Commercial Landlord’s Beware – High Court Clarifies Time Limits For Tenant’s Bringing Applications For Relief From Forfeiture By Re-Entry

On 4th September 2020, the High Court handed down its appeal judgment confirming that the County Court had been wrong to refuse an application for relief from forfeiture on the basis of delay, when the application by the commercial tenant had been made within the statutory six month time limit.

Keshwala and another v Bhalsod and another [2020] EWHC 2372 (QB)

Facts

The landlords’ had effected forfeiture by re-entry following an accidental shortfall of £500 in the rental payment for the June 2018 quarter. This left the rent account in £500 arrears but, for reasons that are immaterial to this note, this was not appreciated by the tenants at the time. The landlords’ property agents then issued the September quarter demand in the usual way which made no reference to the shortfall from the June payment.

On 13th September, the landlords’ effected forfeiture by re-entry on the basis of the rent arrears from the June quarter. Upon learning of the £500.00 shortfall, the tenants made payment of that sum on 24th September and indicated their willingness to pay the September quarter on 29th September (as per the payment terms within the demand). After a period of unexplained delay, the tenants’ solicitors attempted to contact the landlords in January 2019. Within that emailed correspondence, the tenants’ solicitors indicated a willingness to pay all and any outstanding quarterly rents, whilst explaining the delays in seeking signatures for the purposes of the claim form for relief. Even more unfortunately, the landlords never received that email owing to an error in the email address.

On 4th February 2019, the premises were re-let by the landlords and the tenants’ finally issued relief from forfeiture proceedings on 26th February 2019 (some five months, 13 days later).

Decision at First Instance

At first instance, Judge Hampton found that, notwithstanding it was a very harsh decision to have effected forfeiture on the basis of arrears of only £500 (particularly where the lease had a residue of over 10 years left to run), the application ought to be refused on the basis that it had not been brought promptly enough. This was the case even though the tenants’ claim had been brought within the statutory time limit of six months. The tenants appealed.

Decision on Appeal

On appeal, Mr Justice Spencer considered that:

  1. An act of re-entry is to be treated as no more than security for the payment of rent. Therefore, if rent is paid (or tendered) relief should follow unless there is some “exceptional reason” why it would be unjust to grant relief;
  2. By virtue of the above, the question arising in this appeal is whether or not the delay in this case comprised such “exceptional circumstances” as to justify the refusal to grant the relief sought;
  3. Although an application for relief from forfeiture may be brought more than six months after possession has been taken by the landlords (so long as the elasticity of “reasonable promptitude” has not snapped), an application brought within six months is to be taken as having been brought with “reasonable promptitude”;
  4. By virtue of the above, the factor relied upon by the learned Judge in refusing to grant the relief sought (namely the delay within six months) was not capable of amounting to the kind of “exceptional circumstances” which it is necessary for a landlord to show when inviting the Court to refuse relief.

On the basis of the above, the appeal was allowed.

Commentary

Forfeiture has always been the most draconian of remedies that a commercial landlord has against their tenant for non-payment of rent. Re-entry provisions are common in most modern commercial leases, but this case demonstrates that care must be taken when landlords choose to exercise their rights and, perhaps more importantly, what they do with their property once re-entry has been effected.

You may well take away from this case that, should a landlord choose to invoke their re-entry rights, they may be best served leaving the premises vacant for a period of six months before re-letting. That, however, is not always practicable and, more fundamentally, forfeiture is designed to regain possession of property principally (but not always) due to a tenant’s default in not paying their rent. To leave the property empty for a period of six months “just in case” seems illogical. Of course, in this particular case the tenants rightly felt aggrieved and seemingly had the means to put the landlords back in the position they would have been “but for” the re-entry occurring. As well as the time limit, that is of course an essential characteristic of the Courts granting relief. Landlords may therefore (particularly in the light of the impact that Covid-19 has had on businesses) undertake a risk-analysis exercise to see if tenants could feasibly afford to seek relief if the landlord were to exercise their re-entry rights. That may then allow them to make an informed decision.

Keshwala BhalsodHow can Nelsons help?

Oliver Maxwell is a Senior Associate in our Dispute Resolution team, specialising in property disputes.

For more information regarding the subjects discussed in this article, please call Oliver or another member of the team in Derby, Leicester or Nottingham on 0800 024 1976 or contact us via our online form.

 

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