In brief, forfeiture is a landlord’s right under a lease to end the lease and re-enter the property on a breach of the tenant’s covenants, such as non-payment of rent, or a specified event, such as the tenant’s insolvency.
A former tenant may apply to court for relief from forfeiture under section 146 of the Law of Property Act 1925. The court would then exercise its discretion as to whether to grant relief, which essentially involves balancing the landlord’s entitlement to deal with its own property against the former tenant’s right to apply for relief from forfeiture. If a court grants relief, the effect is as if the lease had never been forfeited.
This raises the question of what impact a landlord’s grant of a new lease to a third party has on a former tenant’s application for relief from forfeiture. In short, a tenant may still apply for relief from forfeiture, but the grant of the new lease could affect the way in which the court exercises its discretion.
A court will take into account various factors, including where a new lease has already been granted to a third party, whether the former tenant delayed in applying for relief from forfeiture and whether the landlord acted quickly and unreasonably in granting the new lease.
A long delay by a former tenant could result in a landlord being denied its right to deal with its property and could therefore count against the former tenant, whereas if a landlord entered into a new lease almost immediately without giving proper notice to the former tenant, this could weigh against the landlord.
A court will also consider whether the new tenant knew of the forfeiture and, therefore, of the possibility that the former tenant could make an application for relief from forfeiture. If a new tenant did know, then this is a factor that will count in the former tenant’s favour.
In the event that relief from forfeiture is granted, the original lease would be reinstated, but with the new tenant as the former tenant’s landlord, while the lease between the new tenant and the original landlord would become an intermediate lease, under which the new tenant would have a claim in damages against the original landlord.
In the circumstances, a landlord, having forfeited a lease, would be well advised to write to the former tenant, and any other party with an interest in the lease, putting them on notice that a new lease will be granted after the expiry of a period. This should be sufficient to allow the former tenant a reasonable amount of time to consider its options and potentially apply for relief from forfeiture.
A former tenant, on the other hand, should not delay in making an application for relief from forfeiture.
If you would like to discuss this or any commercial property matter, please contact the team on 01772 258321.