After several turbulent years, rents appear to be slowly rising again and demand is higher in most commercial real estate sectors. A more positive market leads landlords to re-evaluate portfolios and consider replacing underperforming tenants with better covenants.
With pandemic restrictions on enforcing tenant breaches having long fallen away, forfeiture has now re- entered the landlord’s armoury as a weapon of choice against defaulting tenants.
If there is a forfeiture clause in a lease, the landlord has two options against the tenant in default: peaceable re-entry and forfeiture by way of court (possession) proceedings.
Peaceable re-entry is by far the quicker and cheaper option, where a tenant has failed to pay rent, simply requiring a change of locks when a tenant is not in physical occupation of premises, The precise mechanics will depend upon the exact wording in the forfeiture/re-entry clause in the lease and it must be noted that peaceable re-entry cannot be exercised where any part of the premises in question are used for residential purposes.
Court proceedings are required to forfeit a lease for any other breaches. A s.146 notice of breaches needs to be formally served first, giving a reasonable time for the tenant to remedy breaches, before possession proceedings can be sent to court for issue.
Waiving the right to forfeit
If the breach is a “once and for all breach”, such as non-payment of rent, any conduct which might be seen as treating the lease as continuing (despite a breach or multiple breaches) can amount to the waiver of the breach and the right to forfeit. This can include conduct such as:
- Sending automated rent or service charge demands or following up on demands;
- Discussions regarding repairs to premises; and
- Correspondence between agents in respect of the lease or even the wider building, even if unrelated to the breach.
In this scenario the best course of action is to ensure all communication with the tenant ceases, including discontinuing all automated correspondence and demands, as soon as the landlord is aware of the breach. If a tenant attempts to pay some or all of the rent due, this should immediately be returned to the tenant’s account.
The situation is different for ‘continuing’ breaches such as a breach of the repairing covenants under the lease. In such circumstances, a new right to forfeit arises each day the premises remain in disrepair, regardless of conduct between landlord and tenant and so waiver does not become an issue.
Tenant’s right to relief
If the breach is remediable, such as by paying the rent or repairing the premises, a tenant will usually be able to claim relief from forfeiture upon remedying the breach and settling the landlord’s costs. A tenant has the right to apply for relief in the County Court up to 6 months after forfeiture has taken place. However, the High Court has discretion to grant relief even after 6 months have passed following re-entry or a court order, as was demonstrated in Pineport Limited v Grangeglen Limited  where a 14 month delay was acceptable.
This can make re-letting problematic and landlords should ensure that any incoming tenant is aware of the situation before signing a new lease. If a new tenant is made aware that a previous lease of the premises was recently forfeited, they may then seek an indemnity from the landlord in respect of the possibility of the former tenant successfully obtaining relief.
Take care when forfeiting
Wrongful forfeiture can take place if there was not a breach of the lease capable of forfeiture, there were defects in the forfeiture notice, or the landlord’s conduct waived the right to forfeit before it exercised its right to re-enter.
Where wrongful forfeiture has taken place, be aware that the court may grant the tenant an injunction to allow the tenant back into occupation, despite any third parties being in occupation.
Forfeiture is a technical topic and can quickly become problematic if the correct steps are not taken. It is a very useful tool for landlords, but it should be exercised with care.