Forfeiture is the ultimate remedy, if a lease contains a forfeiture clause and the tenant fails to pay its rent.
The landlord can peaceably re-enter the premises and terminate the lease. But the court can breathe new life into the lease by granting 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 – in which case, the lease will continue as if it had never been determined.
The county court can grant relief from forfeiture for non-payment of rent within six months after peaceable re-entry: section 139(2) of the County Courts Act 1984. By contrast, the High Court’s jurisdiction to grant relief from forfeiture by peaceable re-entry is equitable – and there are no strict time limits. But equity tends to follow the law. So the High Court will have regard to, although it is not bound by, the six-month time limit in section 210 of the Common Law Procedure Act 1852, which applies to forfeiture proceedings in the High Court where there are at least six months’ arrears.
Does this mean that applications for relief made within six months of the forfeiture of a lease are bound to succeed? Or can the court refuse to grant relief on the ground that the tenant has not acted with reasonable promptitude? Keshwala and another v Bhalsod and another [2021] EWCA Civ 492; [2021] PLSCS 71 supplies the answer.
Harsh behaviour
The litigation 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 refurbishing the premises, 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 did not react to the underpayment and instructed their agents not to do so either. They simply forfeited the lease by peaceable re-entry and served a notice under the Torts (Interference with Goods) Act 1977 regarding the collection of goods found at the property. The tenants had been quick to discharge the arrears of rent, but there was no response to that notice. Subsequent emails to the landlords were misaddressed and the tenants abstained from writing. And liability for business rates caused the landlords to re-let the premises within five months of forfeiting the tenants’ lease.
The tenants applied for relief from forfeiture shortly afterwards – within the statutory six-month period. But the county court refused the application. The judge accepted that the landlords’ behaviour had been “harsh and unyielding” and indicated that she might have granted relief, had the landlords been informed that one of the tenants was abroad and that an application for relief would be forthcoming. But the tenants had not provided a satisfactory explanation for their silence and had not acted with “reasonable promptitude”.
The High Court overturned the decision. The judge observed that a proviso for re-entry is a form of security for the performance of covenants and that the forfeiture of a lease with 10 years left to run, for arrears of £500, was “very harsh”. And it was his view that any application for relief from forfeiture made within the statutory six-month period should be treated as having been made reasonably promptly.
Reasonable promptitude
The Court of Appeal has allowed the landlords’ appeal. Speaking on behalf of the court, Lord Justice Nugee noted that the phrase “reasonable promptitude” had entered the jurisprudence in connection with the exercise of the High Court’s equitable jurisdiction, and that the authorities to date concern delays of more than six months. None focus on whether a tenant who applies for relief within six months must be taken to have acted reasonably promptly. However, authorities, such as Bank of Ireland Home Mortgages Ltd v South Lodge Developments [1996] 1 EGLR 91, contain repeated suggestions that tenants who leave it late will not necessarily be taken to have acted reasonably promptly.
Furthermore, the longer that a tenant leaves it – especially if it lacks a good explanation for the delay and fails to keep the landlord informed of its intentions – the more likely it is that the court will conclude that the tenant has not acted with reasonable promptitude and that it would be inequitable to grant relief. The rights of third parties may have intervened, or the landlord, acting reasonably and not precipitately, may have altered its position.
Always discretionary
The landlords had disinstructed their agents, lain low and avoided all contact and communication with the tenants. But the tenants had kept the landlords in the dark about their intentions and had not properly explained the reason for their eleventh hour application – and the ground floor was now let to a third party.
The tenants were content to accept a lease of the reversion. But one had proved elusive and was clearly reluctant to have anything to do with the property, and the county court had considered the other to be of doubtful financial standing.
The tenants had made their case eloquently and might have succeeded in the county court, had the case been heard by a different judge. But they had been unable to show that the judge had erred in principle and the Court of Appeal was bound to respect the way in which the county court judge had exercised her discretion.
Key points
- If a landlord re-enters premises, but does nothing with them, the court is unlikely to refuse relief from forfeiture simply because the tenant makes an eleventh hour application
- But legislative policy does not dictate that properties should be sterilised for six months, while tenants decide what to do
- Applications for relief made within six months will not necessarily be treated as reasonably prompt
Allyson Colby is a property law consultant
