A landlord’s guide to forfeiting a commercial lease

In the current economic climate, it is not uncommon for tenants to struggle to meet rental payments and fall into arrears. But what happens if the landlord is left in this precarious position?

Associate solicitor Eleanor Longworth from Woodcocks Haworth and Nuttall Solicitors’ commercial property team, explains what a landlord’s rights under these circumstances are and explores what can be done to retake control of the property.

What are the remedies available to a landlord if a tenant has not paid rent?

Landlords have a number of potential remedies available to them. These include debt recovery proceedings, exercising CRAR, drawing down on rent deposits, potentially turning to former tenants and guarantors, or forfeiting a lease.

A lease must enable the landlord to forfeit or re-enter the premises under certain circumstances, such as non-payment of rent.

How does a landlord forfeit a lease?

When dealing with commercial premises, there are two options available to landlords – forfeiture by peaceable re-entry or by issuing court proceedings.

For breaches of a commercial lease, other than non-payment of rent, there are procedural restrictions on the right to forfeit. For example, a notice must be served in accordance with Section 146 of the Law of Property Act 1925. There can be additional requirements and restrictions if the breaches relate to disrepair.

Forfeiture is a complex process. It is important that landlords are aware of any restrictions and the procedure before re-taking possession. Failure to do so can leave landlords vulnerable to injunctive proceedings and damages claims.

If the landlord does not ensure that the basis of occupation is formally re-documented, it may give rise to uncertainty and a multitude of issues. A key consideration for a landlord will be whether the tenant is to have security of tenure, entitling it to a new lease at the end of the contractual term. If not, this must be correctly documented in order to ensure that it can re-take possession, if it does not want to grant a new lease in the future.

Can I change my mind once I have forfeited?

Forfeiture is irrevocable. The lease will have come to an end and if the tenant does not want the property back, the landlord will be left with a vacant property. The landlord will therefore need to properly consider whether forfeiture is the right remedy.

If the landlord and tenant agree that the tenant is entitled to remain, it is not as simple as allowing the tenant back into the property. Generally, a new lease will be required.

If the landlord does not make sure that the basis of occupation is formally re-documented, they may face a whole host of issues upon term expiry, for example, the tenant may have gained security of tenure.

As a landlord, am I guaranteed to get the property back once I forfeit the lease?

Unfortunately not. A tenant, sub-tenant and mortgagee could apply to court for relief from forfeiture, either in response to a landlord’s claim or by bringing a standalone claim of its own.

If successful, the lease may be re-instated or the court may order relief on certain conditions, such as payment of money to the landlord or on the understanding that certain action is taken within a specific period of time.

See also our article on the benefits and limitations of forfeiting a commercial property lease. 

Forfeiture is a complex area of law, so it’s vital that you seek specialist legal advice. For more information on forfeiture, contact Eleanor Longworth on 0161 761 4611 or email Eleanor: eleanor.longworth@whnsolicitors.co.uk