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If you are a Landlord of business premises let under a commercial lease and the Tenant fails to pay the rent due or otherwise breaches an obligation under the terms of that lease, then you may have the right to immediately determine the term and take possession of the premises by way of forfeiture.
The effect of forfeiture is to end the lease and release the Landlord and Tenant from any continuing obligations and responsibilities thereunder.
Forfeiture Clause
There must generally be an express forfeiture clause in the lease. If there is no forfeiture clause, then none will be implied. It is important to first check the lease not only for a forfeiture clause, but also the wording of that clause, the proviso for re-entry and the breaches that it covers.
Failure to pay rent
If there has been a failure to pay the rent, then as long as the provisos of the forfeiture clause are met, the Landlord can exercise the right to forfeit for this breach. There is no requirement to serve the Tenant with a Notice if the breach is non-payment of rent.
Other breaches
If there are other breaches of the lease that again fall within the forfeiture clause, then the Landlord will first need to serve the Tenant with a Section 146 Notice. The purpose of this Notice is essentially to notify the Tenant of each and every breach of the lease. If the breaches are capable of remedy, then the Notice must give the Tenant a reasonable opportunity to remedy those specified breaches. If the Tenant fails to do so, then the Landlord can forfeit. If the breaches are not capable of remedy, then the Landlord can require the Tenant to quit or can re-enter the premises when they wish.
Waiver
Once a Landlord has knowledge of the breach and decides to forfeit a lease for that reason, they must immediately treat the lease as at an end. The Landlord must be decisive and should not delay. In effect, the Tenant should no longer be treated as a Tenant. If the Landlord does anything that could be construed as recognising the continued existence of the lease, then the right to forfeit may be lost in respect of the particular breach on which the right to forfeit arose.
Demanding or accepting rent since the date of the breach can be a waiver. As can commencing proceedings to recover rent arrears or claiming to enforce a term in the lease or serving notices under the Lease. There can however be no acts of waiver after the Landlord’s re-entry of the premises or after service of the possession proceedings, as appropriate.
Peaceable re-entry
If the premises are entirely commercial, then the Landlord may not have to involve the Court. As long as the Landlord has the right to forfeiture, the Landlord may re-enter the premises. It is this act of re-entry with the intention to re-possess the premises that will forfeit the lease. This re-entry must however be peaceable. Any violence, threats or excessive force will invalidate it and may even leave the Landlord with potential criminal liability. It is always important that care is taken when exercising a right to peaceable re-entry. Bailiffs can be instructed to effect re-entry as the Landlord’s Agent.
Possession Order
If the premises include a residential part, then peaceable re-entry is not lawful in respect of that dwelling. If the premises are let for mixed business and residential purposes, then it is not lawful to enforce a right to re-entry and forfeiture otherwise than by commencing proceedings in the Court. It will then be the act of serving the appropriate Claim Form that amounts to constructive re-entry. That said, the forfeiture of the lease will not be effective unless or until the Possession Order is made.
Relief from forfeiture
The effect of the Tenant obtaining relief from forfeiture is that the lease will continue as if it had never been forfeited. The position varies depending on whether the Landlord re-enters by peaceable re-entry, whether any proceedings are before the County Court or High Court and whether the lease has been forfeit due to rent arrears or other breaches.
Where the Landlord has re-entered peaceably without any proceedings before the court, the Tenant may generally apply for relief within 6 months of the date of re-entry.
If proceedings are pursued before the County Court and the breach relied upon is rent arrears, then the Tenant will have an automatic right to relief if rent arrears and costs are paid into the court 5 clear days before the Hearing. Even if no such payment is made, the Possession Order will still be suspended for at least 4 weeks on terms that the Tenant pays the rent arrears and costs. Only of the Tenant fails to do so will the Tenant be barred from relief. Likewise, if the Landlord is relying on other breaches, then the Tenant can apply for relief immediately following service of the Section 146 Notice and at any time thereafter up until execution of the Possession Order.
Other considerations:
Before commencing action to forfeit a lease, a Landlord should always think carefully about what they ultimately want to achieve. There are always commercial considerations.
If the Landlord does not want to take possession of the premises and they are willing to try to preserve the existing relationship with the Tenant, then they should first explore ways to remedy the situation. If, for example, the Tenant is struggling to pay the rent, then the Landlord could consider changing when and how the rent is paid by varying the rent day, agreeing to payment by instalments or reducing the rent. If, on the other hand, the Landlord is willing to take possession of the premises, then they need to be careful not to do anything that might prejudice their right to do so. The Landlord must also bear in mind that once the lease is forfeit, they will be responsible for the premises. Although the Landlord can still pursue the Tenant for any existing rent arrears or other breaches of covenant, from the date of forfeiture the Landlord will otherwise have to meet all ongoing outgoings in respect of the premises. This is an important obligation to consider, especially if the premises will not be easy to market and re-let.
Whatever the reason for a Landlord wanting to forfeit a commercial lease, the procedure can be complex and legal advice should always be sought. The guidance given above is intended as a very general overview only and should not be relied upon. If you require assistance, then Teresa Johnston, who specialises in Property Litigation, should be able to help you. If you are a Landlord and require assistance with such matters, then please do not hesitate to contact T G Baynes on 0208 301 7777 or alternatively e-mail info@tgbaynes.com.