You are a landlord of commercial premises in England or Wales. You have just discovered that your tenant has not paid rent or has damaged the property and they are, therefore, in breach of their lease. You are considering your options, including ending (forfeiting) the lease – but, when would that be appropriate and are there any pitfalls?
If the breach is for something other than non-payment of rent, then you must first serve a notice (a "146 notice") notifying the tenant of the breach and giving them a reasonable time to remedy. Often the threat of forfeiture implicit in a 146 notice is sufficient to prompt the tenant to take action. If they don't, they are at risk of you simply changing the locks after a "reasonable" period of time (or forfeiting by service of court proceedings).
If the breach is for non-payment of rent, then there is no requirement to serve a 146 notice and the tenant is immediately at risk of forfeiture by the locks being changed or service of proceedings.
Forfeiting the lease is not necessarily the end of the line, however. Once forfeited, a tenant has the right to apply to court to be granted "relief from forfeiture" (i.e. have their lease reinstated). That will normally be on the condition that the breach is remedied. Tenant applications are often permissible months after a forfeiture has taken place.
A tenant discovering it has been locked out of property where it runs its business is usually a strong incentive for them to take steps quickly to remedy the breach (or, if that's not possible whilst they are locked out, to agree terms favourable to the landlord).
It is also a quick method to recover possession from an evasive tenant, which you reasonably suspect isn't paying rent because they can't pay, rather than they won't pay.
Forfeiting before a tenant insolvency occurs might be business critical. For more information about claims against insolvency tenants and the enforcement restrictions that are imposed, please refer to our blog here.
Pitfalls for the unwary
There are a number of potential pitfalls if you are considering forfeiture. One of the most immediate is that it is alarmingly easy to lose the right to forfeit. Once you learn of a breach, you must theoretically decide immediately whether to forfeit or not. If you do anything to acknowledge that the lease continues to exist (i.e. has not been forfeited) then you will lose the right to forfeit for that breach. Any rent demand or communication which refers to the lease could potentially count as such a waiver.
Ultimately, each case will turn on its specific facts and the courts are littered with well-intentioned landlords seeking swift recovery of property, only to come unstuck on a quick-fire email sent at the wrong time. Early advice on the suite of enforcement options available, including forfeiture, should always be taken to limit your exposure to these risks.
If you are a landlord or tenant of commercial premises and find yourself in the above situation, or you have any concerns or queries about how these issues may impact you or your business, please do not hesitate to get in touch with our Real Estate Disputes team or your usual Brodies' contact.