Summary
What it is: landlord’s right to end a lease for tenant breach (or events like insolvency), via peaceable re-entry or court proceedings
When it applies: common triggers include rent arrears, disrepair, unauthorised alterations, unlawful subletting/assignment and insolvency.
Avoiding forfeiture:
- Know your lease’s forfeiture triggers (rent, repairs, alterations, subletting, user covenants, insolvency);
- Pay rent promptly / clear arrears fast;
- Never ignore a section 146 notice — fix the breach if possible;
- Understand continuing vs. once-and-for-all breaches (affects waiver);
- Watch for landlord waiver (e.g. accepting rent after knowing of breach);
- Keep good records (lease, payments, correspondence, evidence of remedy).
If forfeiture is threatened: assess your ability to claim relief of forfeiture, or that the landlord has waived their right to forfeit.
Introduction
Forfeiture of a commercial lease is a landlord’s right to bring the lease to an end where the tenant breaches its obligations under the lease or where certain specified events occur, such as insolvency.
A landlord can exercise this right either by peaceably re-entering the premises or by issuing court proceedings for possession. Because forfeiture brings the lease to an end and can have significant consequences for both parties, it is governed by a combination of contractual terms, statute and common law.
For tenants, forfeiture is obviously a daunting prospect. However, the key point is that forfeiture is usually avoidable. Understanding your lease obligations, responding quickly to any alleged breach and recognising the protections available can often prevent matters escalating to the point where the landlord seeks to terminate the lease.
When can a landlord exercise a forfeiture of a commercial lease?
The landlord’s right to exercise forfeiture of a commercial lease depends both on the terms of the lease and on compliance with the relevant legal requirements, as follows:
- Where the alleged breach is non-payment of rent, the landlord may generally proceed once the period specified in the lease has expired.
- For other breaches of covenant, however, the landlord will usually need to serve a section 146 notice before forfeiture can take place.
There are also statutory restrictions which may prevent forfeiture in certain circumstances, for example:
- where the breach is concerned with repairs and / or damage to the property, the Leasehold Property (Repairs) Act 1938 applies – here, the landlord may not forfeit for breach of a repairing covenant without first obtaining the court’s consent (should the tenant claim this benefit under the Act).
- where the tenant is subject to certain insolvency procedures, the landlord may require either the consent of the insolvency office-holder or the permission of the court before forfeiture can proceed.
How does forfeiture of a commercial lease happen?
There are two methods by which a landlord may exercise a forfeiture of a commercial lease:
- Peaceable Re-entry. This usually involves the landlord changing the locks after the right to forfeit has arisen and while the premises are empty. Following re-entry, a notice confirming that forfeiture has taken place is normally displayed at the property.
- Court Proceedings. Where proceedings are issued, the lease is ultimately determined once the court grants possession. Until then, the tenant remains in occupation while the proceedings continue.
How can tenants avoid forfeiture of a commercial lease?
The best way to avoid forfeiture of a commercial lease is to understand the obligations contained in your lease and take prompt action if any issue arises. In many cases, the landlord’s right to forfeit only arises because the tenant has failed to comply with one or more lease covenants.
Understand what can trigger forfeiture
Most commercial leases contain an express forfeiture clause setting out the circumstances in which the landlord may terminate the lease.
The most common grounds include:
- non-payment of rent;
- breaches of repairing obligations;
- unauthorised alterations;
- assigning or subletting without consent;
- breaches of user covenants; and
- specified insolvency events.
Even where a lease contains no express forfeiture clause, the law may imply a right to forfeit in limited circumstances, such as where the tenant denies the landlord’s title or breaches a condition of the lease.
Knowing which obligations are most likely to trigger forfeiture allows tenants to identify potential issues before they become serious.
Pay particular attention to rent obligations
The non-payment of rent is one of the most common reasons for forfeiture of a commercial lease.
Most commercial leases specify a period after rent becomes due before the landlord can exercise the right to forfeit. Once that period expires, the landlord may be entitled to recover possession without first serving a section 146 notice (detailed below).
For this reason, tenants should monitor rent payments carefully and ensure that any arrears are addressed as quickly as possible. If forfeiture is ultimately pursued for non-payment of rent, the tenant’s ability to obtain relief from forfeiture will often depend upon paying the outstanding rent, interest and costs.
Deal with breaches as soon as they arise
Not every breach immediately entitles a landlord to forfeit.
For breaches other than non-payment of rent, the landlord will generally first need to serve a notice under section 146 of the Law of Property Act 1925.
The notice must specify the alleged breach and, where the breach is capable of remedy, allow the tenant a reasonable opportunity to remedy it.
From a tenant’s perspective, a section 146 notice should never be ignored. It provides an opportunity to assess the allegation, determine whether a breach has in fact occurred and, where appropriate, remedy the breach before forfeiture becomes available.
The earlier a breach is remedied, the less likely it is that forfeiture will ultimately occur.
Understand the difference between different types of breaches
Not all breaches are treated in the same way.
Some breaches are continuing breaches, meaning that they continue until the tenant remedies them. Examples include failures to keep the premises in repair, breaches of user covenants and failures to insure where required by the lease.
Other breaches are once-and-for-all breaches. These include carrying out unauthorised alterations, assigning or subletting without consent or failing to perform an obligation by a specified date.
This distinction is important because it affects both the landlord’s right to forfeit and the potential effect of waiver. A continuing breach gives rise to a fresh right to forfeit each day that it continues, whereas the right to forfeit for a once-and-for-all breach may be permanently lost if it is waived.
Be aware that the landlord may waive the right to forfeit
A landlord does not retain the right to forfeit indefinitely.
If, after becoming aware of a breach, the landlord carries out an unequivocal act recognising that the lease continues, the right to forfeit may be waived.
For waiver to occur, the landlord must:
- know about the breach;
- carry out an unequivocal act recognising the lease as continuing; and
- communicate that act to the tenant.
The most common example is demanding or accepting rent that falls due after the landlord has become aware of the breach.
Whether waiver has occurred depends on the facts of the particular case, but it can provide an important defence for tenants where forfeiture is later threatened.
Maintain evidence relating to the lease
If a dispute arises, tenants should ensure they retain documents relevant to the alleged breach.
This may include:
- the lease and any supplemental documents;
- evidence of rent payments;
- licences or consents granted by the landlord;
- correspondence relating to the alleged breach; and
- evidence that any breach has been remedied.
Having a clear record of compliance may become particularly important if the landlord later seeks to forfeit the lease or if the matter proceeds to court.
What should tenants do if forfeiture is threatened?
If your landlord indicates that it intends to exercise forfeiture of a commercial lease, immediate action is essential.
The first step is to review the lease and identify the breach that the landlord relies upon.
You should then consider whether:
- the landlord has the contractual right to forfeit;
- any required section 146 notice has been served;
- the alleged breach has been remedied;
- statutory restrictions prevent forfeiture; or
- the landlord has waived its right to forfeit through its own conduct.
You should also gather any documentation relevant to the dispute, including the lease, payment records and correspondence.
As forfeiture cases often depend on detailed factual and legal issues, obtaining legal advice promptly is important.
Can tenants obtain relief from forfeiture?
Even where forfeiture of a commercial lease is already taking or has taken place, tenants may still be able to recover the lease.
Relief from forfeiture is an equitable remedy which allows the court to restore the lease as though the forfeiture had never occurred.
For non-payment of rent, statutory provisions give tenants several opportunities to obtain relief, particularly where proceedings have been commenced in the County Court. Relief will generally depend upon payment of the outstanding rent, interest and the landlord’s costs.
For breaches other than non-payment of rent, the court has a broad discretion. It will consider factors including whether the breach has been remedied, whether compensation has been paid where appropriate, whether the tenant is likely to comply with the lease in future, the seriousness of the breach and whether the breach was deliberate.
The court may also grant relief subject to conditions, such as requiring the tenant to pay the landlord’s costs or compensation.
Because relief is discretionary, tenants should act as soon as the landlord begins the forfeiture process. Delay may reduce the likelihood of relief being granted, particularly where the landlord has already granted a new lease to another occupier.
Final thoughts
Forfeiture is one of the most significant remedies available to commercial landlords, but it is not inevitable whenever a tenant breaches a lease.
In many cases, tenants have opportunities to remedy breaches before forfeiture becomes available, to rely on statutory protections or to argue that the landlord has waived its right to forfeit. Even where forfeiture has already taken place, relief from forfeiture may allow the lease to be restored.
Understanding the obligations contained in your lease, responding promptly to any alleged breach and taking early legal advice remain the most effective ways of protecting your business premises and avoiding forfeiture altogether.
If you are concerned about a potential forfeiture of your lease, we would strongly encourage you to seek legal advice. EM Law are experts in commercial property, and you can find out more about us here or on our Commercial Property Solicitors page.
