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 if the right cards are played.
What Is 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 a 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 legal proceedings for forfeiture, the tenant is granted an automatic entitlement to relief, 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. They can do so even when circumstances seem stacked against them.
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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  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. 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.
- 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.
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 even after 14 months had passed.
The Situation: In Pineport Ltd v Grangeglen Ltd  EWHC 1318, the landlord attempted to terminate a lease due to rent arrears. The tenant did not apply for relief 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 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. 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
- Landlords should be aware of the rights of tenants to seek relief under extenuating circumstances, even past the County Court’s six-month deadline
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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