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COVID-19 leasing laws bring a new dynamic to claims for relief against forfeiture

18 August 2020

#Dispute Resolution & Litigation, #Property & Real Estate, #COVID-19

Published by:

Sam Darwish

COVID-19 leasing laws bring a new dynamic to claims for relief against forfeiture

A tenant – Sneakerboy – was evicted just before the new COVID-19 leasing laws, which we discussed here, came into effect. Sneakerboy wanted its premises back and its lease reinstated, so it brought court action seeking ‘relief against forfeiture’. Normally, this relief is only granted when the tenant cures past breaches – particularly unpaid rent – and shows their wherewithal in sustaining the future tenancy. This is important because what point is there in re-establishing a lease if further arrears are inevitable?

However, given COVID-19, Sneakerboy sought leniency in fulfilling its future obligations. While these laws do not prescribe any fixed rental concessions, tenants can renegotiate leases, which generally includes rental concessions.

The interesting point in Sneakerboy’s case is how courts assess the connections between COVID-19 laws, future obligations and relief against forfeiture. When might COVID-19 laws affect the court’s discretion in granting relief where a tenant’s future obligations are uncertain?

Relief against forfeiture

The case neatly summarises the principles in granting relief, including expectations for tenants to pay outstanding rent and put landlords in the position they would have been if the tenant had not strayed from its obligations.

Relief against forfeiture is discretionary – the court need not grant it. This is sometimes where a tenant seems unable to pay future rent. However, what happens when a tenant’s future rent is uncertain, i.e. new COVID-19 leasing laws provide a platform to reduce that rent?

Lease reinstatement

The COVID-19 regulations relieve tenants of obligations they may not otherwise fulfil due to COVID-19.

If relief against forfeiture reinstates a lease that was terminated prior to the regulations but becomes subject to the regulations, a landlord will be hard-pressed arguing a tenant cannot perform its future rent obligations due to economic downturn. This is because the regulations directly deal with this to the tenant’s benefit. In theory, a tenant could obtain a 100 per cent rent waiver under the regulations, meaning in most circumstances where the regulations apply, the tenant will in fact be capable of fulfilling these future obligations – because they just don’t really exist. On this reasoning, and as Sneakerboy found, perhaps to its surprise, relief could be granted irrespective of future trading prospects so long as past breaches were remedied.

Why does this case matter?

Even though the practical result is described above, reaching the outcome had two complexities. Firstly, the court considers entitlement to relief at the termination date, which in this instance was pre the COVID-19 laws. This suggests the regulations are irrelevant, and the judge said so. However, the regulations were relevant to prospects of future compliance because that was the legal environment in which the re-enlivened lease would operate. The parties were to renegotiate the lease’s terms, and it could not be said with any certainty that the tenant would be unable to perform its future obligations.

Secondly, the regulations only apply to leases which were in place when the laws commenced. Normally, if a lease ends and a tenant is let back in by agreement, a new lease begins. If this is after the regulations commenced, the tenants will not receive protection. However, relief against forfeiture re-enlivens the former lease, as opposed to creating a new lease. This means the regulations would apply to the future performance of the lease, to Sneakerboy’s delight.

We discuss the sequel to this case here.

Authors: Bede Haines & Sam Darwish

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The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this newsletter is accurate at the date it is received or that it will continue to be accurate in the future.

Published by:

Sam Darwish

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