The Twilight saga

Posted: 30/10/2018

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When a commercial tenant fails to pay rent, the landlord will often look to forfeit the tenancy. The tenant may seek ‘relief’ by paying what is due in order to reinstate his tenancy and restore his rights. Where he is successful in obtaining relief, the lease will revive as though the forfeiture never happened; the lease will come ‘back from the dead’.

Accordingly, in the period between peace-able re-entry/ service of the claim form and any hearing of the matter, the status of the tenant might be unresolved for some time, which is known as the ‘twilight period’. So, when will the tenancy come back from the dead? And most significantly, under what circumstances will the tenancy revive by operation of law and not by court order? Landlords beware! 

The preliminaries – one foot in the grave

When a tenant fails to keep his (pure) rent obligations up to date, the right to forfeit will likely arise, albeit possibly not until the rent is outstanding by 14 or 21 days. At that stage, should the landlord wish to recover possession of the property in the long run, or simply want to exert maximum pressure on the tenant, he may look to forfeit. The key elements of successful forfeiture are the necessary intention on the part of the landlord to treat the lease as at an end coupled with the effective communication of the same to the tenant.

A landlord may choose between peaceable re-entry, usually by changing the locks or, in the case of open land, by putting a chain across the gateway (or similar), or forfeiture by action, that is, issuing and serving proceedings. It is the service of the claim form, not the issue of the claim, which is significant.

Whether the landlord peaceably re-enters or forfeits by serving a claim form, the tenant will want to preserve its rights to what may be a valuable asset, and will very likely seek relief. The twilight period will ensure a period of limbo when the status of the tenancy is unclear which arises on the landlord communicating his election to forfeit and persists until matters are either concluded by operation of law or court order. At that point, if the tenant’s application for relief is successful, the tenancy will revive as though the forfeiture had never happened, bringing the twilight period to an end. 

The Lazarus effect

The tenant has the opportunity to obtain relief regardless of the method used by the landlord to forfeit.

Where the landlord has forfeited by action in the County Court, the tenant can automatically obtain relief in the event that he pays ‘into court’ all the rent in arrears and costs not less than five clear days before the return date, section 138(2) County Courts Act 1984. The ‘return date’ will be the date listed for the hearing at the point of issue, and not any subsequent date listed for the hearing even where the earlier hearing is vacated on notice to the parties in advance for any reason. A payment to the lessor is likely to suffice given that the court would not accept funds as it historically may have done. ‘The arrears and costs’ will mean all the rent in arrears as at the date the landlord elected to forfeit and issued his proceedings, but also any rent falling due subsequently to the date the tenant pays, Maryland Estates Ltd v Joseph (1999). Accordingly, landlords should be aware of this right and should think carefully before refusing payments which would satisfy the requirements of sections 138(2) CCA 1984. Relief will be retrospective, that is, the lease will revive as though it was never forfeit.

Where re-entry is peaceable or where the matter goes to a hearing, the tenant will again be obliged to pay ‘all the rent in arrears’ in order to obtain relief. The twilight period will continue until such time as the extant application for relief is dealt with by the court.

Where there are sums outstanding as at the point where the court makes an order, thecourt will order possession on a date not earlier than four weeks from the date of the hearing, as the court thinks fit (section 138(3) CCA 1984). Accordingly, the tenant will have a further four weeks to tender payment for the judgment sum, and where he is able to do so, will succeed in reviving the lease.

There is one final means by which a tenant can escape: even where he is unable to pay within the period of four weeks or more given by the court on the making of the order, the court retains a discretion under section 138(4) CCA 1984 to extend the period so long as the order extending the period is made before the landlord goes into possession. Even at the stage where a warrant for possession has been given, the warrant shall be automatically cancelled where the tenant pays all the arrears and costs before execution.

Fear the Walking Dead

It is clear from the above that there will be numerous opportunities for a tenant with a poor payment history to retain the rights under the lease and stay in the property. In terms of policy, this is deliberate; equity leans against forfeiture and the tenant should not be stripped of what may be a valuable asset for failing to keep payments, which may be small in proportional terms when compared to the value of the leasehold interest. As such, it will have ample opportunity to make good its failure.

Any landlord seeking to forfeit a tenant’s lease should therefore go in with their eyes wide open, and be prepared for a lengthy tussle. However, where the landlord’s aims are to exert maximum pressure and to determine the tenant’s ability to maintain the rent payments and other lease obligations as quickly as possible, forfeiture will prove a useful tool in the kit.   

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