Most leases give the landlord a right to re-enter and forfeit the lease if the tenant is in breach of any of it obligations. This can be carried out by physical re-entry or by proceedings. The tenant may be entitled to relief from that forfeiture by applying to court. But what happens if post forfeiture the landlord and tenant decide that they want the lease to continue after all – say the tenant agrees to pay off any arrears.
A county court case has highlighted the necessity for a tenant of a forfeited lease to apply to the court for relief from forfeiture even if it has agreed with the landlord that it can remain. Only the court can ensure the continuity of the forfeited lease. Without this, any continued occupation by the tenant will be treated as a new lease. This will be a problem for both a landlord and tenant because;
- if the lease that has been forfeited was excluded from the Landlord and Tenant Act 1954 the new one will not be excluded unless the relevant procedures are complied with
- the fact that the old lease has ended will have the effect of releasing any guarantors under that lease including any who have given authorised guarantee agreements
- if the new lease is an underlease or the freehold is mortgaged, it is likely that new consents will have been required from the freeholder or the lender. The fact that these have not been obtained may put both the landlord and the tenant’s interests in jeopardy
- the existence of a new lease may create problems if there are any outstanding rent reviews and rent deposits may be affected
- if the forfeited lease was an old lease (ie granted before 1st January 1996) the landlord would lose the benefit of the covenants from any previous tenants or guarantors; and
- from the tenant’s perspective, there may be additional SDLT to pay and personal side letters and concessions may have been lost.
A tenant who has had his lease forfeited, for example for the non-payment of rent, can apply for relief from forfeiture if they are able to satisfy the court that they can comply with the obligations in the lease, for example by paying any rent that is due. This case confirmed that any consensual arrangement between the parties is likely to create a new tenancy by implication.
The position in relation to forfeiture is similar to that relating to break notices. Once a break notice is served, it cannot be withdrawn, nor can the lease continue, even by agreement.
Zestcrest Limited –v- County Hall Green Ventures Limited  Lambeth County Court 2.8.2011