Due to protection from eviction legislation, most residential leases can only be forfeited by way of proceedings.
Although forfeiture by re-entry is far more common in a commercial context, it is not unheard of in residential cases, as landlords can re-enter empty leasehold properties where there are arrears of rent.
Where proceedings are on foot, it is intuitive that relief from forfeiture should be granted by the Court and the proceedings disposed of by final order.
What is the position when re-entry is involved but the parties subsequently agree to relief? Can this be done by agreement or does the tenant need to make an originating application to the Court?
The Court in Zestcrest Limited v County Hall Green Ventures Limited considered this precise point.
This particular case related to commercial premises, but could equally be applied in a residential scenario.
The landlord forfeited the lease for non payment; the arrears were then paid and relief agreed.
However, the landlord then insisted that the tenant make an application to the Court for relief despite the agreement. As it was made clear that relief was conditional on this, the tenant did so.
Subsequently, however, the tenant claimed for their costs of the application based on the landlord’s unreasonable stance. In turn, the landlord defended and sought his own costs for doing so.
The Court held that the lease had been forfeited from the moment the landlord effected re-entry (this was never at issue). However, the Court’s view was that relief in such circumstances could only be afforded by Section 139, County Courts Act 1984 and, in accordance with that provision, an application to the Court was necessary, with such an application having to be made within six months of the physical re-entry. The re-entry, once made, could not be undone or made fictional by the agreement of the parties and there could be no pretence that there had not been forfeiture.
It is of course possible for landlord and tenant to agree that the tenant may remain in, or go back into, occupation, whether on the same terms as previously stated or not. However, pursuant to the above, this would result in a new lease being granted.
The outcome for lenders, if such an agreement is reached without Court intervention, may be that the landlord (potentially with the tenant’s coercion, given the benefit to him) could apply to remove the ‘old’ lease from the Register, taking any charge with it and leaving the lender unsecured. An extreme scenario, perhaps, but one worth considering. In cases such as this the lender must insist on relief being formalised even if the landlord does not.
In the above case, the landlord won and was granted his costs as he had legitimate reasons for wanting the old lease preserved. In other cases, the opposite may be true.
Tom Seabrook, Partner, Manchester
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