Forfeiture of a commercial lease
Forfeiture is when a landlord ends the lease due to the tenant breaching the terms of that lease by not paying their rent or by other significant breach. Remember that with commercial leases, whilst termination is rarely straightforward, it is a lot easier than with a residential lease.
Subject to the terms of the lease agreement (legal advice should be sought) a lease generally cannot be forfeited by any other breach of the lease except non-payment of the agreed rental amount.
If a different breach of lease has occurred then the landlord is within his rights to serve the tenant with a notice which should state exactly what that breach is and must give the tenant a set period of time to rectify the breach.
If the tenant adheres to the order and rectifies the breach within the set time period then the landlord’s right of forfeiture no longer stands but if the tenant continues to commit a breach of the lease the landlord can then pursue forfeiture of the lease through the court.
Forfeiture is not straightforward. Whilst some landlords will seek to forfeit by simply changing the locks without a court order, this is highly risky, and may result in an expensive application being made to court for relief from forfeiture by the tenant plus a possible damages claim for loss of business or damage to business. Legal advice should be sought. Generally, a landlord wishing to forfeit the lease of his property will need to apply to the court to obtain an order to authorise the forfeiture.
But, before the landlord can obtain the order he must perform certain actions to try and remedy the breach himself.
- If the breach is due to missed rent payments the landlord will need to issue the tenant in breach of the lease a formal demand for those missing rent payments and the demand must state the date that the amount is payable by and the landlord’s name and contact details.
- If the breach is the result of another reason other than rent arrears, which may include the tenant failing to pay service charges, then the landlord will be required to serve the tenant with a section 146 notice before being able to apply for forfeiture. The section 146 notice must detail the nature of the breach of lease and give the tenant a sufficient amount of time to remedy that breach.
Surrender as an alternative
If the tenant is in genuine financial difficulties, a possible alternative to forfeiture is to agree that the lease is surrendered by the tenant. This at least will avoid significant legal costs and possible delay.
When a landlord first becomes aware that he may be dealing with a troublesome tenant it is advised to seek legal advice as soon as possible.
It also makes good business sense for the landlord to include the possibilities of defaulting tenants and legal costs in his landlord’s insurance cover to save a great deal of time, money and heartache further down the line.
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