Forfeiture of Commercial Leases – Lessons for the Unwary

If a commercial tenant has a dispute with their landlord then a common tactic employed by tenant is to withhold rent perhaps to force the landlord to engage with them on the dispute. Whilst that can work in a residential lease situation it most certainly has pitfalls in the commercial setting.

Commercial tenants are actively advised not to withhold rent if there is a dispute with their commercial landlord, but to use other means to resolve that dispute; generally that will involve legal action through the County or High Court.

Commercial tenants should also be aware that within the lease other payments they make such as insurance and service charge payments can be ‘reserved’ as rent and so non-payment of them can lead to forfeiture as well on the basis they have not paid their rent.

If you are a commercial tenant and you have a legitimate dispute with your landlord then raising that issue with the landlord at the earliest opportunity is highly recommended. Allowing a situation to drag on without resolution can lead to major problems.

Taking legal advice early can actually save money and stress in the longer term.

Commercial landlords should be aware there is generally a period of grace in the lease before they can forfeit. If the landlord forfeit’s early that can lead to the tenant bringing a claim for unlawful forfeiture so the landlord needs to be careful!

If you are a commercial tenant and have unfortunately suffered the fate of forfeiture then, what can you do?

Ultimately there is a power by the county court for what is called ‘Relief from Forfeiture’. This allows the court to effectively return the property to the tenant but usually on terms that they pay the overdue rent and landlord’s legal cost which can be considerable.

There is no power for the landlord and tenant to agree the tenant has relief from forfeiture without a court order.

It should be stressed that the right to forfeit the lease by re-entering the premises only arises in relation to non-payment of rent and other payments reserved as rent.

If a landlord has any other complaints regarding a breach of lease and wishes to pursue forfeiture the landlord must serve what is called a ‘Section 146 Notice’.

This is a legal notice setting out the alleged breaches of the lease and giving the attendant the opportunity to remedy the breaches within a reasonable time; if they are breaches that are capable of remedy. Some breaches of lease are not capable of remedy such as assigning the lease without landlord’s permission. However, the court still has the power, if it chooses, to give the tenant relief from forfeiture.

Forfeiture is a complex area of property law and commercial tenants often forget that there are some considerable powers available to a landlord.

If as a commercial tenant, you find yourself in a position where payment of rent is difficult, then engage with your landlord at the earliest opportunity to see if a solution can be reached. Failing that take legal advice at the earliest opportunity.

Delay can be fatal.

At Thackray Williams, we have a dedicated team of commercial property specialists with many years’ experience covering all aspects of commercial property from leasing at a new premises to lease renewals, surrenders and disputes. Contact us on 020 8290 0440 to speak to a member of the team.