Does relief from forfeiture count as “success” at trial?

United Kingdom

Does the grant of relief from forfeiture count as "success" at trial and therefore entitle a tenant of a long residential lease to set aside an order for possession under CPR 39.3(5)?

The Court of Appeal suggested that it does in their (obiter) comments in the recent case of Golding v Martin EWCA Civ 446. This case also serves as a useful reminder of the requirements for a valid possession order under section 138 County Courts Act 1984 (and the importance of providing a forwarding address!)

Background

The tenant, Ms Martin, held a long lease of a flat which had been extended under the Leasehold Reform and Urban Development Act 1993 for a substantial premium. The lease included an obligation to pay a service charge (which was reserved as rent) as well as a provision entitling the landlord to forfeit the lease if rent remained unpaid for 21 days.

Ms Martin moved abroad in 2003, leaving no forwarding address and Mr Golding subsequently carried out extensive refurbishment to the block in which Ms Martin's flat was situated. Mr Golding sought to recover the cost of the works from the tenants through the service charge. As no forwarding address was provided, Mr Golding's solicitors sent the service charge demand to Ms Martin at the flat and payment was, unsurprisingly, not made. Mr Golding subsequently made an application to the First Tier Tribunal who determined that Ms Martin was liable to pay service charge of c£11,700 to Mr Golding and a county court money judgment for this sum due was later made.

Mr Golding commenced forfeiture proceedings in the county court and an order for possession of Ms Martin's flat was made on 15 July 2016. On 23 August 2016, Mr Golding took possession of the flat and granted a lease to his daughter in October 2016. Ms Martin did not learn of the possession order until early December 2016. She applied to have the order set aside under CPR 39.3(5) on 23 January 2017. 

Requirements under CPR 39.3(5)

CPR 39.3(5) provides that a court will set aside an order on application by a party who failed to attend trial only if the applicant:

  1. acted promptly;
  2. had good reason for not attending the trial; and
  3. has a reasonable prospect of success at the trial.

The county court held that whilst Ms Martin had satisfied (i) and (ii) above, she did not have a reasonable prospect of success at trial. Although Ms Martin could have applied for relief from forfeiture, that was not a defence to the claim for possession and therefore did not count as "success". Ms Martin appealed the county court's decision and on appeal it was held that if a tenant has a reasonable prospect of obtaining relief at trial following the setting aside of the possession order, that does count as "success at trial".

Relief from forfeiture is "success" at trial

The case did not ultimately turn on whether the grant of relief was success at trial because the Court of Appeal had already concluded that the possession order should be set aside as of right because it did not comply with the requirements of section 138(3) (which is further discussed below). However, due to the importance of the issue they dealt with it anyway (obiter).

Mr Golding's argument was that the existence of a possible right to relief from forfeiture is not a defence to the landlord's claim for possession. However, the Court of Appeal disagreed. Ms Martin was facing the loss of a valuable capital asset and therefore they were entitled to take a broader view of what counts as "success" than it would in a case concerned with a rack rented tenancy. The restoration of a long lease was from Ms Martin's view a "success" and if the order was set aside and a new hearing took place, Ms Martin would achieve a more favourable order than the one currently in place – this would also be a "success".

Therefore, even if the possession order had complied with the requirements of section 138(3), it seems likely that the Court of Appeal would have determined that the order could be set aside under CPR 39.3(5), as their view was that Ms Martin did have a reasonable prospect of success at trial.

Defective possession order – section 138(3) County Courts Act 1984 ("CCA 1984")

As referred to above, the appeal was decided and the possession order set aside, not under CPR 39.5(3) but because it did not comply with the requirements of s.138 (3) CCA 1984.

In the county court, forfeiture of a lease for non-payment of rent is governed by section 138 CCA 1984. Section 138(3) of CCA 1984 provides that the court may not make an order for possession to take effect in less than four weeks from the date of the order and that it may not make an unconditional order for possession (i.e. the tenant must be given the opportunity to pay all of the rent in arrear and the costs and if it does, relief is automatic).

The order for possession given by the county court in this case did not specify the period which was to expire before possession of Ms Martin's flat was given and did not provide for any possibility of payment of the arrears and costs before expiry of that period. The Court of Appeal's clear view was that it was very important that Ms Martin was given the right to pay because if payment is made within the time specified in the order, relief from forfeiture automatically follows.

Therefore, the county court had no power to make the possession order in the terms that it did and it should be set it aside.