What is the right of forfeiture?
The right of forfeiture is one of the remedies available to Landlords in circumstances where they are in difficult situations in respect of their lease, perhaps due to tenants struggling to meet their rental payments.
In today’s financial climate, it is hardly surprising that a tenant may struggle to meet rental payments and deadlines.
Forfeiture enables a landlord to re-enter the property following a breach by the tenant – this, in turn, terminates the lease. Termination can take place either immediately or following a period of notice, depending upon the reason for the forfeiture.
What kind of breach triggers forfeiture of a lease?
To forfeit a lease, a landlord will need to ensure that they can establish the basis of their right to do so. Usually, this is by relying on a specific clause in the lease, which grants to the landlord the right to forfeit the lease in specific situations.
In other circumstances, it may be the case that a landlord can even exercise a right to forfeit in the absence of a certain clause in the lease.
If the tenant has breached one of the fundamental clauses in the lease that is critical to the agreement, then the landlord can exercise a right to forfeit the lease automatically. Despite this, it is critical that this right is exercised with caution as it is crucial to establish whether the tenant’s breach was of a clause that is actually fundamental to the contract.
Section 146 Notice
If it can be established that a right to forfeit the lease does arise, then a landlord must follow a statutory notice procedure to terminate the lease (a Section 146 Notice). It is important to note that no notice is required to be served if the breach is in relation to the non-payment of rent – this is usually because the tenant will obviously know that he/she hasn’t been paying rent so notice is not necessary for this.
Notice must be served upon the current tenant and allow them time to remedy the breach that has occurred. The notice must contain a request for the breach to be remedied and/or to pay compensation in respect of this.
If the tenant does not action the contents of the notice and remedy the breach within a reasonable time or within the stated period then the landlord has the right to go ahead and exercise the forfeiture clause.
How to exercise the forfeiture clause?
In the event that a landlord does have a valid right to forfeit the lease, what are the final issues that the landlord should be aware of?
Firstly, the landlord will need to consider how to regain control of the premises. This will be through ‘peaceable re-entry’, which essentially means changing the locks when the building is empty. Practical issues will need to be considered here, for example, the landlord ensuring that the individual is not present, to avoid risking committing a criminal offence by changing the locks.
The alternative to ‘peaceable re-entry’ is to issue court proceedings. This means issuing forfeiture proceedings using the relevant claim form for the court. This does avoid the practical risks and difficulties that may arising when carrying out ‘peaceable re-entry’ however issuing court proceedings can be a lengthy process incurring additional legal fees.
It is important to note that a landlord seeking to effect forfeiture should be aware that a tenant has the right to apply for relief from forfeiture by applying to the court for this. Due to this, even in circumstances whereby the landlord’s right to forfeit can be clearly established, and the statutory procedure is followed, a tenant may still be able to remain in the premises.
The right of forfeiture is a critical clause for a landlord. Although it is a clear and useful remedy in difficult situations for landlords, it is a complex clause in respect of establishing the right to exercise it and in relation to it’s effect.
Therefore, it is always crucial to ensure that legal advice is obtained when dealing with a forfeiture clause.
If you have any questions about forfeiture clauses or leases, or would like Ringrose Law to act on your behalf for your Commercial Property transaction, please contact a member of the Commercial Property team at Ringrose Law’s Newark office.