Forfeiture of Commercial Lease Solicitors
Disputes over the terms of a commercial lease can often escalate, and forfeiture is one of the ways in which a landlord can seek to end a leasehold if they feel that their tenant is breaching the terms of their agreement.
If you are a landlord considering ending a lease early in order to take possession of your property back, or you are a tenant wishing to avoid forfeiture, taking expert legal advice is strongly recommended. The law relating to forfeiture of a commercial tenancy is complex, and if the correct procedure is not followed, both landlords and tenants can risk inadvertently losing their legal rights.
At Lupton Fawcett, we assist landlords and tenants with wide range of commercial property disputes, and we are well placed to advise you on the best course of action to take, whatever your circumstances.
Forfeiture due to rent arrears
If a commercial tenant breaches the terms of their leasehold agreement, a landlord has the right to forfeit their lease. Non-payment of rent is the most common reason that a landlord will seek to forfeit a lease, and they are entitled to terminate the agreement as soon as a tenant fails to pay as agreed.
For other breaches, there are specific processes that a landlord must follow; the tenant should be served with a notice which specifically states the nature of the breach, and the tenant is given a specified time limit in which to remedy the situation. If the tenant complies and rectifies the breach, the landlord loses the right of forfeiture; otherwise the landlord can pursue the process of forfeiture in court.
Is forfeiture the right option?
Whilst legally a landlord may have the right to pursue forfeiture of a lease, it may not always be the best remedy for the situation. For instance, if a tenant is breaching their agreement due to financial difficulties, it may be simpler, quicker and more cost effective to allow the tenant to surrender the lease instead. There are pros and cons to different courses of action; at Lupton Fawcett we will give you tailored advice, making sure that we find you the simplest, most effective resolution to the issues you face.
Preparing to forfeit a lease?
Before a lease can be forfeited, there are certain requirements a landlord must meet. They must:
- ensure that forfeiting the lease is legally permissible, and is proportionate in relation to the breach that the tenant has committed
- take the correct and appropriate steps, serving notice where necessary and giving the tenant the opportunity to rectify the breach.
- make sure that they do not inadvertently waive their right to forfeit.
The lease must contain a valid, specific forfeiture clause, which specifies the terms under which a landlord can forfeit the lease. Without this, forfeiture cannot take place. Landlords can, if not careful, inadvertently waive their right to forfeit their lease. This can occur when a landlord recognises that a tenant has breached their agreement, but they take an action which acknowledges that the landlord-tenant relationship still exists. For example, if a landlord accepts a partial payment of rent following a breach of the original agreement, this could be construed as an informal change of terms, so it is vital that landlords seek legal guidance to avoid accidentally waiting their right to forfeit.
How to forfeit a commercial lease
If non-payment of rent is the cause of the breach, a landlord should formally demand that the tenant pays the rent. If the tenant fails to do so within the specified time, the landlord is then within their rights to re-enter the property and forfeit the lease. This action is a clear statement of the landlord’s intention to terminate the lease, but it is vital that legal advice is sought before any action is taken; if an act of forfeiture is later deemed unlawful, any peaceable re-entry could run the risk of being deemed an act of trespass.
There are two ways that a landlord can re-enter a property where there are rent arrears:
- by peaceable re-entry
- by issuing court proceedings.
A landlord must consider which course of action is appropriate for the circumstances they find themselves in. If a tenant has vacated the property leaving outstanding rent and charges, peaceable re-entry may be the most effective way to regain control of the property. However, if there is any doubt about whether the tenant may be legally able to oppose the action, it may be safer for the landlord to pursue proceedings through the courts.
Potentially the cheapest and quickest way of recovering a property is to physically enter the property and change the locks. However, this course of action needs to be carefully considered. It is not a viable option if someone is present in the property at the time of re-entry, and it is never permitted if someone is living in any part of the property. When changing the locks, the landlord must leave a notice on the door to the premises stating that the locks have been changed the lease forfeited by peaceable re-entry for non-payment of rent, and that the re-entry signifies that the tenants’ lease is now ended. These two actions taken alongside one another are a clear, unambiguous statement to the tenant that the lease is now over. Forfeiture is a final act by the landlord which cannot be retracted.
If, on entering the property, the landlord finds that there are possessions or goods in the property, then the landlord becomes responsible for those goods and must deal with them in accordance with the law. Commercial Rent Arrears Recovery (CRAR) is the process that must be used if the landlord wishes to claim these items against any money owed by the tenant. Failing to safeguard the items could lead to a claim against the landlord for damages from the tenant if their property is damaged or destroyed.
Issuing court proceedings
If peaceable re-entry is not appropriate under the circumstances, a landlord should commence legal action and serve possession proceedings on the tenant. This is an unambiguous statement of the intention of the landlord to forfeit the lease. Once the claim form is issued, the landlord can physically re-enter the property, forfeiting and ending the tenancy. After the lease is forfeited, a landlord is able to seek to recover money owed by the tenant.
If the breach that has occurred relates to something other than non-payment of rent, a landlord should serve a Notice under Section 146 of the Law of Property Act 1925.
Issuing a Section 146 Notice
If a tenant breaches the terms of the lease in another way not relating to non-payment of rent, a Section 146 notice can be issued. It notifies the tenant that they have committed a breach, clearly outlines what the breach is, and allows the tenant a reasonable time within which to remedy it. If the tenant is not given this opportunity, the Section 146 notice may be deemed invalid. Legal advice should be sought, as there are instances where other legislation might limit the right of the landlord to forfeiture.
Tenant relief from forfeiture
If a tenant finds that the locks have been changed at their commercial premises, they may be able to apply for relief from forfeiture if they have the grounds. For example, if a landlord wrongly changes the locks on a property and the tenant loses business as a result, the tenant may be able to claim damages. If a tenant is considering applying the court for relief from forfeiture, they need to do this quickly and again, legal advice is paramount as applying for relief is not always straightforward.
Is your commercial landlord in breach of the lease?
If you have withheld rent from your landlord because you feel that they are in breach of the lease for whatever reason, and your landlord has served you with notice of intention to forfeit and re-enter for non-payment of rent, you need to take action. We can offer advice on the best way to respond to any such notice form your landlord, but prompt action is important to avoid potentially having to pay legal costs as a result of being slow to respond.
Is forfeiture the right choice?
It is always worth considering, as a landlord, whether exercising a right to forfeiture is the right path to take under the circumstances. In some cases this might be a clear-cut decision, but this is not always the case. If there is no commercial advantage to a landlord in forfeiting a lease, it may not be the best course of action. If a previously good tenant is struggling financially as a result of the economic climate, it might be worth looking into alternative solutions, such as temporarily agreeing to change or reduce payment terms.
How can Lupton Fawcett help with forfeiture claims?
At Lupton Fawcett, our team of commercial property experts are skilled at helping both landlords and tenants with the issues arising from forfeiture claims. We have spent over one hundred years using our legal skills to help you, and you can always be assured that we will put your interests first.
We provide a personalised service, with sector specialists and extensive resources to ensure we are giving you the best solutions to your problems.
Our Commercial Property Litigation Solicitors act regularly for clients across the United Kingdom including Bradford, Birmingham, Hull, Leeds, Liverpool, London, Manchester, Sheffield, York and Nottingham. We can support your needs wherever you live in England, Wales & Northern Ireland.
For a no obligation initial consultation please either call the office or leave your details using the contact form at the top of this page. We’ll be happy to help.