Commercial Litigation Blog
From time-to-time, the Commercial Litigation team at Martin Kaye Solicitors are asked by landlords or their agents whether they can forfeit a commercial lease for rent arrears.
The law in this area is very technical and it is easy to go wrong. Here are some key points:
- First of all, have a written lease in place with a right of re-entry or forfeiture in the events of (i) non-payment of rent; (ii) breach of a condition or covenant in the lease; or (iii) the insolvency of the tenant or a guarantor. All professionally prepared leases should contain this right. If there is no right of re-entry, it is unlikely that the landlord can forfeit the lease.
- For most breaches the landlord, before forfeiting, must serve a ‘section 146 notice’ on the tenant requiring the tenant to remedy the breach. However, where the breach is a non-payment of rent, a section 146 notice is not required.
- Landlords must be careful not to waive their right to forfeit. Once the landlord has the ability to forfeit (e.g. rent is due but not paid), they must not do anything that acknowledges the continuation of the lease. The most common example is demanding or accepting rent. Such acts may amount to a waiver of the right to forfeit for the breach in question. The right to forfeit can, however, arise again later on for fresh breaches.
- If the decision is taken to forfeit, engage specialists to re-enter and secure the premises. The re-entry must take place peaceably and therefore, it is probably best to effect it outside of the tenant’s business hours.
- Be aware that once a lease has been forfeit, the tenant can apply to the court for relief, i.e. a court order allowing the tenant to go back into the premises as if the forfeiture had never taken place. However, the court will usually only grant relief if the tenant clears all the arrears and pays the landlord’s costs. Sub-tenants and mortgagees can also apply for relief in some cases.
The key advantage of forfeiture is that it provides a much faster route to possession than obtaining a possession order from the court. However, forfeiture brings an end to the lease and in a poor climate, the landlord might not want a vacant property.
A landlord might forfeit tactically in the hope that the tenant applies for relief, meaning that the arrears are likely to be cleared. However, the tenant cannot be compelled to seek relief.
If you are having difficulty with a tenant and would like some advice, please get in touch with the Commercial Litigation team at Martin Kaye Solicitors who will be able to give you the best possible advice at law@martinkaye.co.uk or 01952 272222.
