What Is the Process of Forfeiting a Lease?

To successfully forfeit a lease, a landlord will need to establish a right to do so. Commonly, landlords are able to rely on a forfeiture clause or a specific covenant of the tenant's lease agreement that has been breached. Some of the most common reasons that a forfeiture arises include a tenant failing to pay rent, causing damage to the property, or using the premises for illegal activity.

It is vital to note that these breaches of covenant are not always grounds to forfeit the lease, particularly a failure to meet rent obligations. For example, landlords may have to demonstrate that the tenant’s insolvency is the reason that these payments were missed in order to forfeit the lease with the court's permission. Landlords should proceed with caution because if a lease is forfeited when the right to forfeit has not arisen, the tenant will be able to bring a claim for wrongful forfeiture. It is therefore important to obtain legal advice as soon as a breach occurs.

Once a right to forfeit has been established, save for cases involving unpaid rent, the landlord must follow a statutory notice procedure and serve a written notice pursuant to section 146 of the Law of Property Act 1925.

A section 146 notice has to specify the following:

• Details of the breach
• How the tenant is to remedy the breach within a reasonable period of time (if it is capable of remedy)
• The amount of compensation for the tenant to pay for the breach

The notice must be served in accordance with the specific notice provisions contained within the lease.

In the event that the tenant fails to remedy the breach within a reasonable time, or fails to pay compensation to the landlord to their satisfaction, then the landlord can either peaceably re-enter the property or issue court proceedings, seeking forfeiture of the lease. Taking these steps beforehand establishes the landlord's legal right to make a peaceful re-entry and regain possession of the property, which can be vital if a dispute arises.

Can a Landlord Lose the Right to Forfeit?

It is possible for a landlord to inadvertently lose the right to forfeit by taking steps that recognise the continued existence of the lease. This is where the landlord (or someone acting on their behalf with knowledge of the circumstances that give rise to a right to forfeit) acts unequivocally by recognising the continued existence of the lease and communicating this to the tenant.

This frequently involves the landlord or their agent demanding rent which falls due after the covenant has been breached. The severity of taking such a step depends upon whether the breach is classed as ‘once and for all’ or ‘continuing’. The latter will survive an act that constitutes a waiver of the right to forfeit; however, the former will not. This is among the most common mistakes landlords make when attempting a forfeiture. As such, commercial landlords should seek legal advice and avoid asking for or accepting rent if their ultimate goal is to forfeit the lease and regain possession of the property.

An insolvency event, such as a tenant going into administration, can restrict a right to forfeit, even in circumstances where the landlord has already taken steps to issue forfeiture proceedings. As such, if you are concerned that you may accidentally waive your right to forfeit or give rise to a dispute, or believe that court proceedings are necessary to resolve your concerns, seek legal advice at your earliest opportunity.

The team at JMW has a wealth of experience in these matters, and can review the circumstances to determine whether you can forfeit a lease and attempt re-entry. Peaceable re-entry is not the only approach that can enable a landlord to regain physical possession of their property, and early legal advice during any dispute can help you to avoid costly mistakes that could affect your right to forfeit.

What Breaches Can Lead to Forfeiture of a Commercial Lease?

There are several breaches of covenant that can allow you to forfeit a lease, although the right to forfeit arises only if the lease contains a forfeiture (or re-entry) clause and the legal requirements are met. Examples of common breaches include:

• Failure to pay rent, which usually includes base rent, service charges, insurance rent and VAT, if payable under the lease. Even a short delay can trigger the right to forfeit if the lease states this to be the case, although many leases include a grace period.
• Breach of repair covenants, such as failing to keep the premises in repair or comply with a schedule of condition or repairing standard. If a tenant allows disrepair to worsen over time, this can also constitute a breach, although the tenant may require the landlord to seek court permission before proceeding in some cases, which can make forfeiture for repair breaches less straightforward and commercially inadvisable.
• Using the premises for a purpose not permitted by the lease. This also encompasses a business operating outside permitted use classes within the premises, or carrying out prohibited (or illegal) activities. These covenant breaches can be serious, particularly where they affect planning control, insurance, or neighbouring occupiers, although the parties may challenge whether the use genuinely falls outside the permitted wording if a dispute arises.
• Unauthorised alterations, such as carrying out structural or non-structural works without consent or failing to reinstate alterations when required. Forfeiture of a commercial lease under these circumstances may be possible if the tenant ignored licence conditions, but will depend on the wording of the alterations covenant, whether consent was required (or refused), and whether the breach can be remedied.
• Breach of alienation covenants by subletting or assigning the lease without consent, or granting unlawful occupational rights. Alienation breaches are often treated seriously, as they may undermine the landlord’s control of the property or create valuation risk.
• Insolvency events, which may be treated as breaches under the terms of many commercial leases. Any of the following may be considered a breach by the tenant, depending on the specific terms of your lease agreement:
• Administration
• Liquidation
• Company voluntary arrangements (depending on drafting)

However, some statutory insolvency protections and processes restrict enforcement of a forfeiture, and landlords may need court permission to proceed, which can be complicated to secure. As a result, forfeiture for insolvency-related breaches is legally sensitive and heavily fact-dependent.

Other breaches exist and depend on the lease wording, which may assign certain responsibilities to the tenant that would otherwise rest with the landlord under the law, such as the need to insure the premises. If a landlord exercises their right to forfeit the lease on the basis of these breaches, it is vital that they seek advice to confirm that this is legally sound based on the drafting of their lease before they go ahead.

What Should a Landlord Do if a Dispute Arises?

When a dispute arises over the forfeiture (termination) of a commercial lease, a landlord needs to proceed carefully to avoid mistakes that may invalidate the forfeiture or expose the you to claims.

Before doing anything, you must check that the lease contains a forfeiture clause and that any required thresholds or triggers have been fulfilled. If the lease specifies any grace periods or notice requirements, these must also be followed or allowed to elapse before you can take action.

If there is no forfeiture clause, the eviction may be illegal. Alternatively, a landlord may accidentally waive the right to forfeit if they accept rent after knowing about the breach or act in any other that affirms the lease continues. As such, it is important to confirm that you are in a position to legally retake possession before moving ahead. In these cases, JMW’s experienced litigation team can also help you to consider alternative dispute resolution options if you believe that the option remains to settle the matter amicably.

The process of giving notice differs depending on the breach in question, and legal advice can guide you on carrying out an eviction correctly. Serving the wrong notice or making other administrative errors is often a cause of disputes.

Your options for retaking possession include peaceable re-entry, where you change locks while the premises are empty, or issuing a possession claim through the court. The latter option is often better if the breach is contested or there is a risk of the tenant making a wrongful forfeiture claim.

JMW will help you to gather any evidence you need, which may include copies of the lease agreement, rent records, any correspondence with the tenant and evidence of the breach. We can represent you during legal proceedings, advise you on avoiding waiving your right to forfeit and draft valid notices where necessary.