Forfeiture of a commercial lease - key points

What is commercial property forfeiture?

In simple terms, forfeiture is where, by court action or peaceable re-entry, the lease is lawfully terminated by the Landlord and physical repossession of commercial property (not residential where the rules are completely different) is lawful based on fundamental breach of the lease agreement.

The starting point before considering forfeiting should be checking the terms of the lease to check whether there are express rights for you to forfeit. If not, see how to proceed below. It's always important as Landlord to consider whether forfeiture is the best option for you (see below) as there are pros and cons.

Landlords - how to forfeit

A landlord can forfeit a lease in 2 main ways:

• Peaceable re-entry - the landlord can physically re-enter the property (typically by changing locks) when the premises are empty. This must be done peacefully outside business hours. The landlord should have security personnel present and document the re-entry. This method is quick but risky - if done incorrectly, it could result in claims for wrongful forfeiture.

• Court proceedings - the landlord serves a claim for possession. This is the safer option but takes longer and costs more. The court process allows tenants to apply for relief from forfeiture.

Forfeiture for non payment of rent

This is the most common reason for forfeiture and may be used as the reason for the Landlord to re-enter the premises without a court order. However, there are reasons why proceeding without a court order can be risky for Landlords.

Retaking possession 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. You will need to service a specific form of notice known as a section 146 notice before taking further court 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) and/or

• The tenant taking steps to reduce rent arrears and/or

• The tenant agreeing to remedy any other breach of lease covenants.

Generally, tenants must apply for relief 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?

• financial situation of 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?

Solicitors for lease forfeiture

Our property dispute solicitors are highly experienced in advising Landlords and Tenants on breaches of lease, forfeiture, relief form forfeiture and the best way to proceed legal, commercially and tactically. Please do get in contact.