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Forfeiture of Lease for Commercial Properties

In the field of commercial property management, the ultimate weapon in the commercial landlord’s armoury of protection is the right to forfeit the commercial lease.  We emphasise this is only available in a commercial setting – such as an office, warehouse, pub, shop, factory, clinic or other commercial setting.  Please remember that when reading the rest of this blog!

For both landlords and tenants, being well-informed about how forfeiture works is important in order to protect interests and to be compliant with legal requirements.  In this blog we dig into the detail of commercial lease forfeiture which encompasses aspects of importance, processes, and best practices.

What is Forfeiture of Lease?

In short the forfeiture of lease means the end of the contract due to some failing by the tenant to follow the terms of the lease.  It is a legal remedy that permits the landlord to seize possession of the property and end the lease if the tenant does not fulfill the lease obligations, e.g., failure to pay rent or breach of lease covenants.

Grounds For Forfeiture

Grounds to invoke the express forfeiture clause in a commercial lease include |

Non-payment of Rent |

Falling behind in rent payments is the most frequent cause of activities related to a commercial landlord deciding to forfeit a lease

Breach of Lease Terms

Failure to comply with lease contract terms like providing consent before subletting or doing activities that are forbidden in the leased property can also result to losing the property.

Insolvency |

Where the tenant goes insolvent or in administration, the landlord has the right to take the lease by forfeiture provided it is expressly set out in the lease document itself.  The right cannot be implied.

Abandonment |

If the tenant remains unoccupied for a long time beyond reasonable cause, the landlord may invoke forfeiture of the lease and therefore the return of the property.

The Forfeiture Process

The Forfeiture process typically involves the following steps |

Notice |

The commercial landlord informs the tenant of the lease breach and the intention to claim forfeit the lease if it is not adequately remedied within a given timeframe.

Re-entry |

What is more, if the tenant doesn’t address the issue and the breach continues after the stipulated time, the landlord can invoke the express forfeiture provision in the lease.

Legal Proceedings |

These are usually avoided in forfeiture situations – and in our experience in Shergroup Legal and Shergroup Enforcement we do not see tenants trying to evade a forfeiture situation where the lease provision has been invoked.  In some ways the use of forfeiture is the most straightforward of all the enforcement procedures that we see commercial landlords using in the management of their properties.

Implications of Forfeiture

That said, forfeiture is the “nuclear” option for the landlord/tenant relationship and once done it cannot be undone.  So during the pandemic we saw many landlords step back from the use of this option as they wanted to keep their tenant in the property, in the hope the economic situation would improve and they would not be left with empty commercial space.  The finality of forfeiture includes |

Loss of Rights |

The discharge leads to the termination of tenancy as well as loss of occupancy and use rights for the tenant.

Financial Consequences |

Landlords can end up in a situation of not generating rental income and must incur costs for advertising and re-letting of the property.

Legal Ramifications |

There are ramifications of pressing the button on the decision to forfeit a lease.  We feel sure you will understand that.  A commercial landlord should not enter into this process without taking legal advice, and being guided on the plus and minus situations that may arise.

Model Methods for Buyer or Renters

To navigate the complexities of forfeiting a commercial lease landlords and tenants should consider the following best practices |

Regular Communication |

Open and transparent communication has to be the best way to prevent the spectre of forfeiture even becoming a possibility if both parties want the certainty of letting their property and then having a reliable tenant.

Unambiguous Lease Terms |

Preparing a legally sound lease that covers all essential details will reduce the possibility of a miscommunication and legal issues that may arise.

Timely Remediation |

Issues that breach the lease, such as damaging the property, should be resolved in a timely manner and raised with the landlord so a solution can be found.

Legal Advice |

Obtaining legal assistance from a skilled person in crafting a commercial lease and then enforcing its terms if that becomes necessary will contribute to the success in framing the terms and conditions of the forfeiture proceedings.

Summing Up

Forfeiture is the “nuclear option” of landlord remedies which should be in a lease – but which should only be executed if absolutely necessary.  What makes for a situation of necessity is down to the parties and the situation they find themselves in should this option become a possibility.  There is no coming back from forfeiture.  Once done – it is done.  But as parties go into a lease it should also focus the tenant’s mind that this is a remedy for a landlord if the lease terms are breached and therefore a tenant should stay on side with the lease and the landlord.  Via proactive communication, detailed lease conditions, and legal advice presented, the stakeholders can proceed with the sales of the properties with peace of mind, and their procedures can flow without a hitch.

Should you need an experienced guide in the forfeiture process, then Shergroup can connect you with it’s sister company, Shergroup Legal, so you can book a legal clinic with our resident property expert to take you through process of forfeiture or even the crafting of a comprehensive commercial lease.

Call us now to find out more about the services we offer that will protect your interests and help you comply with this and our other laws governing your property.

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Last updated | 19 July 2023

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