Forfeiting a lease on a commercial property
Forfeiture is a way for a landlord to bring a lease to an end, where the tenant is behind with the rent or not complying with other obligations in the lease. It is particularly useful in relation to commercial property, where landlords rely on their tenants to pay the rent and maintain the property.
Used tactically, forfeiture is a useful remedy for landlords with difficult tenants but it should be used with care and it is vital to get expert legal advice. The process must be followed properly and the rules on relief mean that the landlord still might not get vacant possession.
The lease should set out the circumstances in which the landlord has the right to forfeit. This will usually include situations where the tenant is in breach of any of its obligations, but the lease may also allow for forfeiture if the tenant becomes insolvent. Forfeiture is possible even where a tenant of business premises would otherwise have a statutory right to a renewal lease.
To exercise the right to forfeit, the landlord must follow the correct statutory process, which is intended to allow the tenant the opportunity to avoid losing their lease for their business premises by remedying the breach. If the landlord gets the process wrong, they may lose the right to forfeit, so it is vital to get legal advice as soon as the tenant is in breach.
The landlord must serve a formal notice (known as a section 146 notice) on the tenant, identifying the breach, requesting that the tenant remedies it and setting a reasonable time for the tenant to comply. The tenant is entitled to reasonable notice even if the breach cannot, in fact, be remedied. Your solicitor will be able to advise you about how much time you must allow the tenant – this will vary according to the circumstances.
Once the specified time has passed and, if relevant, the tenant has not remedied the breach, the landlord can take steps to bring the lease to an end. There are two ways to do this: physically taking possession of the property (known as peaceable re-entry) or bringing court proceedings.
On the face of it, peaceable re-entry is the simplest approach. The landlord needs only to go into the property and take some unequivocal step to exclude the tenant, such as changing the locks or putting up a physical barrier to stop the tenant getting back in. A problem arises if there is someone inside the property, for example an employee or security guard who opposes the re-entry, as the landlord will commit a criminal offence by attempting entry to take possession in such circumstances. This means that in some situations, the landlord will have to use the slower and more expensive option of court proceedings.
When considering forfeiting the lease, there are numerous points that the landlord must bear in mind, which is why it is important to speak to your solicitor early on.
In some situations, the landlord must get the consent of the court before taking steps to forfeit the lease, including for some types of insolvency and for some breaches of the tenant’s repairing obligations.
Where forfeiture is available, the landlord may still inadvertently waive the right to forfeit by doing something that recognises a continuing landlord and tenant relationship even after the landlord knows of the breach. The most obvious example is accepting rent, but this is not the only way the landlord may waive their right to forfeit. The law on waiver is complex, so you need clear advice from your solicitor.
Even a landlord who follows all the relevant steps correctly may not succeed in bringing the lease to an end. The courts have a wide discretion to grant the tenant (or any undertenant or mortgagee of the lease) relief from forfeiture. In deciding whether to allow relief the court will take into account a range of factors, including the tenant’s conduct and whether the adverse impact on the tenant of losing their premises would outweigh the impact on the landlord if relief was granted. In practice, a tenant who has got behind with rent because their business is going through a difficult patch but who has otherwise complied with the lease is likely to get a more sympathetic hearing than a tenant who has willfully acted in breach of their obligations. Where relief is granted, the lease is restored, provided that the breach is remedied. The time between the landlord starting forfeiture proceedings and the court confirming that the lease is at an end is a period of uncertainty, sometimes called the ‘twilight period,’ because it is not clear whether the lease will end or continue.
Forfeiture is the landlord’s ultimate remedy for breach of the tenant’s obligations but before attempting to forfeit, you should get legal advice. This will help you decide whether forfeiture is the best approach in the circumstances and, if so, ensure that the process is followed properly to have best possible chance of success.
For further information, please contact Forrester Sylvester Mackett’s commercial property department on 01225 755621.
The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. The law may have changed since this article was published. Readers should not act on the basis of the information included and should take appropriate professional advice upon their own particular circumstances.