Forfeiture in commercial leases

Forfeiture is a legal process enabling landlords to terminate a commercial lease early due to the tenant’s failure to comply with lease terms.

Under the law of England and Wales, forfeiture represents a critical remedy for landlords, allowing them to repossess their property in the event of specific breaches by a commercial tenant. the most common reason for forfeiture is non-payment of rent.

This mechanism is usually included in the lease itself and is backed by statutory provisions. This offers a balance between the rights of landlords to protect their commercial property and the operational security of businesses leasing commercial premises.

However, recognising the potential severity of forfeiture on a business, the law provides a relief mechanism for tenants. This affords them an opportunity to rectify breaches and seek to continue the lease under specific conditions.

Grounds for forfeiture

The grounds for forfeiting a lease typically revolve around the violation of the terms of the lease. The most common cause is the non-payment of rent. In these circumstances, landlords have the right of peaceable re-entry. This means they can enter the premises if rent remains unpaid, typically for a specified period after becoming due.

Other grounds for forfeiture include breach of other lease covenants, such as failing to maintain the property in a good state of repair, unauthorised use of the property, or subletting without permission.

Insolvency of the tenant can also trigger forfeiture. Each ground for forfeiture activates the landlord’s right to take legal action to repossess the property, underlining the importance of tenants adhering strictly to lease terms.

A landlord must serve a Section 146 notice on a tenant before proceeding with forfeiture of the commercial lease.

Relief from forfeiture commercial lease: Legal framework

In England and Wales, the legal framework for relief from forfeiture is rooted in both statutory law and case law. It provides a safety net for tenants facing the harsh consequence of losing their lease.

The primary statutes offering relief are the Law of Property Act 1925 and the Common Law Procedure Act 1852, alongside provisions in the County Courts Act 1984 for smaller claims.

These laws allow the courts to grant relief from forfeiture for breaches other than non-payment of rent, underlining the court’s discretion based on the specifics of each case.

For cases on non-payment of rent, landlords can re-enter the property. It is important to note that a landlord may waive their right to forfeit by performing specific actions, such as carrying out repairs on the property.

The criteria for granting relief generally consider the nature of the breach, the tenant’s conduct, and the overall fairness of the situation.

Case law, such as the landmark decision in Shiloh Spinners Ltd v Harding (1973), emphasises the importance of the tenant’s prompt action to remedy the breach and negotiate with the landlord.

In this case, the courts examined the principles surrounding relief from forfeiture for breach of covenant in a lease, outside of non-payment of rent.

Shiloh Spinners Ltd occupied premises under a lease. The dispute arose over a covenant in the lease agreement, leading to the landlord, Harding, taking steps towards forfeiture of the lease. Shiloh Spinners Ltd made an application for relief from forfeiture, arguing that the breach of covenant was remediable and that they had taken steps to remedy the breach.

The case reached the Court of Appeal, where several key principles were reaffirmed and clarified:

• Discretion of the Court: The case highlighted the discretionary power of the court to grant relief from forfeiture for breaches of covenant in a lease, aside from the non-payment of rent. This discretion is exercised based on the circumstances of each case, considering factors such as the nature of the breach and the tenant’s conduct.
• Nature of the breach: The Court of Appeal emphasised the distinction between breaches that are remediable and those that are not. In the case of remediable breaches, the court is more inclined to grant relief, especially if the tenant has taken steps to remedy the breach or has shown a genuine intention to do so.
• Equitable considerations: The court also considered equitable factors, such as fairness and the conduct of both parties. The decision underscored the importance of equity in decisions on relief from forfeiture, ensuring that the outcome is just and reasonable for both the landlord and the tenant.
• Importance of prompt action: The case stressed the importance of tenants taking prompt action to remedy any breaches. Prompt and sincere efforts to address the breach play a crucial role in the court’s decision to grant relief.

Applying for relief from forfeiture commercial lease

The process of applying for relief from forfeiture involves several critical steps, typically initiated by the tenant once forfeiture has occurred or is imminent:

• Legal advice: Obtaining legal advice is crucial to understand the grounds of forfeiture and the appropriateness of applying for relief.
• Application to Court: The tenant must apply to the court for relief. This application can be made in the High Court or County Court, depending on the lease’s value.
• Documentation and evidence: Submitting evidence of the breach’s remedy or a compelling plan to rectify the issue is essential. This might include proof of payment, repair schedules, or other relevant documents.
• Hearing: During the court hearing, both parties can present their case. The tenant needs to demonstrate their commitment to rectifying the breach and their ability to continue fulfilling the lease terms.
• Court decision: The court’s decision will consider the breach’s seriousness, the tenant’s actions to remedy the breach, and the overall fairness. If relief is granted, the court will set conditions, such as payment of outstanding rent and legal costs.

Considerations and limitations

When considering relief from forfeiture, the courts weigh several factors, including the tenant’s promptness in addressing the breach, the behaviour of both parties, and the lease’s terms. Importantly, the court seeks to ensure fairness and balance between enforcing lease terms and protecting businesses from undue hardship.

However, relief from forfeiture is not guaranteed. Limitations exist, such as time limits for applying for relief (generally within six months for non-payment of rent). Moreover, repetitive breaches by the tenant or severe violations can influence the court’s willingness to grant relief, emphasising the need

How can ARC Costs assist with relief from forfeiture (commercial lease)?

ARC Costs have a network of solicitors who can provide advice and assistance on relief from forfeiture (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.

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