Forfeiture of a commercial lease - key points
Mon 25 September 2023
Solicitors for lease forfeiture
In simple terms, forfeiture is where, by court action or peaceable re-entry, the lease is lawfully terminated by the Landlord based on fundamental breach of the lease agreement. The starting point before considering forfeiting should be checking the terms of the lease to check the type of breach of lease by the tenant is covered as an express right for you to forfeit and then to consider whether forfeiture is the best option for you (see below).
Our property dispute solicitors are highly experienced in advising Landlords and Tenants on breaches of lease, forfeiture and the best way to proceed legal, commercially and tactically.
Forfeiture for non payment of rent
This is the most common reason for forfeiture and typically gives the Landlord having the option to re-enter the premises without a court order. However, it’s important always to check your lease and you may still need to serve formal notice on the tenant before forfeiting. We also strongly recommend you consider and check the history of the tenant paying rent. If there is a history of late payment, the tenant may argue that you have waived your right to forfeit based on non-payment.
Entering without a court order is technically known as peaceable re-entry. The Landlord will need to change the locks and place a prominent notice outside the premises. You cannot use violence to enter the premises so the best option is normally to peaceably re-enter when you know the tenant is unlikely to be there.
Forfeiture for other breaches of lease
Start by checking the terms of your lease. Assuming the breach is a major breach such as alterations without consent or unlawful sub-letting or underletting, you will need to service a specific form of notice such as a section 146 notice before taking further action. This notice will specify the breach you allege and give the tenant the opportunity to remedy the breach. Only if the tenant doesn’t comply will you then have the option to apply to the court for an order for forfeiture.
Relief from forfeiture
The risk associated with peaceable re-entry without a court order is that the tenant will apply to the court for relief from forfeiture. The basis of an application for relief for forfeiture may be :-
- Disputing the breach of lease and potentially, in the case of non-payment of rent, arguing either waiver or the right of set off (most leases will prohibit such rights for tenants though).
- The tenant stating that they will reduce rent arrears
- The tenant agreeing to remedy any other breach of lease covenants.
Generally, tenants must apply quickly after forfeiture, for both practical and legal reasons, since delay will often mean significant damage to the tenant’s business and delay is generally inconsistent with having good grounds to reverse the forfeiture.
Is forfeiture the right option?
As a landlord, when you don’t receive rent or the tenant commits a breach such as unlawful sub-letting or altering the premises, it’s understandable to want the tenant out immediately. However, replacing 1 problem with another problem and/or losing more money isn’t a good choice either. Things to carefully weigh up as Landlord usually include :-
- Market conditions – how easy would it be to re-let the premises and on what potential terms? What are the costs to you if the property remains vacant?
- How much money are you owed? - Can you recover any sums you are owed without forfeiting now? Are there lease guarantors or a deposit available?
- The tenant’s history – if the tenant has historically been a decent tenant, what is the cause of them defaulting or breaching the lease? A conversation might well lead to the possibility of finding a solution which is preferable to forfeiting.
- Is surrender of the lease an alternative? - rather than incur legal costs and the possibility of an application for relief from forfeiture, will it be quicker and easier for the tenant to surrender the lease?
- Overall, what is the financial situation with the tenant? - this can be relevant in a number of ways such as the risk associated with what to do with equipment, stock or fittings in the property after re-entry and the likelihood or not of the tenant applying for relief from forfeiture
- Security of the premises after forfeiture – what are the risks and costs implications? Will you need to secure the premises?