The period after a landlord has elected to forfeit a lease has been referred to as a “twilight period”1 or a “period of limbo”2. In order to consider the issues which arise in practice during the limbo/twilight period, this article briefly summarises the positions of the parties and procedure when a landlord elects to forfeit a lease; we then go on to explore the practical issues which arise after that step has been taken, and consider the sort of advice we might expect to be given to landlord and tenant in those circumstances.
It is worth mentioning at this point that we are considering business tenancies, common law tenancies, and agricultural tenancies here; not tenancies which would fall within the various residential statutes, including long residential leases. Forfeiture is important so far as farm business tenancies are concerned as it is the only means, in the absence of a contractual break clause, of bringing the tenancy to an end before it expires.
A landlord can forfeit a lease either by physically re-entering the property, or by issuing proceedings.3
The usual scenario is that the locks on a shop or warehouse are changed overnight or at the weekend sometimes to the surprise of the tenant when they next arrive to start work for the day.4
The alternative is for the landlord to issue and serve proceedings for possession of the premises, and await the decision of the court as to whether they are entitled to possession, or hope that the tenant leaves in the face of those proceedings.
Both of these scenarios involve the landlord indicating that they consider the tenancy to be at an end. In either event the tenant then has the opportunity to seek relief from forfeiture from the court.
Over time the court has exercised its power to grant possession to landlords upon forfeiture rather sparingly. It is often the case that if a tenant applies to the Court for relief and offers to pay any outstanding rent, the landlord’s costs, and remedy any breach; the court will allow the tenant to resume occupation pursuant to the lease. This has even been the case where breaches have been repeated over time, and previous applications for relief have been granted.5
If the landlord re-enters, a tenant has only six months from the date of re-entry in which to seek relief from forfeiture by application to the court. Where proceedings are issued and served for possession the tenant will usually plead relief from forfeiture in its defence.6 Either way there then ensues a long delay before matters are then sorted out by the court, or agreed between the parties, usually leaving everyone scratching their heads as to what to do about the demised (or temporarily and technically ‘un-demised’) premises in the meantime.
Initially the landlord’s prime concern will often be over re-affirming the tenancy through, for instance, demanding rent in the face of a breach, or otherwise affirming the tenancy. This is a fertile area for professional negligence claims.
However, once a landlord has taken the final step of re-entry, or issuing proceedings for possession it has elected to ‘do something about the breach’ and as such there is usually no difficulty in a landlord dealing with the tenant after those decisive steps, including accepting ‘rent’ (or sums in lieu).
In practice problems can arise where the hearing of the tenant’s application for relief from forfeiture is awaited, as landlord and tenant’s obligations can be unclear. This is the twilight or limbo period.
It has been said that: “The tenancy has a trance-like existence pendente lite; none can assert with assurance whether it is alive or dead.”7
We now consider some hypothetical scenarios.
Is the tenant liable for the rent?
From the date of forfeiture (the date proceedings are served, or re-entry taken), the tenant’s obligations to pay the rent are suspended.8
If the tenant is then intending to seek relief, and has no counterclaim, they are likely to be advised to continue paying rent, or if payment is not accepted, pay the relevant sums into court. Then, if (and often when) the application for relief is successful, the landlord will collect the rent, and the tenancy will be back on its feet again. This will be likely to be the case whether the tenant is in occupation or not.
If the tenant is not in a position to pay the rent - perhaps due to some counterclaim against the landlord - but nonetheless is looking for relief, the position depends upon whether or not their occupation continues. If they are not in occupation, then they are not likely to be liable for the rent post forfeiture, whatever the outcome of the claim. If they are in occupation, they are likely to be advised that their liability for the rent (or mesne profits as it would be called post forfeiture) to the extent that they are unsuccessful in their counterclaim or defence.
If relief from forfeiture is granted, and the tenant has been dispossessed by the landlord, the landlord is often likely to face a claim by the tenant for mesne profits for the breach of the covenant to allow quiet enjoyment. Items on the shopping list which might form particulars of damage would include: rent and premium for alternative premises, professional fees, costs of moving a business, loss of profits, personal injury (including stress), loss of sub rents, and even exemplary damages (in limited circumstances).
Who is liable for any outgoings?
Many tenancies will include covenants for the payment by the tenant of rates and, or in the alternative, service charges, as well as other outgoings, which may well be due to third parties. In most circumstances, the landlord will become liable for paying the rates and any service charges due to a freeholder or head tenant as the landlord is (by reason of the forfeiture) the person entitled to the occupation of the property.
There may be circumstances in which the tenant was directly liable for outgoings, in which case, the tenant is likely to continue to be liable.
Does a landlord have to comply with the covenants of the lease?
The short answer is ‘yes’. As the rather unfortunate head tenant in Peninsular Maritime Ltd v Padseal Limited9 found out. In that case the sub tenant refused to pay rent, averring that the head tenant had failed to comply with repairing covenants. The head tenant forfeit, and in response the sub tenant obtained an injunction against the head tenant to compel it to repair an elevator. Meanwhile the head tenant was the subject of an action by the freeholder for its failure to pay the rent due to the freeholder. The Court of Appeal held that the injunction was good, and the head tenant did have to repair the elevator, notwithstanding that it had forfeit the lease.
Does a tenant have to comply with the covenants of the lease?
The short (and unsatisfactory) answer is ‘no, not really’.
In Wheeler v Keeble (1914) Limited Mr Justice Younger found that in the circumstances where the landlord had forfeit the lease, it was supposed to be unequivocally asserting its right to maintain that the tenancy was at an end, and as such it could not then seek to rely upon the covenants of that tenancy.
The tenant’s liability for destruction of premises?
As set out above, a landlord does not have an instant contractual remedy for breaches of covenant, for instance resulting in dilapidations, which have accrued after forfeiture, because the landlord elected to treat the lease as at an end.
If a landlord re-enters, and successfully defends any application for relief, the damages for any breach of covenant are assessed as at the date when the lease was forfeit (that is retrospectively), thus landlords are well advised to look out for limitation periods when breaches occur, and sensible practice is likely to be for landlords to include claims for damages for breaches when pleading in forfeiture matters.
It is also possible that relief might be obtained by a tenant, but breaches had occurred during the twilight period, in which case the landlord may then bring further proceedings to enforce against the tenant.
We have looked at a variety of scenarios above, and as will be clear from the comments made on each, the law is by no means straightforward. Certainly the case law alone contains some salutary lessons for landlords who might be considering exercising a right to forfeit and may cause them to look at other remedies, where available.
Readers should also be aware that there are many other permutations and layers of complexity to the above scenarios. Matters such as guarantors, insolvency, residential premises, partnerships, sub tenancies, and probate all add significant variations and caveats to the above. As always proceed with extreme caution and proper advice where possible.