Wave goodbye to your right to forfeit
Posted by Owen McKenna Apr 12th, 2009, in Commercial property update
You only have to look at the high street and read the newspapers to see that the number of empty premises has increased and tenant administrations are on the rise. Clearly, in today’s economic climate there are a number of new challenges facing landlords and tenants of commercial leases. One such challenge facing a landlord is what to do in the event of tenant breach.
Forfeiture is a landlord’s right to re-enter the premises and determine the lease on breach by the tenant of its lease covenants or upon the happening of certain specified events. The right is not automatic, it exists only where the lease expressly includes such a right. Most commercial leases however will contain a clause thereby allowing the landlord to re-enter the premises on the happening of specified events.
Before a landlord proceeds to forfeit a lease, it should consider carefully the consequences of so doing. In a rising market a landlord should have no difficulty in subsequently re-letting the premises. However, in a falling market, re-letting premises may not be so easy and as a result of the forfeiture a landlord may be left with an empty property on their hands for a long time, and of course following the recent legislative changes, a potential business rates liability. Nevertheless, forfeiture remains an important tool in a landlord’s armoury in the event of tenant breach and the challenge for a landlord therefore is to avoid losing or “waiving” the right to forfeit.
A landlord will be prevented from forfeiting a lease if it has expressly or impliedly waived the right to forfeit. A landlord will still be able to pursue other remedies but will have lost the right to forfeit. Waiver will be implied in the following circumstances:
• A landlord knows of the relevant breach; and
• A landlord (or its agent) does some unequivocal act which recognises the continued existence of the lease, and that is communicated to the tenant.
Waiver is not a however a question of intention. So long as the act is inconsistent with an intention to determine the lease the motive for the act is irrelevant.
Waiver operates in respect of past breaches of covenant. Generally waiver will be relevant only in the case of “once and for all” breaches (for example unlawful assignment/subletting or unlawful alterations), where in the event of waiver the right to forfeit is lost forever. If however the breach is of a continuing nature (for example failure to insure or failure the keep premises in repair) the right to forfeit, though waived on one occasion, will arise again.
The number of cases that have come before the courts over the years on the issue of waiver is significant but unfortunately uncertainty remains. Circumstances which have been held to constitute waiver include accepting rent due after the date on which the right to forfeit arose, demanding rent due after the breach, enforcing other covenants in the lease or granting licence to assign or sublet. Since waiver is not a question of intention and as a landlord is deemed to have the knowledge of its employees, an accounts team for example sending out rent demand or banking a cheque at the wrong moment may result in the loss of the right to forfeit.
The safest course for a landlord on becoming aware of a breach if it wishes to preserve its right to forfeit, is not to make any demands for rent due after the breach and to refuse to accept all rent.
Please do not hesitate to contact me if you require any further information on the issue of forfeiture or waiving the right to forfeit.
18 Comments
By Owen McKenna on April 15th, 2009
Hi Liz
Forfeiture is a process by which a landlord exercises a right contained in a lease. The right to forfeit exists only where the lease expressly provides for it: if there is no written lease the landlord cannot have a right to forfeit.
The bailiff’s reference to the Rent Act 1988 and the Human Rights Act 1998 is incorrect. There is no Rent Act 1988 although there is a Housing Act 1988 but this applies to residential properties and not commercial premises. Furthermore, the Human Rights Act 1998 does not convey a right on a landlord to evict a commercial tenant.
The common law argument is less clear and it is possible that the landlord may theoretically have an argument that a repudiatory breach of contract has taken place i.e. the non-payment of rent, which has given the landlord the right to terminate its obligations under the contract. Before being able to advise further a full investigation of the facts would be required.
Please give me a call if you wish to discuss further.
Owen
By alex bashir on December 1st, 2009
Club premises. Commercial Lease.Tenant not paid rent for over a year.Lease have expired.Tenant is in breach on several Lease clauses.Local Authority rates the property as a commerecial premises.
Bailiffs were instructed to forfeit the lease and secure the premises but on arrival were met by the son of the tenant(who is unknown to the Landlord) claiming he is living on the premises and that is not moving.
Landlord wants the property back without going to Court (the expense).
Any advice Please
By David White on December 17th, 2009
Hi
I took on a commercial lease in a shoping mall. The landlord granted further leases to similar business and we suffered as a consequence. We discussed this with our landlord who didnt want to know and offered no support. We closed the shop and now the landlord is threatening court action to recover outstanding monies. I call round to the unit today and the landlord was using the unit as storage for a subcontractors equipment!! Can he do this? Is this a breach on his part?
Your advise would be appreciated.
By John Chesworth on December 22nd, 2009
Hi Alex
I have seen your earlier comments and I think there is a major problem with the individual who is claiming to occupy the property as a residence. If a court found as a fact he was occupying the property as a residence they would also find that any eviction without a court order was unlaful.
If you have evidence that his claim to occupy the property as a residence is a sham, then you could take a risk and seek to reposses by peaceable re-entry when he is not present at the property. However, this is an extremely risky strategy, the compensation that a court would order would far exceed the £750 – £1000 plus VAT and court fees it would cost to get a possession order and ensure the landlord keeps on the right side of the law.
Regards
John
By John Chesworth on December 22nd, 2009
Hi David
You post raises some interesting points. There have been cases where a landlord of a shopping mall was held to have been liable to a tenant where his letting policy had damaged the tenant’s business. If the landlord had given you assurances that he would not let to similar businesses you may have a case. However, a detailed examination of your lease and the facts of the case would be required before advice could be given on this topic.
In relation to the landlord’s use of your premises as storage, this appears to me have been an act of forfeiture by taking possession. Has the landlord changed the locks? He is entitled to do so if the lease has a forfeiture provision and the rent is over due by the number of days stated in that provision.
If the landlord has changed the locks and lawfully forfeited the lease, then no future rent will be payable, although you will be liable for all rent that fell due up to the date he forfeited the lease.
I hope this helps.
John
By Barry Watkins on January 21st, 2010
I have a ten year lease on a commercial industrial unit with a 6 year break clause and was signed in my personal name January 2009. The rent was due on the 25th December 2009 of £3120.00 and a clause in my lease says that if after 14 days if the rent has not been paid that the landlord can regain peaceful entry.
I wrote to the landlord by hand and this was posted by hand at the beginning of some 14 days to his home address stating that I have been ill for some time and away having treatment and that I am fully recovered but cash flow at the business has suffered due to the fact that I have not been chasing monies owed.
Staff arrived today to find a notice on the door from a company called “County Bailiff Company” stating my name and “PURSUANT TO CLAUSE (18) OF YOUR LEASE DATED THE 30TH JANUARY 2009 WE ARE AUTHERISED AGENTS OF THE LANDLORD HAVE THIS DAY RE-ENTERED THE PREMISES DEMISED BY THE SAID LEASE AND THE SAID LEASE IS THEREBY DETERMINED ABSOLUTLY”
Several points, I have phoned the bailiff 7 times and explained and also there is a cheque that has been ready at the office for the rent and in fact is £1200 cash there if required but they have just said they will get back to me.
The landlord hold £5000 as a deposit in a bank account under no scheme, I have received no notification by recorded or proof of delivery, however my personal post has still to be cleared, which ironically is at the office but there have been no recorded delivery items.
Can he do this? and can I gain peaceful re-entry?
The only other thing is as I believe he is doing this for an alternative motive in that he has the unit next door but that needs 3 phase and gas which on a new tenancy with a caterer he has let it too saying it has but it does not have either in the correct voltage or supply and will cost over £8k to have the road lifted just for the 3 phase.
Regards
Barry
By Ramin on January 30th, 2010
Hello…HELP NEEDED!
I have a tenant who has breached his Lease on many counts. He has turned part of the office into a residential unit and sub-let it. His Lease states that the unit is for office purposes only and no alterations can be made without written consent and strictly for office use only. He has applied for planning consent with the local authority – again in breach of lease- and they have refused. I am the lease holder and the freeholder has served me a Section 146 notice some time ago and I have done the same with the tenant. The local authority has now served an Enforcement Notice on all of us too.
I have been accepting his rent throughout this process as it’s been going on for over a year and a half. Plus Solicitors fees but nothing has been done. Now my tenant’s company has gone into liquidation and forfeiture is a clause under the Lease if such happens. I have served a fresh section 146…Am I able to go in and evict the tenant by myself when the Section 146 date passes and nothing has been done to remedy the breaches? I stand to lose a lot of money and can’t afford to.
Kind Regards
Ramin
By Lorraine Gordon on February 23rd, 2010
My landlord forfeit my shop lease meanwhile i was sick in hospital he had six months deposit for me and i owed him for six months 24th february 2010. romorrow i still have 13 years remainingon lease can i get any money from the landlord for remaining time or what else can i do to recover some money from this lease i have paid a lot of money for this shop lease please help
By James on April 7th, 2010
Just a quick query, we are a sub tenant in a commercial premises (A2), our head landlord has gone into receivership, we were in the process of assigning the lease for a longer term on the Landlords behalf, are we still liable for the rent until the conclusion of our lease or can we walk away and take another premises as I have no idea who or what the new landlords will be like if the bank sells the property on.
Thanks for your help in advance.
James
By Owen McKenna on April 12th, 2010
James
Your contractual relationship remains with your immediate landlord and therefore unless you take an assignment of the headlease you will not have a direct contractual relationship with the headlandlord. Under the terms of your sublease I would expect that you will be required to continue to pay the rents and perform the sub-lease covenants for the remainder of the sub-lease term or until the sub-lease is assigned by you or determined early by agreement (i.e. by way of a surrender).
Regards
Owen
By Emma Doye on May 11th, 2010
I have a 999 year lease on a property. 3 years ago the insurance on the premises was withdrawn and I was instructed to sort my own insurance and a schedule of delapidations imposed. We began work to repair the premises, but eventually ran out of money. We recently received a letter requesting money (for 3 years insurance, although this was not stated) and then our lease forfeited and peaceful re-entry effected for non payment (of rent). Demand was then made for further costs. Whilst corresponding with the lawyer we also sent a cheque to the landlord, which he has cashed. Does this thus constitue a waiver of forfeiture? If so can I just demand return or supply of the new keys (door and lock was changed on re-entry). Long winded, I know, but your advice would be appreciated.
By Owen McKenna on May 22nd, 2010
The fact that the outstanding arrears have been tendered and cashed by the landlord after peaceable re-entry has been affected does not amount to a waiver of forfeiture because forfeiture cannot be waived after the event. It is also worth noting that forfeiture only concerns performance of ongoing or future obligations, it does not relieve the tenant from liability for existing breaches at the time of the forfeiture so the arrears remain due and owing.
However, assuming that this lease was forfeited solely on the grounds of non-payment of rent, the fact that the arrears have been paid may be sufficient to entitle the tenant to obtain for relief for forfeiture provided that the tenant is still within the six months deadline for making that application. Although I would point out that relief from forfeiture is an equitable remedy which is at the discretion of the Court and it is common for the Court to require the tenant to pay any interest on the arrears and the costs of forfeiture as a condition of granting relief where the lease has been forfeited for non-payment of rent. It may well be that in this instance the court will also impose further conditions relating to remedying any other existing breaches (such as the insurance and repairs) even if they were not originally relied upon as grounds for forfeiture.
By Zeev Pollack on June 30th, 2010
Does a ‘rent authority letter’ (following the transfer / new ownership) in itself amount to a waiver?
For example: rent due 25 June, rent authority letter for new landlord sent on 1 July, tenant doesn’t pay and the 14 days to forfeiture for non payment expire on the 10 July, may new landlord forfeit for non payment?
By Janet Smith on July 26th, 2010
Our landlord was advised of a meeting of creditors in order for our company to enter into a CVA. On the Friday before the meeting (to be held at 10am Monday) after we had left the office, the Landlord placed a forfeiture notice on our door and changed the locks. Our CVA creditors meeting had to be held in the stairwell of the building and granted. The landlord is not allowing us access to remove our files and contents. We have requested 2 days to dismantle & move everything, however the solicitor has come back to us twice 1 day before the day they say we can go in. What can we do?
By Emma Doye on August 8th, 2010
Following on from my previous query, I have written to the landlord and his solicitor seeking to gain a peaceful and less. mostly resolve to the peaceable re-entry.
The solicitor is demanding costs for new door etc.,, but is also seeking costs for preparing a Schedule of delapidation 3 years ago, another schedule (which I argue was a waste of time as its purely an inventory of a building site -as the builders absconded mid job) as well as their fees and other quantified amounts and my preparation of a deed to negotiate. These costs are several thousands (versus the £800 insurance which was queried by us and paid as soon as able) these costs would easily eat up 25% of the finance we’ve managed to raise to complete the works on the project and place the success of the completion in serious jeopardy.
How would you advise we best proceed to gain back our building (which we owned on a 999 year lease) quickly and cost effectively?…(the solicitor says they will “robustly oppose any attempt to fight their terms of re-entry).
Your best advice would be greatly appreciated.
By Paul Jones on August 9th, 2010
Good Afternoon
We are a sub tennant in a commercial property and have recently defaulted in paying our rent.
A couple of weeks ago we turned up to the property to find out the locks had been changed.
We struck a deal with the property owner stating as long as we pay a set amount each week we can have the keys back.
We have now done the deal but have now received a bill from our immediate landlord for £750.00 for bailiffs fees and a locksmith fee.
We did not have any warning to say they were coming is there fee lawful.
By Nigel on August 25th, 2010
What a tremendous site for both landlords and tenants. I am a lanlord and have a tenant who has defaulted on a commercial lease approx half way through it’s term, he left the property owing a full qtrs rent £4000 and approx £5000 of damge to windows and interior fittings. I have issued him with a default of lease notice which has now expired and now I want to take to court for the oustanding rent and the expenses I’ve incurred to put the property back in to a rentable condition. My question is this, if I take him to court and win and he still doesn’t pay what can I do then?? Or am I just left with a legal bill and no of enforcing payment from him?? Many thanks for your help.
By Liz on April 15th, 2009
Hi,
Further to commments of last week answered by your collegue John. My partner has been in dispute with his landlord and has not paid rent (landlord’s case was struck out in the County court). Bailiff has changed locks and disputes that this is an illegal eviction quoting L’s common Law rights under Rent Act 1988 and also L’s right to his rent under Human Rights Act. Says as there is no signed lease, rules of forfeiture required by it do not exist.
Can you comment further.
Thanks
Liz