Summary: As a result of this case, a landlord’s ability to forfeit for non-payment of rent, has been further diluted and its ability to re-let a property further inhibited.

Facts

The tenant paid a £90k premium for a 125 year lease of an industrial unit in Southall, Middlesex. The tenant agreed to pay rents including £100 in ground rent, insurance premiums and service charge contributions.

The lease contained a fairly standard proviso permitting the landlord to re-enter should the rents not be paid after 21 days.

After making demands for payment of rent and arrears building up, the landlord forfeited the lease by way of peaceable re-entry, on 24 April 2014.

The tenant did not make a claim for relief for 14 months, its claim being issued on 23 June 2015.

Guidance

The right to peaceable re-enter is regarded as security for payment of unpaid rent. Accordingly, the court has equitable power to grant relief to the tenant, usually once it is satisfied the tenant can pay the arrears and any costs the landlord has incurred in recovering those arrears.

It had been commonly understood that the application of Section 210 of the Common Law Procedure Act 1852 (which in peaceably re-entry cases acts as a guide rather than a fixed time limit), meant a tenant would have 6 months (or thereabouts) to make an application to court for relief from forfeiture.

Landlords have had an expectation that after expiry of this 6 month period, it would be easier to re-let the property, although some risk remained of a delayed application.

Previous cases confirmed that if an application for relief was to be made by a tenant, they must do so with “reasonable promptitude”, if a court was to be persuaded to exercise its equitable jurisdiction.

Here the High Court had to decide whether the tenant’s application for relief had been made promptly.

The Arguments

The landlord argued that 14 months was a significant delay and was reason enough for the court to refuse relief. It said steps were taken to ensure demands for the rent reached the tenant, and the tenant was aware the re-entry had taken place.

It also argued that the delay had caused significant prejudice by increasing its costs and expenses.

The Court said that the tenant’s lengthy delay in making the application would be difficult to overcome, but that it was just one of the factors to be considered, rather than an initial hurdle.

In considering whether to exercise its jurisdiction, the court took account of:

  1. “Human factors” including the tenant’s mental health and the effect depression had on his ability to make decisions/take steps to remedy the situation;
  2. The steps the tenant was taking to sell his other assets, to enable him to pay the arrears and landlord’s costs;
  3. The value of the lease (at the time of the hearing £275k) compared to the outstanding arrears (£24k) being disproportionate, meaning the landlord would be getting a windfall if relief was refused;
  4. The lack of prejudice to the landlord as a result of the late payment and the delayed relief application; and
  5. The landlord’s failure to market/re-let or grant a new long lease of the property.

Decision

The court decided that in the circumstances, the tenant had a sufficient explanation for the delayed application which, despite the significant delay, was made with “reasonable promptitude”. The court granted relief, provided the arrears and landlord’s costs are paid within a time (to be specified).

Issues

This decision raises further uncertainty for landlords considering whether to exercise a right of re-entry for non-payment of rent, and also in dealing with the property.

If a lease has no value, it might be possible to obtain an undertaking from the outgoing tenant that it will not seek relief, but that will not always be practical.

Without an undertaking, the landlord and any new tenant are in very uncertain territory. How the parties decide to proceed will depend on the circumstances/factors the High Court considered here.

A cautious tenant might insist on a court order for possession, resulting in delay and increased costs, which the landlord might never recover.

A less risk averse tenant might proceed without a court order, but both parties risk having no definitive view on a longstop date by which the outgoing tenant can make an application for relief, or the sort of order the court might make if it did.

Case: Pinepoint Limited v Grangeglen Limited [2016] EWHC 1318 (CH)