When a tenant has fallen into rental arrears under a lease, a common and rather brutal question asked by its landlord is whether the tenant should stay or be kicked out. This article explores this issue through the lens of the recent case of Pineport Limited v Grangeglen Limited (2016).
What is forfeiture?
This remedy allows a landlord to re-enter a property, in order to terminate the lease, on the basis that the tenant has breached a term, or a number of terms in the lease.
There are two ways to forfeit a lease. The first is by way of physical re-entry which is otherwise known as “peaceful re-entry”, and as stated on the tin, the re-entry must be done in a peaceful manner. If it is not, then the tenant may be able to raise the argument that the eviction was conducted unlawfully, which could potentially lead to the tenant moving back into the property. It should also be noted that unlawful eviction is not only a civil wrong-doing, but it can also amount to a criminal offence.
The second way is to commence court proceedings against the tenant. This is done by initially serving the tenant with a section 146 Notice and thereafter obtaining an order from the court. This is known to be most secure route for a landlord when considering forfeiture and the only way in which a residential lease can be forfeited.
If, as a tenant, you find yourself in this position, you are entitled to seek relief from the court, in other words, an order for the forfeited lease to be re-instated. Whilst a tenant should make this application as quickly as possible (usually within 6 months depending on how the forfeiture was effected and the breach itself), the case of Pineport Limited v Grangeglen Limited (2016) gave a slightly different slant on time-limits for such applications.
Pineport Limited v Grangeglen Limited (2016)
In this case the tenant, Pineport Limited, occupied a premises as a car garage under a 125 year lease. The landlord, Grangeglen Ltd, forfeited the lease by peaceable re-entry on the basis of unpaid ground rent, service charge and other sums amounting to approximately £2,155. The tenant, however, did not bring its claim for relief from forfeiture until some 14 months after the re-entry. The question before the court was, therefore, whether the tenant should be allowed relief despite the delay in applying.
The court took a number of different factors into consideration. It acknowledged that whilst the tenant had been involved with some illegal activity as a business, the main shareholder of the tenant company was suffering from depression and did not have a good understanding of the process surrounding forfeiture.
The court held that there would be a severe disproportion between the sum owed to the landlord, and the windfall that the tenant would get if relief was refused, being the value of the leasehold interest. Therefore, not with standing the delay, conditional relief was granted to the tenant (i.e. relief on the basis that it pays the arrears within a fixed time).
This case reminds us that the court’s discretion to grant relief is a broad one and when deciding whether relief should be granted or not, it will be prudent for the court to conduct a balancing exercise between the two parties and the prejudice that will be caused to each party if the application is granted. Tenants will need to remember to make their relief applications, as quickly as possible, after the lease has been forfeited. But, landlords will need to remember, that it is not a foregone conclusion that relief will be granted if there has been a delay in bringing the application.
Priya Sejpal is one of the litigation experts at Gelbergs LLP and is happy to help with any queries that you may have. You can contact Priya on 0207 226 0570 or by email at firstname.lastname@example.org