Forfeiture of a Commercial Lease

A landlord has the right to forfeit a lease under specific conditions, allowing them to re-enter the property if the tenant breaches a lease provision (a covenant). Depending on the type of breach, the landlord may reclaim possession immediately through ‘peaceable re-entry’ or after providing notice. Alternatively, the landlord can initiate court proceedings for forfeiture after serving notice, or immediately in cases of non-payment of rent.

Forfeiting a Lease

To successfully forfeit a lease, a landlord must establish their right to do so, typically based on a specific breached covenant. However, caution is essential; if a lease is forfeited without a valid right, the tenant can claim wrongful forfeiture. Therefore, it’s crucial to seek legal advice immediately after a breach occurs.

Before forfeiting a lease, a landlord should carefully consider the following questions:

• Is forfeiting the lease the right course of action given the circumstances?
• Will taking back possession offer any real benefit?
• What is the current state of the rental market? (Will the landlord be able to secure a new tenant quickly?)
• Are there any guarantors or other forms of security, such as a rent deposit, that could be used to cover any outstanding rent arrears?
• Can the property be secured? (Is there a risk of squatters occupying the property if it remains vacant?)
• Does the property have potential for development, or would it benefit from being developed?

Right to Forfeit

Once the right to forfeit is confirmed—except in cases of unpaid rent—the landlord must follow a statutory notice procedure and serve a written notice under Section 146 of the Law of Property Act 1925. This notice must include:

• Details of the breach
• Instructions on how the tenant can remedy the breach within a reasonable timeframe (if it’s possible to remedy)
• The amount of compensation the tenant must pay for the breach

The notice must comply with the specific provisions outlined in the lease.

If the tenant does not remedy the breach or fails to provide satisfactory compensation within the specified time, the landlord may either peaceably re-enter the property or initiate court proceedings to seek forfeiture of the lease.

Peaceable Re-Entry

Peaceable re-entry refers to the process by which a landlord regains physical possession of a property. The term “peaceable” pertains to the conduct of the person carrying out the re-entry, not necessarily the property itself. While a landlord may use some force in re-entering the property (such as changing locks or securing access points), the force should be reasonable and not excessive. It is a criminal offence to use violence to regain possession if there is a tenant or occupant present who objects to the re-entry.

When regaining possession, the landlord must ensure that the actions are clear and unmistakable. This typically involves taking steps to prevent the tenant from re-entering, such as changing the locks and securing entrances or open areas to the extent possible.

In commercial property, it is common for re-entry to occur outside business hours when the property is more likely to be vacant, making the process smoother and less contentious.

A landlord may also choose to hire a certified bailiff to carry out the re-entry on their behalf.

Once re-entry has been completed, the landlord should post a clear, visible notice on the property. While there is no prescribed form for this notice, it is advisable to include the following information:

• A statement confirming that the landlord has forfeited the lease by re-entering the property.
• A reference to the specific lease clause that allows the landlord to forfeit the lease.
• A declaration that only individuals authorised by the landlord may lawfully enter the premises, and any unauthorised attempts to do so will be considered a criminal offence.
• Full property details and contact information for the landlord or their agent.

Forfeiture by Legal Proceedings

If a landlord chooses to initiate forfeiture proceedings, this serves as a clear indication of their intent to regain possession of the property. However, the lease will only terminate once the court issues a possession order (if the court grants it), and any such order will typically have retroactive effect.

The Civil Procedure Rules outline specific steps for applying to the court for a forfeiture order. These procedures differ depending on whether the property in question is commercial or residential.

Losing the Right to Forfeit

A landlord can unintentionally lose the right to forfeit a lease by taking actions that acknowledge its ongoing validity. This occurs when the landlord, or someone acting on their behalf with knowledge of the circumstances warranting forfeiture, unequivocally recognizes the lease’s continued existence and communicates this to the tenant.

Typically, this involves the landlord or their agent demanding rent that becomes due after a breach of covenant has occurred. The impact of this action depends on whether the breach is considered ‘once and for all’ or ‘continuing.’ A continuing breach can survive an action that waives the right to forfeit, while a once-and-for-all breach cannot.

Additionally, an insolvency event, such as a tenant entering administration, may limit the right to forfeit, even if the landlord has already initiated forfeiture proceedings.

Common mistakes Landlords make during Forfeiture

Failing to Check the Lease

Before attempting to forfeit a lease, landlords must ensure the lease includes an express forfeiture clause. Such a clause is not implied by default and must specifically cover the alleged breach. Failing to verify that the lease includes the appropriate forfeiture provisions can expose landlords to legal risks.

Not Following the Correct Procedure

When the tenant breaches a covenant, other than non-payment of rent, landlords are required to serve a notice and allow the tenant a reasonable period to remedy the breach, if possible. Skipping this notice step or giving the tenant an unrealistic timeframe to fix the issue, can lead to complications. Even in cases where the breach seems irremediable, the landlord is still obligated to serve the proper notice. This notice must follow the specific form outlined in Section 146 of the Law of Property Act 1925.

Recognising the Continued Existence of the Lease

Landlords may inadvertently waive their right to forfeit the lease by acknowledging that the lease remains in effect. This is particularly problematic in cases of ‘once and for all’ breaches (e.g., unlawful assignment or subletting), as opposed to ‘continuing breaches’ (e.g., failure to maintain or repair the property). In the case of a continuing breach, a new forfeiture right arises each day the breach persists. If a landlord is deemed to have waived their right to forfeit due to acknowledging a once-and-for-all breach, they will not be able to forfeit the lease again unless the tenant breaches the lease terms anew.

Failing to Consider Alternatives or Financial Implications

While it may be tempting to regain possession of the property through forfeiture, landlords should consider alternative options such as mediation or negotiating with the tenant, which could lead to a more mutually agreeable resolution. Additionally, landlords should carefully assess the financial consequences of forfeiture, including the costs of legal proceedings, potential business rates on a vacant property, and the difficulty of finding a new tenant in a challenging market. If the tenant successfully claims wrongful or illegal forfeiture, the landlord could face substantial damages for loss of use of the premises.

Conclusion

In conclusion, forfeiting a commercial lease is a complex process that requires careful consideration of both legal rights and obligations. Whether you are a landlord seeking to reclaim possession of a property or a tenant facing potential forfeiture, understanding the statutory requirements and procedural steps is essential to avoid costly mistakes. At Osbornes Law, we offer expert legal support to navigate the forfeiture process, ensuring that your interests are protected and that all necessary procedures are followed. Whether you’re pursuing forfeiture or seeking relief from it, our team is committed to providing clear, strategic guidance every step of the way.

How Osbornes Law Can Help with Forfeiture of Commercial Leases

We provide comprehensive guidance on the forfeiture process, including:

• Reviewing the lease
• Assessing whether the right to forfeit exists
• Preparing and serving the Section 146 notice
• Coordinating with agents for peaceful re-entry to the property
• Initiating court proceedings
• Facilitating the enforcement of a possession order once obtained

Our commercial property solicitors also often represents tenants, providing advice on the potential wrongful forfeiture by landlords and initiating proceedings to seek relief from forfeiture. If successful, this process effectively reinstates the lease as though it had never been forfeited.

To speak with one of our property litigation solicitors, contact us by:

• Filling in our online enquiry form; or
• Calling us on 020 7485 8811