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Forfeiture of Commercial Lease
The ability to forfeit a lease allows a landlord in certain circumstances to re-enter the property following a breach of a provision of the lease (a covenant) by the tenant. Depending upon the nature of the breach, the landlord can re-take possession of the property immediately by ‘peaceably re-entering’ or following a period of notice.
In the alternative, the landlord can issue court proceedings for forfeiture after the notice has been served or immediately if the breach complained of is non-payment of rent.
How JMW Can Help
We advise on all aspects of the forfeiture process, including:
- Reviewing the lease
- Advising on whether the right to forfeit has arisen
- Preparing and serving the section 146 notice
- Arranging for agents to peaceably re-enter the property
- Issuing court proceedings
- Arranging for a possession order to be enforced once obtained
Our team also frequently act for tenants by advising on whether forfeiture by the landlord is wrongful and issuing proceedings seeking relief from forfeiture, which, if successful, effectively reinstates the lease as if it had never been forfeited.
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 specific covenant that has been breached. However, 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.
Losing 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.
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.
Tenant failed to make rent payment
Our client - the freehold owner of a mixed-use commercial and residential unit - contacted us when their tenant (a retailer) failed to make payment of the most recent quarter’s rent. Within 48 hours of instruction, we had instructed agents to peaceably re-enter the property and change the locks.
The tenant made an immediate application to the court for relief from forfeiture and after a period of negotiations, our client agreed to allow the tenant back into the property pursuant to a tenancy at will whilst their application for relief from forfeiture was being processed by the Court.
As a pre-requisite of re-taking possession of the property, the tenant agreed to pay all of the rent arrears due and all of the landlord’s costs of dealing with the forfeiture process, including all legal costs. The entire process was costs neutral for the client.