Forfeiture is the landlord’s ability to end a lease in the event that the tenant breaches a term of the lease or where another specified event takes place. There must be a valid forfeiture clause in the lease. This clause will specify when the landlord can forfeit the lease. If the lease does not include a specific forfeiture clause, the landlord will not be able to forfeit.
Where there is a valid forfeiture clause, the landlord will be able to forfeit the lease in accordance with that clause. This will usually be where the tenant is in breach of another clause of the lease (e.g. has failed to repair in accordance with the lease), if specified events occur (e.g. on the tenant’s insolvency), or on non-payment of rent or other charges under the lease. In this article, commercial lease forfeiture non-payment of rent, we take a look at the mechanism and the process involved when a tenant has outstanding rent.
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What is the mechanism involved
The forfeiture clause within the lease will set out at what point the landlord can forfeit for non-payment of rent. This is typically where the rent has been outstanding for 14 or 21 days. A typical forfeiture clause allows a landlord to forfeit where the rent is overdue by 21 days. On the 22nd day, the landlord can forfeit the lease.
At this point, the landlord can either issue court proceedings, or ‘peaceably re-enter’ the property. This means to go in and change the locks. The choice is the landlord’s, and the best option will depend upon the circumstances of each case.
On the 22nd day, the landlord has the option to either forfeit the lease or not. He must decide whether to treat the lease as continuing, or that it has come to an end and that he will be forfeiting the lease.
By demanding or indeed accepting rent from the tenant, carrying out works to the property or even just talking to the tenant, a landlord could be said to be outwardly acknowledging that the lease continues. On the basis that the landlord is aware of the rent arrears, this will usually waive his right to forfeit. Landlords must, therefore, be careful of their actions at this stage to ensure they do not waive their right to forfeit.
However, the right to forfeit for non-payment of rent will arise again after the next rent becomes overdue. If rent is payable quarterly, a landlord may have a further three months to wait before he can forfeit the lease.
Remedies for forfeiture
Where the lease has been forfeit, but the tenant is able to remedy the breach by paying rent that is owed, he may be entitled to relief from forfeiture. The idea is to put the landlord and tenant back into the position they would have been in had forfeiture not taken place.
Where the landlord has issued forfeiture proceedings in the County Court, the tenant has a right to automatic relief from forfeiture if he pays all arrears, interest and costs into court not less than 5 clear days before the first hearing. On this payment, the landlord’s claim ceases, and the lease is reinstated as if it were never forfeit. If the tenant does not obtain relief in this way, he has various opportunities to apply for relief later. The final opportunity being up to 6 months after the landlord has recovered possession.
If the landlord has forfeited by peaceable re-entry, the tenant may apply to the County Court for relief from forfeiture within 6 months of the re-entry. The Court will consider the application and will make an order for relief if it sees fit. The Court will ensure that payment of the rent arrears is a condition of the granting of relief from forfeiture. It will typically also require the tenant to pay the landlord’s costs.
Forfeiture or relief from forfeiture proceedings can also be issued in the High Court, although this is rarer. The rules in the High Court are different to the County Court.
The Implications of Covid 19
Covid-19 has placed significant restraints on landlords’ ability to recover outstanding rents. The restrictions imposed during the Covid-19 crisis on landlords’ remedies for recovery of sums due from tenants include:
Forfeiture of commercial leases – Section 82 Coronavirus Act 2020 prevents any forfeiture between 26 March and 31 December 2020 (extended by regulations from 30 September, having previously been extended from 30 June) or such later date as may be specified in any further regulations, whether by proceedings or peaceable re-entry, of the vast majority of commercial leases for non-payment of any sums due under the lease. Those sums remain due and only an express waiver will waive the right to forfeit when the restricted period ends
Stay of all possession proceedings – Practice Direction 51Z stayed all possession proceedings for 90 days from 27 March until 25 June 2020, except claims against persons unknown. This period was initially extended until 23 August and was then further extended until 30 September 2020.
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We have a proven track-record of helping both landlords and tenants with commercial leases. We will guide you through all the necessary legal due diligence and the very latest legislation in a comprehensive and timely manner. We firmly believe that with the right solicitors by your side, the entire process will seem more manageable and far less daunting.
How to Contact our Commercial Property Solicitors
It is important for you to be well informed about the issues and obstacles you are facing. However, expert legal support is crucial in terms of saving you money and ensuring you achieve a positive outcome.
To speak to our Commercial Property solicitors today, simply call us on 0345 901 0445, or allow a member of the team to get back to you by filling in our online enquiry form. We are well known across the country and can assist wherever you are based. We also have offices based in Cheshire and London.
Disclaimer: This article provides general information only and does not constitute legal advice on any individual circumstances.
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