In the event of a tenant default, a landlord can terminate the lease through forfeiture. The right must be expressly granted for forfeiting leases: there must be a “forfeiture clause” or a “provision for re-entry.” It differs from a break clause exercisable by a landlord, which also grants a unilateral right to terminate but not based on a tenant default (such as a right of forfeiture). The difference is that the tenant can seek relief from forfeiture only when the landlord exercises his or her right to forfeit the lease.
If you can’t implement Commercial Rent Arrears Recovery (CRAR) because the Bailiff (Certified Enforcement Agent) can’t gain entrance to the property, Forfeiture of Lease is a great tool. It can also be used when there are few or no items to seize or when all of the goods on the site belong to third parties.
Currently, depending on the wording of the lease, a landlord can forfeit a tenancy on a variety of grounds. The most common is failure to pay rent. Other factors include:
When the tenant violates the terms of the lease.
Insolvency occurs when a tenant becomes bankrupt, enters liquidation, or enters into an insolvency arrangement such as administration or the appointment of a receiver.
Inappropriate use of the property.
Unauthorised change of use of property.
Excessive noise or nuisance behaviour.
The landlord can seek compensation for these violations, but they may also want to reclaim possession of his property. If the tenancy contains a “forfeiture clause,” the landlord can only take action to forfeit the tenancy. Following a breach, the forfeiture clause allows the landlord’s Bailiff (Certified Enforcement Agent) to “re-enter” the premises.
The lease’s forfeiture clause would generally say something like “if the rent remains unpaid for 21 days, the landlord may peaceably re-enter and forfeit the lease.” Depending on the nature of the breach, the landlord may or may not be required to first serve the required notice under Section 146 of the Law of Property Act 1925.
Actions to Take Before Forfeiting a Lease
In terms of contractual arrangements, a landlord only needs to look at the proviso for re-entry because it defines the landlord’s right to forfeit. It will normally apply to any breach of covenant by the tenant, except that in the case of rent, the right to forfeit will usually only arise 14 or 21 days after the rent is due. It may also apply to matters that do not involve a breach of covenant, such as the tenant’s entry into an insolvency proceeding.
Legislation has superimposed a somewhat complicated series of steps that must be followed onto the contractual framework. These are outlined below.
Under Section 146 of the Law of Property Act 1925, a notice must be served that informs the tenant of the breach of covenant and gives the tenant a reasonable time to remedy any covenant that is capable of remedy (but does not have to specify how long that reasonable time is), and requires the tenant to pay compensation for the breach. The landlord cannot forfeit until a reasonable time has passed from the date of this notice without the breach being remedied if breach is remediable. This does not apply if the only reason for forfeiture is rent arrears.
The landlord must conform to the additional conditions of the Leasehold Property (Repairs) Act 1938, which require extensive wording to be implanted into the section 146 notice, with provision for the tenant to serve a counter-notice attempting to claim the benefit of the Act, in which case the landlord must go through a preliminary application for the court’s leave to forfeit. This will only be granted if one or more of the statutory grounds are proven. This does not apply if the term is less than three years old.
In the case of a dwelling lease, section 168 of the Commonhold and Leasehold Reform Act 2002 prohibits the landlord from even serving a section 146 notice without either the tenant’s agreement that a particular breach has occurred or a court or First Tier Tribunal determination that a breach has occurred.
If the tenant has decided to enter into different forms of insolvency, the court’s approval is required before the lease could be forfeited. This applies if the tenant is in administration (Insolvency Act 1986, Schedule B1, paragraphs 45 and 46); in liquidation (Insolvency Act 1986, s130(2)); there is a voluntary agreement in place under the Insolvency Act (s252, for persons and schedule A1, paragraph 12, for companies); or a bankruptcy order has been made in regard of an individual (Insolvency Act, s285(3)).
About Van Eaton Solicitors
In lease forfeiture cases, Van Eaton Solicitors represent landlords. We have particular expertise in advising on whether to accept payment of rent arrears following a forfeiture claim. Along with representing business owners who are seeking to avoid the forfeiture of their shops, offices, and industrial properties.
We have experience working in non-legal settings and understand the pressures that businesses face. We will always give you sensible advice. If there are flaws in your case, we will point them out, and we will always consider the financial impact of our advice on you. Call our commercial property disputes litigation team on 0208 769 6739 or by completing the online form for more information on forfeiting leases.