Five point guide: Forfeiture of commercial leases

Five point guide: Forfeiture of commercial leases

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The moratorium imposed on forfeiting leases for non-payment of rent, originally introduced under the Coronavirus Act 2020 has been finally lifted. This means, as long as the rent due is not now classified as “protected rent” by the Commercial Rent (Coronavirus) Act 2022 which came into effect on 24 March 2022, a landlord can now enforce its right to forfeit. This five point guide is intended to remind landlords of the basics if they seek to forfeit a lease for non-payment of rent only.

1. Check your lease

Forfeiture is a remedy that is commonly reserved as a right of re-entry in the lease. Most modern leases will contain a right to forfeit but landlords should nevertheless check their lease at the earliest opportunity. The terms of the lease will help identify exactly what steps you may need to take to effect forfeiture.

2. Grace periods and making sure that you do not waive your right to forfeit

Modern day forfeiture clauses will often say that the landlord has the right to re-enter if the rent remains unpaid for a certain number of days (called the “grace period”). This period commences with the day on which rent falls due and the right to forfeit arises as soon as the grace period ends.

Landlords who intend to forfeit a lease need to make sure they do not accidentally waive their right to forfeit. What may constitute waiver of a right to forfeit is a complex topic but generally a landlord who is aware of its right to forfeit and does some unequivocal act which recognises the continued existence of the tenancy waives its right to forfeit.

Most landlords, to avoid any potential arguments, should refrain from demanding or accepting rent or entering into any dialogue with their tenants, especially once the grace period has ended. 

3. Peaceable re-entry or court proceedings?

The landlord will need to consider whether it will effect forfeiture by either peaceable re-entry or court application.

Peaceable re-entry can be quicker and cheaper than court proceedings as it usually involves the landlord simply entering the property to take physical possession at a time when the tenant is unlikely to be present such as late at night or early morning. Where landlords are minded to forfeit in this way they should always do so with caution. If in doubt, landlords may wish to engage experienced bailiffs to assist in the process. It is important to note that this option is not available to landlords where residential property is involved.

Court proceedings are usually more appropriate if there is a potential for dispute over the sums owed or if peaceable re-entry is not possible.

4. Relief from forfeiture

Once the landlord has re-entered the property, caution should still be exercised. The tenant, subtenant or a mortgagee can apply to court for relief from forfeiture to reinstate the lease.

The courts have wide discretion when offering relief and will usually grant it if the tenant has applied promptly and pays the arrears. Whilst there is no definitive deadline a tenant is generally expected to apply for relief within six months. 

5. Additional burdens

Once a landlord has obtained possession of the property it will need to deal with the tenant’s fixtures and chattels, utility bills and possibly take steps to close existing Land Registry titles. If the tenant has left anything behind, the landlord should make a careful inventory and serve "torts notice" on the tenant to discharge its duty to keep the items safe. 

You should also carefully consider the merits of forfeiting before proceeding. Forfeiting a lease will end all future liabilities under the lease, including any guarantors and former tenants. It will also potentially expose you to empty rates liability if the premises cannot be re-let quickly. 

This note was prepared to provide general guidance to landlords wishing to forfeit their leases. Up to date legal advice should always be taken at an early stage before taking any action.

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