Forfeiture for breaches of lease except non-payment of rent

If you are a commercial landlord, you may be able to forfeit your lease (bring the lease to an end) if the tenant breaches terms of the lease for reasons other than non-payment of rent.

Does the landlord have a right to forfeit?

Most commercial leases have an express forfeiture clause which applies if the tenant has breached the express obligations (known as covenants) set out in the lease.

If there is no clause in the lease, you will not have a right to forfeit. You may be able to recover possession through other courses of action, but those are beyond the scope of this article.

What breaches can the landlord forfeit for?

In the case of forfeiture for breaches of the lease, there is a statutory process landlords must follow before forfeiting. The landlord must serve what is known as a Section 146 Notice on the tenant giving them a reasonable period of time to remedy the breach, failing which the landlord can proceed to exercise its right of forfeiture by applying to Court for a possession order.   Forfeiture by peaceable re-entry may be considered, but this attracts high risk and is rarely used for tenant breach cases.

Examples of breaches of covenant include:

• Not complying with the user covenant.
• Breach of keep open covenant.
• Unlawful alterations or display of signs.
• Illegal assignment or subletting.
• Tenant insolvency.
• Illegal or immoral use.

The Section 146 Notice

The Section 146 Notice should contain the following:

• Details of the breach;
• If the breach is capable of remedy a requirement that the tenant do so; and
• If appropriate, a requirement that the tenant to pay monetary compensation for the breach.

It is important to know whether a tenant’s breach is capable of remedy.

If the breach is capable of being remedied, the Section 146 Notice must allow the tenant an opportunity to remedy the breach within a reasonable time. If that is not done, the notice will be invalid. If breaches are left unremedied the landlord can apply to Court for possession.

Remediable breaches include:

• user covenant;
• to insure;
• repairing covenant;
• unlawful alterations or displaying signs without consent; and
• failure to obtain planning permission.

If a breach is irremediable then no reasonable opportunity to remedy needs to be specified in the Section 146 Notice The landlord can proceed to issue proceedings immediately.

Irremediable breaches include:

• unlawful assignment/subletting;
• tenant insolvency;
• illegal or immoral use; and
• non-observance of licencing laws.

Relief from forfeiture

When a landlord forfeits, the tenant has a right to apply for relief from forfeiture.  If successful, the lease will be reinstated by the Court.

In granting relief, the Court will consider various matters including:

• Severity of damage.
• Nature and gravity of the breach.
• Breaches beyond the tenant’s control.
• Delay by tenant in seeking relief.
• Ability and willingness not to breach again.
• Conduct of the parties

A tenant should seek relief ASAP after the Section 146 Notice is received.

Waiver of the right to forfeit

A landlord may inadvertently waive its right to forfeit if by act or communication that acknowledges the lease as continuing. This may include chasing tenants for rent, sending invoices, or even discussing obligations in the lease with the tenant.

Breaches of lease are either identified as continuing or once-and-for-all breaches.

Once-and-for-all breaches lead to the right to forfeit being lost forever if waived by the landlord. This means a landlord needs to wait until a new right to forfeit arises.

Examples of once-and-for-all breaches:

• Not to make alterations;
• Illegal assignment/subletting;
• Tenant insolvency.

If dealing with a continuing breach, waiver is less relevant as a new right to forfeit for the breach arises each day.

Examples of continuing breaches:

• Illegal or immoral use;
• Breach of user covenant
• Breach of repair covenant.

Wrongful forfeiture

If a landlord unlawfully carries out forfeiture, it may become liable to the tenant for damages. This may arise, for example if the landlord does not have a right to forfeit, if they have waived their right to forfeit, or the breach is capable of being remedied.

It is therefore important for landlords to seek urgent legal advice if their tenant has breached the lease.

Isabella Mason is a solicitor at Taylor Walton Solicitors www.taylorwalton.co.uk