Posted: Tuesday, 31 May 2011 @ 10:18
What is Forfeiture? Forfeiture is the landlord’s right to re-enter business premises and bring a lease to an end. In general a lease can be forfeited where the tenant does not pay the rent, breaches the other terms of the lease or becomes insolvent.
Forfeiture is a powerful tool for landlords to use where they wish to remove a tenant and terminate the lease. Tenants should note that the right to forfeit can only be exercised by the landlord if it is specifically referred to in the lease.
Before a landlord proceeds to forfeit the lease, he should consider the consequences of doing so. In a rising market the landlord should have little difficulty in re-letting the premises and possibly at a higher rent. However, in recent times where we have been faced with a falling market re-letting premises is not so easy. As forfeiture releases the tenant from any future (not past) liability, the landlord may be left with empty premises for a long time and will have to maintain the property and, after the relevant relief has been exhausted, have to pay business rates. This would have a detrimental effect on the value. For these reasons a landlord may wish to consider other methods of recovering the arrears of rent before going ahead and forfeiting a lease. Cousins Business Law can advise on the best course of action for landlords in these circumstances and tenants looking to avoid forfeiture.
In our experience during these recent difficult times landlords should certainly be proactive in checking the trading position of their tenants. Forfeiture should definitely be considered if it seems likely the tenant could soon go out of business as the landlords options are greatly diminished if the tenant goes into administration, for example.
The right of forfeiture is enforced by the landlord in one of two ways:
1. The landlord may “peaceably” re-enter the premises; or
2. The landlord may issue proceedings for a court order
In practice some landlords are reluctant to use the first method as a criminal offence will be committed if force is used or threatened and the landlord knew there was someone on the premises opposed to the re-entry. For that reason, landlords choosing this method should use licensed bailiffs rather than forfeit the lease personally. Landlords should also be aware that further restrictions apply where the property is being used as a residential dwelling.
Landlords intending to forfeit a lease must also be careful not to waive this right, either by express actions or implied from their conduct. In simple terms waiver occurs where a landlord, knowing of the breach, does some act which acknowledges the continued existence of the lease. An example of waiving the right to forfeit would be a demand for rent being sent to the tenant after the breach of the lease has taken place. Landlords wanting to terminate the lease in this way must also ensure the managing agent does not do anything that may waive the right. The loss of the right to forfeit the lease does not affect the landlords other remedies.
Where the landlord wants to forfeit a lease for any breach of the lease other than non payment of rent e.g. subletting without consent, the landlord must first of all serve a formal notice on the tenant specifying the breach and requiring it to be remedied within a reasonable time. Only after this period has expired can the landlord go ahead and forfeit the lease.
Finally landlords should note that even after a lease has been forfeited, the tenant can apply to the court for ‘relief from forfeiture’ usually within a maximum period of 6 months. If the tenant then pays all of the rent arrears and other costs the forfeiture can be set aside and the lease may continue as before.
Both landlords and tenants will appreciate that forfeiture of a lease is a complicated area and rife with pitfalls for the unwary. Owners and occupiers of business premises should therefore definitely seek our advice before deciding to terminate a lease in this way.
Steve Petty
Commercial Property Solicitor
01926 629 005
For free advice on this topic please call us on 0845 003 5639.
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.