Forfeiture is one of the most important remedies available to a commercial landlord. It allows the landlord to bring the lease to an end and regain possession of their Property. However, forfeiture is also a process that must be handled carefully. Getting it wrong can expose a landlord to claims for wrongful forfeiture. In this blog, Abbey Barnes, a Solicitor Apprentice in the Property Litigation team, explains what forfeiture is, the steps involved and the key pitfalls to avoid before taking action.
Forfeiture is a landlord’s legal right to bring a commercial lease to an end once a tenant has committed a breach of the lease. However, for a landlord to forfeit the lease, there will need to be a forfeiture clause contained within it.
If there is such a clause, a landlord can forfeit the lease in one of two ways:
A landlord will have the right to forfeit so long as they haven’t previously waived the right to forfeit, and the lease explicitly allows it (i.e. the lease contains a forfeiture clause). If the lease does not have a forfeiture clause, then the landlord will only have an implied right to forfeit for limited reasons, such as if the tenant breaches a condition in the lease.
Most commercial leases provide that the payment of rent is a condition of the lease and therefore a landlord will likely have an implied right to forfeit the lease if a tenant does not pay rent. However, it is important to take legal advice before exercising any implied right.
Waiving the right to forfeit is essentially surrendering the right to do so. A landlord could waive their right to forfeiture if the following occurs:
A landlord must therefore decide whether they wish to forfeit the lease as soon as they become aware of the breach (in accordance with the terms of the lease), otherwise they will treat the lease as continuing and will waive their right to forfeit.
There are two different types of breaches that could bring about the right to forfeit. These are ‘continuing breaches’ and ‘once and for all breaches’.
Where there is a ‘continuing breach’ there will be a new right of forfeiture for every day that the breach continues. Examples of continuing breaches could include a breach of the tenant’s covenant to insure the Property or a breach of the covenant to keep the Property in a good state of repair. Any waiver of the right to forfeit will only apply to breaches that occurred before the waiver of the right took place.
Where the breach is ‘once and for all’, if the Landlord waives their right to forfeit then they will have lost their right to forfeit the lease for that specific breach. Such a breach could include a breach of a covenant not to make alterations to the premises or a breach of a covenant to carry out repairs by a specified date. Any attempt to forfeit the lease once the right has been waived could be deemed wrongful forfeiture.
Accepting or demanding rent after finding out about a breach may waive your right to forfeit for that breach. If you are contemplating forfeiture, we would advise you to take independent specialist legal advice before accepting any rent payments.
Wrongful forfeiture occurs if a landlord ends a lease before the right to do so has actually arisen. If the landlord wrongfully forfeits the lease, the tenant can apply to the Court for a remedy. These remedies could include an injunction allowing the tenant to regain possession of the Property and/or a claim in damages against the landlord. It is therefore key to seek independent legal advice prior to taking any steps to forfeit a lease.
For most breaches (other than non-payment of rent), a landlord will have to serve a Section 146 Notice under the Law of Property Act 1925 in order to start the process of forfeiting the lease. This Notice warns a tenant in breach of a lease covenant that their landlord intends to forfeit the lease. This is a specialist document, and we would recommend that legal assistance is sought before serving one on a tenant.
This Notice:
Peaceable re-entry is the landlord’s ability to physically re-enter the Property, effectively bringing the lease to an immediate end. This is done by the landlord demonstrating their intention to forfeit the lease, typically by having the locks changed. There are restrictions to this which should be considered, and peaceable re-entry should only be used in respect of solely commercial premises without any residential element. Due to the restrictive nature of this method of forfeiture, landlords should seek independent legal advice before peaceable re-entry is attempted.
Yes. Sometimes the landlord can recover losses or enforce the lease without ending it.
For unpaid rent the landlord could draw from a rent deposit to cover arrears (so long as the lease allows for it); recover arrears from a guarantor (if there is one); or even serve a statutory demand to recover any rent arrears.
For repair breaches, if the lease allows, the landlord can enter the Property, carry out repair works and recover any costs for repairs from the tenant as a debt or as damages (depending on the relevant lease clause). The landlord could also apply to the Court for an injunction to require that the tenant remedies any breaches or to prevent the tenant from committing future breaches.
There are several restrictions on forfeiture, including:
Yes – a tenant, or another party with an interest in the lease, can ask the Court for relief from forfeiture after the lease has been forfeited. If relief is granted, then the lease is restored as if forfeiture never occurred. This can create complications if a new lease has already been granted, and possible adverse costs implications for the landlord.
The right to forfeit a commercial lease is an important one, but it carries significant legal risk. Acting too soon or missing a procedural step can lead to costly claims. It is important to always take independent legal advice before proceeding with any step towards forfeiture.
Please note that advice in commercial forfeiture is very case-specific, and therefore the above is simply a guide as to the process and the common questions we get asked. We recommend that you take specialist legal advice if you have a forfeiture enquiry. Porter Dodson’s specialist Property Litigation Department would be happy to assist with such enquiries.