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In today’s economic environment it is hardly surprising that some tenants struggle to meet their rental payments. This becomes a concern for the landlords and leaves them in a difficult spot. Landlords are often unsure of their rights and keen to secure an ongoing rental income, resort to strict measures such as forfeiture of the lease to keep their property safe and secure a rental income.
Forfeiture is a landlord’s basic right to terminate a lease when the tenant is in breach of the terms of the lease, or when certain events happen as set out in the lease – e.g. the tenant’s insolvency. It is an absolute remedy available to management companies and landlords in both commercial and residential properties. It is undoubtedly a vital tool that must be carefully managed because the right to forfeiture of a lease is indeed not automatic.
The laws surrounding the two are slightly different, and we will concentrate on commercial property in this article.
Forfeiture or ‘right to entry’ is a landlord’s right to end a lease in the event of a breach by the tenant. Termination might take place immediately or after a period of notice, depending upon the reason for forfeiture. This note explains how and when the right to forfeit arises in commercial leases, the method to follow, the tenant’s options for relief, and what the landlord can do after forfeiture.
The landlord can forfeit a lease when the forfeiture clause is expressly mentioned in it.
While this is a standard clause it should always be checked as the details vary. A right to forfeit can be assumed into a lease in certain circumstances, but most leases will include a particular forfeiture clause. This clause normally gives the landlord the power to forfeit after a length of time – often 14 or 21 days – in which the tenant has been in breach.
Where rent (and other sums reserved as rent under the lease) are unpaid, there is no need for the landlord to give any notice to the tenant before forfeiting the lease: he can simply forfeit by either issuing court proceedings or by peaceably re-entering the premises.
The landlord is required to issue a Section 146 notice if the tenant violates a lease covenant other than the covenant to pay rent, which must:
Your tenant needs to be informed that he has a right to issue a counter-notice if the breach is of a repairing covenant (and the original lease was for a term of 7 years or more and more than 3 years of the term remain).
If the breach is not resolved within the stated time frame, the landlord has the option of forfeiting the property through peaceable re-entry or by court proceedings.
If a landlord becomes aware of a breach of covenant, the power to forfeit might be lost or “waived” if an act (a “waiver”) occurs that recognises the tenancy’s continuing (for example, demanding or accepting rent, exercising the Commercial Rent Arrears Recovery procedure or granting a licence to the tenant). The law is complicated in this area, and extreme caution should be exercised – legal advice should always be sought.
There are two methods of forfeiture open to commercial landlords:
Peaceable re-entry | Peaceable re-entry is where the landlord re-enters the property physically and terminates the lease. This is normally achieved by changing the locks to exclude the tenant.
However, because there are rigorous laws about how and when peaceable re-entry can occur, we always recommend that a landlord hires qualified bailiffs who have experience of effecting peaceable re-entry, rather than trying to do it themselves. Peaceable entry for commercial premises can be carried out with the tenant still occupying the property. But can only be done when there is nobody at the premises physically to oppose the readmission as at the period of forfeiture.
Forfeiture by court proceedings | The lease is forfeited on the date of service of the court proceedings, even if possession may not be obtained until the court proceedings are resolved and a possession order is granted by the court: the subsequent order for possession has a retrospective effect to the date of service.
When the right to forfeit is invoked, the landlord is forced to make a choice. They must either forfeit the lease or choose to retain it in force, therefore affirming it.
In order to affirm the lease/waive the right to forfeit, the landlord must:
An election cannot be reversed once it has been made. As a result, if the landlord affirms the lease, they lose their right to forfeit for all breaches up to and including the affirmation. If the landlord elects to forfeit and the tenant accepts the lease termination, the landlord cannot later reverse their decision and resurrect the contract (that can only be done by an application by the tenant for relief from forfeiture).
Once a landlord has forfeited a lease, a tenant can obtain relief from forfeiture. The tenant has 6 months to apply to the court for relief from forfeiture. Relief must be granted by the court and the parties cannot agree to relief without the court’s consent.
The court tends to award relief wherever possible: the tenant will usually get relief if the violation has already been fixed or if the tenant can remedy the breach within a certain amount of time.
The court has broad authority in deciding whether or not to give forfeiture relief. In general, the court will give relief if the tenant fixes the problem or pays the landlord compensation (if the problem cannot be fixed). And the court is convinced that the tenant will keep up with his/her lease obligations in the future.
The tenant’s behaviour, as well as the extent and severity of the breach, will be considered by the court. The court may also place restrictions on the relief, such as the landlord’s costs being paid.
The tenant has an automatic right to relief from forfeiture if the lease has been forfeited due to non-payment of rent. There are a variety of time frames and details that are too numerous to cover here, but the tenant must pay all arrears, interest, and expenses.
Using the services of a Shergroup Enforcement Agent means a commercial landlord can arrange forfeiture of a commercial lease within hours of a decision being made to invoke the lease term.
The remedy is only available where a tenant is in breach of its contractual obligations and the lease contains an express provision providing for forfeiture in the event of default. Operating on fixing pricing and guaranteed service levels Shergroup Enforcement Agents can complete the forfeiture process so that the lease is forfeited, and the landlord can move forward with plans to re-let or re-develop.
To use this service, you can instruct us online using our Commercial Forfeiture Form. This form has been designed specifically to make it easy for you to instruct us. There are no upfront fees, and we will action your instruction on the next working day it is received. And as part of our complete end to end service for landlords, we can provide a range of support services, including locksmiths, security, risk assessments, and cleaning contractors. And if you want more information or to check out any details you can contact us on all our open channels.
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Last updated | 19 July 2023
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