A forfeiture of a lease is what happens when a landlord wants to regain possession of a commercial property due to a tenant breaching the terms of an agreement.
To begin understanding the topic, it is important to know what kind of grounds warrant a landlord to forfeit a lease as well as the steps you should take beforehand.
What are the grounds for a forfeiture?
Under the Law of Property Act 1925 concerning commercial property, the grounds for forfeiture must be considered irremediable before the landlord is able to bring bailiffs in to forfeit the lease.
This means there is no possibility of the tenant putting things right and “remedying” the agreement. The breach of the agreement is considered extreme and warrants the repossession of the building.
It is important to familiarise yourself with what grounds are irremediable and what aren’t before proceeding with a landlord forfeiture of lease.
What grounds are irremediable?
Below are some reasons that would allow the landlord to enter the property and take back possession either through peaceable re-entry or by going through court.
However, the court may give a tenant a relief period where they are allowed to stay in the property even if the breach of covenant in the lease agreement is proven to be irremediable, so it is still important to exercise some patience.
If a tenant is not paying rent and they have passed a two to three week grace period where they no longer are paying rent to the landlord, this gives a landlord the right to forfeit the lease.
A tenant is bankrupt
If it is public information that a tenant is bankrupt and their company is insolvent, then this gives a landlord the right to forfeit a lease as it shows the tenant is no longer passing the referencing process used to qualify the tenant to rent the building in the first place.
Inappropriate use of a property
If a tenant is using the property incorrectly by conducting business in the premises that aren’t congruent with their agreement with the landlord then this is a good reason for lease forfeiture.
This can include subletting to another tenant without the permission of the landlord or a change of use in the property.
The tenant is disruptive to other tenants
Excessive noise or waste produced by a tenant can be a good ground for a landlord to do a forfeiture of lease as it prevents them from being able to rent to other tenants nearby and could greatly impact their overall business.
What grounds aren’t irremediable?
Even though there are rules within the tenancy agreement that a commercial tenant and a landlord will have, some of these rules and covenants, even if broken, will not allow a landlord to repossess their property with a forfeiture of lease.
This is because the breach of the agreement is not seen as extreme enough and the court will likely just advise the tenant to put things right and for the landlord to move on. Some of these reasons are listed below.
The use of the property was shared
If the property was not sublet, but the use of the property was shared with another party and there were no additional contracts signed by the tenant, then this is a minor breach of contract.
The tenant repaired the property without permission
If there are repairs due, the tenant paid for repairs but they didn’t contact the landlord for permission, this is a breach of contract but is not necessarily irremediable because there is no damage done to the building.
How can a landlord forfeit a lease?
There are two ways that a landlord can forfeit a lease. One of which is by using peaceable re-entry with the help of a bailiff and the other of which is to go through court.
The word “peaceable” in peaceable re-entry is very important. This is because if there is any kind of violence or resistance from the tenants who are inside a commercial property, then the process must be abandoned.
Hence, experienced bailiffs, even if they have bailiff powers seen here, usually will enter a property late at night or early in the morning to prevent running into tenants and successfully forfeiting the lease
Go through court
Going through court is the next step that can be done to remove a tenant, if the court process is successful, then bailiffs and police can be used to remove a tenant.
However, this process is often longer than gaining a peaceable re-entry so it is not advised to go through court unless you have tried peaceable re-entry multiple times.
Can you use a forfeiture of a lease on a mixed use property?
If a property is partly residential, then no, there is no option to forfeit a lease in the same way. A landlord will have to evict a tenant using the relevant section 8 or section 21 notices for the residential tenant and then forfeit the lease with the commercial tenant separately.
How does forfeiture work with residential property and ASTs?
If you would like a template for evicting a tenant in a residential property see our landlord notice to end tenancy letter template, a landlord has to use section 8 and provide a two week notice when dealing with tenants signed in Assured Shorthold Tenancies (AST).
What are the steps to take before you forfeit a lease?
Before you decide on going to court or gaining a peaceable re-entry, a landlord must follow the following steps in order to prove that the breach of the agreement is irremediable.
Issue a section 146 to the tenant
This section 146 notice informs the tenant of the breach of covenant, gives the tenant a reasonable time to correct the breach (without specifying the duration), and requires the tenant to pay compensation for the breach.
Unless the main justification for forfeiture is rent arrears, the landlord cannot forfeit the lease until a reasonable time has passed without the breach being corrected.
Wait for court approval if necessary
When the tenant is involved in various forms of insolvency, the court must grant approval before the lease can be forfeited.
This covers instances in which the tenant is in administration, liquidation, or has entered into a voluntary arrangement under the Insolvency Act, as well as situations in which an individual has been subject to a bankruptcy order.
How do you deal with the goods inside a property?
One of the downsides of a landlord forfeiting a lease is that it gives them the temporary ownership of the goods of the property under the Interference of Goods Act 1977 seen here.
If a landlord sells or throws away the goods, they could be liable for trespassing or negligence.
So, in order to give the goods back without trouble once the lease has been forfeited, a landlord must go through one of the following processes:
A torts notice
In this process, a qualified bailiff will conduct a Torts inventory before posting a Torts notice to the door of the tenant and giving the tenant 14 days notice to remove their possessions.
This is where a bailiff is hired again to supervise the tenant taking their goods. This prevents them re-occupying the property as the tenant will not be given keys to the property.
Common questions when forfeiting a lease in commercial property?
Below are some common questions that could crop up throughout the forfeiture of the lease process.
How did The Commercial Rent (Coronavirus) Act of 2022 work?
This is where the government temporarily banned the forfeiture of leases. However, this ended in March 2022 and there is no law that states the feature of leases can’t happen.
Can a tenant get relief from forfeiture?
Yes, a tenant can apply for relief. This is usually granted given the talent is able to comply with instructions given by the court such as paying rent areas within a certain date or repairing any damages within a property.
It is possible for a tenant to get relief and still have their lease forfeited and it is also possible for a tenant to get relief and a landlord not be able to forfeit their lease.
Can a landlord forfeit a lease illegally?
If there is any violence involved in the repossession of a property in a forfeiture of lease, then a landlord could be liable for a court case.
It is vital that landlords follow the correct procedures and do not overstep any allowance given under the law during the process. The physical removal of goods or people should only ever be done by the police after the right court proceedings.
A forfeiture of lease should always be peaceful and bailiffs should understand this too.
Are there alternatives to forfeiting a lease?
It is useful to note that a forfeiture of a lease is not the only solution to gaining possession of a property. There is also the option for a Commercial Rent Arrears Recovery but this should be used if the bailiff can get into the property anyway or there is lots of equipment owned by the tenant.
This is because a forfeiture of lease allows a bailiff to enter a property peacefully but it also inadvertently gives the landlord the temporary ownership of all the commodities owned by the tenant.