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Relief From Forfeiture

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In commercial property law, landlords may enforce their right to forfeiture and exclude tenants from rental premises. This can occur if the tenants breach the lease. This is referred to as a landlord’s right to forfeiture. However, tenants can often apply for relief from forfeiture by making an application to court. The Court may grant the tenant the chance to resolve the situation, but often the tenant may be ordered to pay arrears and costs.

Forfeiture situations can be difficult and complicated for all involved. However, as we’ll examine in two case studies, it’s often possible for tenants to be granted relief from forfeiture if the right cards are played.

What Is Relief From Forfeiture?

In the simplest terms, a landlord may exercise a right to forfeiture and terminate the lease of any tenant and regain possession of the property. Rental contracts sometimes allow for this without cause. But generally, a landlord pursues their right to re-entry after the tenant breaches a fundamental clause of their lease agreement. This may include failure to pay rent, renewing sublets without permission, or allowing a property to fall into dilapidation.

Even if landlords are entirely within their rights to seek re-entry, a tenant may still apply for relief from forfeiture within six months. A court will generally grant this upon the condition that the tenant fully pays any money owed, including the landlord’s legal costs, and adequately resolves any breaches of covenant.

In the event that the landlord initiates court proceedings for forfeiture, the tenant is granted an automatic entitlement to relief from forfeiture, contingent upon the complete settlement of all outstanding arrears, accrued interest, and the landlord’s legal expenses. This settlement must occur no later than five clear days prior to the scheduled hearing.

Section 146 notice

When a landlord decides to exercise a right to forfeiture, the landlord must serve a Section 146 notice. This is in accordance with the Law of Property Act 1925, but a Section 146 notice is not required if the breach is  failure to pay rent.

This notice will inform a tenant of any breaches committed. It also provides a reasonable time to rectify the situation. If the breach is fixable and the tenant fails to do so within a specified time period, a landlord can fully exercise their right to re-entry. In doing so, they evict the tenant.

All of this may seem clear on paper. However, the specifics of any given situation complicate whether a landlord can rely on this right to forfeiture. As we’ll see in these case studies, it’s possible for tenants to successfully apply for relief from forfeiture. They can do so even when circumstances seem stacked against them.

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Alex Cook
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We only enter into CFA funding agreements in relation to some commercial, property and construction disputes. We therefore need to understand what type of dispute you have so that we can assess whether a CFA might be appropriate.

We only offer No win, No Fee (CFA) funding in some commercial, property and construction disputes. We do not offer CFA funding in harassment, personal injury or housing disputes. If you are seeking CFA funding in another area other than those listed please use our Contact Us form at the bottom of this page
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Is the value in dispute more than £10,000?

This is important because typically it is only possible to recover legal costs, including costs funded on a ‘No Win, No Fee’ (or ‘Conditional Fee Agreement’), where the amount in dispute is over £10,000. If you have a dispute where your losses and damages are less than £10,000 it is unlikely we can offer you a CFA.

If your dispute is worth less than £10,000, it will typically be allocated by the Court to the Small Claims Track. In small claims usually costs are not recoverable and therefore we cannot offer you a CFA in these circumstances. There is always risk you have not fully identified the amount in dispute or you may want to consider paying us a fixed fee for fixed advice on your prospects of success and/or the process moving forwards, in which case please do contact us.
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Is the value in dispute more than £10,000?

This is important because typically it is only possible to recover legal costs, including costs funded on a ‘No Win, No Fee’ (or ‘Conditional Fee Agreement’), where the amount in dispute is over £10,000. If you have a dispute where your losses and damages are less than £10,000 it is unlikely we can offer you a CFA.

If your dispute is worth less than £10,000, it will typically be allocated by the Court to the Small Claims Track. In small claims usually costs are not recoverable and therefore we cannot offer you a CFA in these circumstances. There is always risk you have not fully identified the amount in dispute or you may want to consider paying us a fixed fee for fixed advice on your prospects of success and/or the process moving forwards, in which case please do contact us.
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Is the value in dispute more than £10,000?

This is important because typically it is only possible to recover legal costs, including costs funded on a ‘No Win, No Fee’ (or ‘Conditional Fee Agreement’), where the amount in dispute is over £10,000. If you have a dispute where your losses and damages are less than £10,000 it is unlikely we can offer you a CFA.

If your dispute is worth less than £10,000, it will typically be allocated by the Court to the Small Claims Track. In small claims usually costs are not recoverable and therefore we cannot offer you a CFA in these circumstances. There is always risk you have not fully identified the amount in dispute or you may want to consider paying us a fixed fee for fixed advice on your prospects of success and/or the process moving forwards, in which case please do contact us.
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Generally speaking tenants will not own assets. That means you might ‘win’ but not recover damages and costs- even if the court orders the tenant to pay. Whereas if your dispute is with a property owner we can usually recover your costs and damages from their share of the property.

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The more evidence you have in support of your allegations, the better your prospects of success. The higher your prospects of success, the more likely we can offer you a CFA funding arrangement.

Where you lack documents in writing, there can be greater complexity. We need to review your circumstances and background in more detail before being able to consider alternative funding with you. Please provide details of your circumstances here and we will contact you - anchor to commercial sherholder form.

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All disputes are subject to limitation periods- this is the period of time in which a claim must be issued. Most limitation periods in our work are 6 years. There can be exceptions and upto 12 years is possible, but this is a factor that can increase risk to you and to us and might lead to us declining to offer a CFA. With the passage of time memories can/will also fade, and evidence can be lost or destroyed. Acting promptly can therefore be important.

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We want to ensure we can force your opponent to pay if they refuse to pay. If your opponent has assets, usually property, we can have greater confidence of recovering money, property, or assets (or all the above), for you. Otherwise there can be risk that you have a good claim with good prospects of success, but if your oppoennt doesn’t own anything, you might not recover damages or losses.

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Case Study #1 – Court clarifies when forfeiture of lease is not a proportionate response, even to deliberate breaches

This case study involves a situation where a court determines lease breaches are ‘deliberate,’ ‘flagrant,’ and ‘continuing.’ Ultimately, however, the court decides forfeiture of lease is still not an appropriate response because of the windfall the landlord would receive as a result.

The Situation: In Freifeld v West Kensington Court Ltd [2015] EWCA Civ 806, a tenant sublet a commercial unit to a Chinese restaurant. The restaurant received multiple complaints about noise, waste management, smoke, and food preparation.

The terms of the lease agreement required the tenant to receive consent from the landlord before renewing a sub-lease. However, the tenant renewed the Chinese restaurant’s sublet without any such consent. As a result, the landlord served a Section 146 notice and attempted to forfeit the lease.

The tenant applied for relief from forfeiture. They stated that the breaches committed and damage to the landlord weren’t sufficient to warrant termination because the landlord stood to receive a staggering windfall upon termination. Indeed, the landlord stood to gain roughly £1-2 million by forfeiting the lease.

The tenant argued that, even though the court agreed that the breaches were rather egregious, they should receive a fair shake at finding a new subletter. This claimed the landlord would gain a disproportionate amount from immediate re-entry. Two initial relief applications were denied, though the tenant was successful  upon appeal. The court granted the tenant their desired six months to resell their lease.

The Recommendation:

  • Landlords should ensure forfeiture is a proportionate response to breaches. This is even if breaches are deliberate. This applies particularly if the landlord stands to receive a windfall from forfeiture
  • It may be appropriate to consider alternative actions to address breaches in commercial lease agreements.
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Case Study #2 – Tenant successfully obtains relief from forfeiture, despite waiting 14 months to apply

Requirements pursuant to a Section 146 notice must be fulfilled within a ‘reasonable’ timeframe agreed. Generally, this is six months. However, this case study demonstrated a situation where a tenant was granted relief from forfeiture even after 14 months had passed.

The Situation: In Pineport Ltd v Grangeglen Ltd [2016] EWHC 1318, the landlord attempted to terminate a commercial lease due to rent arrears. The tenant did not apply for relief from forfeiture until 14 months later. They explained their reasons for tardiness and offered to repay money owed. The landlord, however, pushed back against the tenant’s lack of ‘reasonable promptitude.’

Applications for relief from forfeiture must be brought to the County Court within six months, this is true. However, the tenant brought their claim to the High Court. The High Court has no limitation periods for relief applications. Often, it allows such applications under extenuating circumstances.

The High Court admitted the 14-month delay was veering close to the limits of ‘reasonable promptitude’. However, they granted the relief from forfeiture. Ultimately, the details of the tenant’s situation were sufficient to sway the Court’s decision. They considered:

  • The tenant’s history of mental health issues. These prevented him from taking appropriate action to keep up with rental payments.
  • The tenant’s movement toward selling off other assets in order to pay arrears to the landlord
  • The fact that the amount owed (roughly £24,000) was minuscule in comparison to the value of the total lease (roughly £275,000)
  • Inaction on the part of the landlord toward marketing the property for a new long lease
  • The fact that the tenant had not received professional advice regarding his situation
  • The fact that the landlord was without prejudice from the late payments and relief application

The Recommendation:

  • Landlords should be aware of the rights of tenants to  seek relief under extenuating circumstances, even past the County Court’s six-month deadline.
  • The specifics of court proceedings in forfeiture proceedings may allow flexibility depending on the situation.

Contact Us

If you’re currently facing a Section 146 notice or are otherwise under the threat of forfeiture and want to know your options, contact a member of our team here at Helix Law. We can help you apply for relief of forfeiture and help you understand your potential odds in court.

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