There may be occasions when a commercial landlord needs to address a tenant’s breach of the lease terms. One option available is forfeiture—a legal process that allows a landlord to end the lease during its term. However, forfeiture is a complex area of law and it is important to understand the process thoroughly before taking action.
In this article, we explain what forfeiture is, when it can be used, and the key considerations for landlords thinking about forfeiting a lease. Before forefeiting, we recommend seeking legal advice to ensure that you follow the correct procedure.
| What is Forfeiture?
Forfeiture is the legal right that allows a landlord to terminate a lease if the tenant is in breach of the lease. While forfeiture can be an effective remedy, it can have significant consequences for both parties. So it is essential that the procedure is followed correctly.
| When can a landlord forfeit?
The lease must expressly give the landlord the right to forfeit. This clause will ordinarily give the landlord the right to forfeit once the tenant has been in breach for a period of time – typically 14 or 21 days.
If the lease does not include a forfeiture clause, a landlord may still be able to forfeit the lease if the tenant has committed a fundamental breach of the lease. A “fundamental” breach is one that makes it impossible to continue with the tenancy.
A landlord cannot forfeit a lease (except for non-payment of rent) unless and until it has first served a section 146 notice. This sets out the breaches of the lease and gives the tenant a reasonable time to remedy the breaches.
| Waiver
If a landlord wishes to protect their right to forfeit the lease, they should be careful when dealing with the tenant and any other connected parties in relation to the property. Where the right to forfeit has arisen, it is essential that a landlord does not waive their right to forfeit the lease inadvertently.
Waiver of the right to forfeit will occur when the landlord performs an act that recognises the lease as continuing to exist and communicates this to the tenant. This is commonly seen by way of acceptance of rent or discussing matters with the tenant regarding the lease.
Essentially, the landlord must decide: do they forfeit as soon as they know of the breach? Or do they treat the lease as continuing by waiving the right to forfeit?
Continuing and once and for all breaches
The type of breach of lease can affect waiver. Breaches are commonly split into two categories: continuing and once and for all breaches. Common examples of continuing breaches include:
- Breach of a covenant to keep a property in repair
- Breach of a user covenant
- Breach of a covenant to insure.
Common examples of once and for all breaches include breaches of covenant to:
- Pay rent
- Carry out repairs by a specified date
- Assign or sublet
- Not make alterations
Where the breach is a continuing breach, a fresh right of forfeiture arises each day the breach continues. This means that even if the landlord waives his right, a fresh right accrues the next day. There is nothing stopping the landlord forfeiting for the continuing breach on that next day.
Where the breach is ‘once and for all’, the right to forfeit for that breach will be lost upon waiver.
| How does forfeiture work?
There are two primary methods by which a landlord can forfeit a lease:
- Peaceable re-entry. This is where a landlord goes into the property and changes the locks.
- Forfeiture by court proceedings. A landlord can issue proceedings for forfeiture of the lease. The lease will end when those proceedings are served.
Both methods have serious implications. Once the lease has been forfeited, the lease will end. This means that the tenant will lose their rights to the property unless they seek relief from forfeiture.
| Relief from forfeiture
Once a landlord has forfeited a lease, a tenant or a third party with an interest in a lease (e.g. a mortgagee or subtenant) can apply for relief from forfeiture.
Relief must be granted by the court. The parties cannot agree to relief without the court’s consent. In granting relief, the court will look to put the landlord and tenant back in the position they would have been in had there been no forfeiture. The methods for obtaining relief from forfeiture differ depending on how the lease was breached in the first place.
For breaches other than non-payment of rent
The court has a wide discretion whether to grant relief from forfeiture. In general, the court will grant relief if the tenant remedies the breach or pays compensation to the landlord (where the breach can’t be remedied). AND the court is satisfied that the tenant will perform its obligations under the lease in the future.
If the forfeiture was due to a breach other than non-payment of rent, the court has discretion to grant relief. The tenant must remedy the breach or provide compensation to the landlord (if the breach can’t be remedied).
In determining whether to grant relief, the court will consider factors such as the seriousness of the breach, the tenant’s behaviour, and the likelihood that the tenant will comply with the lease in the future. The court may also impose conditions on the relief, such as payment of the landlord’s costs.
For non-payment of rent
If the forfeiture was due to non-payment of rent, the tenant may be automatically entitled to relief. This is provided they pay all outstanding arrears, plus any interest and the landlord’s legal costs.
If you are a landlord and are considering forfeiting a lease to remove a tenant from a property, it is important to first take specialist legal advice on to how best to approach this. If the process is not followed correctly a tenant may successfully apply to gain re-entry to the property, an unquestionably costly exercise for a landlord.
For specialist advice, call our team on 0800 988 7756, or send us a message.
