Commercial Landlord and forfeiture-the end for the Tenant?

Posted: Tuesday, 2 June 2015 @ 12:32
Commercial Landlord and forfeiture-the end for the Tenant?

Speak to a lawyer

Forfeiture for non payment of rent (which may include service and other charges reserved in the Lease as rent).

The ancient law of distraint, allowing the landlord to use bailiffs to arrive unannounced and seize goods without due notice, has now been consigned to the history books. See my blog last year. But the landlord still has a nuclear option where there are arrears of rent. If the lease states that in the event of arrears he may forfeit without making a formal demand (usually after rent is unpaid for a specified period), he can simply change the locks in the dead of night provided there is no one on the premises resisting forfeiture. This is known as taking peaceable possession.

But note that if the premises are let with accommodation, it is unlawful to gain peaceable possession. And secondly note that it is a criminal offence to use or threaten violence to secure entry, if there is someone on the premises who is resisting entry.

The commercial tenant should make every effort to avoid this situation because not only will the lease be at an end, but substantial costs running into many thousands of pounds will usually have been occurred by the landlord, merely adding to the tenant's woes.

Although the liability for future rent will be extinguished, the landlord will normally be entitled under the terms of the lease to recover the legal and other costs associated with breach of the lease, including the action of forfeiture, and also claim for the outstanding rent, interest, and possibly damages for breach of any for any repairing covenant. And to add insult to injury the landlord may claim for costs and losses if the Tenant delays in removing all his goods and fittings. So not only will the tenant have lost the premises and his business, but he will face a substantial claim which will add significantly to his debt to the landlord.

Note that if the Landlord forfeits the lease he no longer has the right to seize any goods or possessions of the Tenant remaining on the premises.

If the Landlord takes peaceable possession, or applies to the court for forfeiture, either action will automatically bring the lease to an end. So even if agreement can be reached to allow the Tenant back in (or in the case of a court application, to remain), any such agreement with the tenant will amount to the granting of a new lease. The Landlord is therefore likely to insist either that a new Lease is entered into (on his terms), or the agreement be subject to a court order granting relief. This again will only add significantly to the Tenant's debts, because any court order granting relief is invariably on condition that the Tenant first of all pays all arrears, interest and costs before he can get back in the premises.

The tenant and others such as guarantors or mortgagees may have a right to relief from forfeiture on payment of all arrears, interest and costs. They will have to apply to the court for that relief. But if the landlord has already gained physical possession under a court order it will be too late to apply for relief.

If possession was obtained peaceably, or the court proceedings for possession are still continuing, the court has a discretion whether to grant the relief.

But even if the court grants the tenant relief, he may have won the battle but could still lose the war. If the Lease is protected under the Landlord and Tenant Act 1954, and is coming to its end, or perhaps the Tenant was holding over after the end of the contractual term, the Landlord could still serve the notice under Section 25 of the Act and oppose the grant of a new lease on the grounds of persistent delay in payment of rent, or indeed any of the other grounds set out in Section 30 of the Act.

Breach of covenants other than payment of rent

Here the landlord’s remedies are more limited. As above it may be possible to pursue a guarantor or original tenant. As for the tenant, court action is always available to claim damages for breach of covenant, such as the failure to repair.

With repairs (dilapidations) there is a cap on damages, as the landlord cannot recover more than the diminution loss caused by the breach, which is often much less than the repair cost.

Ultimately the landlord may decide to go for forfeiture of the lease. The landlord must not have taken any action subsequent to him becoming aware of the breach which could be construed as acknowledging the lease, as this will amount as a waiver of the right to forfeit. So, for example, demanding rent knowing that the tenant has broken a lease covenant would amount to a waiver

If the landlord wishes to go the forfeiture route he must first serve the tenant with a statutory notice under section 146 of the Law of Property Act 1925. He must specify the breaches, what is required to remedy them (if they are capable of remedy), and demand compensation in money for the breach. He must give a reasonable time for compliance. Only then, if the tenant either fails to comply, or the breach is a once and for all breach not capable of remedy, may the landlord issue forfeiture proceedings.

Again the tenant and other interested parties such as mortgagees or guarantors may apply for relief from forfeiture, and again the court has discretion whether to grant relief and if so, on what terms. 

Summary

Where the Tenant is in breach of a lease he should not bury his head in the sand. He should maintain an active dialogue with the Landlord and try to reach agreement on remedying the breaches. The response of the Landlord should alert the Tenant to the possibility of imminent forfeiture by changing the locks or court action, so the Tenant can take appropriate steps to protect his position and business.

The Tenant should always seek early legal advice.

Nigel Musgrove

Business and Litigation Solicitor
Tel: 0845 003 5639

Blog by Nigel Musgrove
Nigel has been providing dispute resolution advice as a solicitor for over 35 years. As well as advising SMEs and business owners on disputes he also offers a specialist licensing law service. View profile
Call Nigel on +44 (0)1285 847 001 or by email
This blog is not intended to constitute legal advice, nor is it intended to be a complete and authoritative statement of the law, and what we say might be out of date by the time you read it. You should always seek legal advice to confirm whether or how any information in this article applies to your particular situation. We offer a free telephone consultation to discuss your particular circumstances.

Comments

  • There are no comments for this page - click here to be the first

Need legal advice for your business? We can help

Directors

Directors
Practical advice and legal support for company owners and directors.

Disputes

Disputes
In dispute with a customer or supplier? Get practical advice and support.

Your legal advisor

Your legal advisor
Board level legal advice without the costs of an in-house lawyer.

Speak to a lawyer

Speak to a lawyer
Thank you. Your response is great, very straight to the point! Hopefully this will bring an end to the matter. I will certainly be recommending your services as I am very impressed with the prompt dealing of this matter.
Janet Burbidge

Get legal updates

Enter your email address to receive our monthly Blog Newsletter


We will keep your email safe in accordance with our privacy policy.

Get the FREE definitive guide to solving business disputes

Speak to a lawyer

Get legal updates

Enter your email address to receive our monthly Blog Newsletter
The Law Society
Top