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FORFEITURE - A GUIDE FOR COMMERCIAL LANDLORDS
Main points for a landlord to
consider before forfeiting a lease
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| Is there a right to forfeit? |
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| Avoiding waiver |
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| What is waiver? |
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| Potential acts of waiver |
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| Continuing/once-and-for-all
breaches |
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| Preserving the right to forfeit
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Main points for a landlord to consider before forfeiting
a lease
Specific advice should be sought in individual cases but,
as a guide, the following factors should be borne in mind:
| Do you want to redevelop the premises? |
| Is there a rent deposit? |
| Is there a subtenant at the premises? |
| Is there a guarantor or any former tenants or former
guarantors who are still liable? |
| Are you confident that you can re-let the premises? |
| Will the new rent payable by any new tenant be at least
as much as the existing rent? |
| Do you need to serve a notice pursuant to section 146
of the Law of Property Act 1925? |
Is there a right to forfeit?
1. Check that the lease contains a clause allowing you
to re-enter the premises in certain circumstances, e.g. where
there has been a breach of the lease. (If the lease does not
contain a re-entry clause, you will only be able to forfeit
it if there has been a breach of an implied condition by the
tenant. This occurs where the tenant acts contrary to a fundamental
aspect of the landlord/tenant relationship, e.g. the tenant
denies the landlord's title.)
2. Check that the re-entry clause covers the tenant's act
you are complaining about, e.g. a tenant's covenant not to
assign the lease without consent is not broken by a subletting.
3. Check whether the lease specifies any pre-conditions for
exercising the right to forfeit, e.g. a grace period for paying
sums due under the lease.
If: (1) there is a re-entry clause in the lease; (2) the
re-entry clause covers the tenant's act; and (3) any pre-conditions
in the lease have been satisfied: you have a right to forfeit
the lease.
However, for all breaches of covenant other than the non-payment
of rent, you will need to give the tenant notice of your intention
to forfeit the lease - under Section 146 of the Law of Property
Act 1925. Where the tenant has breached its repairing covenants,
you will also need to bear in mind the requirements of the
Leasehold Property (Repairs) Act 1938.
Avoiding waiver
If you want to look into the possibility of forfeiting
the lease and regaining possession of the premises, you should
ensure that you do not waive the right to forfeit in the meantime.
Please click
here to download a short briefing note on avoiding waiver,
which can be easily printed off.
What is waiver?
No matter what your intention, you will waive the right
to forfeit if you: (a) know of your tenant's breach; and (b)
do something which unequivocally recognises the lease as existing
or continuing. In order for there to be waiver, your act which
treats the lease as if it is still in existence must also
have been communicated to the tenant.
Always think: - Will what I am about to do treat the lease
as if it still exists? Am I doing something which I am only
allowed to do by virtue of the lease?
Potential acts of waiver:
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Demanding or accepting sums due under the
lease. |
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Levying distress. |
| • |
Negotiating or granting consents required
under the lease. |
| • |
Serving notices under the lease. |
| • |
Serving statutory notices. |
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Seeking an injunction against a breach of
covenant. |
| • |
Arranging to inspect the premises. |
| • |
Offering to accept or negotiating a surrender
of the lease. |
Continuing/once-and-for-all breaches
For some breaches (which are called "continuing breaches"),
it may not be a problem if you waive the right to forfeit
because the right can arise again. However, it is generally
better to take a cautious approach at first, until you have
confirmed the nature of the breach.
Some of the common breaches of lease, e.g. non-payment of
rent, unauthorised assignment, unauthorised subletting and
insolvency, are all regarded as "once and for all"
breaches. This means that waiver in those cases would lose
you the right to forfeit until there is any further breach
by the tenant.
This is a guide to how some of the common breaches are generally
regarded:
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Breach Continuing/once-and-for-all |
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Non-payment of rent Once-and-for-all |
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Unauthorised assignment Once-and-for-all |
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Unauthorised subletting Once-and-for-all |
| • |
Other unlawful sharing of occupation Continuing |
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Unauthorised alterations Once-and-for-all |
| • |
Failure to keep premises in repair Continuing |
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Failure to put premises in repair Once-and-for-all |
| • |
Illegal/immoral use Continuing
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Other unauthorised use Continuing |
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Insolvency Once-and-for-all |
Preserving the right to forfeit
In order to preserve the right to forfeit, you should:
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Ensure that no sums due under the lease
are demanded or accepted, even on a without prejudice
basis. Any letters to the tenant to chase arrears should
be carefully worded, so that they do not waive the right
to forfeit. |
| • |
Only communicate with the tenant and/or
its representatives on a without prejudice basis, if at
all. |
For further information or advice please contact propertylitigation@charlesrussell.co.uk
These notes represent only an outline summary
of relevant principles and detailed advice should always be
sought in particular cases.
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