Forfeiture of Business Lease
What is Forfeiture?
When a business tenant is in rent arrears or is in serious breach of the lease terms, then the commercial landlord will in most cases have the right to forfeit - the right to summarily end the tenancy. The landlord must however comply with section 146(1) of the Law of Property Act 1925.
There is no automatic right to forfeit a lease unless the lease contains specific provisions by way of a clause setting out the grounds on which the landlord may forfeit. The landlord's actions must indicate that he intends to end the lease, so actions to the contrary, like accepting rent, will remove the right to forfeit.
There are two main methods of doing this: (1) by peaceable re-entry to the premises or (2) by issuing court proceedings for possession.
Before taking the drastic step of ending a commercial lease the landlord should carefully consider his long term strategy and other factors involved:
- What is the length of lease remaining?
- What is the long-term viability of the business?
- If the business is in financial difficulties, what are the chances of recovery?
- Can the tenant sub-let the whole or part to ease his difficulties?
- If the business is a limited company, are there any guarantors?
- Can the business assign the lease?
- What is the market situation regarding re-letting - is there alternative demand?
A very important consideration is that the landlord will become liable for full business rates soon after a commercial property comes vacant, so commercial landlords face a double whammy - not only do they lose the full rental income, they pay out full business rates when vacant.
Peaceable Re-entery
Landlords should proceed with caution if they are to contemplate this drastic step. They will be in danger of breaking the law if they use force or violence to possess the property. Entering when the property is empty and changing the locks is still legal, though this is under legal review.
A far safer method, if you are to use re-entry, is to employ private certificated bailiffs to do this for you. They will have locksmiths on hand and will post the correct notices on the premises, giving the tenant their statutory rights to collect any goods and possession left in the property, at some arranged time.
Using bailiffs avoids the possibility of the landlord being accused of interfering with or taking the tenants possessions.
Proceedings for Possession - Business Lease
Possession proceedings may be commenced by applying to the High Court or in the local County Court nearest to premises. From the landlord's viewpoint Possession Proceedings is the safest option to avoid being accused of breaking the law.
The Court will set a hearing date when it issues the claim.
Where the tenant wishes to defend the claim for possession a defence should be filed with the court within 14 days.
Relief from Forfeiture
Tenants have a legal right of appeal to the court for relief from forfeiture and may be able to resume their occupation on payment of any rent and service charge arrears, remedy other breaches of covenant and pay locksmiths' and baliffs' charges. The court has wide discretion to grant relief having considered all the circumstances.
If a possession order is granted the tenant will normally be allowed 28 days to vacate the premises. The tenant will have the right to apply for relief from forfeiture as outlined above, subject to meeting conditions imposed by the court, which will involve remedying breaches of the lease and paying all arrears and the landlord's costs.
Never rely totally on this information which relates primarily to England & Wales. Before taking action or not, seek expert advice with the full facts of your case and all documents to hand.
