Understanding Forfeiture

Yeni Ev

As Brexit takes hold, the pound plummets and inflation starts to tighten its grip, many businesses are starting, or will soon start to struggle.  Should this lead to your commercial tenant being unable to pay their rent, you may be wondering how you can gain back possession of your property, so you can re-tenant it with a more prosperous business and ensure your mortgage on the premises is paid.

One remedy available to landlords is the right to forfeiture.  This is not easy or straightforward and, if done incorrectly, can lead to serious consequences, including criminal prosecution.  Therefore, it is imperative that you seek legal advice if you plan to exercise your right to forfeiture.

What is forfeiture?

Forfeiture, also known as re-entry, enables a landlord to re-enter a property and terminate the lease of a tenant who has breached a covenant (this usually involves non-payment of rent, however, most lease agreements reference other breaches such as insolvency).

A landlord may not forfeit for any breach of covenant other than the non-payment of rent (and other payments reserved as rent by the lease) without first serving a notice on the tenant under section 146 of the Law of Property Act 1925 and, where the breach is capable of remedy, allowing the tenant a reasonable time to remedy it.

Examples of a breach of covenant (excluding non-payment of rent) can include permitting or partaking in criminal activity on the premises, destroying parts of the property or failing to undertake repairs.

Forfeiture is closely regulated by statute due to its draconian nature, and tenants can obtain relief from forfeiture through the courts.  Therefore, it is crucial the process is conducted lawfully, with full knowledge of the potential consequences.

Forfeiture by section 146 notice

For breaches not involving non-payment of rent, a notice under section 146 of the Law of Property Act 1925 must be issued, and must:

  1. specify the breach,
  2. if the breach is capable of remedy, require it to be remedied and
  3. require the tenant to pay compensation for the breach.

What constitutes a reasonable time for a breach to be remedied depends on the nature of the breach itself.  If the tenant fails to remedy the breach or pay compensation within a reasonable time, you may exercise your right to forfeit the lease.

Forfeiture for non-payment of rent

Although Part II of the Landlord and Tenant Act 1954 provides commercial tenants with the right of security of tenure, the right of a landlord to exercise forfeiture is conserved by s24(2) of the Act.

The right to forfeiture is a contractual right, and most tenancy agreements contain provisions stating the landlord can exercise this right if rent is not paid.

Prior to exercising your right to forfeiture, it is best practice to make a formal demand for rent.  Normally, you must give the tenant 14-28 days to pay before exercising your right. However, after this period, it is essential to cease all communications with the tenant and do not accept any payment of rent without seeking legal advice.  Otherwise, you could be deemed to be waiving your right to forfeiture.

There are two ways to enact forfeiture:

  1. peaceable re-entry
  2. issuing court proceedings

Peaceable re-entry is the most popular form of forfeiture amongst landlords, and for good reason; it is much cheaper than issuing court proceedings.  However, it is fraught with risk and should not be attempted without seeking legal advice.

Mostly, peaceable re-entry involves entering the premises when the tenants are not there and changing the locks.

If there is stock in the property, it must be dealt with under the Commercial Rent Arrears Recovery (CRAR) procedure.

Court proceedings

The act of issuing court proceedings is equivalent to peaceable re-entry in that it means you are terminating the lease.  Although more expensive, this is a less risky option than peaceable re-entry.

Relief from forfeiture

Once forfeiture has been enacted, it is up to the tenant to argue that the tenancy should continue.  To do this, they will need to apply to the court for relief from forfeiture.  Normally, relief will be granted for non-payment of rent, providing the tenant applies for relief as soon as possible, pays the outstanding arrears plus interest and covers your legal costs.  The terms of the lease will be the same as the previous agreement.

Forfeiture is an extremely complex area of landlord and tenant law.  If you are a landlord, it is crucial you seek legal advice before exercising your right to forfeiture.

Hart Reade Solicitors are a full-service law firm with offices in offices in Eastbourne, Hailsham, Polegate and Meads.  We hold a both a Lexcel and Conveyancing Quality Accreditation from the Law Society of England and Wales.  To make an appointment with one of our landlord and tenant solicitors, please phone our office on 01323 727 321.

Please note, this article does not constitute legal advice.