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Relief from forfeiture - stretching the limits

In a recent case a Landlord forfeited a lease of commercial property by peaceable re-entry following the tenant’s failure to pay the rent.  The lease was for a 125 year term and the tenant had paid a £90,000 premium for it.  The likely value of the property was around £275,000 - £3000,000 and at the time of forfeiture the arrears constituted around  £2,100 so around 1% of the value in the lease.

When a lease is forfeited by Court proceedings, statute confirms an application for relief from forfeiture must be made within 6 months.  However, relief from forfeiture where the lease has been forfeit by peaceable re-entry is an equitable remedy.  In those circumstance the statutory provision does not apply. The 6 month period is a usual rule of thumb, but this case shows that the Courts are not bound to follow it.   

The circumstances of this case, where relief was granted 14 months after forfeiture by peaceable re-entry, seem extreme. However a little digging into the background shows that the circumstances and behaviour of the parties were, as ever, crucial in the decisions made by the Court.

Prior to the forfeiture the party with control of the tenant company (“Mr Jadunandan”) was the subject of criminal proceedings which saw all his assets being frozen and ultimately he was sent to prison.  As a result, the property was sub-let at a substantial premium and both the tenant an the sub-tenant immediately after forfeiture contacted the landlord and offered to re-pay the arrears.  Mr Jadunandan was however in prison and his mental health had suffered.  As a result of both these circumstances and the legal advice he received, the application for relief was not made for 14 months.  Throughout this period however the tenant and the sub-tenant made clear that they wished to pay the arrears and re-enter.

In contrast, the landlord did very little during this period.  The property was secured and abandoned vehicles disposed of. Beyond that however the landlord did not take any action to market or occupy the property.

The issues before the court were:

1. Should the tenants be prevented from obtaining relief because of the delay?

The Court felt the tenant’s delay was “near to breaking point for the concept’s elasticity”.  However, the landlord was always aware that the tenant intended to make an application for relief from forfeiture and the circumstances including ill health, imprisonment, lack of funds and lack of specialist advice were all genuine reasons which contributed towards the delay.

2. Should account be taken on the tenant’s previous use of the property for illegal activity?

The tenant was no longer operating from the property and the sub-tenant was operating a legal business.  As such, allowing relief would not allow the property to be used for an illegal activity. 

3. Were there any other circumstances that should be taken into account?

The surrounding circumstances appear to be what played heaviest on the Court’s mind.   Other than securing the property the Landlord took no steps to repair or re-let the property.  In the Court’s words the landlord “stood by to await events”.  Further, the sublease was granted for a substantial premium at a ground rent. The value of the arrears at the time of the Court hearing was still only 10% of the total value in the lease.  The tenant stood to lose a substantial asset if relief were not granted and the landlord stood to gain a substantial windfall if relief was refused.  The respective loss and gain appeared disproportionate.

4. Upon what terms should relief be granted and is the tenant in a position to comply with the terms.

Given Mr Jadunandan’s imprisonment, the only way in which the money could be raised to pay the arrears was by his brother selling a property.  That property was on the market and a buyer had been found. In all likelihood a sale would take 12-16 weeks.  It was considered however that was within the boundaries of a reasonable time frame to allow for repayment of arrears and costs. 

The landlord did little to help themselves.  They did nothing to market the property and at trial failed to prove evidence of most of the costs and expenses they sought to recover. As a result the Court awarded 50% of the legal costs claimed.

The Court granted relief although the tenants would be required to pay the arrears and costs.  The date for payment is not included in the judgment as the Court wanted to hear submissions from the parties. Given the mood of the Court and the landlord’s apathy, it seems unlikely the Court would be persuaded in any way that the arrears and costs should be paid urgently.

The case shows that for tenants if you have made substantial efforts and made the landlord aware of your intention to apply for relief from forfeiture following peaceable re-entry, the door may not close on you after 6 months  For landlords a valuable lesson to learn is that a little bit of effort goes a long way – and no effort at all gets you nowhere.