Under Section 146 of the Law of Property Act 1925, a landlord may initiate forfeiture of a lease for breaches of covenants. This means the landlord is seeking to either peacefully re-enter the property or initiate court proceedings for possession of the property. In essence, the landlord is terminating the Lease.
The lease will need to expressly state that there is a right of forfeiture and the clause will need to stipulate as to the alleged breach. A breach of the covenants in a commercial Lease may occur in the following circumstance
- Failure to pay rent.
- Dilapidations issues.
- Failure of the obligation to repair.
- Criminal activity on the premises.
- Insolvency situation.
Is there a right to forfeiture?
If the property is residential or mixed use, the right of forfeiture is conditional on receiving a court order. If an order is not sought, and re-entry takes place, the landlord may be liable for a fine or even imprisonment. Similarly, forfeiture will not be available without a court order if a tenant has fallen into an insolvency situation.
- Peaceful re-entry: This involves the landlord, bailiff or landlord’s agent physically re-entering the property and changing the locks. Entry must be non-violent and cannot be opposed. This is why it is usually conducted outside of office hours.
- Issue and service of possession/forfeiture proceedings: The landlord must serve a notice under section 146 of the Law of Property Act 1925 for breaches of covenants other than non-payment of rent.
What is the procedure for forfeiture?
Forfeiture represents a positive and final act, and once initiated by the landlord, cannot be undone. It is important that the intention to forfeit the Lease is communicated by the landlord to the tenant.
The procedure for forfeiture under section 146 can be complicated and it is best to consult your legal advisors before the process is initiated. It is tempting for some landlords to simply change the locks on the premises without authorisation from the court. We highly recommend against this approach as the tenant can apply to the court for relief from forfeiture.
The landlord has to be careful that he does not initiate forfeiture before a breach has occurred by the tenant. In these circumstances the tenant can make an application to the court for damages or an injunction allowing the tenant back into the property.
Relief from forfeiture
Once forfeiture proceedings have been initiated, the tenant can apply to the court for relief. It is discretionary remedy, meaning it is entirely up to the court whether relief is granted. Generally, a court will grant relief when the tenant has:
- Remedied the breach
- Paid compensation to the landlord
- Demonstrated that the business can pay rent and adhere to the terms of the lease going forward
In the event that relief is granted, the original lease will be reinstated as if the forfeiture had never taken place.
Should you consider initiating forfeiture?
It is important to follow the correct procedure or the consequences for the landlord can be severe. We recommend that professional advice is sought and you aware of your rights and obligations. In some cases, a landlord can actually waive the right to forfeit. This can occur when a landlord is aware of the breach and performs an act which recognises the lease as continuing.
From a practical point of view, considerations as to whether the premises can be re-let quickly, the current business rates and the availability of alternative remedies should assist in determining what action to take.