• 22 JUL 15
    Forfeiture of commercial property leases explained

    Forfeiture of commercial property leases explained

    Daniel Long, partner and head of commercial property dispute resolution at Woodcocks Haworth and Nuttall, explores the self-help remedy of forfeiture available to many landlords and its limitations.

    Many commercial property leases contain a clause meaning that the landlord is able to forfeit the lease in the event of a covenant breach on the part of the tenant. Depending on the type of breach, the procedure for forfeiting can be different but the objective is always to bring the lease to an end.

    Forfeiture will have the effect of terminating all of the tenant’s obligations under the lease and so landlords should think carefully before exercising a right of re-entry. There will be occasions where a breach is so serious that the landlord simply wants shut of the tenant.

    You may think that once a landlord has forfeited the lease, it is game over for the tenant, but while this is often the case, landlords need to be wary of the discretionary remedy of relief from forfeiture which is available to tenants.

    Relief from forfeiture simply puts both parties back into the position they were in if the lease had never been forfeited. For example if the breach relates to payment of rent, a tenant may be granted relief from forfeiture if they bring the rent up to date and pay the landlord’s costs.

    The 2015 Court of Appeal case of Magnic Ltd v Ul-Hassan and Anor considers the relevant factors the courts will take into account when deciding whether to grant relief from forfeiture.

    In the case of Magnic, the tenant had failed to comply with certain planning conditions in breach of the lease so the landlord forfeited. The court initially granted relief from forfeiture on the condition that the tenant ceased business by a given date, but the tenant did not comply with that condition so the court held that the lease was forfeited.

    The tenant then appealed to the Court of Appeal which took into account the tenant’s reasons for non-compliance, whether the conduct was deliberate and whether the damage suffered by the landlord was proportionate to the disadvantage the tenant would suffer by not being granted relief. The court decided that it would be unjust for the tenant to be deprived of the property so the tenant was granted relief.

    The Magnic case serves as a useful reminder to landlords that forfeiture is not always final and there are circumstances where the courts will exercise discretion in granting a tenant relief from forfeiture.

    It can be very frustrating for landlords when a tenant is granted relief from forfeiture even though if relief is granted, it will usually mean that the breach has been remedied and the landlord’s costs have been paid.

    Landlords should always be wary of a tenant’s ability to apply for relief and the impact this may have on re-letting the premises. Equally, if tenants find that their lease has been forfeited but wish to continue trading from the premises, they should consider whether relief may be available.

    To find out more about forfeiture or any other landlord and tenant dispute, call Daniel Long on 0161 761 4611 or email daniel.long@whnsolicitors.co.uk