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Forfeiture of a Commercial Lease – Is It Right For Me?

Forfeiture of a Commercial Lease – Is It Right For Me?

If a tenant breaches the conditions of a commercial lease the landlord is entitled to take legal action against the tenant if the lease permits. Forfeiture is the ultimate remedy available – but which way? Peaceable re-entry or Court proceeding?

​Forfeiture meaning - What is forfeiture of a lease?

Forfeiture is essentially the legal remedy whereby, following a breach of the terms of the lease, the landlord re-enters the property, regains possession, and ends the lease.

There are two ways of effecting forfeiture:

1. Peaceable re-entry
This allows for entering and securing physical possession of a property without confrontation.

2. Issuing Court proceedings pursuant to CPR Part 55
CPR Part 55 are the Civil Procedure Rules relating to possession proceedings.

Does the lease allow forfeiture?

The first thing to ascertain is if a lease allows forfeiture. When dealing with a commercial lease, a landlord contemplating forfeiture (e.g. for arrears of rent) needs to decide whether this is appropriate. Forfeiture terminates the lease. It terminates the obligation on the tenant to pay rent. Ask yourself the following questions:

  • Is this what the landlord wants?
  • Does the landlord want vacant possession?
  • Would the landlord prefer to let the lease continue to run and then sue the tenant for accrued and accruing rent?

This will depend upon whether the tenants are good for the money which they owe or if there are independent guarantors meaning a money claim may be preferable. Also there may be a rent deposit which may be able to be utilised.

It is therefore essential to, prior to a commercial landlord considering taking forfeiture action, carefully consider all aspects of forfeiture in order to decide whether it meets the landlords' best interests.

Relief from forfeiture

As forfeiture is available in all circumstances the Court has the power to grant relief from forfeiture to ensure forfeiture is not used disproportionately. This is in the form of a Court Order reinstating a lease which has been ended by forfeiture.

However, a key question is how long does the tenant have to make an application for relief?

County Court Applications

When the tenant is applying to the County Court for relief the timing is clear:

  • 6 months from the date of the Order - Where forfeiture is pursuant to a Court Order (S.138(9A) County Courts Act 1984); or
  • 6 months from the date of re-entry - Where forfeiture is on the basis of peaceably re-entry (Lovelock v Margo [1963]).

A tenant is less likely to obtain relief where the Court route has been used.

High Court Applications

When the tenant is applying to the High Court for relief there is some flexibility:

  • 6 months from the date of the Order - Where forfeiture is pursuant to a Court Order (Landlord & Tenant Act 1730); or
  • There is no set time limit for applications for relief where the landlord has obtained possession by peaceable re-entry.

In the case of Pineport Ltd v Grangeglen Ltd [2016] the Court used its jurisdiction to grant relief 14 months after the landlord effected forfeiture. The Court confirmed that an application for relief must be made with "reasonable promptitude", but stated that "reasonable promptitude is an elastic concept which is capable of taking into account human factors".

However, recent case law has questioned whether this approach is correct and a view was expressed that a delay of 18 months would have resulted in the application for relief being rejected. The takeaway from the above should be that the concept of "reasonable promptitude" can be stretched, but its breaking point depends upon the specific facts of the case.

Practical considerations

If the landlord has re-let premises pursuant to forfeiture, the landlord could find himself in an impossible position if the previous tenant gains relief from forfeiture. Forfeiture is therefore not without its risks to a landlord.

If a landlord enters peaceably and retakes possession, he has a duty to safeguard the tenant's possessions. This could include expensive machinery and stock. Third party claims often arise where machinery is on lease.

​​More information

Whether you are a landlord or a tenant, Pinney Talfourd can provide clear advice on all aspects of forfeiture. The Property Litigation Team  have provided practical and robust advice to its commercial property clients in many cases over the years and our experience of these situations can be invaluable.

Pinney Talfourd are experts in advising on leases. Contact our Property Litigation Team for more information and an initial assessment of the lease.

 
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