Article
12 mins read
Updated on 15 May 2024
Our subject expert
Rachel Jones
Partner - Commercial Property
Forfeiture is a legal right that allows landlords to terminate a commercial lease early when a tenant breaches key terms, such as falling behind on rent or failing to meet other obligations. It’s a powerful remedy, but it must be handled carefully to avoid legal pitfalls, delays, or even claims for wrongful forfeiture.
If you’re reading this because a forfeiture issue has arisen with your commercial lease, our commercial property dispute solicitors can help. Whether you’re a landlord looking to regain possession, or a tenant at risk of losing your premises, we’ll explain your options and guide you through the process to protect your position and avoid costly mistakes.
Forfeiture of a lease is a process by which a landlord exercises a right to terminate a lease. This is also sometime referred to as ‘re-entry’.
A lease can be forfeited:
Before forfeiting a lease, a landlord should ask itself:
This often depends on the reason for eviction, and whether the forfeiture is contested or disputed. For straightforward cases where the tenant is in clear breach of the lease for non-payment of rent and notice is not required, the process has been known to take as little as a few days. Where serving formal notice is required, the tenant seeks relief from forfeiture, and court proceedings ensue – it may take several months.
If the breach relates to non-payment of rent, the landlord is under no obligation to give notice to forfeit the lease.
The situation is different for breach of other covenants under the lease by the tenant. The landlord must follow the correct statutory procedure, serving formal notice (known as a section 146 notice) on the tenant. The notice should specify details of the breach and allow a reasonable timeframe to rectify it (or provide monetary compensation). The notice itself must be served by the specific notice provisions outlined in the lease. If the tenant then fails to remedy the breach, the landlord can peaceably re-enter the property and forfeit the lease.
A lease can be forfeited by a landlord by a process referred to as ‘peaceable re-entry’, or by obtaining an order from the court.
Peaceable re-entry, in short, is the act of regaining physical possession of the property. The term ‘peaceable’ is by reference to the person and not necessarily the property which is the subject of the lease. A landlord may use some force (against the property) to exercise its right of re-entry. This force should not be excessive. It is a criminal offence to use violence to gain re-entry if there is someone at the property and they object to the re-entry.
A landlord needs to ensure that, in regaining possession, its acts are unmistakable. Commonly this will include precluding re-entry by the tenant (changing the locks) and blocking access to open areas to the extent possible.
Due to the difficulties from a practical perspective in securing re-entry as outlined above, it is normal in commercial property for this to take place outside business hours where it is more likely that the property will be empty.
A landlord may wish to instruct a certified bailiff to carry out re-entry on the landlord’s behalf.
Once re-entry has taken place, the landlord should ensure that a clear and visible notice is in place on the property. There is no specific form of notice provided under law, but it is sensible to include the following:
If a landlord decides to start proceedings for forfeiture, although this is a clear statement of the landlord’s intentions to regain the property, the lease will only terminate when the court makes an order for possession (if it does), albeit it will apply retroactively.
The civil procedure rules set out specific procedures for applying to court for a forfeiture order. The procedures vary depending on whether the property is a commercial or residential property.
Speak to our commercial property solicitors if you need practical legal advice on drafting, negotiating or terminating a lease agreement.
A right of forfeiture may only be exercised if it is expressly provided for within the lease. The exception to this is that the landlord may have an ‘implied’ right where the tenant has breached a condition (a fundamental requirement of the contract). This includes a non-payment of rent, assuming that payment of rent is a condition of the lease (which would normally be the case).
Forfeiture of a lease for non-payment of rent can be affected in the normal way (by peaceful re-entry or a court order).
A landlord should be aware that:
If a tenant is struggling with cash flow, an alternative may be for the landlord to consider a concession arrangement allowing the tenant to make commercial lease payments monthly, instead of quarterly.
A covenant is a term given to obligations within an agreement, and under a lease are normally given by a tenant.
In order for landlord to forfeit a lease based on a breach of covenant, the lease must specifically say that the landlord has such a right attaching to a breach of that covenant.
Most modern day leases provide that the landlord can forfeit the lease in the event of the tenant’s insolvency. The type of insolvency the tenant has entered has a direct impact on how a landlord can proceed. There are four main categories of company insolvency:
If a tenant company goes into administration, there is a complete stay of proceedings against the company while the administrator tries to rescue or realise assets for creditors. Landlords must seek permission from the court before commencing forfeiture proceedings in the event of a tenant company going into administration.
Forfeiture is available in cases of company voluntary arrangements, the landlords should refer to the terms of the arrangement before taking action.
In cases of receivership, and voluntary winding up - the landlord can effect forfeiture by peaceable re-entry or applying to the court. If a tenant company is subject to compulsory winding up, the Landlord must effect forfeiture before the winding up order is issued, otherwise he would need the court’s permission.
A landlord should be cautious not to do anything that might be deemed a waiver of rights where it is considering forfeiture. A waiver will exist where the landlord:
To limit risk, a landlord should take forfeiture action at the earliest opportunity.
A tenant will be required to show (to a court) that the landlord had knowledge of the breach and will need to provide evidence of this.
Accepting rent is a clear act of acknowledging the continuation of the lease and making the tenant aware of this.
Failing to check the lease: The lease must contain an express forfeiture clause to enable a landlord to forfeit the lease (it is not implied). The clause will also need to cover the alleged breach. Taking steps to forfeit the lease without checking that it contains the relevant clause can land landlords in trouble.
Not following the correct procedure: In the case of breach of covenant other than non-payment of rent, landlords must serve notice and allow a reasonable time for the tenant to remedy any breaches capable of remedy. Failing to provide notice in the first instance, or providing notice demanding an unrealistic timeframe to remedy the breach can cause issues for a landlord. Even where the breach seems incapable of remedy, notice must still be served. The notice must be given in the specific form set out in section 146 of the Law of Property Act 1925.
Recognising the continued existence of the lease: Many landlords unknowingly waive their right to reclaim possession of the property by acknowledging the continuity of the lease. This is more of a problem in what is known as ‘once and for all’ type breaches, which can be distinguished from a ‘continuing breach’. In the case of a continuing breach, a new right to forfeit the lease arises with each passing day the breach continues. A good example of this is where the tenant has failed to repair the property or keep it in good repair in accordance with their obligations under the lease. If the landlord is deemed to have waived the right to forfeit a once and for all type breach, such as the unlawful assignment or subletting of the lease, they will not be entitled to claim forfeiture unless and until the tenant breaches the terms of the lease again.
Failing to consider alternatives or financial implications: As tempting as it may be to reclaim your property from a breaching tenant, some landlords may overlook other options such as mediation or negotiation with the tenant, which can lead to a more amicable resolution. Landlords should also take into account the cost of legal proceedings, and potentially paying business rates on an empty property if the market is tough or in finding a suitable replacement. If the tenant has a claim for wrongful/illegal forfeiture (see below), the landlord may also be exposed to paying damages for loss of use of the premises, which can be substantial.
When a commercial lease is forfeited, any subtenant's right to occupy the premises is also terminated. This may seem unfair to a subtenant who then loses the premises through no fault of their own. There are certain protections in place for subtenants – the law allows subtenants to apply for relief of forfeiture (even where the tenant does not), provided they do so within six months of the date of the landlord taking possession. The court has wide discretion here and may allow the subtenant to take over the headlease (the first least between the landlord and the defaulting forfeited tenant).
It is possible for a tenant to present a claim for wrongful or illegal forfeiture. This may occur where the landlord attempts to forfeit, but no such right actually exists (yet or at all).
In bringing such a claim a tenant may seek an injunction to permit the tenant back into occupation and, also, a payment for any losses suffered.
Forfeiture is a term which relates specifically to a landlord’s right to recover possession of the property. The tenant may have certain rights to terminate a lease (for example, break clauses, termination on insolvency or under statute).
A tenant may be able to ask a court to provide it with relief from forfeiture (i.e. stop it from happening) and the court has the discretion to award this. An application may be made by a tenant immediately after the landlord has asserted forfeiture.
If relief is granted, the court will attempt to put the tenant back into the position it would have been in, had there not been forfeiture.
A landlord should consider the following after a lease has been forfeited:
A landlord may consider the following alternatives to forfeiting a lease where the reason for potential forfeiture is non-payment of rent:
Where the reason for potential forfeiture is an issue other than non-payment of rent, such as making alterations without consent, a landlord may consider:
To help pursue negotiations a landlord may benefit from working with our team of alternative dispute resolution solicitors.
Forfeiting a lease is considered to be a draconian step taken by the landlord to regain possession of the property and should be exercised carefully. While most modern-day leases contain forfeiture clauses, landlords should consult the terms of the lease at the earliest opportunity before moving forward. It is essential that formal notice procedures, if applicable, are complied with. Landlords should also be careful that they do not accidentally waive their right to forfeit by recognising the continued existence of the lease. Where a landlord successfully re-enters the property, the tenant may still apply to the court for relief of forfeiture.
If you are facing a situation where your commercial lease may be forfeited or if you are considering forfeiting a commercial lease, speak to our friendly commercial property solicitors today to understand your rights and obligations.
About our expert
Partner - Commercial Property
Rachel is a highly experienced commercial property lawyer, with more than 20 years’ experience advising businesses, lenders, investors and individuals on a wide range of real estate matters.
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