Pineport v Grangeglen [2016]:

High Court grants relief from forfeiture in favour of tenants who took 14 months to bring proceedings.

The background

The tenant occupied a property which was used for its MOT and car servicing business. The Vehicle & Operator Services Agency (‘VOSA’) made a restraint order against both directors of the tenant business which prevented them from disposing of, dealing with or diminishing the value of any of the business’ assets. Third parties were prevented from ‘knowingly assisting in or permitting’ a breach of the order.

VOSA prosecuted the tenant on the grounds that it had issued 1,400 false MOT certificates. One director, Mr J, pleaded guilty to six counts relating to dishonesty and was sentenced to 18 months’ imprisonment.

The lease of the property, grated for a term of 125 years, was forfeited by the landlord as a result of unpaid rent. Under the lease, rent comprised a ground rent of £100 per annum, plus contributions towards insurance and service charge. The tenant covenanted with the landlord not to use the premises for any illegal or immoral act or purpose.

At the point the lease was forfeited, arrears of service charge rent remained outstanding. The company sought relief from forfeiture on the grounds that it was able to pay the arrears; however, the application for relief was not submitted until 14 months after the lease had been forfeited. The case was transferred from the County Court to the High Court given the circumstances surrounding the lease’s forfeiture.

The law

The High Court needed to consider whether:

• the tenant’s delay in making its application for relief from forfeiture prejudiced its claim;
• the tenant’s use of the premises for the carrying out of illegal activity, namely the issue of false MOT certificates, should be taken into account when considering the application;
• any other circumstances should be considered; for example, the value of the lease when compared to the quantity of arrears outstanding.

No s.146 Notice of Intention to Forfeit a lease is required if a landlord wants to exercise its right in respect of unpaid rent arrears. The High Court referenced Howard v Fanshawe [1895], stating that there is no set period within which applications for relief from forfeiture must be made. Relief will not be granted in respect of ‘stale’ claims and the Court cited a period of six months from the date of forfeiture as being reasonable.

The High Court in Pineport clearly stated that the delay of 14 months before the application for relief was brought presented a significant difficulty, given the requirement to submit an application ‘with reasonable promptitude’. Reasons for the delay were considered.

The Court also asked whether, if relief from forfeiture was granted, a breach of covenant would be allowed to continue. The landlord’s views on the value of its reversionary interest could also be considered where a historic breach of covenant had had an adverse impact on this.

The decision

The High Court granted the tenant relief from forfeiture, to be concluded by payment of the arrears plus interest owed to the landlord. The money was readily available to the tenant and could be paid promptly.

With regards to the illegal activity being conducted at the premises, evidence in relation to this was scarce despite the conviction of the tenant director, Mr J. The likelihood that the premises would continue to be used for the illegal issue of MOT certificates was low and it could not be conclusively proved that the premises’ value had been adversely affected.

The reversionary value of the lease was a factor for consideration; the lease had been granted at a ground rent with a large premium paid by the tenant. It was shown to be inequitable to dismiss the application for relief from forfeiture given the quantity of arrears remaining outstanding. The landlord had not suffered as a result of the rent arrears remaining unpaid or as a result of the tenant’s delay in making the application for relief.

In considering the tenant’s delay in making its application, it was held that the reasons for this were reasonable given the circumstances, which included Mr J’s poor health, lack of finances and lack of access to specialist legal advice. That said, the 14-month period was cited to be at the very limit of what was acceptable.

J B Leitch comments on the decision:

“The key point to take away from the Pineport case is that of the promptitude of issuing relief from forfeiture applications. In this case, the period of 14 months was cited to be very much a ‘breaking point’ in terms of what is reasonable. Landlords should be aware of this timescale and are advised to be aware that tenants may be able to apply successfully for relief at any point until this date”.