Samuel Okoronkwo – The law on commercial forfeiture for landlords and tenants

Samuel Okoronkwo – The law on commercial forfeiture for landlords and tenants

Commercial forfeiture is a common provision that gives a landlord options with respect to regaining premises if there has been a substantial breach of a covenant. However, while the process is fairly straightforward, the detail of the law (and the lease) must be followed to ensure that this right is being correctly exercised.

The law

The Landlord and Tenant Act 1954 protects a tenant’s right of security of tenure. It’s also this legislation that provides the landlord with the right to terminate a lease via forfeiture. However, there must also be a clause in the lease that gives the landlord the right of forfeiture and re-entry – if this isn’t in the paperwork then forfeiture won’t be an option.

Forfeiture for breach of a lease

Non-payment of rent is the most common situation in which most landlords will consider commercial forfeiture. Where the term of the lease that has been breached is something other than non-payment of rent, there is a formal procedure that must be followed. This requires a notice under Section 146 of the Law of Property Act 1925 be served on the tenant setting out the details of the breach and giving the tenant a set period of time in which to remedy that breach. If the tenant complies with the notice and remedies the breach then the right to forfeiture no longer stands. However, if the breach continues then the landlord has the right to pursue forfeiture through the courts.

Forfeiture where rent has not been paid

The forfeiture clause in the lease should set out the steps necessary where there has been non-payment of rent. Typically, a landlord will be able to forfeit for non-payment of rent when that rent has been outstanding for 14 or 21 days. The forfeiture clause will also set out whether a formal demand for outstanding rent is necessary (in reality it is always good practice to put this demand in writing).

The forfeiture mechanics

A landlord can exercise the right to forfeiture either via peaceable re-entry (changing the locks) or obtaining a court order. In some situations forfeiture may not be the best option and another solution may be the more efficient choice. For example, if a tenant is struggling to pay rent an agreement to surrender the lease instead could save costs and time.

A note on waiver

Landlords should be cautious about any behaviour that might indicate a waiver of the right to forfeit the lease. This will be any act that continues to recognise the existence of the Landlord and Tenant relationship even when the landlord is aware of the breach. For example, accepting a proportion of the rent that is due when no payments have been made for some time.

Tenants – forfeiture relief and landlord breach

Relief from forfeiture will effectively restore the lease in its previous terms. Tenants can apply to the courts for relief from forfeiture and this should be done as soon as possible after forfeiture has taken place, whether this was by peaceable re-entry (changing the locks) or via the courts. In general, relief from forfeiture that relates to a non-payment of rent breach will not be granted unless a tenant is willing to pay all arrears and costs. In other cases the court may take a range of circumstances into account, including the seriousness of the breach and whether it was wilful. It may also be the case that the tenant’s action was in response to the landlord being in breach of the lease. Every case is different but it’s important to seek advice as soon as possible no matter what the circumstances.

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