Forfeiture of a commercial lease: how does it work and what are the grounds?
Forfeiture of a commercial lease may be the only option for a commercial landlord if the tenant has failed to adhere to the terms of their lease. However, the appropriate procedure for forfeiture of a commercial lease varies depending on the terms of the lease and the reasons why the landlord wishes to forfeit the lease. If unsure, a landlord should always contact a commercial lease solicitor to ensure that the correct procedures are followed.
What does forfeiture of a commercial lease mean?
If a commercial lease is forfeited, the Landlord has the right to end the lease and re-enter the property. The tenant will no longer have any right to occupy the property and will no longer be bound by the tenant covenants in the lease.
What are the Grounds for forfeiture of commercial lease?
In most leases, the landlord will be able to forfeit a commercial lease if the tenant has breached their lease terms. There are two types of breach and the landlord’s right to forfeit the lease will depend on which category the breach falls under. If the tenant has committed a “continuing breach,” the landlord will keep the right to forfeit the lease up until the breach is no longer being committed (if applicable). For example, if the tenant violates their lease covenants by failing to uphold their repair obligations, the landlord can forfeit the lease at any time while the property is in disrepair, even if they previously acknowledged the breach. If a tenant has committed a “once and for all” breach, the landlord must forfeit the lease when it occurs or waive their right to forfeit as a result of that breach. Any action by the landlord which implies that the lease is continuing is considered a waiver – for example, making a demand for payment of rent after the rent has become due implies that the tenant is still bound by terms of the lease and therefore that the lease is continuing.
Non-payment of rent
This is the most common reason for forfeiture of commercial lease. Most leases will state a time frame in which the tenant must pay the rent within the rent becoming due and failure to do so can lead to forfeiture of the lease. In many leases, rent can also include service charges and other payments due to the landlord aside from the main rent. Therefore, if the tenant fails to pay any of the rents due, they could be at risk of forfeiture. The landlord does not need to give notice to forfeit a lease for the non-payment of rent and also can still forfeit the lease even if they have not made any formal or informal demand of rent since the rent has become due.
Breach of covenant (other than payment of rent)
This is why it is so important for the tenant to read the tenant covenants carefully and understand what they are obliged to do. Many commercial leases contain a forfeiture clause which allow the landlord to re-enter the property if the tenant covenants are not followed. For example, most leases include repair covenants which require the tenant to keep the property in a good condition and possibly carry out routine maintenance within a specified time period. Other tenant covenants which commonly appear in commercial leases include covenants by the tenant not to sublet the property without prior consent from the landlord. If the tenant has breached a covenant other than the requirement to pay rent, the Landlord must serve Notice onto the tenants informing them of the covenant that has been breached and a time frame within which the breach must be remedied. If the tenant fixes the problem within the specified crime period, the lease cannot be forfeited; if they don’t, the Landlord can re-enter the property.
Insolvency
Most commercial leases will include a clause which allows the landlord to forfeit a lease if the tenant becomes insolvent at any point during the lease term.
What procedure does the landlord have to follow to forfeit a commercial lease?
The Landlord has two options: peaceable re-entry or Court proceedings.
Re-entry
Peaceable Re-entry involves having the landlord come to the property themselves, put up notices informing the tenant that the lease has been forfeited and changing the locks. This prevents the Landlord from having to go through the expensive and lengthy Court proceedings to end the lease; however, peaceable re-entry may not always been an option if the landlord isn’t able to get back into the property or if the tenant has behaved in a threatening manner towards them.
Court Proceedings
While more expensive and more time-consuming, the landlord can make an application to Court for repossession of their property.
Can the Landlord reclaim unpaid rent?
There are a few ways in which a commercial landlord can claim unpaid rent, but it is important for the landlord to check that claiming back unpaid rent will not jeopardise their right to forfeit the lease first. Any behaviour on the landlord’s part that implies that the lease is ongoing could prevent the lease from being forfeited. Commercial Rent Arrears Recovery (CRAR) is one way in which the landlord can reclaim unpaid rent. The Landlord will need to provide the tenant with 7 days’ notice before they can then send bailiffs to the property to seize some of the tenant’s possessions to cover their rent arrears. It is important to remember however that by using CRAR, the landlord may forfeit their right to forfeit the lease. Another option for the landlord is to approach the tenant’s guarantor, if they had one. While the lease is ongoing, the guarantor is still responsible to pay the rent if the tenant fails to.
Can a Landlord forfeit a commercial lease with no forfeiture clause?
Only if the reason for forfeiture is unpayment of rent. In the rare event that a commercial lease does not include a forfeiture clause, it will be implied into the lease that the Landlord may forfeit the lease if the tenant does not pay their rent. They will not be able to forfeit the lease for any other reason however.
Can forfeiture of a commercial lease be stopped?
The Tenant can make an application to the Court for Relief from Forfeiture in some circumstances. For example, if the Tenant is facing forfeiture for non-payment of rent, the Tenant may be able to apply to the Court for Relief from Forfeiture if they pay back the amount owed within six months of the sum originally becoming due. If successful, the landlord will not be able to repossess their property.
What happens to a sublease if a headlease is forfeited?
The Tenant can make an application to the Court for Relief from Forfeiture in some circumstances. For example, if the Tenant is facing forfeiture for non-payment of rent, the Tenant may be able to apply to the Court for Relief from Forfeiture if they pay back the amount owed within six months of the sum originally becoming due. If successful, the landlord will not be able to repossess their property.
What happens to a sublease if a headlease is forfeited?
All agreements, covenants and requirements under the lease will be brought to an end when a lease is forfeit. That means that any subleases which existed under the headlease, whether permitted by the lease or not, will cease to exist when the headlease is terminated. The subtenant can speak to the landlord about taking over the ex-tenant’s lease or creating a lease between themselves and the landlord, but this is subject to the landlord’s agreement and the subtenant does not have any legal right to remain in the property.
How else can I end a commercial lease?
You should check to see if the lease includes a break option. Break options can allow the landlord or the tenant to end the lease early on a certain day called a “Break Date” specified in the lease, which will usually be an anniversary of the lease date. There can be multiple break dates in the lease – for example, in a lease of 10 years, there may be an option to terminate the lease on the second and fifth anniversaries of the date the lease was granted.
Do I need a solicitor for forfeiture of a commercial lease?
It is strongly recommended that you instruct legal advice if you are considering forfeiting a commercial lease. You must make sure that you do genuinely have the right to forfeit the lease before taking any action and then must ensure you are following the correct procedure in order to successfully forfeit the lease and to prevent your tenant from being able to make a claim against you. By instructing legal advice, you will have a full understanding of your legal position and can be confident taking the next steps. Our commercial lease solicitors can check the terms of your commercial lease to confirm whether you are able to forfeit the lease and then guide you through the forfeiture process to avoid costly mistakes.
How SMB Solicitors Can Help
With SMB Solicitor, you can be confident that your commercial property will be returned to you as quickly as possible. We offer a client-focused service refined by over 10 years of experience, prioritising frequent communication and comprehensive legal support in all legal matters. Our broad range of expertise means that you will receive updated and pragmatic legal advice no matter the complexity of your case. To book an appointment, please email us at info@smbsolicitors.co.uk
