Solicitors Specialising in Business Lease Forfeiture
If a tenant breaches the terms of a business lease, the landlord may want to forfeit the lease and repossess the premises. This is a complex area of law and both landlords and tenants should speak to an experienced commercial property solicitor if they are dealing with forfeiture of a commercial lease.
Commercial eviction is an extreme measure, and you really do need to get it right. Be aware that the courts will deal seriously with a landlord who does not follow the correct process when removing, or trying to remove, a business tenant.
Mistakes could also mean that, as a landlord, you inadvertently waive your right to forfeit the lease. And as a business tenant, getting things wrong means that you could lose the premises when you might have an option to stay.
There are, however, less drastic alternatives to forfeiture of a commercial lease, which could benefit both a landlord and tenant. We look at forfeiture as well as other options business landlords can consider.
Our highly experienced Property Dispute team always offer FREE initial phone advice with no strings attached. So don’t suffer in silence – put your mind at rest by calling us on 01722 422300 or FREEPHONE 0800 1404544.
What is commercial lease forfeiture?
Forfeiture of a business tenancy takes place when a landlord exercises their right to end a lease and re-enter the property, taking back possession. As a commercial landlord, you need to carefully check the lease terms to see what actions on the part of the tenant will give you the right of forfeiture and how to proceed with obtaining forfeiture.
If you don’t follow the process correctly, it could result in serious issues, including a claim to reinstate the lease and payment of what could be considerable damages.
When can a landlord forfeit a commercial lease?
A landlord can forfeit a commercial lease when a forfeiture clause contained in the lease is triggered. That’s why you need to understand the contents of your business lease and what it means for you and your tenant.
The most common reasons for forfeiting a lease are:
· Non-payment of the rent – commercial property rent arrears is the most common reason for lease forfeiture
· Damage to the property or making major alterations without consent
· Subletting of the property without the landlord’s agreement
· Use of the business premises that the landlord has not permitted or that is unlawful
· Insolvency
Most commercial lease agreements contain forfeiture clauses. However, unlike many residential leases, business leases often vary considerably. So our lawyers would need to review the lease to be certain of your rights, as re-entry for a breach of the terms may not be possible without a proper re-entry clause.
Breach of the lease terms
When checking a commercial lease to see whether the tenant has breached the terms, you must also review the process for dealing with the breach. And following the right procedure is very important indeed.
The landlord will normally need to officially warn the tenant and give them an opportunity to remedy the situation. It is essential to follow the correct procedure. If a business tenant is incorrectly required to leave the property or not notified correctly to vacate even if there is a valid reason, they are not only may you have lost the right to forfeit, but your tenant might find themselves able to make a claim against you for wrongful forfeiture, damages and reinstatement of the lease. That can prove extremely expensive.
Serving notice of forfeiture
If a notice of forfeiture is required for a commercial lease, it must comply with Section 146 of the Law of Property Act 1925.
A properly drafted Section 146 notice warns the tenant to remedy the breach of the lease or risk having you terminate the commercial lease and retake the property.
The notice must include:
· Details of the breach
· A request to the tenant to remedy the breach
· A request to the tenant to pay compensation
· A period of time for the tenant to remedy matters – this needs to be reasonable in light of the breach, for example, requiring them to remove unlawful tenants might take several weeks
The lease will specify exactly how the notice is to be served but that will depend upon a number of factors, such as how the tenants have notified you to send notices to them. Some possible methods that have been held to be valid are:
· Posting by recorded delivery or first class post to their service address or, if you do not know this, their usual or last known residence
· Emailing the tenant
· Handing to the tenant
· Hand delivering to the premises
· Using a process server to serve the notice – they will provide formal evidence showing that they have completed service
If you need to serve a Section 146 notice, make sure you speak to an experienced solicitor first to ensure you follow the correct procedure.
There are also other legal matters that you must be aware of – again another reason to make sure you consult a specialist solicitor. For example, if you request or continue to receive rent after service of the notice, you could lose the right to forfeit the lease entirely. That’s because acting as if the lease is still in force can be held as you recognising the continued existence of that lease.
Similarly, entering into dialogue with your tenant could mean you have inadvertently waived the right to forfeit police entirely.
These are all good reasons to make sure you speak to an experienced solicitor immediately – and before you take any action yourself.
Forfeiture for non-payment of rent
Non-payment of rent is the most common reason for the forfeiture of a commercial lease. The lease may specify whether the landlord must serve a formal notice on the tenant requesting the rent.
As a landlord, when forfeiting a lease for non-payment of rent, you a be able to enter the property by peaceable means to retake possession.
However, this will depend upon whether the tenant has disputed any of the sums due or any of the breaches. It will also depend upon whether any part of the property is residential, even if not in the same part of the property but is included in the lease.
Alternatively, you can take business tenant to court to ensure that the court determines that there has been a breach and for possession, which will also act as protection for any tenants who may claim they had notified you that they disputed the matter or if any correspondence sent to you has gotten lost in the post but may still be deemed served.
If any tenant disputes a breach, then the landlord will need a possession order from the court – so peaceful re-entry would not be possible in that cases. A bailiff would also need to attend.
Peaceable re-entry
Peaceable re-entry should take place when the property is empty. You cannot conduct peaceful re-entry if any part of the property is residential.
If the lease contains a clause allowing re-entry, you do not need to formally demand unpaid rent first unless the lease states this.
It is always a good idea to appoint a third party, such as an enforcement officer, to conduct peaceful re-entry. This not only gives the ability for them to use the correct amount of force but further allows evidence that the enforcement has been conducted and re-entry gained properly. If anyone re-enters the property afterwards, you can then have a claim of trespass against them.
By law, no-one can use excessive force against the property. What’s more, you cannot use any physical force against a person to gain entry even if you own the building. Peaceable re-entry also can’t take place if someone is in the property and they object.
After gaining entry, you or your bailiff will need to secure the premises and put a notice on the door or a window telling the tenant that you have forfeited the lease and taken back the premises.
Once you have retaken the premises, you are responsible for looking after the tenant’s goods. You cannot simply dispose of them straightaway. You will usually have to make arrangements for the tenant to collect them. Upon obtaining possession, you are going to need to provide a notice not only the previous tenant but also to any third party which indicates that you are in possession of property and that if those possessions are not collected by the required time period that they will be sold. You can send the notices to the tenant and display them at the property.
Peaceable re-entry is only an option for non-payment of rent prior to a notice. It can be used for breaches if a Section 146 notice has been given but is not disputed.
Court action for commercial lease forfeiture and compensation
You may need court action to secure forfeiture of a business tenancy if:
· There is a dispute over the amount owed
· Peaceable re-entry was not possible for any of the above reasons
If either of these applies, then application is made to the court asking for an order for possession. The application will need to be to either the County Court or the High Court, depending on both the financial value of the claim and whether the case is straightforward. The tenancy ends when you serve notice of the proceedings on the tenant.
You will need to wait until the court makes its ruling before taking action however, because there is no guarantee that it will forfeit the lease. If the breaches are clear, then the court may award forfeiture and we have successfully obtained this in both the High Court and County Court for our clients.
Forfeiture of a Commercial Lease – enforcing a court order
If the Court does make an order for possession, you may need to take action to enforce this if the tenant does not leave voluntarily.
We would need to apply for a bailiff or this refer to as an HCEO (High Court Enforcement Officer) to attend and obtain possession. If you want enforcement by an HCEO, this requires a specific application under S42 County Courts Act 1984. That application can be made if you already have a possession order, or during the possession proceedings.
Risks to commercial landlords when considering lease forfeiture
Recovering possession of commercial property is complex and there are several risks involved. If you make a mistake, you could face a legal claim from the tenant for wrongful forfeiture, trespass and damages.
You could also inadvertently lose your right to forfeiture if you take an action that suggests that you consider the lease to still be in force.
When deciding how to tackle a breach of the tenancy, you need to consider all of the options open to you. If you forfeit the lease, there may be disadvantages, including:
· An empty property and difficulty finding new tenants, if the market is unfavourable.
· Costs associated with looking after an empty property, including insurance, business rates, utility bills and security measures.
· Loss of guarantor or sub-tenants, if these were in place
· The risk of squatters
· Liability for the tenant’s goods
Dealing with breach of a business tenancy – other options
There may be other options available to you however, in particular, if the breach of the lease involves non-payment of rent. We can advise you of the best way of dealing with the situation and discuss the implications of each option.
Firstly with a solicitor on board, you may find your tenant is more willing to cooperate. We may be able to negotiate with the tenant and put a payment agreement in place – a formal agreement by the tenant to pay the arrears in instalments alongside the regular rent payments.
However, if your tenant remains uncooperative, there are still some options available to you, depending on your circumstances which include:
· The Commercial Rent Arrears Recovery (CRAR) process
· Issuing a statutory demand
· Pursuing a sub-tenant or guarantor for the arrears
· Drawing on a commercial rent deposit, where this is permitted – the rent deposit deed needs to be checked carefully first
So again, as you can see, it’s really important to get good commercial lease legal advice from an experienced solicitor before taking any action yourself.. You need to be sure you make the right choice and protect your position as far as possible.
Relief from forfeiture for commercial tenants
If you are a commercial tenant yourself, you may be able to ask the court to stop the forfeiture. This is known as relief from forfeiture.
However, you will need to act quickly if your landlord has forfeited the lease, within six months of the date of the forfeiture (S139 County Courts Act 1984). If the action was for rent, an application to the court will be required to reinstate and the parties are unable to agree this themselves without a court order as per Zestcrest Ltd v County Hall Green Ventures Ltd [2011] 50 EG 60.
You will need to take action to deal with the issue that has caused the forfeiture, for example, by paying outstanding rent, evicting an unlawful subletting tenant, or repairing property damage.
The court has the discretion to stop and reverse the forfeiture, but it will look at both your conduct and that of the landlord when considering the case.
If it agrees to give you relief from forfeiture, the lease will still be in force.
You should speak to an expert forfeiture solicitor to have the best chance of securing relief from the court. Preparing a strong case and taking action to remedy the breach is essential.
As a commercial tenant at risk from forfeiture, our experienced commercial property dispute lawyers can also advise you on other issues which may protect your position, including:
· Whether the landlord has waived their right to forfeit the lease by doing something which recognises the existence of the lease
· Wrongful forfeiture, if the landlord has failed to follow the correct process
· Whether you can make a claim against the landlord if they did not deal with your goods correctly following forfeiture
FAQs
What are the grounds for forfeiture of commercial lease?
There are several grounds on which it may be possible to forfeit a commercial, including:
• Non-payment of rent
• Unauthorised subletting
• Other unauthorised use of the property
• Damage to the property
• Carrying out illegal activity
• The tenant is insolvent
• Breach of other terms of the lease
The lease must specify that the landlord has the right to forfeiture in each case.
What happens after forfeiture of a lease?
A landlord has the right to take back the property after forfeiture, provided they follow the correct process. This could be by peaceable re-entry or by securing a possession order and instructing a bailiff to deal with enforcement.
If any of the tenant’s goods and possessions remain on the premises, you will need to secure them. You are advised to make an inventory and back this up with photographic evidence.
You should serve notice on the tenant requiring them to collect the items within a reasonable period of time. If they fail to do this, you can serve a notice on them if you wish to sell or dispose of the goods. You can display the notice at the property if you cannot locate the tenant.
You can speak to a solicitor before selling or disposing of anything belonging to the tenant to ensure that you have followed the correct procedure and that they will not be able to make a claim against you.
What notice does a landlord give to terminate a commercial lease?
If the right to forfeit the lease arises because of non-payment of rent, the landlord does not have to give notice and the lease will generally state when the landlord can forfeit.
The lease may specify the notice period required. Otherwise, you should allow the tenant a reasonable period of time in the notice, which should also include details of the breach, how you wish it to be remedied and the amount of compensation, if any, that you are claiming.
The notice period should be enough to allow the tenant to deal with the situation. For a simple breach, this could be as little as one week.
It is crucial to deal with the notice process correctly and you are advised to speak to a specialist commercial repossessions solicitor who can suggest the right notice periods.
