The High Court has granted a tenant relief from forfeiture 14 months after a peaceable re-entry was effected for rent arrears.
This article discusses the case of Pineport Limited - v- Grangeglen Limited (2016).
Pineport Limited (the tenant) was tenant of a unit in Middlesex under a lease for 125 years granted for a premium of £90,000 in 1981, at a ground rent of £100 per year. The current value of the leasehold interest was £275,000. The tenant ran the unit as a garage providing MOT services. In April 2014 Grangeglen (the landlord), forfeited the lease by peaceable re-entry based on unpaid ground rent, service charge and other sums. The tenant did not bring the claim for relief from forfeiture until June 2015, 14 months later.
By way of further background, due to the fraudulent issue of MOT certificates by the tenant, a freezing order was made against it and one of its shareholders who managed the business, Shorab Jadunandan, prohibiting them against disposing of any of the tenant's assets. Mr Jadunandan had also been sent to prison in March 2016 for 18 months. He claimed to have been suffering from a lack of mental clarity in the period leading to the forfeiture, due to depression.
At the time of re-entry the arrears amounted to £2,155. The tenant claimed it was ready willing and able to pay and sought relief from forfeiture under such terms as the court thought fit. The landlord said it had incurred costs and expenses since the date of re-entry, which had increased because of the delay in the tenant seeking relief. Because of this, it said it had also suffered prejudice as a result of the delay.
The court reviewed the previous case law on forfeiture and confirmed that:
- where a landlord has forfeited by peaceably re-entering premises rather than by issuing court proceedings, the court has power in equity (ie outside any legislation) to grant relief
- applications for relief from forfeiture using court proceedings must be made within 6 months of the possession order - the court should have regard to this time limit when considering applications after peaceable re-entry but it is not bound by it. Instead the court must assess whether the tenant has acted with 'reasonable promptitude' in all the circumstances
- it should always be a condition of relief that the landlord is paid the full arrears and its costs of recovering them and there has to be evidence that the tenant will be able to pay within a fixed time
- when looking at forfeiture for non-payment of rent, the court should not take into account other breaches of covenant save in exceptional circumstances
The court considered the following questions:
- should the tenant's delay in applying for relief mean relief shouldn't be granted?
- should account be taken of the tenant's use of the property for illegal activity?
- should the court take account of the value of the lease compared to the amount of arrears?
The court found that the delay in itself did not mean relief should not be granted. The judge said that 'the discretion to grant relief is a broad one and I am not constrained by a fixed time limit'.
There were several reasons for the tenant's delay, being that Mr Jadunandan suffered from depression affecting his ability to seek relief, his lack of understanding of forfeiture, the financial difficulty caused by the freezing order and the lack of specialist advice. As to ability to pay, My Jadunandan's brother was in the process of selling his house to provide the tenant with funds and the court was satisfied that payment would be made in the 'immediately foreseeable future'.
As to the tenant's illegal activity, this was not an exceptional circumstance justifying refusal of relief. The tenant had lost its licence to provide MOT certificates and there was no real risk of that conduct being continued.
The landlord was found not to have suffered any prejudice due to the delay. It had made no attempt to market or re-let the property. The only loss suffered had been the ground rent, service charge and insurance due under the lease. The court said there was a severe disproportion between the sum owed to the landlord and the windfall that it would get if relief were refused, being the value of the leasehold interest.
Relief from forfeiture was therefore granted on the basis that the tenant would pay the arrears within a fixed period.
While this case is helpful in confirming the factors which the court will take into account when considering whether to grant relief from forfeiture, landlords will obviously be concerned about the length of time permitted to make the application in this case. However, the fact that the lease was granted for a premium with a low ground rent was an important factor.
To try and avoid such a long period of 'limbo' following peaceable re-entry, landlords should:
- assess the amount of arrears as against the value of any windfall they would get if relief were refused - the smaller the arrears the more likely it is that relief will be granted
- take seriously and investigate any offers of payment by the tenant to clear the arrears - if they are cleared then relief is likely to be granted
- consider forfeiting by court proceedings if certainty of possession is a priority