Forfeiture of a Commercial Lease Guide for Landlords

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Emilene LucasLegal Assessment Team Supervisor
Updated on 30th April 2024

When a landlord needs to evict a commercial tenant and regain access to their property by ending a lease, they can consider commercial forfeiture.

forfeiture-of-a-commercial-lease-guide-for-landlords

This guide provides landlords with insights into the forfeiture of commercial leases, including legal procedures, implications, and best practices.

However, forfeiture carries risks for landlords, so careful consideration is essential. It's always wise to consult with an experienced commercial property solicitor to discuss your circumstances before taking action.

What is the forfeiture of a commercial lease?

Forfeiture of a commercial lease is when a landlord uses their legal right to terminate the lease and reclaim possession of the property from the tenants.

This right is typically outlined in the commercial lease agreement and must be clearly stated in plain language to be legally enforceable.

When can a landlord forfeit a commercial lease?

Forfeiture becomes an option for a landlord when a tenant breaches the terms of their lease. The procedure for forfeiture varies based on the lease's specifics and the reason behind the landlord's decision.

Common scenarios that bring about forfeiture include non-payment of rent or repeated breaches of tenant obligations outlined in the lease. These breaches might involve neglecting property maintenance, unauthorised use of the premises, or subletting without permission.

Additionally, landlords may consider forfeiture when a tenant faces insolvency, such as when a creditor initiates a winding-up petition against them.

Can you terminate a lease without a forfeiture clause?

No, a landlord can only terminate a tenancy through forfeiture if there's an explicit right outlined in the lease.

This right is typically detailed in a forfeiture clause, which lets the landlord end the tenancy if the tenant breaches certain lease terms.

What notice does a landlord provide to terminate a commercial lease?

Under section 146 of the Law of Property Act 1925, the landlord must notify the tenant of any breaches of covenant, allowing a reasonable period for the tenant to address the breach if it's fixable.

The notice doesn't need to specify a precise timeframe for this and may also require the tenant to compensate the landlord for the breach.

Landlords can't forfeit the lease until a reasonable time has passed since the notice was issued, allowing the tenant to rectify the breach. However, an exception applies in cases of rent arrears.

How to serve notice of forfeiture for a commercial lease

To initiate the forfeiture process for a commercial lease, the landlord must follow the statutory guidelines. This involves serving a Section 146 notice to the tenant, notifying them of a breach of the lease terms, and requesting remedy if possible.

Once the notice has been served and the tenant has been given reasonable time to rectify the breach without success, the landlord gains the right to proceed with the forfeiture of the lease.

What is the procedure to forfeit a commercial lease?

There are two main methods of forfeiture of a lease available to a commercial landlord:

  • Peaceable re-entry – the landlord enters the property and changes the locks

  • Court proceedings – a landlord issues proceedings for the forfeiture of the lease. The lease ends when the proceedings are served.

Can a lease be forfeited by peaceable re-entry?

Peaceable re-entry involves regaining physical possession of a property, often by changing the locks. In this context, "peaceable" means that while a landlord can use reasonable force to secure entry, excessive force is illegal, as is using force against a person, such as a tenant.

To execute peaceable re-entry effectively, the landlord should show they have regained possession by changing locks and blocking access to open areas.

Regaining entry to a commercial property can be challenging due to these requirements, so landlords often opt to do so outside of business hours when tenants are likely absent or use certified bailiffs.

Once possession is regained, landlords typically post a clear notice on the property. While there are no specific legal requirements for this notice, it commonly includes:

  • A statement informing the tenant that the lease has been forfeited due to the landlord taking possession.

  • Reference to the lease clause granting the landlord the right to forfeit.

  • A warning that unauthorised entry is a criminal offense.

  • Contact details for the landlord or their representative.

Possible alternatives to forfeiting a commercial lease

When a landlord prefers not to forfeit a lease, especially due to non-payment of rent, several alternatives are available:

  1. Negotiating with the tenant to find a compromise and resolve the issue amicably.

  2. Using security measures like deposits or guarantees to recover lost rent.

  3. Pursuing legal action through county courts to recover debts.

  4. Issuing a formal notice, such as a statutory demand, which alerts the tenant of potential winding-up petitions or bankruptcy.

  5. Using the Commercial Rent Arrears Recovery (CRAR) process to recover outstanding rent.

For breaches unrelated to rent, such as unauthorised alterations, alternative options include filing a claim in the county court to seek damages.

What is relief from forfeiture of a commercial property?

Relief from forfeiture refers to compensation provided to tenants if a landlord wrongfully enforces their right to forfeiture.

Tenants may be entitled to:

  • An injunction allowing them to re-enter the property.

  • A declaration stating that the forfeiture was wrongful.

  • Damages for trespass by the landlord, loss of profit during the period the tenant couldn't trade, and breaching the tenant's right to quiet enjoyment.

What is a waiver of forfeiture in a commercial lease?

A waiver of forfeiture happens when a landlord unintentionally gives up their right to terminate a lease. This happens if the landlord takes actions that acknowledge a breach of the lease without taking any steps to address it.

Typically, forfeiture clauses include a grace period during which rent cannot be paid. Once this period expires, the landlord gains the right to terminate the lease. However, the landlord can waive this right by demanding or accepting rent during the grace period.

Additionally, having discussions with the tenant after the grace period has ended can also unintentionally waive the right to forfeiture.

Get expert advice from Lawhive

If you're a landlord seeking to reclaim possession of your property, our network of commercial property lawyers is here to offer expert guidance on the forfeiture of a commercial lease.

We provide quick and affordable legal help with fixed fees, ensuring compliance with the law and maximising your chances of success.

Contact our Legal Assessment Team today to learn more and receive a fixed fee quote for the services of an expert lawyer.

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