Pineport Ltd v Grangeglen Ltd [2016] EWHC 1318 (Ch) 

Summary

  • The Court has a wide discretion to grant relief from forfeiture to a tenant, depending on the circumstances of each case and the reason for the tenant’s arrears.
  • If the Court grants relief, the tenant will be entitled to continue to occupy the premises under the terms of the lease, as if the landlord had not forfeited the lease.
  • Although there is a recommended timescale of 6 months within which the tenant should make its application for relief from forfeiture, the Court may allow a much longer delay in making such an application should the Court believe that it is reasonable in the circumstances of the case.
  • The focus of the Court is whether the tenant’s application for relief has been made with “reasonable promptitude”. The Court will take into account human factors, such as depression, and the value of the lease when determining whether the application was made with “reasonable promptitude”.

The facts

Pineport Ltd was the Tenant of an industrial unit which was used as an MOT garage and workshop (the “Tenant”). Grangeglen Ltd was the Landlord (the “Landlord”).

On 24 April 2014, the Landlord forfeited the underlease by peaceful re-entry due to the Tenant’s rent arrears.

The Tenant did not take any action initially following the forfeiture. However, on 23 June 2015, 14 months later, the Tenant applied to the Court for relief from forfeiture on the grounds that it was willing and able to pay the rent arrears. The Landlord argued that, due to the 14 month delay in making the application for relief from forfeiture, the Tenant should not be entitled to relief. The Landlord also claimed that it had incurred costs and expenses since the forfeiture which had increased as a result of the Tenant’s delay in making an application for relief.

The key issue for the Court to decide was whether the Tenant’s application for relief had been made promptly, or whether a 14 month delay barred the Tenant from relief from forfeiture.

Relief from forfeiture

A landlord’s right to forfeit a lease by peaceable re-entry is regarded as security for payment of unpaid rent. However, the Court has discretion to grant relief from forfeiture to a tenant, depending on the circumstances of each case and the reason for the tenant’s arrears. Relief from forfeiture is available to a tenant after the landlord has exercised its right to forfeit the lease.

If the Court grants relief, the tenant will be entitled to continue to occupy the premises under the terms of the lease, as if the landlord had not forfeited the lease. Any derivative interests, for instance an underlease, will be automatically reinstated.

Under section 210 of the Common Law Procedure Act 1852, the recommended timescale for a tenant making an application for relief from forfeiture is 6 months. However, this time limit is merely a guideline and is not applied strictly by the Court. Case law has also confirmed that an application for relief must be made with “reasonable promptitude”. Although, following the decision in Pineport Ltd, it is clear that what constitutes “reasonable promptitude” can be interpreted broadly.

The decision

Surprisingly, in Pineport Ltd, the High Court held that the Tenant was entitled to relief from forfeiture irrespective of the very lengthy period of delay in making its application.

The Court had to determine whether the application had been made with “reasonable promptitude” taking a 6 month period as a guide. The Court took into account all of the following factors when determining whether to grant the Tenant relief from forfeiture and whether the delay was reasonable:

  • there was a restraint order in place on the Tenant’s director;
  • the Tenant did not initially have the funds;
  • the Tenant did not have specialist advice;
  • the director of the Tenant was suffering from depression; and
  • the lease had been granted for a premium of £90,000.

The Court determined that its discretion to grant relief from forfeiture was broad, and that the Court should take into account human factors, such as the fact that the Tenant’s director had depression, when deciding on whether the application had been made with “reasonable promptitude”. Although 14 months was more than double the guide period for making such an application, the Court considered that it would be unfair to bar the Tenant from obtaining relief in light of the circumstances of this case.

In relation to the value of the lease, the underlease had been granted for a premium of £90,000 at a ground rent of £100 per annum. This was an important factor for the Court as the Landlord had exercised its right to forfeit the underlease when the unpaid rent amounted to £2,155, which constituted less than 1% of the capital value of the underlease. The Court considered that there was a severe disproportion between the sum due and the value obtained by the Landlord if relief was refused. Therefore, the Court held that it would not be reasonable to refuse relief in these circumstances.

The Court granted the Tenant relief from forfeiture on the basis that it paid £24,530, which included interest, to the Landlord. The Tenant established that it was able to meet this liability within a reasonable period as there was a buyer for the director’s brother’s property and a likelihood of a sale taking place. Therefore, it was likely that the money would be available within 12-16 weeks. This period was considered by the Court to be sufficiently soon to constitute payment in the immediately foreseeable future.

Our comments

The decision further broadens the Court’s discretion when considering whether to grant a tenant relief and creates more uncertainty for landlords when assessing whether to exercise a right to forfeit for non-payment of rent.

Additionally, this case highlights that what constitutes acting with “reasonable promptitude” is unclear, and can be interpreted very broadly.

Following this decision, it is important for landlords to consider whether or not a tenant is likely to be granted relief from forfeiture. If, on an assessment of the tenant’s circumstances, it seems that the Court is likely to use its discretion in the tenant’s favour (particularly where the tenant is likely to be able to obtain the funds to pay off the arrears), it is likely that the landlord should consider other legal avenues to recover the arrears. This will avoid the risk of an unsuccessful forfeiture which could result in undue costs and delay. An alternative option could be to issue a statutory demand against a tenant, provided the debt is not disputed, or, alternatively, agree a payment plan which may assist in encouraging the tenant to make payment.