In the recent case of Pineport Limited v Grangeglen Limited  the High Court considered whether a tenant of a commercial property, whose long lease granted at a premium had been forfeited by peaceful re-entry for non-payment of rent, could obtain relief from forfeiture 14 months after the event.
A landlord’s right to peaceful re-entry is seen as security for payment of unpaid rent. The High Court has the power to grant relief from forfeiture to a commercial tenant as a discretionary remedy, usually where the tenant can show that it has or will pay the arrears in full together with any costs that the landlord has incurred in recovering those arrears. When determining an application for relief, the court will consider whether it has been made with “reasonable promptitude”. There is no fixed time limit for an application to be made, although the courts tend to use the six month limit prescribed by section 210 of the Common Law Procedure Act 1852 as a guide. Landlords have therefore believed that six months after the date of peaceful re-entry they can safely re-let a property without there being a risk of an application being made by their previous tenant.
In this case, the tenant company was granted an underlease of commercial premises in Southall, Middlesex for a term of 125 years (less 10 days) at a premium of £90,000. The tenant covenanted to pay rent including £100 per annum in ground rent plus insurance premiums and service charge contributions. The tenant provided MOT and garage services from the premises.
In August 2013, a restraining order was made against the tenant and one of its directors following an application by the Vehicle and Operator Services Agency. This order prohibited the director disposing of, dealing with or diminishing the value of any of the tenant’s assets. The prosecution was based on the issue of MOT certificates by the director without the correct procedures being followed and he was subsequently sentenced to 18 months in prison. In December 2013, he was diagnosed as suffering from depression.
The landlord forfeited the lease by peaceful re-entry in April 2014 on the basis of non-payment of rent in respect of unpaid service charges totalling £2,155. It did not take any steps to re-let the premises following forfeiture. In June 2015, the tenant sought relief from forfeiture in the High Court.
The landlord argued that 14 months was a significant delay and as such the court should refuse to grant relief to the tenant. It said that it had taken steps to ensure that the rent demands had reached the tenant and the tenant had been aware that re-entry had taken place. It also argued that the delay would cause significant prejudice by increasing its costs.
The court held that the tenant was entitled to relief from forfeiture on the condition that it paid the arrears in full and the landlord’s costs. Although delay may ultimately be a decisive factor in granting relief, the court considered that in this case it was wrong to deal with that issue in isolation without regard to all of the circumstances. Evidence from the director’s brother showed that the arrears and costs, which totalled £24,530, would be paid as the brother was in the process of selling his flat and was using the sale proceeds to lend the director the money. This sale would be taking place within weeks of the trial and it was therefore likely that payment would be made in the “immediately foreseeable future”. The court also considered the relevance of the illegal activity which had been taking place at the premises but held that it was unlikely that this would continue as the tenant had lost its licence to grant MOT certificates and there was only very limited evidence that the premises had been tainted by the tenant’s past conduct. It was therefore held that the conviction was not a relevant factor.
The court did however take into account the fact that the lease had been granted for a substantial premium at a ground rent. The value of the lease at the time of the hearing was £375,000 compared to the outstanding arrears which only totalled £2,155 (plus costs). This amount was less than 1% of the capital value. It was therefore found that it would be severely disproportionate to refuse relief when the sum due to the landlord was insignificant compared to the value obtained by the landlord as a windfall if relief was refused.
Finally, the landlord was unable to establish any prejudice that it or a third party would suffer as a result of the grant of relief. It had not taken any steps to market the premises at the date of the application and so the delay had not had any impact on it.
Considering the circumstances of the case, the court held that there was an explanation for the 14 month delay, which arose from a combination of the director’s depression, the restraint order, a lack of money and the absence of specialist advice. The court’s discretion to grant relief is broad and the concept of “reasonable promptitude” is an elastic one which could be varied from the guide period of six months when taking into account human factors such as these. It was therefore held that the application had been made with reasonable promptitude and relief was granted.
This decision raises uncertainty for landlords in deciding whether to exercise a right of peaceful re-entry for non-payment of rent and how they should subsequently deal with the property. Whereas the landlords have previously regarded six months from the date of forfeiture as a significant milestone, this case shows that a tenant could still obtain relief sometime after this date. However, in Pineport the tenant held a long lease at a premium, which the court held was an important factor in its decision to grant relief. It is unlikely that the court would be so lenient in relation to a rack rent lease. One also wonders whether the court would have exercised its discretion in favour of the tenant if the property had been re-let before the application was made.
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