What is forfeiture of commercial lease?

In the legal framework of England and Wales, the forfeiture of a commercial lease represents a critical right for landlords. It allows them to terminate a lease and regain possession of the property before its contractual end date if the tenant has breached the contract .

Forfeiture of commercial lease serves as a powerful tool to enforce lease terms. However, it comes with stringent legal requirements and procedures to balance the interests of both landlords and tenants. Understanding the intricacies of forfeiture is essential for both parties to navigate their rights and obligations effectively under the law.

Legal grounds for forfeiture of commercial lease

Forfeiture can be initiated under several circumstances, most commonly due to a breach of lease conditions by the tenant. The most frequent ground for forfeiture is the non-payment of rent. In these circumstances, even a single day’s delay can potentially trigger this drastic measure.

Other grounds for forfeiture of commercial lease include breaches of repair obligations, illegal or unauthorised use of the property, breach of covenant and insolvency of the tenant.

However, the right to forfeit is not absolute. It must be expressly stated within the lease agreement, underpinned by the relevant provisions of the Law of Property Act 1925 and the Landlord and Tenant Act 1954, among others.

If you are a commercial landlord or tenant of a commercial property, it is important that you check your lease to find out if the right of forfeiture of the lease is included within the terms.

The forfeiture process

Serving a Section 146 Notice

Before proceeding with forfeiture for breaches other than non-payment of rent, landlords must serve a Section 146 notice. This notice must specify the particular breach, provide a reasonable time for its remedy (if applicable), and demand compensation for the breach. This is a prerequisite for lawful forfeiture on such grounds, ensuring tenants have an opportunity to rectify the situation.

Peaceable Re-entry

If a tenant does not pay rent, the effectively forfeit the terms of the lease. For non-payment of rent, landlords may exercise the right to peaceably re-enter the property. This entails physically reclaiming the property without court proceedings, provided no violence is used. This method is swift but carries legal and practical risks, including potential claims of unlawful eviction or trespass if not executed correctly.

Court Proceedings for Forfeiture

Alternatively, landlords may seek a court order to forfeit the lease. This route is safer but more time-consuming and costly. It is necessary when peaceable re-entry is not possible or when the lease breach involves complex legal issues.

Tenant’s relief from forfeiture of commercial lease

Tenants have the right to apply to the court for relief from forfeiture. This discretion is exercised by courts to prevent the forfeiture or reinstate the lease under certain conditions.

Applications should be made promptly, and the tenant will usually need to remedy the breach and cover the landlord’s costs.

The first step for a tenant is to fully understand the nature of the breach. This involves reviewing the lease agreement, any related correspondence from the landlord, and the legal obligations it entails. Understanding the breach’s specifics is essential for determining the appropriate remedy.

Remedying Specific Breaches

Non-payment of Rent

• Immediate payment: The simplest remedy for non-payment of rent is to pay the outstanding rent arrears, including any interest and legal costs incurred due to the delay. This action often resolves the breach straightforwardly.
• Negotiation for payment plans: If immediate payment is not feasible, negotiating a payment plan with the landlord can be a viable alternative. Such arrangements should be made in writing and might involve partial payments over a specified period.

Failure to Repair

• Conduct repairs promptly: For breaches related to disrepair or failure to maintain the property, the tenant should undertake the necessary repairs as soon as possible. Obtaining quotes from reputable contractors and informing the landlord of the intended works is advisable.

Documenting repairs: Keeping a detailed record of the repairs, including photographs before and after the work, receipts, and any correspondence with contractors, is crucial. This documentation can provide evidence of compliance with the lease terms.

Unauthorised use of premises

• Cease the unauthorised use: If the breach involves unauthorised use of the premises, the tenant must cease this use immediately. This might involve ending a subletting arrangement that violates the lease or discontinuing a prohibited business activity.
• Seek formal consent for changes: Should the tenant wish to continue the activity that led to the breach, they must seek formal consent from the landlord. This usually requires a variation to the lease terms, which should be documented in writing.

Consequences of forfeiture

For landlords, forfeiture allows the recovery of possession and the potential to re-let the property to a new tenant. However, it may also result in vacancies, legal costs, and loss of rental income during the interim.

For tenants, forfeiture means eviction and the loss of their business premises. It may also include liabilities for breach of lease and legal costs. Despite these harsh consequences, the law offers tenants a chance for relief. This balances the enforcement of lease obligations with protection against undue hardship.

How can ARC Costs assist?

ARC Costs have a network of solicitors who can provide advice and assistance on forfeiture of commercial lease.

In addition to introducing you to a solicitor, we can also assist in the recovery and negotiation of legal costs in land and property dispute cases, whether you are the paying or receiving party.

ARC Costs are highly experienced in advising and assisting with costs issues and disputes in different areas of law. As Costs Draftsman and Costs Lawyers, we can assist in your Commercial Litigation Costs issues.

If a costs award has been made, allowing you to recover costs from your opponent, we can assist with preparing a Bill of Costs on your behalf to ensure maximum recoverability.

We can also assist in Costs Negotiations and represent you at detailed assessment proceedings which can determine the amount of costs you may be able to recover.

If you have been ordered to pay costs to your opponent, we can assist in disputing costs which may be sought and which you may deem to be excessive and unreasonable. We can do this by way of preparation of  Points of Dispute and also through negotiations to ensure you will only pay for costs which are reasonably incurred and not exaggerated.

Should you wish to discuss your costs query with us, please contact us on 01204 397302 or via email at info@arccosts.co.uk. Alternatively, you can complete our online query form and we will contact you to discuss your query further. We can provide expert legal advice on costs in our free, no obligation initial consultation.

We may receive payments from third party solicitors on our panel to whom we may refer your claim. We will never charge you for any referrals made to our panel of third parties.