Forfeiture and Relief from Forfeiture

In situations where forfeiture of property is sought by a commercial or residential landlord, it can be difficult for all parties. Landlords may be unsure of the legal process they must follow to seek forfeiture of a property, whereas tenants may be unaware of their rights with regard to forfeiture. Our housing experts have put together this simple guide, explaining what forfeiture is, what it means in practice, and what is meant by relief from forfeiture.

What is forfeiture of property?

Forfeiture is the term used when a landlord prematurely terminates a lease on a property, due to the tenant failing to uphold the terms of their contract. A landlord may seek forfeiture of a property is the tenant is in rent arrears, or fails to keep the property up to an acceptable standard. 

For a more in-depth explanation, you may also like to watch this brief explainer video by Ian Mitchell, a partner in the Anthony Gold leasehold services team.

In short, forfeiture allows landlords to repossess a property from a tenant, by activating a clause in the tenant’s contract. For a landlord to do this, however, certain conditions must be met.

When can a landlord seek forfeiture of a property?

In order for a landlord to terminate a lease early and have their tenant forfeit the property, they must ensure:

• That a forfeiture clause has been included in the lease. This is the contractual obligation they will activate in order to proceed with the forfeiture.
• The amount owing is greater than £350, and consists of unpaid ground rent, service charges, or administration charges. Smaller amounts may be considered by the Courts, if the balance has been outstanding for a period longer than 3 years.
• The issue at hand (e.g. of unpaid rent or damage to the property) is not already going through an appeals process.

The landlord may also be able to proceed with forfeiture in some circumstances, if this is agreed with the tenant as part of a dispute resolution process. The tenant may agree to forfeit the property, even if not all of the above conditions have been met.

What happens when a property is forfeit and the lease is terminated?

There are two ways of effecting forfeiture: by peaceable re-entry through a contractual right contained in the lease; or by issuing court proceedings pursuant to CPR Part 55. 

Peaceable Re-entry

Peaceable re-entry is when a landlord, or representative of a landlord, arrives at the property, re-enters it, and secures it once the tenant has vacated the premises. This will typically involve changing the locks, and dealing with any possessions which have been left by the previous tenant. 

Peaceable re-entry can only occur when the tenant isn’t still at the property, and shouldn’t be attempted if the tenant is using the property as their home. Therefore, this method of forfeiture is often seen more commonly with commercial properties such as office building and shops.

CPR 55 procedure for possession of residential property

CPR 55 is part of the Civil Procedure Rules, specifying the legal steps that must be taken by landlords in order to repossess their property, and ensure that the property is forfeited by the current tenant. This involves the landlord making a possession claim against the existing tenant, typically seeking either a section 8 or section 21 eviction.

For more information on forfeiting a commercial lease for rent arrears, you may like to read this related article, Forfeiting a commercial lease when there has been a breach.

What is relief from forfeiture?

Although forfeiture may seem like a very final process, there are options for recourse that tenants can take to overturn the forfeiture and prevent the termination of their lease and repossession of the property.

A tenant can apply for relief from forfeiture as soon as the landlord begins forfeiture proceedings. The process of applying for relief can differ, depending on the kind of contractual breach that the landlord is claiming has been made. The tenant may make an application for relief from forfeiture to either the county Court or High Court, depending on where their landlord has brought proceedings against them. 

If the application for relief is successful, the lease can be reinstated as though the forfeiture process never occurred. The tenant may be given a court order outlining a plan to repay the landlord, with an extension of time to pay their outstanding debts.

When can relief from forfeiture be granted?

As a general rule, the court will grant relief from forfeiture provided that an application is made within 6 months of the Landlord effecting forfeiture. The statutory provisions under the County Court Act 1984 and Common Law Procedure Act 1852 place a time limit on the Court’s power to grant relief beyond 6 months. 

In the High Court, where forfeiture has been effected by peaceable re-entry, relief comes from the Court’s equitable jurisdiction.  Although there is no prescribed time limit, the court will use the 6-month limit as guidance. The Court will exercise its inherent equitable jurisdiction when deciding whether to grant relief in such circumstances.

Relief from Forfeiture: Case Studies

There have been a number of cases where disputes between landlords and tenants have led either to forfeiture of the property, or the tenant successfully applying for relief from forfeiture from the County or High Court. We will discuss four such cases below, and explain how forfeiture law applies.

Pineport v Grangeglen [2016] EWCA 1316 (Ch)

Pineport vs Grangeglen is an example of when the Court used its equitable jurisdiction to grant relief some 14 months from when the landlord proceeded with forfeiture. The decision arose from very specific facts and although it provides a good example of the Court’s discretion to grant relief, it should be adopted with caution.

At the time of forfeiture, the tenant’s rent arrears amounted to £2,155.00. The Landlord effected forfeiture by peaceable re-entry. The tenant applied for relief from forfeiture 14 months later. The Landlord argued that due to the 14-month delay, the tenant should be barred from seeking relief.

Granting the tenant relief, the Court confirmed that an application must be made with “reasonable promptitude” but that it is an “elastic concept”. When considering whether an application had been made with “reasonable promptitude” the Court took the following factors into consideration:

1. The reason for the tenant’s delay in making an application was due to financial constraints after being subject to a restraining order following a criminal prosecution for MOT fraud; the tenant had not obtained specialist legal advice; and that the director was suffering from severe depression.
2. The landlord had taken no steps between forfeiture and trial to re-market the property.
3. The value of the arrears represented less than 1% of the value of the underlease of £275,000 which would provide the landlord with a disproportionate windfall.
4. The landlord was unable to show that he had suffered any prejudice as a result of the unpaid rent, forfeiture or the delay in the tenant’s application for relief.
5. This decision demonstrates that the court will take various factors into consideration when deciding whether to grant relief beyond the usual 6-month guidance.

To learn more about the particulars of this case, you may like to read our related article, Pineport: Relief from Forfeiture Granted Following Tenant’s 14-month Delay.

Freifeld v West Kensington [2015] EWCA Civ 806

In Freifeld vs West Kensington, the court considered whether it should grant relief from forfeiture when the landlord stood to gain a substantial windfall.

The tenant, Mr Freifeld, was granted leases of seven commercial retail units forming part of a residential block in West Kensington Court. The leases were granted for a term of 99 years from 1982. The rent achievable in respect of the subletting was significant. Without the landlord’s consent, the tenant sub-let one of the units to a Chinese restaurant in breach of covenant. The landlord received several complaints from the residential occupants above. Consequently, the Landlord forfeited the headlease for breach of covenant. Due to the high value of the leases and the considerable period left to run, the landlord stood to gain a significant windfall of between £1-2 million on forfeiture.

The tenant made an application for relief, which was refused by the County Court on the basis of the tenant’s conduct and “their cynical disregard for their obligations under the lease”.

On appeal, the Court of Appeal granted relief, on the condition that it assigned the lease within 6 months.

The court held that “the windfall point is about proportionality. The [tenant’s] egregious conduct is not relevant to the question of windfall…” The Court of Appeal held that the County Court was wrong not to consider the windfall that the landlord was set to gain. It should have considered this on its own merits and then weighed this against all other circumstances when concluding whether forfeiture was a proportionate remedy.

The decision makes it clear that the court will consider the proportionality of granting relief even where the tenant is in deliberate breach of his lease.

Ashley Gardens Freeholds Limited v Linda Marinelli Landor. County Court at Central London. April 2017

This case has been reported in various newspapers, including the Daily Mail and the London Evening Standard. I have not had the benefit of reading the judgment, and so the exact details of the case are unknown. However, the case deals with a particularly hot topic at the moment; the letting of a leasehold property on short term lets in breach of covenant. We have another article discussing the risks of short-term letting, called Short Term Letting in London – An Update, for those who may find it helpful.

Ms Landor is leasehold owner of a property in Westminster. Ms Landor was accused by the freeholder, Ashley Gardens Limited, of engaging in persistent short term letting through Airbnb and other similar platforms. The freeholder elected to forfeit the lease for breach of covenant, presumably the lease prohibited the use other than by a single family or for use of a business.

Again, I presume that Mrs Landor made an application for relief from forfeiture, which was refused by the court. Making an order for forfeiture, HHJ Lochrane commented that “Mrs Landor ha[d] demonstrated over very many years that she either does not understand the rules or feels that they do not apply to her”.

Despite ordering forfeiture, the court delayed the order for 6 months to allow Mrs Landor an opportunity to sell the property. It is likely that the court considered the substantial windfall which the freeholder was set to gain on forfeiture and decided that it would be disproportionate to make an outright order for forfeiture. Instead, they allowed the leaseholder an opportunity to sell the property.

General Motors v Manchester Ship Canal [2016] EWHC 2960 (Ch)

Finally, In General Motors v Manchester Ship Canal, the High Court again considered the question of windfall in granting relief from forfeiture to a mere licensee.

Manchester Ship Canal Company Limited (MSC) granted General Motors UK Limited (GM) a perpetual licence to discharge surface water from its main manufacturing site into the Manchester Ship Canal. The licence was granted on the condition that GM pay an annual £50 fee. GM fell into arrears from 2013 (presumably due to an administration error) and MSC terminated the licence.

GM subsequently attempted to negotiate a new licence and MSC advised that it would grant the licence for an increase fee of £450,000 per annum (approximately a 900,000% increase!).

Granting GM relief from forfeiture, HHJ Behrens commented that the new licence fee which MSC was seeking from the new licence terms was an “obvious” windfall and that the court cannot, as a term of relief, rewrite the licence. The Court did not see any commercial policy reasons for not granting relief.

This recent spate of case law demonstrates that the court will exercise its discretion in granting relief from forfeiture where the court believes that it is equitable to do so.

If you’d like to read more about General Motors v Manchester Ship Canal [2016] EWHC 2960 (Ch), we have written an in-depth case study, which examines the particulars of this case, as well as the legal outcome. 

If you’re concerned about a property to which you hold the leasehold, or are a tenant whose landlord has started forfeiture proceedings, you can get in contact with a member of our team to discuss your situation. Our Housing and Property Disputes team are experts in forfeiture law, and will work with you and offer guided support to help you to reach the best outcome for your case. 

You can contact us via our website, and a member of the team will be in touch shortly to discuss your case. Or, you can browse our full range of services to see which is best suited for you. 

* Disclaimer: The information on the Anthony Gold website is for general information only and reflects the position at the date of publication. It does not constitute legal advice and should not be treated as such. It is provided without any representations or warranties, express or implied.*