Real Estate Tip of the Week - Commercial Leases – to forfeit or not to forfeit?

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Real Estate Tip of the Week - Commercial Leases – to forfeit or not to forfeit?

Published 7 October 2019

Landlords should be cautious when deciding whether to forfeit a lease following a tenant breaching its obligations in the lease.

Taking back possession of premises from an unreliable tenant is appealing, but landlords must consider the likelihood of replacing that tenant with a new one. In a difficult market, landlords could be left with unlet premises, the burden of paying for insurance and rates on those premises, and the costs of on-going maintenance.

Forfeiting a lease can also prove costly for other reasons:

  • statutory and common law rules must be followed, including, in non-rent cases, serving a section 146 notice providing a tenant with reasonable time to remedy breaches of covenant in specified situations.
  • a tenant can apply to court for relief from forfeiture, effectively asking the court to restore a lease as though forfeiture had never occurred. Courts are likely to grant relief where a tenant remedies or pays compensation in respect of a breach and/or they consider that a tenant will perform its agreed obligations in the future. The right to apply for relief can last for six months or longer.
  • wrongfully bringing a forfeiture claim could result in a landlord paying for damages and costs, for example if the landlord waives its right to forfeit the lease by accepting and demanding rent in certain circumstances but still proceeds to forfeit the lease.
  • where the tenant makes an application for relief, or challenges the lawfulness of the forfeiture, it can seek an interim injunction to let it back into the property pending resolution of the Court proceedings.
  • forfeiture will terminate the landlord’s right to pursue guarantors, or (in older leases) the original tenant, for future rent.

Given the complexity of this area, landlords should obtain comprehensive legal advice prior to taking any steps to forfeit a lease.

 

Authors

Sian Kersse

Sian Kersse

London - Walbrook

+44(0)20 7894 6648

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