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The Court of Appeal provides welcome clarity on the timing of relief from forfeiture application

Property / 20 April 2021

On 15 April 2021, the Court of Appeal handed down its decision in the case of Keshwala & Anor v Bhalsod & Anor [2021] EWCA Civ 492. The decision brings welcome clarity to landlords about the time limits within which a tenant may apply for relief from forfeiture, with an emphasis on tenants acting with ‘due diligence and reasonable promptitude’ in such applications.

What is forfeiture and relief from forfeiture?
Forfeiture of a lease is a means for a landlord to terminate a lease, in the event of some default by the tenant. The landlord can forfeit the lease either by issuing court proceedings, or by peaceable re-entry (in other words, physically turning up at the property, re-entering and securing it, usually by changing the locks). Landlords must be cautious however to ensure the peaceable re-entry is lawful to avoid a potential damages claim for trespass.

Relief from forfeiture is a remedy awarded by the courts to tenants or other interested parties which involves restoration of the lease just as though the forfeiture had never taken place. Where a landlord forfeits a lease by way of peaceable re-entry, the County Court has a discretionary power to grant relief from forfeiture so long as the application for relief is made within six months of the date on which the landlord re-entered in accordance with s139(2) of the County Courts Act 1984.

Background case summary

—  The tenants (claimants) had a twenty-year lease of a property in Leicester, which commenced in March 2008. The property consisted of a lock-up shop on the ground floor with residential accommodation above. The claimants mistakenly underpaid a quarterly rent by £500.

—  On 13 September 2018, the landlords (defendants) effected forfeiture of the lease by peaceable re-entry.

—  On 24 September 2018, the tenants emailed the landlords to let them know they had paid the £500 shortfall and would ensure the full payment for the next quarter’s rent would be paid for the next rent quarter. The landlord did not reply.

—  On 26 February 2019 (5 months and 14 days after the peaceable re-entry), the tenant issued an application for relief from forfeiture, but did not notify the landlord of its application.

Procedural history
At first instance, the County Court judge dismissed the tenants’ application as she determined that there was no adequate explanation from the tenants for the delay in issuing the application after 13 September 2018.

The High Court disagreed with the county court and granted the tenant relief from forfeiture on the basis the application had been made within the six-month time limit (see above) and therefore was not unreasonably delayed. The Court of Appeal allowed permission to appeal this decision.

The Court of Appeal held that the court’s discretion under s.139(2) was to be exercised on ‘ordinary equitable principles’. Whilst the tenant has six months to apply, it must act with due diligence and reasonable promptitude. The Court of Appeal therefore agreed with the County Court decision, namely, to refuse relief from forfeiture to the tenants.

Comments
In response to the pandemic, landlords are currently prohibited from forfeiting leases until 30 June 2021. You can read our previous updates explaining the current position relating to the suspension of the forfeiture of evictions here and the effect of the suspension on a landlord’s right to forfeiture here. 

Despite the current suspension, this case is an important reminder for tenants to act with due diligence and reasonable promptitude in applying for relief from forfeiture once the moratorium is lifted, i.e. to act without delay and to notify its landlord of any application as soon as possible. Tenants should therefore also be mindful of avoiding defaulting under the terms of the lease otherwise landlords may forfeit the lease and re-let the property. The current ban does not remove the obligation for tenants to pay rent. It simply delays the opportunity for landlords to enforce the debt. Once the restrictions are lifted, landlords will be able to use their usual remedies (including the right to forfeiture) for any unpaid rent owed during the restriction period.

Our highly experienced Property Disputes team have experience advising both landlords and tenants on forfeiture issues including the landlord’s right to forfeit and ways to do so and the tenant’s right to apply for relief from forfeiture. Please do get in touch.

 

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This update is for general purposes and guidance only and does not constitute legal or professional advice. You should seek legal advice before relying on its content. For advice, get in touch with your usual Greenwoods GRM contact or scroll down to complete our enquiry form.

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