Landlords that peaceably re-enter premises determine their tenants’ leases. However, tenants can apply to the court for relief from forfeiture and, if relief is granted, the forfeiture is undone. What is the position if the parties try to reinstate the lease by agreement between themselves?
The text books suggest that the parties must ask the court to do this for them. The county court decision in Zestcrest Ltd v County Hall Green Ventures Ltd [2011] PLSCS 259 confirms that their analysis is correct. The judge held that parties cannot revoke or cancel a forfeiture and revive a lease simply by agreeing to behave as if the forfeiture had never happened. A tenant can only remain in possession of premises under a lease that has ended if the court exercises its discretion to grant relief from forfeiture. In the absence of a court order, any consensual arrangement between the parties is likely to create a new tenancy by implication: Tayleur v Wildin (1868) LR 3 Ex 303.
This could have important implications for both parties. The judge noted that the creation of a new business lease would be prejudicial to the landlord because the tenant would obtain security of tenure (unless the parties expressly exclude any new lease from the Landlord and Tenant Act 1954).
However, there may be other consequences. Landlords will need to consider the effect on guarantors if the parties were to create a new lease by implication without obtaining fresh guarantees from the tenant’s guarantors. It would also be advisable to consider the effect on any rent deposit arrangements, which may cease to operate on the termination of a lease. The landord would also be well-advised to consider the impact on the tenant’s repairing and reinstatement obligations at the end of the new lease.
It is also important to check whether any consents will be required. Failure to obtain any consents required for the grant of a new lease could place the landlord in breach of its banking covenants and/or jeopardise the continuation of any superior lease.
The landlord should also check whether the lease that was forfeited was an “old” lease for the purposes of the Landlord and Tenant (Covenants) Act 1995. If so, it should ask itself whether it is willing to grant a “new” lease and lose the benefit of privity of contract with its tenant.
The parties should also consider how they might react if the other were to claim that the new tenancy by implication constitutes nothing more than a tenancy at will or a mere periodic tenancy, terminable by a notice to quit of the appropriate length.
Similar issues will arise if a party to a lease who has served a valid break notice were to ask to withdraw it. The decision in Tayleur, which was also followed in Freeman v Evans [1922] 1 Ch 36 and Lower v Sorrell [1963] 1 QB 959, suggests that the court would treat the act of agreeing to withdraw the break notice as creating a new tenancy by implication with all the consequences described above. In such circumstances, it may be preferable to enter into a brand new lease to suit the parties’ needs.
Allyson Colby is a property law consultant
