Forfeiting a Commercial Lease: A Practical Guide for Landlords

What Is Forfeiture?

Forfeiture is the landlord’s right to terminate a lease early due to a breach of the lease terms by the tenant. This right typically arises where the lease contains a forfeiture (or re-entry) clause - a contractual provision that entitles the landlord to re-enter the premises and end the lease in the event of certain breaches.

Not all breaches give rise to an automatic right to forfeit. The breach must fall within the scope of the forfeiture clause, and the correct procedures must be followed to enforce it.

When Can Forfeiture Be Used?

Forfeiture is only available where the tenant has breached a condition or covenant of the lease.  Common grounds include: 

• Non-payment of rent
• Breach of repair obligations
• Unauthorised alterations or subletting
• Breach of user clauses (e.g. unlawful use)
• Insolvency of the tenant, if covered in the lease

Forfeiture for Non-Payment of Rent

Forfeiture for unpaid rent is relatively straightforward under common law. If the lease contains a forfeiture clause allowing re-entry for non-payment of rent, and the tenant is in arrears of rent, the landlord may take steps to forfeit. No advance notice is required. However, landlords are typically obliged to wait at least 21 days after the rent becomes due, in line with common industry practice and to avoid any argument of premature (and unlawful) forfeiture.

Methods of Forfeiture 

There are two methods of forfeiture for non-payment of rent:

• Peaceable re-entry: Physically re-entering the property and changing the locks (but only when the premises are empty of the tenant or the tenant's staff).
• Court possession proceedings: This is often regarded as more appropriate where peaceable re-entry would be risky or potentially unlawful (e.g. if someone is on the premises).  It is however more lengthy and costly. 

Waiver of Right to Forfeit

Landlords must be cautious not to waive the right to forfeit by (for example) accepting rent after the breach or communicating with the tenant in a way that acknowledges the lease continues. Generally, a waiver occurs once the landlord is aware of the breach and acts inconsistently with the intention to forfeit.

Forfeiture for Breaches Other Than Non-Payment of Rent

Where the tenant breaches a non-rent covenant, the landlord must comply with Section 146 of the Law of Property Act 1925 before proceeding to forfeit.  This means serving a Section 146 Notice.

A Section 146 notice must:

• Be served on the tenant (and any subtenants or mortgagees).
• Specify the breach complained of insufficient detail.
• Require the tenant to remedy the breach, if it is capable of being remedied.
• Demand compensation, if appropriate.

Only if the tenant fails to comply within a reasonable time to remedy the breach can the landlord then proceed to forfeit, either by peaceable re-entry or court action.

Relief from Forfeiture

A tenant who has been subject to forfeiture has the right to apply to the court for relief from forfeiture.

When dealing with relief for non-payment of rent relief is commonly granted if the tenant pays the arrears and the landlord's costs quickly.  Applications can be made up to six months after possession is taken (under the County Courts Act 1984).

For breaches other than non-payment of rent relief is discretionary, and the court will consider: 

• The seriousness of the breach
• Whether it has been remedied or is capable of remedy
• The tenant’s conduct and any past breaches
• Any disproportionate consequences of forfeiture

Courts generally lean toward preserving commercial tenancies if the breach is not severe or has been remedied.

Practical Considerations and Risks for Commercial Landlords

While permitted at common law, peaceable re-entry comes with legal and reputational risks. If someone is on the premises at the time, re-entry may constitute an unlawful eviction or even a criminal offence. Equally, any use of force or confrontation could result in both criminal and civil liability.

It is essential, therefore, to take proper legal advice before effecting peaceable re-entry.

Court proceedings are slower and more expensive, but more secure. Landlords may opt for court proceedings to reduce risk and establish a clear record. This does, however, also allow tenants the opportunity to apply for relief from forfeiture. For obvious reasons, many landlords prefer to avoid this!

It is also important to remember timing and tactical considerations. Be mindful of waiver, especially if communicating with the tenant post-breach. Do not accept rent after the breach unless you are certain you will not be forfeiting. If there is a guarantor, forfeiture may affect the enforceability of their obligations - legal advice is essential in such cases.

Key Steps to Forfeit a Commercial Lease Legally

Forfeiture is a powerful tool, but it must be handled with care. Landlords seeking to forfeit a commercial lease must ensure:

• The lease contains a valid forfeiture clause.
• The correct procedure is followed (particularly for non-rent breaches).
• There is no conduct that could amount to waiver.
• Re-entry is carried out lawfully and without violence or confrontation.

Given the complexity and potential consequences, it is essential to seek legal advice before taking action. A misstep in forfeiture can turn a simple rent dispute into a costly claim for unlawful forfeiture or relief.

How We Can Help

For tailored legal advice on how to forfeit a commercial lease or to manage disputes involving commercial tenants, please contact Ben Jones on 01258 483597 or email ben.jones@blanchardsbailey.co.uk. You can also reach out to our Commercial and Property Disputes team on blandford@blanchardsbailey.co.uk

Please visit our Commercial Property Disputes webpage for more information.