I am a landlord of commercial premises and my tenant has not paid its service charge contributions, despite repeated demands. Can I forfeit the lease?
Quite probably but there are a number of points to check first.
Does your lease expressly allow you to re-enter the premises and, if so, what triggers that right? If the lease contains no express right, it is unlikely that you can forfeit. Typically, leases do reserve the right to forfeit for non-payment of rent or breach of covenant, but usually there is a grace period before the right arises.
Next, are the service charge contributions reserved as “rent”? If they are, and any grace period has expired, you will be entitled to forfeit the lease. If not, you must serve a “section 146 notice” on the tenant specifying the breach and requiring him to remedy it and pay compensation. If the tenant fails to do so within a reasonable time, you will be entitled to forfeit. What amounts to a “reasonable time” will depend on the facts.
The tenant will be entitled to apply to Court for relief from forfeiture. Generally the Court will order the tenant to settle any arrears as a pre-condition to granting relief. If the arrears are disputed, it may not order forfeiture – if that is the case, you should be wary about forfeiting as you may be liable to pay damages or costs.
For further information:
Section 146, Law of Property Act 1925
(An earlier version of this article was previously published in hard copy in RICS Property Journal, formerly known as the Commercial Property Journal).