In property law, if the lease expressly provides, forfeiture allows a landlord to re-enter their commercial property following a breach of the tenant’s obligations under the lease. A landlord can implement forfeiture in two ways; by peaceable re-entry or by issuing court proceedings for possession of the property.

Some of the points that a landlord may wish to consider before taking steps to forfeit include:

• The Letting Market: If the letting market is good, the landlord may benefit from letting to a new tenant at a higher rate. If the letting market is poor the landlord risks not being able to find a new tenant straightaway, which could result in the landlord being liable for outgoings in respect of the empty property e.g. rates and insurance.
• Guarantors: Is there a guarantor who would be liable to take the lease following forfeiture? If yes, would the landlord want the guarantor as a direct tenant?
• Redevelopment: Would forfeiture present an early opportunity for the landlord to redevelop the property?
• Squatters: Would there be a risk of squatters occupying the property if left empty?
• Relief from forfeiture: The landlord should consider the prospect of relief being sought and granted by a Court to reinstate the lease.
  
  A landlord should carefully consider if forfeiture is the right option, as once forfeiture has commenced the landlord cannot reverse their decision and the lease will terminate.

The right to forfeit

To forfeit a property, the right to forfeit must be expressly referred to in the lease.

Restrictions on forfeiture

When a right to forfeit has arisen, a landlord must respect various requirements and must ensure that they do not do anything prior to the date or event of forfeiture which would result in waiver of that right.

Waiver of the right to forfeit

Once the right to forfeit has arisen, waiver will occur when the landlord:

• Acknowledges the tenant's breach of the lease;
• Clearly or unambiguously recognises the lease as continuing e.g. by accepting rent from the tenant; or
• Communicates that act of recognition with the tenant (such as sending rent invoices or correspondence regarding the tenant’s breaches).

Once a landlord learns of a breach of the lease by the tenant they can either forfeit the lease or treat the lease as continuing. It is important to note that once the landlord makes this choice it is final and cannot be reversed.

In cases of a continuing breach, a new right of forfeiture arises each day the breach persists. If a landlord waives the breach, it will only apply to breaches that occurred before the waiver. The waiver doesn't prevent the landlord from later forfeiting the lease for the ongoing breach once again when the right to do so is triggered. Examples of continuing breaches include failing to maintain the property and continuing to miss payments of rent.

In cases when the breach is ‘once-and-for-all’, the right to forfeit that breach will be lost upon waiver. Waiver is therefore more crucial in relation to ‘one-and-for-all’ breaches compared to continuing breaches.

 Proceeding with forfeiture

When exercising the right of peaceable re-entry it must be peaceful and without violence. Typically, re-entry is achieved outside of working hours to ensure that the property is empty and is usually done by changing the locks. Due to this, enforcement agents are typically instructed to peaceably re-enter and secure the property. Immediately after re-entry, a notice stating that re-entry and forfeiture has taken place should be prominently placed on the property.

When a landlord issues court proceedings for forfeiture of the lease, the lease will not terminate until the court makes judgment for possession, however the period between service of the proceedings and the date of judgement is known as the ‘twilight period’ (by contrast with peaceable re-entry, where the forfeiture takes place when re-entry occurs).

Relief from forfeiture

Relief from forfeiture is a legal remedy which allows someone to regain their rights to a property that has been forfeited. A tenant or any third party with interest in the lease can apply for relief from forfeiture as soon forfeiture has commenced. Typically however, there will be a 6-month time period for the tenant to apply for relief from forfeiture. A relief application from the tenant would only be successful if they have remedied the breach i.e. paying off the rent arrears. It is then for the court to decide whether or not to grant relief based on the circumstances of the case.

Due to the potential of a relief from forfeiture application, landlords need to be careful and consider the potential 6-month delay in such an application being received before agreeing a new lease with a new tenant for the property.

Post forfeiture considerations

Once the lease has been terminated the landlord should consider the following:

• Updating the title: If the lease is registered with the Land Registry, the landlord may need to take steps to amend the leasehold title.

• Recovering unpaid rent: If a landlord forfeits for non-payment of rent, the landlord can recover the whole quarter’s rent if that rent fell due before the forfeiture, even if the forfeiture date falls in the middle of that quarter.

• Tenant’s fixtures and belongings: Generally, if the lease is forfeited by peaceable re-entry the tenant loses the right to remove fixtures. If the tenants’ possessions remain, the landlord must not damage the goods and establish if the tenant has abandoned the goods before disposal.

To forfeit or not to forfeit

The process of forfeiture is complex with many advantages, disadvantages, and points to consider before terminating the lease on a commercial property. If you are contemplating forfeiture, our Property Litigation specialists can review your lease and advise you of your options.