Forfeiture – what is it and when can it occur?

Commercial landlords will be aware of forfeiture and will broadly know what it involves. Still, we often find that they may not be confident enough in their understanding of forfeiture to exercise their right. Landlords are right to be cautious, as the law surrounding forfeiture is complex, and the pitfalls and implications should be understood before they are exercised.

This article is the first of a series looking at forfeiture and the complexities of properly exercising this right.

What is forfeiture?

Simply put, forfeiture is the right of a landlord to determine or bring a lease to an end. This right arises when a tenant has acted in breach of their obligations under the lease or on the occurrence of an event that is expressly set out in the lease.

When does the right to forfeit occur?

Usually, the right to forfeit will be explicitly provided for in the lease, and the lease will detail when the right to forfeit arises.

If the lease does not expressly provide a right to forfeit, the landlord may have an implied right to forfeit. Whether the implied right has arisen will be determined on a case-by-case basis, and a landlord who is not sure should seek advice.

How to forfeit?

If the landlord is seeking to forfeit for breach of a tenant’s covenant, the landlord must usually first serve a notice under section 146 of the Law of Property Act 1925 (“section 146 notice”) on the tenant unless the breach is in relation to rent arrears. A section 146 notice comes in a standard form and essentially puts the tenant on notice of their breach and gives them an opportunity to remedy the breach within a reasonable time period. If, after a reasonable time, the tenant has not remedied the breach, then the landlord may forfeit the lease.

It is not necessary to serve a section 146 notice where there has been a non-payment of rent. In cases of non-payment of rent, the landlord may forfeit in accordance with the terms of the lease or when reasonable. For example, usually the lease will provide for the right to forfeit where the rent remains unpaid for a period of 21 days.

There are two methods of bringing about forfeiture. Either the landlord peacefully re-enters the premises, or the landlord commences forfeiture proceedings against the tenant.

Peaceable re-entry

If the right has arisen, the landlord can re-enter the property. The act of re-entry terminates the lease automatically, subject to any claim the tenant may have for relief of forfeiture.

Any re-entry must be peaceful. This means no one should be in the building at the time of re-entry, and excessive force should not be used. A criminal offence will be committed if violence is used and a person is physically in the property and opposed to the re-entry. We would always recommend instructing a professional, such as a certified bailiff, to effect forfeiture by peaceable re-entry unless the landlord is confident of what they are doing.

The re-entry must be unequivocal, usually, this is achieved by changing the locks and/or otherwise securing the property.  A notice that forfeiture has taken place should also be prominently placed on the property. Such a notice must provide specific information, e.g. who to contact.

Forfeiture proceedings

The service of forfeiture proceedings will determine the lease as it represents the landlord’s unequivocal intention to forfeit, however, the lease is not forfeited until the court makes a judgment for possession.

The time between service of the proceedings and the court making the judgment is the “twilight period”. During this period, the landlord cannot demand rent but must instead demand mesne profits.

Considerations and restrictions on forfeiture

Before exercising the right to forfeiture, the landlord may want to consider if it is the best cause of action. Reclaiming possession is ideal if the property can be easily re-let, but if it cannot, a landlord may want to consider alternative options. These may include drawing down on the rent deposit, seeking recovery from guarantors, service of a statutory demand or exercising commercial rent arrears recovery.

If the landlord is set on forfeiture, then before exercising it they must give consideration as to whether they have waived their right to forfeit. A landlord may waive their right to forfeit accidentally, for example, by accepting rent.

Further, once the landlord has forfeited the lease they should be mindful of the tenant’s right to apply for relief from forfeiture.

We will explore these considerations further throughout this series of articles to be released over the next few weeks.