Forfeiture, also known as “the right of re-entry”, is a way for a landlord to end the term of a lease early due to breach of covenant such as non-payment of rent or other breaches of specific lease terms.
The right must be expressly reserved within the lease by way of a forfeiture or a right of re-entry clause. This clause will outline the specific breaches that will give the landlord the right to forfeit the lease. The landlord will be permitted to re-enter the property and bring the lease to an end once the tenant has been in breach for a specified period of time – typically somewhere from 7 to 21 days.
The use of forfeiture allows landlords to take back possession of the property but must be exercised carefully to avoid the tenant making a claim for unlawful forfeiture. It is important to note that forfeiture of the lease does not release the tenant of any existing liability, as landlords can still pursue the tenant for arrears and/or other breaches of covenant once the lease has been forfeited.
My lease doesn’t contain an express right to forfeit, what options do I have?
There is also an implied right to forfeit but this applies in limited circumstances where the tenant breaches a fundamental condition of the lease, such as non-payment of rent. Landlords will need to take specialist advice from a property litigator if the lease does not contain an express right to re-enter.
Forfeiture for non-payment of rent
If the lease is being forfeited due to non-payment of rent, then the landlord is not required to give the tenant advance notice they they’re exercising the right to re-enter. Giving advance notice could result in the tenant making a tactical payment of the arrears to prevent the forfeiture – which simply kicks the can down the road, so to speak.
Where the right to forfeit has arisen due to non-payment of rent, care must be taken by the landlord not to waive the right to forfeit, which is discussed further below.
Forfeiture for other breaches
If the landlord is forfeiting the lease for a breach other than non-payment of rent, then a section 146 notice must first be served on the tenant outlining the details of the breach and a reasonable timeframe within which the tenant must remedy the breach. If the tenant does not comply with the notice and remedy the breach, then the right to re-enter will arise.
Forfeiture due to an insolvency event
The right to re-enter is also often triggered by the insolvency of the tenant. The circumstances that are deemed to be an insolvency event will be defined in the lease and, once they occur, the landlord is able to re-enter, bring the lease to an end and re-market the property rather than waiting for the lease to be disclaimed.
How does forfeiture take place?
Forfeiture is often completed by re-entering the property and changing the locks outside of the tenants usual business hours. Often bailiffs are instructed to do this to ensure the re-entry is peaceable.
Can the right to forfeit be waived?
A landlord’s right to forfeit can be waived i.e. lost, which is why it’s so important to be careful and follow the right steps. Many landlords waive their right to forfeit without realising and this leaves them with far less options.
Any conduct that could be construed as treating the lease as continuing can waive the right to forfeit the lease, this includes accepting and demanding rent, as well as using Commercial Rent Arrears Recovery. If the tenant continues to make payments of rent following the breach, landlords must be careful not to accept this or they may have waived their right to forfeit the lease.
Can a lease that is forfeited be reinstated?
When a lease is forfeited, the tenant can remedy the breach and apply to the court for relief from forfeiture within 6 months of the date of forfeiture – only the court has the discretion to grant this relief, it cannot be agreed between the parties. If relief is granted, then the lease will be restored as though the forfeiture had never taken place.
If the forfeiture was due to non-payment of rent for example, the tenant can pay all the arrears and then apply to the court for the lease to be reinstated.
Landlords should therefore proceed with caution when granting new leases of their premises where there is an ongoing or anticipated relief from forfeiture application. If the original lease is reinstated, it will become the headlease of any subsequent leases granted and the new tenant could make a claim for damages from the landlord.
Do not waive the right to forfeit.
If you are a landlord considering forfeiting a lease, early advice is essential in ensuring that you do not waive the right to forfeit. If you are a tenant who is struggling to pay their rent or who is in breach of other lease covenants, then early advice is key to ensuring business continuity.
For any questions or further advice, please speak with one of our Real Estate Litigation solicitors today by calling 0800 118 1500 or filling out an enquiry form below.
Disclaimer
The contents of this blog or any other published by Talbots Law cannot be considered as legal advice. You should take no action without prior consultation with a qualified solicitor or legal professional. The contents of this blog refers to the process in England and Wales.