Pineport Limited v Grangeglen Limited

In Pineport Limited v Grangeglen Limited [2016] EWHC 1318 (CH) the high court has further diluted a landlord’s ability to re-let after the forfeiture of a lease by allowing a tenant to obtain relief from forfeiture for non payment of rent 14 months after the forfeiture took place.

Facts

The tenant paid a premium for a 125 year commercial lease of an industrial unit in Middlesex. The tenant covenanted to pay “rents”, namely £100 in ground rent, insurance premiums and service charge contributions. The lease contained a standard forfeiture clause permitting the landlord to re-enter should the rents not be paid after 21 days of falling due. 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

Where forfeiture for non-payment of rent is by proceedings in the high court (nb there are different rules for forfeiture/relief from forfeiture in the County Court):

  • The court has power to grant relief in a summary manner, provided that the tenant pays the rent arrears and the cost of recovering those arrears (section 38(1), Senior Courts Act 1981).
  • Where there is at least six months’ rent in arrears, if the tenant pays all the arrears and costs before the trial of the landlord’s possession claim, the proceedings are automatically discontinued and the tenant holds the property without any need for a new lease (section 212, Common Law Procedure Act 1852 (CLPA 1852)).
  • Where there is at least six months’ rent in arrears, the tenant has six months after execution of the order for possession to obtain relief, on condition the tenant makes payment of the rent arrears and all costs and interest incurred by the landlord (section 210, CLPA 1852). The court can still refuse relief during the six-month period if it would be inequitable to grant relief.
  • Where there is less than six months’ rent in arrears, the six-month limit prescribed by section 210 of the CLPA 1852 will be taken as a guide rather than a strict time-limit. Where the landlord forfeits by peaceable re-entry in the high court (nb there are different rules for forfeiture/relief from forfeiture in the County Court):
  • The court has power under its inherent equitable jurisdiction to grant relief, provided that the tenant pays the arrears of rent in full as well as the cost of recovering the arrears.
  • The six-month limit prescribed by section 210 of the CLPA 1852 does not apply, but will be taken as a guide rather than a strict time-limit.

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 tenant¹s 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:

(a)”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;

(b)The steps the tenant was taking to sell his other assets, to enable him to pay the arrears and landlord¹s costs;

(c)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;

(d)The lack of prejudice to the landlord as a result of the late payment and the delayed relief application; and (e)The landlord¹s 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 is another blow for landlords who will face further uncertainty when considering whether to exercise a right of re-entry for non-payment of rent. It could also mean that a landlord which uses this self help remedy could face difficult decisions as to dealing with the property following the forfeiture. It may well mean that an incoming tenant will raise a number of questions and seek an indemnity, just in case a late application for relief from forfeiture is made.

If you wish to discuss forfeiture, applying for relief from forfeiture or any general property queries please contact Kate Andrews or Faiza Ahmad on 020 7355 6000 and partners in the property litigation team here at Hamlins LLP.