Wave goodbye to your right to forfeit
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.
Hi,
If the landlord asks you to pay the rent through a Bailiff Agent, can this be considered a waiver of forfeiture?
Dear sir/madam,
You said,
the landlord cannot claim for future rents – the landlord will only have a claim for rents up to the point of forfeiture.
Dear sir/madam,
You said,
the landlord cannot claim for future rents – the landlord will only have a claim for rents up to the point of forfeiture.
If the landlord puts this as expenses in the “Lease” or in the “Rent Deposit Deed”, is he entitled to claim rents until the end of the lease or to rent the Property again? Is this legal?
Regards
Sir’s
We have granted a lease to 2 tenants who have missed sept & dec Q rent
We have sent several reminders to them too pay rent as they are certainly in breach of the covenant
But we have by sending & communicating with the tenants waived our right to forfeit the lease
Secondly there is a rent review in place which is now conducted on the with out prejudice basis
There is a rent deposit with the solicitors
We intend to fore feit the lease in next Qtr
My question to you is
Can we with out affecting our right to FF gain the rent deposit plus the accrued interest to satisfy our other creditors
Obviously the rent deposit license allows such withdrawals by the holding solicitors & need it to be replenished upon the notice of withdrawal from the solicitor
Can the tenants argue at the FF hearing that this action was not justified & create unnecessary litigation cost & sympathy by Judge
Mike
Sir’s
We have granted a lease to 2 tenants who have missed sept & dec Q rent
We have sent several reminders to them too pay rent as they are certainly in breach of the covenant
But we have by sending & communicating with the tenants waived our right to forfeit the lease
Secondly there is a rent review in place which is now conducted on the with out prejudice basis
There is a rent deposit with the solicitors
We intend to fore feit the lease in next Qtr
My question to you is
Can we with out affecting our right to FF gain the rent deposit plus the accrued interest to satisfy our other creditors
Obviously the rent deposit license allows such withdrawals by the holding solicitors & need it to be replenished upon the notice of withdrawal from the solicitor
Can the tenants argue at the FF hearing that this action was not justified & create unnecessary litigation cost & sympathy by Judge
Mike
Ranjan
Thank you for your recent enquiry.
If the lease contains a forfeiture provision in respect of breach of covenant, you may be able to forfeit the lease provided that you have not waived this right. In circumstances where the tenant breach is something other than non-payment of rent, a landlord cannot take steps to forfeit a lease without first serving notice pursuant to section 146 of the Law of Property Act on the tenant, requiring the tenant to remedy the breach (if it is capable of remedy) within a reasonable time.
Before being in a position to provide you with any specific advice, we would require sight of the lease and any associated documentation along with a detailed chronology of events and copies any correspondence between yourself and the tenant (if any).
Should you require any further assistance, please do not hesitate to contact us on 01772 258321 and we will be more than happy to assist you.
Kind regards
Beccy Patience
Really useful. Great resource. Thank you.
I have just completed on purchase of an office building let to multiple tenants on leases within 1954 Act. One office suite was let 6 months ago by previous owner. Lease stipulates B1 use and building is B1 as per planning. The tenants are using it purely as a training centre (D2). The vendors had no idea of the breach. I discovered it on inspection.
I want to bring the lease to an end as this is a breach. (We may in future want to convert to residential under permitted development and these rights are only available if existing use is B1.)
The premises are only used by the tenant when they have training courses scheduled. ie there is no B1 usage at all as the layout is as a classroom. (The companies website cites the premises as one of their training centre’s)
The lease allows for peaceable re=entry if there is a breach. Can we exercise this right without going to court?
Hello,
Unfortunately my business didn’t went well and I had to close it, I have agreed with the landlord to place shop in the market and continue to pay the rent until we find a new tenant. After 5 months (with me paying the rent), the landlord finally accepted an offer and a new lease started.
The landlord is now claiming that we forfeited the lease and therefore we don’t need a termination of lease agreement and I’m not entitled to recover the deposit.
Could you please help me to clarify if this is correct? I feel I need some king of document to confirm the termination of the lease and I don’t think we have forfeited the lease as we have been paying the rent every single month.
Thanks,
Filipe
My tenant is persistently late in paying rent. I wish to use peacable re-entry to regain the property as the lease allows.
However the lease expires on 15th July 2016 and I also need to serve a section 25 notice opposing renewal due to persistent late payment of rent by Friday this week at the latest to meet the six month rule. If i serve this notice will it have the effect of waiving my right to forfeiture?
On the other hand, if I dont serve it and simply repossess the property and he claims relief for forfeiture it will be too late to serve a sec 25 and will I then be obliged to grant him a new tenancy?
I also hold a quarters rent as a deposit if that makes any difference.
thanks Paul
Colin
Without sight of the lease and any supplementary documents amending the lease we are unable to provide you with any specific advice.
Your first query relates to the variation made to the Lease and whether this would bind successors in title. You do not however specify how the amendment was made to the Lease. A variation to the terms of a Lease will generally need to be in the form of a deed but can still be valid by way of side letter. The key question wherever the content or effect of a side letter is disputed is whether or not the side-letter is binding. Although the usual intention is that side letters will give rise to legally enforceable rights and obligations, this is by no means guaranteed and, in some cases, they have nothing more than moral effect. It is advisable that any side letter which is intended to be binding and enforceable should specify so, be provided for consideration or be executed as a deed. In any event a variation may bind a successor in title where the successor in title has been informed of the variation and has expressly accepted it. It will depend upon the facts of the matter and the contents of the documentation.
With regard to your second query asking whether the Landlord has waived his right to forfeit the Lease, as partial payment of rent is a breach of a continuing nature, every time a rent underpayment is made a new cause of action arises. Therefore the Landlord accepting the two payments of rent at the lower rate would not mean that he had waived his right to forfeit the lease indefinitely. In the given circumstances, accepting the second payment of rent at the lower rate would mean that the Landlord had waived his right to forfeit the Lease in respect of the first payment of rent at a lower rate but should the Landlord refuse to accept the next payment of the lower rent then the right to forfeit would have arisen in respect of the second payment.
Should you require any further assistance, please do not hesitate to contact us on 01772 258321 and we will be more than happy to assist you.
Kind regards
Rhian
My property was recently sold by LPA recivers. I had in place a lease for my wife. Prior to the sale I made an Amendment Agreemnet to reduce the rent (no provision in the lease for rent review at the time) from £11,500 PA to £4980.
The new owners accepted and agreed the lease for my wife when they exchanged contracts on the property. But they refuse to accept the Amendment Agreement to the rent and want the £11,500 and are now threatening to use the Forfeiture Clause for not paying the full rent they are claiming.
My wife has paid two months paymnets to the new lanlord at the amended rate £415.00 each month which they have accepted and not returned to her.
On that basis we understand the new lanlord has accepted the rent for the future and established a contract (despite letters of threat from his solicitor) or in the very least has wavied his right to forfeiture ?
KR
Colin
H