In an economic downturn, although entitled to exercise their right of forfeiture, landlords often prefer to keep the existing tenant in occupation, even if the existing tenant is not paying their rent, because the landlord's liability for business rates for a vacant unit can be avoided.

When a landlord does choose to forfeit the lease this is generally when a new tenant is already lined up or because the premises are particularly easy to let and so the landlord will be keen to re-let as soon as possible. However, the issue facing landlords is how long to wait before re-letting premises in light of a tenant's right to relief from forfeiture.

In general terms, a tenant must make an application for relief within a period of six months from re-entry. However, in commercial terms and if a new tenant is willing and able to move into the premises immediately this is often too long. Case law has provided some guidance as to whether a landlord can proceed before the six month period has expired as follows:

  • Granting a new lease 3 days after forfeiture may be held to impede or frustrate a tenant's right to relief and may result in the landlord being penalised with costs following a tenant's application for relief.
  • As long as the landlord has not rushed 'unreasonably or precipitously' in granting a new lease to a third party the landlord's actions may be found to be reasonable.
  • If a new lease has been granted, relief could be granted to take effect as a reversionary interest or on the basis of an unencumbered lease that takes free of the new tenant's interest.
  • Where a new tenant has notice of the original tenant's right to apply for relief then the original tenant will be entitled to dis-possess the new tenant if relief is granted.
  • The court has discretion to refuse relief where it would be inequitable or unfair (particularly where new third party rights have been created).

Although there is no one general rule and much will depend on the facts of the particular case, the following steps could be taken to try to safeguard the landlord's position:

  • Engage with the former tenant and seek written confirmation that they do not intend to make an application for relief;
  • Disclose all dealings with the former tenant (and of course the fact of the re-entry) to any new tenant so that they are fully aware of the risks before entering into a new letting; and
  • If possible, grant any new lease subject to the right of the outgoing tenant to apply for relief.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 22/03/2012.