Forfeiture

With commercial leases, it is legally possible, although risky, for the Landlord to retake possession of the property using the legal right of forfeiture. In order to do so with any degree of comfort, a commercial landlord should ensure first that :-

There is an express clause in the lease allowing forfeiture and that the tenant is fully in breach i.e if the leases states that the landlord can forfeit the lease if the tenant is 3 months in arrears with rent, the landlord should be sure that the tenant is 3 months in arrears and has not already suggested a counterclaim or defence exists.

He/she/they have formally served notice of the breach and given the tenant reasonable opportunity to remedy the breach.

He/she/they have taken legal advice – forfeiture is cancellation of the lease and a lease is a form of contract. Most contracts cannot be terminated unless one of the fundamental terms of the contract (the most important terms) have been breached. Payment of rent is likely to be a fundamental term, but attempted forfeiture on other grounds is risky.

In the event the breach complained of is not failure to pay rent the landlord must serve a section 146 notice which must contain specified details of the claimed breach of the lease and which provides the tenant with a reasonable timeframe to remedy the default.

He/she/they have weighed up all the risks – is it likely that the tenant may apply to court for relief from forfeiture ? If the tenant has a valuable business at the premises, could the tenant counterclaim for losses based on being locked out of the premises. Is it better to obtain a court order as a safety measure ? Would it be better simply to agree a surrender of the lease with the tenant ? If the tenant is in arrears of rent and this can be wholly or partially written off by the landlord, a surrender arrangement may offer more certainty and less risk.

Any action is rapid – a common mistake by landlords is to dither and then to belatedly attempt to forfeit. This creates risk as the tenant may argue that by delaying, the landlord waived the breach of contract discovered a material breach of the lease a landlord must act to forfeit the lease promptly – or be deemed to have “waived” the right to do so – acceptance of rent by the landlord is likely to be deemed as an act of waiver.

Commercial leases and forfeiture are complex legal areas where legal advice is highly recommended. Also, it is vital to understand that forfeiture as described above should not be used with a residential lease, the ramifications of this is legal terms are very severe, so this remedy should not be considered with any form of occupation of residential premises.