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28 September 2020

Relief from forfeiture – delay of less than six months unlikely to be fatal to the grant of relief from forfeiture

On appeal, the High Court held that relief from forfeiture should be granted to the tenant of a lockup shop on the ground floor with living accommodation above where peaceable re-entry had been effected, and an application for relief from forfeiture was made five months later. A largely unexplained delay of less than six months in applying for relief was not sufficient to amount to an exception to the general principle that relief should usually be granted in cases where an application for relief from forfeiture is made within six months and the arrears have subsequently been paid or tendered, unless there are exceptional reasons which make it unjust to do so. This was the case even though the tenant had not informed the landlord that an application for relief from forfeiture would be made, and where the landlord had subsequently re-let the property. This decision will provide some comfort to tenants and those advising them, that even if they do not make an application for relief straight away, provided that the application is made within six months and they pay the arrears, they are likely to be successful. 

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

What are the practical implications of this case?

This case confirms to both landlords and tenants and those advising them that provided an application for relief is brought within six months of the date of forfeiture of the lease, it will be treated as having been brought with ‘reasonable promptitude’. Accordingly, provided the application for relief has been made within six months and the tenant has paid or offered to pay the arrears, an application for relief is likely to succeed unless there are ‘exceptional’ reasons to the contrary.

When considering what will amount to a delay sufficient to mean that the granting of relief under the court’s equitable discretion would not be just, landlords and those advising them will need to appreciate the significance of the six-month time limit and its application (as guidance) to cases where forfeiture has been effected by peaceable re-entry. This is likely to have practical implications for landlords as they need to be very careful about re-letting properties within six months of forfeiture unless the tenant has firmly indicated that they do not intend to apply for relief from forfeiture.

For those advising tenants who have had their lease forfeited, the case should provide some comfort that in arrears cases, an application made within six months, and where the arrears have been paid, is likely to succeed. The court confirmed that a delay of less than six months is not capable of being an ‘exceptional’ reason why the court should refuse to grant relief from forfeiture.

What was the background?

The claimant tenants had a lease of a property in Leicester for a term of 20 years from 12 March 2008. The property consisted of a lockup shop on the ground floor, with living accommodation above.

The tenants fell into arrears in July 2015 and the landlords forfeited the lease by re-entry, but relief was subsequently agreed by consent. Subsequently, the tenants sought to convert the residential part of the property into student lets, but this was carried out without the necessary licence from the city council and led to enforcement action being taken.

The second claimant, Mr Sharma, decided in 2018 to open a hairdressing business at the property. Due to an error, only £1,500 of the £2,000 quarterly rent was paid in June 2018, a mistake which was not realised by anyone but the defendant landlord, Mr Bhalsod. An invoice was raised for the next quarter payment of rent (due on 29 September 2018) which made no mention of the £500 shortfall.

The landlords effected forfeiture by peaceable re-entry on 13 September 2018. At that point Mr Sharma contacted the managing agents and paid the £500 arrears and indicated the tenants would pay the sum of £2,000 due for the September 2018 quarter.

However, there was no further substantive contact between the parties, and on 4 February 2019 the defendants re-let the commercial and residential parts of the property on separate leases to third parties. The claim for relief from forfeiture was issued on 26 February 2019.

At first instance, the judge refused to grant relief from forfeiture primarily due to the delay on the part of the tenants in making the application for relief.

What did the court decide?

The court decided that relief from forfeiture should be granted.

The judge agreed with the position set out in legal commentary that the court must consider in exercising its discretion to grant relief that re-entry is to be taken merely as security for the payment of rent. That being so, if rent is paid or tendered, relief should follow in the absence of ‘exceptional’ reasons which would make it unjust.

The court decided that the judge at first instance should have had regard to the statutory six-month limit for bringing relief from forfeiture set out in the Common Law Procedure Act 1852. The relevance of this time limit to cases where the court has equitable discretion and was not bound by statute had been long recognised, for instance in Howard v Fanshawe [1895] 2 Ch 581 and more recently in Lakeside Developments Ltd v Gibbs [2018] EWCA Civ 2874.

The court referred to Pineport Ltd v Grangeglen Ltd [2016] EWHC 1318 (Ch) where relief had been granted in respect of an application made 14 months after a lease had been forfeited by peaceable re-entry, and Lakeside Developments where the concept of ‘reasonable promptitude’ had been discussed. In that case, it was decided that the elasticity of ‘reasonable promptitude’ had been snapped where Ms Gibbs made an application to set aside judgment one and a half years after the landlord recovered possession.

From these authorities, the judge considered that while the six-month limit could be disapplied when the court exercised its equitable discretion, an application made within six months should be treated as being made with reasonable promptitude.

The judge at first instance had therefore been wrong to find that a delay of less than six months was capable of being an exceptional circumstance which meant that forfeiture should not be granted.

Relief from forfeiture was therefore granted, upon the condition that a reversionary lease of the commercial parts (which remained let to a third party) was granted to the claimants.

Case details
  • Court: High Court Appeal Centre Birmingham, High Court of Justice
  • Judge: Mr Justice Martin Spencer
  • Date of judgment: 4 September 2020

This article was written by Oliver Park at Charles Russell Speechlys and was first published by Lexis®PSL on 11 September 2020.

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