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 you can help me with the matter,I have taken sublease of a resaturant in march 2010,the sub lease is for 5 years,I have ran into rent arears i was behind 4 months rent,I have spoken to my land lord in May 2011 and we have mutually agreed small weekly payment + regular rent till dec 2011 there was no formal documentation has been done. and he has accepted two cheques of £ 360.00. I was going away to india for 12 days on 4th June 2011 for a family function. on 2nd June 2011 evening I received call from my land lord that he is taking over my “Business” as I have not paid him the rent.next day I have taken my solicitors advice,I was talled that land lord has the right to do so.he can lock my premises, but in this case he continued trading under my trade name using my equipments and then staff employed by me, and now sold on my business to some one else who have slightly ultered my trade name and continued trading.My assets and equipments are worth more than waht i owed him also he is demanding that i should surrender my goodwill and assets to him.The case is going on but I need a second opinion he has carried out valuation by his own appointed surveyers and they valued my assets at a very low rate, which in open second hand market has more value and I have offer from another resaturants at higer price.
Thank you very much.
Urvesh Bhagudia
We cannot give specific legal advice in relation to the matter without full sight of the lease and all supporting documents but in certain circumstances the acceptance of rent by a landlord could potentially constitute a waiver of the right to forfeit but it will depend on the facts of the individual case. I would therefore strongly recommend that you do instruct a solicitor to consider the full facts and to act on your behalf in this matter
thanks for your comments…since July i have taken my landlords to the small claims court claiming that they waivered their right forfeiture of lease because if i was in breach of covenant they should not have taken £1000 of the disputed £1400 rent 2 days before changing the locks. I was informed 26th march that if i didnt agree to paying disputed arrears of rent and utilities i was to assume that from 1st April they would forfeit the lease. On 30th April they accepted payment of £1000 and on 2nd May the locks were changed….does this mean they waiver their right to forfeiture…thanks in advance for your comments Maria
Maria
A landlord’s ability to lawfully change the locks and forfeit a lease will depend on the terms of the individual lease. If a landlord wishes to forfeit, there must be an express provision in the lease allowing the landlord to do so. If there is such a provision, the landlord must comply with any conditions or time-scales contained in the lease and must not act in a way which is inconsistent with the lease being brought to an end. As to whether or not a landlord has waived its rights would depend on the specific circumstances and actions of each case. However, in most (if not all) commercial leases tenants are under an obligation to pay the annual rent without deduction or set off and if the landlord has not waived its right to forfeit the changing of the locks could be lawful. There are a number of issues that need to be considered in more detail and I would recommend that you speak to a solicitor about this matter.
Regards
Owen
I am in dispute with my landlord who has changed the locks due to unpaid rent (the amount was clearly in dispute and the full amount was not paid). The monthly amount was paid by direct debit up until the changing of the locks…is the landlord able to do this
Hi
I own the freehold to a restaurant, let with 6 years outstanding. The last rent due on the 25 March remains unpaid (1k of 7k has been paid). The tenant is a company which operates from a number of units under leases.
I am worried about the tenant going into administration, which i believe is probable, and that an administrator if appointed will render me powerless.
Earlier this month, due to persistent problems collecting rent for the previous two quarters, I sent a Certified Bailiff in to take walking possession of certain goods.
The Bailiff has come back to me and said that HMRC’s bailiff has already beaten me to it! As such there are no goods to take a charge over.
Quite oddly, I also received a call from Tenant’s “advisor” who confirmed my unit is profitable and that they wish to close 5 of the 11 unprofitable ones. Also, that they have a buyer for the profiatable units lined up. No solicitor has contacted me re any such assignment however.
I am now thinking of changing the locks and forfeiting the lease as i believe this is tenants only motive is to buy time. I would also consider a winding up order, but as HMRC are already there it is only a matter of time, so why throw good money after bad.
If i do change the locks, the lease obviously comes to an end. If however the tenant does manage to survive might i have a claim on them for the outstanding rent for the duration of the lease?
Dear Owen Mckenna, thank you kindly for your response. May you be blessed with all your dreams and wishes. Regards Nick.
Nick
If you stop paying the rent the landlord will have remedies available to recover the outstanding rents. These remedies include the ability to sue you for the lease outstanding and future lease rents or, assuming that the lease contains the right for the landlord to re-enter, forfeiture. It will be a question for the landlord as to which remedy it chooses to pursue and in the current climate, unless the landlord has a new tenant ready to take occupation, they may not wish to forfeit the lease. Consequently, the landlord may choose to leave the lease in place and at some stage sue you for arrears of rent. If however the landlord does choose to forfeit, you as tenant would be responsible for all rents up to the date of forfeiture. Please note that if the lease was for example forfeited on 1 April and the rent was paid quarterly, the tenant would be responsible for the full March quarters rent.
Where a lease is granted to joint tenants I would usually expect to see a joint and several liability clause in the lease, meaning that if one cannot pay the other must.
Regards
Owen
Faz
Your comment raises a number of points …
As a general point an assignment of a lease can only be made in writing and if an assignment of the lease has not completed then the original tenant is still responsible for the payment of rent and the performance of the lease covenants. Furthermore, a tenant under a lease will remain liable to its landlord notwithstanding that it has granted a sub-lease. A tenant would need to pursue its sub-tenant for any breaches.
As for the Rent Deposit Deed, the Deed itself will govern when the deposit monies are to be returned to the tenant and the circumstances in which the landlord is permitted with make withdrawals. Generally, a correctly drafted rent deposit deed will entitle a landlord to make withdrawals from the rent deposit when a tenant is in breach of the lease covenants either during or at the expiry of the lease term.
The return of the keys raises a potential issue as to whether or not the landlord has accepted a surrender of the lease. Generally, where keys are returned a landlord must not do anything which is inconsistent with the lease continuing, otherwise a surrender could be implied.
If there are arrears of rent or other existing breaches of the lease, then a landlord may have grounds for forfeiture assuming that there is a forfeiture clause in the lease. Depending on the breach relied upon by the landlord as a ground for forfeiture, a specified form of notice of forfeiture may need to be served on the tenant before forfeiture is effected. The landlord is likely to utilise a rent deposit in making good any breaches of lease covenant and therefore the tenant may not get back any of the rent deposit.
There are a number of issues raised that require further consideration and I would recommend t that your friend obtain legal advice on their position.
Regards
Owen
I was wondering if you could help me with a query. Five years ago 2/12/05 I obtained a joint lease for ten years on a commercial property. A deposit deed was also made for the sum of £6250. Rent review to be made at five years. The relationship of the person I obtained the lease with is now non-existent, due to stealing from the business and illegal goings on at the premises. I have tried to be reasonable with this person and offered 3 options. I buy him out, he buys me out, or we sell the business. His response was ‘I don’t care, do what your going to do’. He has not co-operated for the rent review. I have informed the landlord, but he says we should deal with it. So a rent review has not been concluded, and our depoisit has not been returned, which the deposit deed says should be returned two weeks after the anniversary of the fifth year. My question is this. If I stop paying rent and walk away, or the landlord forfeits the lease, am I liable for the rents for the remaining term of the lease. Thanks in advance. Have a great day. Nick