One of the most powerful remedies available to a landlord of commercial (non-residential use) property is the right of re-entry, described in leases as ‘forfeiture’.
Forfeiture is a right that needs to be set out in the lease itself. To forfeit a lease is to bring it to an end immediately. This can be done simply by a landlord going into the commercial premises and changing the locks. The tenant is excluded from the premises and can no longer trade. This can have a devastating effect on the tenant’s business. There is a right to apply to the Court to reinstate the lease. However, this requires the tenant to act quickly and be able to immediately clear the arrears of rent.
Landlords have been unable to exercise their right of forfeiture since 21 March 2020. This was due to the protections implemented by the Government under the Coronavirus Act 2020. In circumstances where businesses were forced to close their doors due to the ‘lockdown’ in force, it was clear that many businesses, especially those who could not operate or enable their workforce to ‘work from home’, would be unable to meet overheads, including rent. These businesses would be significantly affected, and even fail.
Forfeiture can be exercised when rent is in arrears, usually 14 days from the rent payment date. From 26 March 2022 landlords are again able to forfeit business tenancies in respect of certain classes of rent arrears (described as non-protected arrears). These non-protected arrears are:
(i) Accrued prior to 21 March 2020
(ii) Accrued since 18 July 2021, or
(iii) Accrued in the period since 21 March when the business was not otherwise required to close (the time periods for closure depended upon the different classes of business e.g. nightclubs and hospitality were required to close for longer periods).
The lifting of the ban on forfeiture will bring pressure on business tenants who are in arrears of rent. It is imperative that tenants in that position engage with their landlords to seek to agree a re-payment schedule, which avoids the risk of a landlord unilaterally deciding to bring the lease to an end by re-entering.
For landlords wishing to forfeit their tenants’ lease, I would encourage you to take legal advice and until you have received that advice, do not demand rent or communicate with your tenant in any way. This is due to the fact that recognising the lease whilst arrears are outstanding will preclude a landlord from exercising forfeiture for existing rents. If they waive the right to forfeit, a landlord will be required to wait until the next rent payment date (plus 14 days) before they can lawfully re-enter.
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