In Part 1 of this blog series, we took a look at bringing a commercial lease to an end from a landlord's perspective. Now, we are taking a look at forfeiture from the tenant's perspective, in particular at what practical steps can be taken.

As set out in Part 1, if a tenant is in breach of a condition of the lease, and if the lease provides for a consequent right of the landlord to re-enter the premises, it may be difficult for a tenant to defend such a claim.

Waiver

However, where the landlord has waived their right to forfeit the lease – by taking an unequivocal act acknowledging the existence of the lease - then a tenant can resist. This applies whether there is re-entry by the landlord, or the landlord commencing possession proceedings.

An example would be if a tenant is in breach, and the landlord knows the tenant is in breach, but continues to demand rent as it falls due, the landlord is deemed to have lost that right to forfeit the lease. This is because the lease continues, and re-entry of the premises would amount to a breach of the implied covenant for quiet enjoyment - the tenant’s right to occupy uninterrupted by the landlord. Similarly, if the landlord issued a claim for possession, it might be an abuse of process, because the landlord has lost its right.

Relief from forfeiture

If the landlord has not waived their right, and re-enters the premises or begins possession proceedings, all is not lost. A tenant can apply to the Court for relief from forfeiture, which is a discretionary equitable remedy. It is available to tenants or other third parties with an interest in the lease. The application can be made in a counterclaim as part of a defence by a tenant against the landlord's claim for possession based on forfeiture, or a tenant can make a stand-alone claim if there are no proceedings.

If the Court grants the tenant relief from forfeiture, the lease will be restored as if forfeiture had never taken place. If there are any underleases these will be reinstated automatically.

In non-rent cases, i.e. where there has been a breach of the lease other than rent provisions, the landlord will have served a section 146 notice under the Law of Property Act 1925. This notice sets out the breach and gives a time for the tenant to cure it (if it is capable of being cured).

Under section 146 (2) there is a statutory right to seek relief and the Court has a wide discretion. If it is satisfied that the breach has been remedied, or compensation has been paid, and the Court is satisfied the tenant will perform its obligations going forward, the Court may grant relief. The Court will consider the tenant’s conduct, and the nature and gravity of the breach, when exercising its discretion. The Court may also order that the tenant pay the landlord's cost and expenses.

Rent cases

In the County Court, the tenant’s right to relief from forfeiture comes from sections 138-139 of the County Courts Act 1984, no matter what the amount of arrears is. The tenant here has multiple chances to obtain relief:

5 days before the hearing

A tenant will have an automatic right of relief from forfeiture if it repays all arrears, interest and costs of the claim 5 days before the hearing of the landlord's claim. The lease will thereby be reinstated with retrospective effect.

Before date for possession ordered by Court

At the possession hearing, if the tenant has not paid the arrears and costs set out above, the Court will ordinarily order possession, usually 28 days after that first hearing date, and may give the tenant an opportunity to obtain relief providing it pays all the interest, arrears and costs by that date of possession.

Within 6 months following date for possession

Even if a tenant fails to do either of the above, it still has a right to apply for relief within 6 months of the date for possession ordered by the court. If a tenant makes such an application, it will need to have paid all arrears, interest and costs, and convince the Court that the tenant will comply with its obligations under the lease in the future.

If the landlord, rather than issuing a claim for possession on the basis of forfeiture, has peacefully re-entered the property, the deadline for the 6-month period referred to above is from the date of re-entry.

Other Practical Step

If a former tenant or other party intends on applying for relief from forfeiture, they may wish to consider entering a notice against the landlord's title to put other parties on notice of an application.

After peaceable re-entry of premises, a tenant loses the right to remove their fixtures at the premises. A tenant is ordinarily obliged to remove its belongings or chattels from the premises under the lease at the end of the term. If they do not, the landlord may become an ‘involuntary bailee’ and will have certain obligations and may need to consider serving a notice to discharge those obligations.

This article was written by Toby Walker, Dispute Resolution Partner at Allan Janes LLP. If you need to speak to one of our property dispute specialists contact us on 01494 893512.