Forfeiture or the “right of re-entry” is a landlord’s right to end a lease in the event of a breach by the tenant. This note provides an overview of how and when the right arises in commercial leases, the procedure to be followed, relief available to the tenant and what the landlord can do following forfeiture.
WHEN CAN A LANDLORD FORFEIT THE LEASE?
A landlord can only forfeit a lease if it contains a forfeiture clause. While this is a standard clause in a, it should always be checked as the details vary. A clause will usually allow the landlord to re-enter when the rent is not paid for a specified period (often 14 or 21 days), any tenant covenant is breached, or the tenant becomes insolvent (though insolvency legislation may restrict what the landlord is able to do).
Where rent (and other sums reserved as rent under the lease) are unpaid, there is no need for the landlord to give any notice to the tenant prior to forfeiting the lease: he can simply forfeit by either issuing court proceedings or by peaceably re-entering the premises.
Where the tenant is in breach of a covenant of the lease, other than the covenant to pay rent, the landlord is required to serve a section 146 notice, which must:
- Specify the breach complained of.
- If the breach can be remedied, require the tenant to remedy it.
- Give the tenant a reasonable period of time in which to remedy.
- Require the tenant to pay compensation in money for the breach, if the landlord requires this.
Where the breach is of a repairing covenant (and the original lease was for a term of 7 years or more and more than 3 years of the term are left), the tenant must also be told he has the right to serve a counter-notice.
If the breach is not remedied within the reasonable time specified, the landlord can proceed to forfeit by peaceable re-entry or by court proceedings.
Once a landlord is aware of a breach of covenant, the right to forfeit can be lost or “waived” if any act occurs (a “waiver”) which recognises the continuation of the tenancy (for example, demanding or accepting rent, exercising the Commercial Rent Arrears Recovery procedure or granting a licence to the tenant). The law on this is complex and great care must be taken – legal advice should always be sought.
THE “ACT” OF FORFEITURE – COURT PROCEEDINGS OR PEACEABLE RE-ENTRY?
Peaceable re-entry is a self-help remedy, taking effect on the day it occurs. There must be some final and unequivocal act by the landlord to take back possession, accompanied by an intention to forfeit. This is normally achieved by changing the locks so as to exclude the tenant. However, there are strict rules about how and when peaceable re-entry can take place, so we would always recommend that a landlord instructs certified bailiffs who have experience of effecting peaceable re-entry, rather than trying to do it themselves.
Where forfeiture occurs by the issue of court proceedings, the lease is forfeit on the date of service of the proceedings even though possession may not be gained until the court proceedings have been determined and a possession order granted by the court: the subsequent order for possession has retrospective effect to the date of service.
TENANT RELIEF FROM FORFEITURE
The procedure for the tenant to obtain “relief” from forfeiture works differently depending on how the lease was forfeit. However, in general terms the tenant has six months to apply to the court for relief from forfeiture (which, if granted, reinstates the lease and any subleases). The court leans towards granting relief wherever possible: the tenant will generally get relief where the breach has already been remedied or will get relief conditional upon remedying within a specific time.
DEALING WITH THE PROPERTY FOLLOWING FORFEITURE
After the lease has been forfeit a landlord will usually want to do something else with the property (eg re-let or sell).
CAN THE LANDLORD GET RID OF THE TENANT’S POSSESSIONS?
This depends on the nature of the possessions: anything which is a fixture becomes a part of the land either when brought on (landlord’s fixtures) or at the end of the term (tenant’s fixtures), so fixtures belong to the landlord following forfeiture. However, it can be tricky to categorise these, and care needs to be taken: if the tenant is granted relief from forfeiture, tenant’s fixtures revert back to the tenant and the landlord may be liable for having removed these.
Chattels continue to belong to the tenant even after the lease comes to an end and the tenant should always be given an opportunity to come and collect them: what the landlord can do if the tenant fails to do so will depend on the wording of the lease.
CAN THE LANDLORD RE-LET OR SELL THE PROPERTY IMMEDIATELY?
If the tenant is granted relief, the lease will be reinstated, so must the landlord wait for six months before he can deal with the property? What happens if the landlord relets and after five and a half months the tenant suddenly makes an application for relief? There is no simple answer. As the grant of relief is discretionary, the court will consider all the facts including whether the third party knew of the risk that an application might be made and whether the tenant delayed in making its application for relief: the landlord’s right to deal with its own property will be balanced against the tenant’s right to relief. However, if the landlord grants a new lease and relief from forfeiture is then granted, the original lease will be reinstated so the new tenant’s interest will be subject to the original lease.
From a practical perspective there are things that a landlord can do to minimise the risks, whilst not having to delay six months before he can deal with the property: legal advice should always be sought on the appropriate steps to be taken.
CAN THE LANDLORD RECOVER OUTSTANDING SUMS DUE?
Yes – while a landlord needs to be careful about demanding sums due prior to forfeiting the lease (as this may amount to a waiver) he does not lose his right to claim these amounts after the lease has come to an end (though how successful the landlord’s claims are likely to be will depend on the financial position of the tenant).