The landlord of a commercial property has the right to repossess that property from tenants without going to court via forfeiture of lease. However, there are several pitfalls that need to be avoided, particularly when it comes to subtenants.
What is forfeiture?
The landlord may forfeit the lease (of a commercial property) when a term of the lease is breached. The most common reason for forfeiture is non-payment of rent, which includes all items that have been reserved as rent under the terms of the lease, such as service charges.
The landlord does not have to give notice to the tenant; he simply enters the property peaceably and takes possession. This is normally done by changing the locks when there is no one on the premises, using a certificated enforcement agent (formerly known as a certificated bailiff).
Once the lease has been forfeited, then the tenant's, and any subtenants’, right to use the property comes to an end.
The landlord may choose to have a lease with just one company that can then sublet the property to one or more subtenants. In this case, the landlord will need a carefully written lease to ensure that their interests are protected in case there are disputes, either with the tenant or subtenant, or the tenant becomes insolvent. The landlord should also check the terms of any agreement between the tenant and subtenant.
As landlord, you will want to ensure that the lease gives you the right to forfeit and protect your interests with regards to the tenant and subtenant.
If the tenant has sublet the property without permission, or against the terms of the lease, the landlord can forfeit the lease, although they do need to give notice.
Taking legal advice on the drafting of any commercial lease is always advisable.
The landlord should be careful to ensure that they do not do anything that could waive their right to forfeit. Acts of waiver include demanding or accepting rent payments and exercising their right to recover arrears via CRAR, commercial rent arrears recovery.
The landlord will only regain the right to forfeit if the tenant goes into arrears on a subsequent occasion.
However, after forfeiture, the landlord can then obtain a court order against the now former tenant to recover the arrears owing. It is always a good idea to check that the tenant would be able to pay before starting proceedings.
Again, taking legal advice on waiver is recommended.
Relief from forfeiture
If the tenant wants to reverse the forfeiture and reinstate the lease, they must apply to court “without delay”, normally within six months. If the tenant is successful, the lease and any sub leases will be reinstated. A subtenant can also apply for relief; if successful, this is most likely to result in a new lease with the landlord.
To avoid problems with a new tenant after forfeiture, the landlord might need to advise them that the previous lease was forfeited and that there could be an application for relief. Yet another situation for taking legal advice!
David is an authorised High Court Enforcement Officer and our Director of Corporate Governance