London,
04
July
2016
|
18:26
Europe/Amsterdam

A Huge Relief For Tenants!

Real Estate E-alert

Summary

In the recent case of Pineport Limited v Grangeglen Limited, the High Court decided that a commercial tenant could make a successful claim for relief from forfeiture (which had arisen from non-payment of rent) a good 14 months after the landlord had changed the locks and peaceably re-entered the property to forfeit the lease.

Background

The landlord granted a long lease of an industrial unit for a £90,000 premium and for which ground rent, insurance rent and service charge was also payable.

In April 2014 the landlord forfeited the lease due to unpaid service charge amounting to £2,155. The Landlord did not take any steps to re-let the property following the forfeiture. A claim for relief from forfeiture was issued over a year later in June 2015. Surprisingly, one of the reasons for the delay was because one of the directors of the tenant was serving a prison sentence for MOT fraud carried out at the property.

Legalities

A tenant can apply for relief from forfeiture as soon as the landlord is proceeding with forfeiture, which can either be by bringing proceedings or by way of peaceable re-entry. Relief from forfeiture is a discretionary remedy and is usually granted on the condition that the tenant settles any arrears.

Previous case law had suggested tenants should be able to apply for relief against forfeiture for six months following forfeiture or peaceable re-entry. The decision in this case suggests the relevant period could be much longer and that the six month time limit is not strictly applied and is just a guide.

Decision

Whilst the tenant's significant delay in applying for relief was a material factor, the Court concluded that it had to consider a number of other factors before arriving at its decision:

  • Premium lease/rack rent lease: with the initial premium and ground rent of £100 per annum thereafter, the value of the property was between £275k - £300k and therefore the landlord would have a substantial windfall if relief was not granted. Had this been a rack rent lease, the court made it clear that very different considerations would apply.
  • Re-letting: the landlord had failed to re-let (or even market) the property and therefore there was no prejudice to the landlord or any third parties.
  • Arrears: the tenant was in a position to pay the arrears, interest and costs in full as the court concluded that by the tenant’s brother selling his flat, the proceeds would be sufficient to pay the sums payable.
  • Tenant's state of mind: the tenant suffered from depression and had not obtained specialist legal advice until after a significant time lapse.

The Court therefore decided to grant relief.

Practical advice

The judgment demonstrates the immensely wide discretion the Courts enjoy when granting relief and that the six month period is very much a guide. Landlords need to bear this in mind if seeking to re-let premises following forfeiture or peaceable re-entry.

Tenants will also need to be cautious too because this case involved a premium lease (this was an important factor in the decision) and it is clear every case will be considered on its merits. If this had been a rack rent, the tenant may have needed to have acted much faster to protect its position.

If you would like any further information, please contact Chirag Rao or the real estate team.

Contact
photo:Chirag Rao
Chirag Rao
Associate
+44 (0) 20 3755 5674
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