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
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.
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
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
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