A tenant’s lifeline
Sometimes Commercial Tenants will find themselves locked out of their business premises due to the failure to pay rent on time or in circumstances where a tenant has perhaps not been able to meet the quarterly rent due to the economic climate.
Most commercial leases will have an express provision within them to enable a commercial landlord to take back possession of the premises and terminate the lease where the commercial tenant is in rent arrears for a specified period (usually 14 or 21 days). This is known as Forfeiture. This right must be expressly set out in the lease in order for a commercial landlord to exercise it.
A commercial landlord is able to forfeit a lease either by way of issuing court proceedings or, if possible, by peaceable re-entry (i.e changing the locks).
Where a commercial premises has been forfeited, the Landlord takes back possession of the premises, and the lease automatically comes to an end. However, all is not lost as the commercial tenant is thrown a lifeline in the sense that the law allows them to apply to the court for what is called “Relief from Forfeiture”. If successful, this will effectively restore the existing lease if the tenant complies with certain conditions, usually payment of the rent arrears and the Landlord’s legal costs.
How a Tenant goes about applying for relief from forfeiture depends on how the Landlord forfeited the lease, however it should be noted that a court order is necessary in order to obtain relief as opposed to the landlord simply agreeing to allow the tenant back in. In some instances, relief from forfeiture is automatic, but where relief is not automatic the court will take into account the following factors:
- The payment of the rent arrears and landlord’s costs of the forfeiture – forfeiture is merely security for the rent and so if rent and costs have been paid then generally the court is more likely to grant relief;
- Whether or not the Tenant has delayed in making the application and whether the application has been brought with “reasonable promptitude”;
- Whether the Landlord has renovated the premises since the forfeiture;
- Whether the Landlord has granted a new lease (unless they have granted it knowing there was an active application for relief);
- Whether the tenant has any reasonable prospect of paying the arrears in a reasonable time (in circumstances where they have not done so).
Any relief granted without application to the court will amount to the granting of a new lease and so to preserve and continue the existing lease, an application to the court has to be made. If a new lease is granted (as opposed to the existing lease being restored), unless the parties have expressly excluded security of tenure and have followed the contracting out procedure, the tenant will obtain security of tenure which could prove problematic for landlords who had originally intended for the security of tenure to be contracted out of.
If you are a commercial Landlord or Tenant looking for advice on forfeiture or relief from forfeiture then Talbots Law have a dedicated Property Litigation team who are able to advise accordingly. Please contact Josh Millichamp or call us on 0800 118 1500.