In the current economic climate, it is not uncommon for tenants to struggle with rent payments and fall into arrears. For landlords, this situation can be challenging and may require decisive action. One option available for landlords is the forfeiture of a commercial lease — a legal process allowing them to regain control of their property when tenants breach lease terms.
Eleanor Longworth, Associate Director from Woodcocks Haworth and Nuttal Solicitors’ commercial property team, explores how to forfeit a commercial lease, the legal considerations involved, landlords’ rights, and what can be done to retake control of the property.
Landlords’ Remedies When a Tenant Has Not Paid Rent
Landlords have a number of potential remedies available to them if their tenant has not paid rent. These include debt recovery proceedings, exercising CRAR (Commercial Rent Arrears Recovery), drawing down on rent deposits, potentially turning to former tenants and guarantors, or forfeiting a lease.
Leases commonly enable the landlord to forfeit and re-enter the premises under certain circumstances, including:
- Non-Payment of Rent: When the tenant fails to meet their rent obligations within the agreed timeframe.
- Breach of Lease Terms: Such as unauthorised alterations, breach of the permitted use, or subletting without consent..
- Insolvency: Events including tenant bankruptcy, liquidation, or administration.
Forfeiture of lease is often viewed as the most decisive remedy but can be complex due to strict legal requirements. Failure to follow correct procedures as per the lease could lead to forfeiture being wrongful and lead to disputes.
Other breaches
For breaches other than non-payment of rent, a Section 146 notice under the Law of Property Act 1925 is usually required, before forfeiture of a commercial lease comes into effect. This notice informs the tenant of the breach, and provides an opportunity to remedy it.
In summary, Section 146 notice must:
- Specify the breach of the lease.
- Require the tenant to remedy the breach (if it can be remedied).
- Require the tenant to pay compensation if appropriate.
There are procedural restrictions on the right to forfeit, particularly for breaches relating to disrepair. Additional requirements may apply, and landlords should seek legal advice to ensure compliance.
Methods of Lease Forfeiture For Commercial Property
When dealing with commercial premises, landlords have two primary options for the forfeiture of a commercial lease: forfeiture by peaceable re-entry or by issuing court proceedings. Each method comes with distinct legal considerations, and understanding the nuances can help landlords navigate the process more effectively while ensuring compliance with legal obligations.
The primary methods of commercial lease forfeiture to consider are:
Peaceable Re-Entry
Peaceable re-entry is a method of forfeiture of a commercial lease that allows landlords to physically re-enter the property and change the locks without involving the court.
Once the right to forfeiture has arisen under the lease, it is one of the most straightforward approaches when considering how to forfeit a commercial lease.
However, landlords must be cautious. Peaceable re-entry should not be undertaken if the premises are mixed use and there are residential occupiers. It can result in a criminal offence being committed. Likewise, it is a criminal offence if violence is used and there is someone at the premises opposing re-entry.
Bailiffs are commonly instructed to act on behalf of the landlord and will typically attend outside of business hours, to reduce the risk of issues arising.
Court Proceedings
If peaceable re-entry is not possible — for example, because there is residential occupation, or in more complex cases, where a dispute has arisen and the landlord wishes to take a cautious approach — court proceedings may be the most appropriate route. This approach allows the landlord to seek a formal possession order through the courts, which can in turn offer greater legal clarity and protection in contentious situations.
While typically more time-consuming than peaceable re-entry, court proceedings may be necessary if there are complications such as subtenants, contested breach, or if the landlord wishes to minimise the risk of unlawful forfeiture claims. The process will usually involve issuing a claim for possession and presenting evidence of the lease breach before a judge. If successful, an order will be issued permitting the landlord to regain possession.
Given the potential legal and financial implications, landlords are strongly advised to seek legal advice before pursuing this option.
Considerations and Risks
The forfeiture of a commercial lease can be a complex process, and landlords must be aware of the necessary procedures as well as any restrictions before retaking possession. If the correct process is not followed, landlords could be vulnerable to injunctive proceedings and damages claims.
Risks of forfeiture include:
- Legal Disputes: Tenants may challenge a wrongful forfeiture, leading to costly legal battles.
- Relief Applications: Tenants or third parties with an interest in a lease can apply for relief from forfeiture. This means that landlords are not guaranteed to get the property back.
- Loss of Rental Income: The property may remain vacant for an extended period.
- Business Rates and Utilities Liability: The landlord will be responsible for payment of rates and utilities, once the lease has been forfeited.
- Duties Regarding Tenant Goods: The tenant will be entitled to collect any goods that remain in the premises. The landlord cannot simply dispose of them and owes duties in relation to them. This can be burdensome for the landlord.
- Damage to Reputation: Heavy-handed tactics can harm a landlord’s reputation, particularly in industries with a close-knit business community.
Given the complexities, understanding the procedure for landlord forfeiture of a commercial lease and the associated risks is crucial to avoiding costly pitfalls.
Can I Change My Mind Once I Have Forfeited?
Once landlord forfeiture of lease occurs, it is generally irrevocable. The lease will have come to an end, and if the tenant does not want the property back, the landlord will be left with a vacant property. Landlords must therefore consider carefully whether forfeiture of a commercial lease is the best course of action.
If both the landlord and tenant agree that the tenant can remain, it’s not as simple as just letting the tenant back into the property. Generally, a new lease will need to be created.. If the landlord does not make sure that the basis of occupation is formally re-documented, they may face a whole host of issues.. For example, there may be a dispute in relation to the terms of the new lease and the tenant may have gained security of tenure — meaning that they would have the right to remain in the property when the new lease expires, whenever that may be. This can severely limit the landlord’s control over future leasing decisions.
As a Landlord, am I Guaranteed to Get the Property Back Once I Forfeit the Lease?
Unfortunately, landlords are not guaranteed to regain possession once the lease is forfeited. A tenant or a third party with an interest in the property, such as a sub-tenant, or mortgagee can apply to the court for relief from forfeiture of a commercial lease, either in response to the landlord’s claim or by bringing their own standalone claim.
If the court grants relief, the lease may be reinstated. Relief could be granted under specific conditions, such as the payment of money to the landlord or actions being undertaken within a set period of time. The court typically considers factors such as:
- The severity of the breach
- Tenant history of compliance with the lease
- What steps the tenant has taken to attempt to remedy the breach
In cases of non-payment of rent, relief is commonly granted if the tenant pays the arrears, interest, and costs incurred by the landlord in connection with the forfeiture.
Landlords must be prepared for the possibility of such claims and seek expert advice to protect their interests. For more information, see our article on the benefits and limitations of forfeiting a commercial property lease.
Protect Your Property with Expert Legal Guidance
Forfeiture of a commercial lease is a powerful tool for landlords, but navigating the process requires a thorough understanding of the legal complexities involved. Whether you are considering peaceable re-entry or court proceedings, taking the correct steps is crucial to protect your rights and avoid costly disputes.
At Woodcocks Haworth and Nuttall Solicitors, our commercial property experts can guide you through every stage of landlord forfeiture of lease, helping you make informed decisions and regain control of your property smoothly and legally.
For more information on forfeiture, contact Eleanor Longworth on 0161 761 4611 or email Eleanor: eleanor.longworth@whnsolicitors.co.uk
