Relief from Forfeiture

Most commercial leases will give the landlord the right to “re-enter” the property and bring the lease to an end in the event that rent is not paid, using a procedure known as forfeiture.

Because of the draconian nature of this form of self-help – meaning that even a small shortfall in the rent payable would in theory entitle the landlord to treat the lease as being at an end – tenants have the right to apply to the court for relief from forfeiture. The court will usually grant that relief, subject to the tenant making good the breach which gave rise to the forfeiture (which usually means clearing the arrears of rent) and paying the landlord’s legal costs of the proceedings.

However, relief from forfeiture is always discretionary, so it cannot be assumed that the court will simply “rubber stamp” and approve an application for relief. A recent case decided by the Court of Appeal has highlighted that, if a tenant is going to seek relief from forfeiture, they must do so without delay or run the risk that the court will not exercise that discretion.

Keshwala and another –v- Balsood and another concerned commercial premises (with living accommodation above). In June 2018, following a mistake in payment, the rent fell into arrears of £500. On 1^st September 2018, the landlord served the quarterly rent demand but made no mention of the £500 arrears. The rent was payable by 29nd September. On 13^th September, the freeholder forfeited by re-entry. At this point the tenants became aware of the rent shortfall. A payment of £500 was sent to the freeholder’s agent but was not accepted, and the tenants were told that the freeholder was dealing with the matter.

The tenants duly applied to the court for relief from forfeiture. It was refused at first instance by the circuit judge, on the basis that the application had not been made promptly, but then granted on appeal by the tenants to the High Court. The landlords then appealed in turn and the issue that the Court of Appeal had to decide was whether an application for relief from forfeiture made just within the six month longstop period from the date of forfeiture was brought with “reasonable promptitude”.

On the landlords’ appeal, the High Court had held that, given the statutory period of six months in the Common Law Procedure Act 1852 within which the application for relief had to be made, this formed the starting point for what was reasonable when deciding whether the court should exercise its equitable discretion whether to grant relief. In effect, this would mean that any application for relief brought within the six month period, should be treated as having been brought with “reasonable promptitude”.

The Court of Appeal allowed the landlords’ appeal and held that delay in making an application for relief could be a factor in whether to exercise that discretion, even if (as here) the application had been made within the statutory six month period.

One of the factors that appears to have weighed on that decision was that in this case the landlords had changed their position be granting a new lease to new tenants, on the basis that the previous lease had been brought to an end by forfeiture.

In his judgment, and explaining that the court has a discretion whether to grant relief from forfeiture, Lord Justice Nugee said:

“The discretion is to be exercised (in both the High Court and the County Court) in accordance with equitable principles, including the well-established principle that equity regards the right of re-entry as a security for the payment of the rent, and, other things being equal, the Court will ordinarily grant relief if the tenant pays all that is due in terms of rent and costs. If therefore all that has happened is that the landlord has taken possession and then done nothing with the premises, simply sitting back to see what happens, then the mere fact that the tenant has delayed is unlikely to be regarded as sufficient by itself to cause the Court to refuse relief.

But that does not mean that so long only as the tenant brings his application before the end of the 6 months, he will be treated as having acted with reasonable promptitude, or that his delay will always be regarded as immaterial. The longer that the tenant leaves it – and a fortiori if he does not have a good explanation for the delay, and fails to keep the landlord informed of his intention – the more likely it is that he will find that the Court will conclude that he has failed to act with reasonable promptitude, and the more likely it will be that intervening events will make it inequitable to grant relief. If the landlord, acting reasonably and not precipitately, has altered his position, it may be unjust to grant relief; as also it may be if the rights of third parties have intervened.”

In this case, the combination of the tenants having done nothing – not even informing the landlord of their intention to apply for relief from forfeiture – and the landlord having entered into a new lease with new tenants in light of that apparent inaction meant that the Court of Appeal was unwilling to exercise the discretion to grant relief and to reinstate the tenancy.

The moral of the story is clear – if you are a tenant and need to apply for relief from forfeiture, you must do so promptly, or at least have a good excuse as to why you didn’t act promptly!

If you have any questions or find yourself having to deal with a dispute, please get in touch with the MLP Law Dispute Resolution team by email to mark.turner@mlplaw.co.uk or 0161 926 9969 to see how we can help.