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Relief from forfeiture cannot be granted by agreement between the parties

12th August, 2012

Forfeiture

When a tenant fails to adhere to its lease obligations, for example for non-payment of rent, it is common for the landlord to exercise its right under the lease of forfeiture to re-enter and take possession of the premises.

Forfeiture can be brought about either by taking physical possession of the premises or by court order. Whichever method is used, it brings the lease to an end. The tenant has the right to go to court to have the forfeiture set aside.

A failure to make an application to the court to have the forfeiture set aside

In the recent case of Zestcrest Limited v County Hall Green Ventures, a tenant fell into rent arrears.  The landlord subsequently exercised its rights of forfeiture under the lease.

Subsequently the parties reached an agreement as to the payment of the rent arrears and that the tenant’s occupation of the premises should continue on the same lease terms.  The tenant however did not apply to the court to have the forfeiture rescinded, arguing it would result in unnecessary costs due to the agreement that the parties had made.  The landlord, seeking to formalise the position, applied to the court.

The court held that only the court can grant relief from forfeiture, in line with County Court Act 1984.  Any agreement between the parties to do so would not “resurrect” the original lease terms but would result in a new tenancy being created.  The landlord in this case had been reasonable to require the tenant to obtain a court order and to pay the landlord’s costs.

Consequences for the parties of a new tenancy

A new tenancy can lead to numerous undesirable consequences for the parties.  These include releasing guarantors from their obligations under the original lease, requiring that consents from other people with an interest in the property be obtained, possibly creating a new charge to Stamp Duty Land Tax and releasing any form of security secured against the original lease such as a rent deposit deed.

What the parties should do

“It is risky to yield to the temptation to make an informal agreement with regard to any property or other contractual issue,” says Simon Ellis, a solicitor in the Real Estate team at Aaron and Partners LLP Solicitors. “Getting the paperwork properly drawn up and obtaining any necessary court orders is a small price to pay compared with ending up with a costly legal dispute.”

 

Please contact Simon Ellis for any further information related to this article or any other commercial property issue at [email protected]

 

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