Forfeiture is a landlord’s right to determine a lease when the tenant is in breach of the terms of the lease, or when certain events happen as set out in the lease – e.g. the tenant’s insolvency.
Forfeiture is a complex area and we will only be touching on the basics in this article. Further, forfeiture applies to both commercial and residential property. The law surrounding the two are slightly different, and we will concentrate on commercial property in this article.
When can a landlord forfeit?
The lease must expressly give the landlord the right to forfeit. There are limited circumstances in which a right to forfeit can be implied into the lease, but in most leases there will be a specific forfeiture clause. 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.
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.
Where the right to forfeit has arisen, the landlord must be careful not to do anything to waive that right. Waiver occurs when the landlord:
- Knows of the tenant’s breach
- Does something that recognises that the lease continues to exist and
- Communicates that act to the tenant.
Essentially, the landlord must decide: does he forfeit as soon as he knows of the breach, or does he treat the lease as continuing by waiving the right to forfeit? For example, a landlord cannot say that a lease has come to an end, if he does something that could only be done if the lease continued to exist. For example, demand or accept rent.
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 methods of forfeiture open to commercial landlords:
- 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.
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.
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.
The court will consider the tenant’s conduct, and the nature and seriousness of the breach. The court may also impose conditions on the relief, such as payment of the landlord’s costs.
For non-payment of rent
Where the lease has been forfeited for non-payment of rent, the tenant has a right to automatic relief from forfeiture. There are various time scales and technicalities too broad to discuss here, but essentially, the tenant must pay all arrears, interest and costs.
As we explained above, the law surrounding forfeiture is technical. We would therefore advise you to seek specialist legal advice before attempting to forfeit a commercial lease. Call our property disputes team on 0800 988 7756 for a free initial discussion.