Pineport Ltd v Grangeglen Ltd [2016] EWHC 1318 (Ch); [2016] PLSCS 172 reminds us that the position is rather different if a tenant asks the court to exercise its equitable jurisdiction to grant relief following the forfeiture of a lease of business premises by peaceable re-entry.
The tenant’s application in Pineport did not look very promising. The landlord had re-entered the property on 24 April 2014 on the ground that there were arrears of service charge in the sum of £2,155 and the tenant did not seek relief from forfeiture until 23 June 2015. The delay meant there was a significant obstacle to overcome.
Breach of covenant
The company had paid £90,000 for the lease of an industrial unit for a term of 125 years. The premises were used as an MOT garage and workshop and the leasehold interest was now worth £275,000.
It emerged that the company had been issuing MOT certificates without following the correct procedure, in breach of its covenant not to use the premises for any illegal purpose. Indeed, one of the company’s directors had been sent to prison as a result. The individual concerned had been diagnosed with depression, which had affected his ability to cope with his affairs, as did the fact that he had been imprisoned. He gave evidence that the company’s assets had been frozen. Consequently, he had been unable to afford legal advice, did not understand the law of forfeiture and did not realise that his company could lose the unit until the Land Registry notified him that the leasehold title was being closed. Even so, it took the company another 12 months to apply for relief.
Jurisdiction
The judge stated that the High Court has power in equity, independently of statute, to grant relief from forfeiture if a landlord changes the locks and forfeits by peaceable re-entry. In addition, although it is generally thought that tenants should apply for relief within six months in order to be consistent with the rules that apply when a landlord forfeits a lease by legal proceedings, the court’s equitable jurisdiction is not circumscribed by time limits.
Applications under the court’s equitable jurisdiction must be made “with reasonable promptitude” – and what constitutes reasonable promptitude will depend on all the circumstances. The court must also ask whether anything has happened that would cause greater hardship to the landlord if relief were to be granted than would be caused to the tenant if relief were to be refused.
General principles
In the eyes of equity, a proviso for re-entry provides security for the rent. So, if the tenant is able to pay all arrears and any other losses or expenses sustained by the landlord as a result of the forfeiture, either at once or within the immediately foreseeable future, the tenant will be entitled to relief.
In addition, when considering applications for relief from forfeiture for non-payment of rent, the court will disregard any other breaches of covenant save in exceptional circumstances. One such circumstance is where the breach is extremely serious. Another significant factor in deciding whether such circumstances exist is whether the breach is likely to continue. The court is more likely to grant relief, even if the breach is serious, if it is unlikely to continue (unless the reversionary interest has been damaged, in which case the court might then refuse relief). In this case, the company had lost its licence to issue MOT certificates, so there was no risk of any repetition of its misconduct.
Relevant factors
Although 14 months had elapsed since the landlord had re-entered the premises, the judge understood why the company’s application for relief had been delayed. Furthermore, delay is simply one of the issues that the court must consider when deciding whether to exercise its equitable jurisdiction to grant relief. Delay is not an initial hurdle that must first be overcome.
The judge remarked that “reasonable promptitude” is an elastic concept and that what is reasonable will vary, depending on the context. The 14-month delay was close to the tipping point, but the judge was satisfied that he should grant relief from forfeiture on this occasion.
The company had a powerful case, given the starting point that a proviso for re-entry provides security for unpaid rent. The arrears amounted to less than 1% of the value of the lease and the company was in a position to discharge them. Furthermore, the landlord would obtain a disproportionately large windfall if relief were to be refused. The sum required to cover the cost of insurance, rates and other expenses (including lost ground rent and service charges) since the forfeiture of the lease was £24,530. This was approximately 10% of the value of the property and a family member was willing to sell land to finance the payment. The money was likely to be available within the next 12-16 weeks and this was sufficiently soon to be within the “immediately foreseeable future”.
Meanwhile, the landlord had not suffered any prejudice; it had stood by, awaiting events. It had not taken any steps to re-let the premises and granting relief would not cause any prejudice or greater hardship than would be caused by the refusal of the application.
Allyson Colby is a property law consultant
