Posted: Tuesday, 5 July 2016 @ 11:08
Back in June 2015 I posted a blog on forfeiture of commercial leases, which is the term for when a landlord recovers possession due to a breach of the lease by the tenant. That blog looked in particular at forfeiture where the tenant was in arrears of rent.
A recent case of Pineport Limited v Grangeglen Limited is a very useful reminder of the points which a court will consider in any application by the ousted tenant for relief from forfeiture.
The facts of the case were relatively straight forward. Pineport was the tenant. In 1998 it was granted a lease for 125 years less 10 days, commencing April 1981. Pineport paid a premium of £90,000 for the lease. Rent consisted of ground rent of £100 per year, insurance premium, and the service charge. At the time of the hearing in April 2016 the value of the leasehold interest was £275,000 in its actual condition and £300,000 if put into a full state of repair. So it was a very valuable asset for Pineport to lose. Grangeglen was the current landlord.
In April 2014 Grangeglen forfeited the lease by peaceable re-entry, relying on the covenant which allowed forfeiture if rent was in arrears for 21 days whether formally demanded or not. The arrears at the time of forfeiture were just £2155.
Pineport did not issue an application for relief from forfeiture until June 2015. This was over a year after forfeiture. A point to note here is that if forfeiture had been granted by a court in proceedings, Pineport would only have 6 months form the court order to apply for relief. But as forfeiture was not ordered by a court, and effected by the landlord taking possession and changing the locks, a tenant can make an application at any time. But the longer the delay the harder it will be to persuade a court to grant relief and let the tenant back in the property.
In this case the court granted Pineport relief, but why?
- the 6 month period I have mentioned will be taken as a guide but not a bar to any application for relief
- all the circumstances of the case will be taken into account
- the court as a starting point will lean heavily in favour of granting relief
- if the tenant pays the rent in arrear, interest and costs he is normally entitled to relief
- costs must be paid on the indemnity basis and include any losses incurred by the landlord as a result of the breach of covenant
- the court should not take account other breaches except in exceptional circumstances
- although there had been other breaches they were not considered as exceptional
- a factor will be how quickly the tenant can pay the arrears interest and costs
- here the landlord had not changed its position. It had not re-let the property
- Grangeglen's claim for arrears interest and costs amounted to £24530
- the court accepted that it was likely that this could be paid within 12 to 16 weeks of the trial date
- this had to be compared to the value of the leasehold of £275000 in its current state. Not to grant relief would hand a significant windfall to Grangeglen
- the prejudice to Pineport heavily outweighed any prejudice to Grangeglen
- the delay in bringing proceedings was explained in part by the ill-health of the director concerned
No doubt Pineport was mightily relieved to succeed. But it would have made its task that much easier and the cost to it considerably less if it had made the application urgently and within 6 months.
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