When a tenant is in breach of a covenant under a lease, there are a number of remedies available to the landlord. Which remedy is most suitable will depend on a number of factors such as what the breach is and what the landlord is looking to achieve.
Landlords need to take great care when looking to forfeit a lease as an unlawful forfeiture could lead to the tenant bringing a damages claim against the landlord. However, in the right circumstances, forfeiture can be the ultimate sanction.
Forfeiture is a way of bringing the lease to an end with a view to regaining possession of the demised premises with no compensation payable to tenants. This enables the premises to be used as the landlord sees fit and allows the landlord to re-let the premises to a tenant more likely to comply with the lease covenants. Forfeiture is not always the best remedy as it will often be better to have a defaulting tenant than no tenant at all. Commercial considerations such as the ability to re-let, the likely rent under a new lease and the responsibility for business rates need to be looked at.
The lease will need to contain an express clause providing the right to forfeit and the clause will need to cover the alleged breach. Where the tenant has fallen into arrears of rent this will usually entitle the landlord to forfeit the lease once the rent has been outstanding for a certain period of time. With other breaches, such as the breach of a covenant to repair, the landlord must first serve a section 146 notice which communicates the landlord’s intention to forfeit, specifies the breach and provides the tenant with a reasonable period of time to rectify the breach before forfeiting.
Sometimes, the landlord may be able to peaceably re-enter the premises without litigation. This is a quick and hassle free remedy where the landlord attends the premises usually with bailiffs and a locksmith and simply regains possession. Often it will be safer, however, to seek an order granting forfeiture through the courts.
Landlords seeking to rely on this remedy must take care not to waive the right to forfeit. An act of waiver is something which recognises the continuing existence of the lease and which is communicated to the tenant such as demanding or accepting rent or levying distress. This is less important with continuing breaches where the right to forfeit is likely to arise again but with ‘once and for all’ breaches, the right to forfeit can be lost until there is a further breach.
If you are a landlord, we will consider your options with you and make sure you follow the right steps if forfeiture is appropriate and makes commercial sense. If you are a tenant, we will be able to look into whether forfeiture is being exercised in accordance with the law and consider whether there is merit in seeking an injunction or applying for relief against forfeiture. This is an expansive and complex topic with numerous hurdles and pitfalls. It is important that you take expert legal advice as soon as possible as there will often be severe financial implications. Woodcocks, Haworth & Nuttall can assist.
Contact us today
Please contact either David McCann, Daniel Long or Eleanor Cornthwaite at our Bury office on 0161 761 4611 to discuss any aspect of commercial property disputes.