Forfeiture: a guide for landlords

What is forfeiture, how can it be exercised, and how can landlords avoid waiving the right to forfeit?

Ellie Crofts, legal director and property dispute resolution specialist at Lodders, provides the answers to these questions from a landlord’s perspective.

Landlords of commercial premises unfortunately may encounter tenants who occasionally breach their leases, for instance by failing to pay rent on time or carrying out unauthorised works to the property. There are several remedies available to landlords when this happens, including specific performance or court proceedings for breach, self-help, or seeking damages.

The suitability of a particular remedy will depend on the type of breach, the landlord’s commercial aims, and the specific facts of the case.

In this blog, we will be focussing on forfeiture as a remedy for landlords. We have also discussed these issues from a tenant perspective in this article.

What is forfeiture?

With roots in medieval law, forfeiture is an arguably draconian remedy that allows a landlord to repossess a tenanted property if the tenant breaches the terms of the lease.

Forfeiture essentially deems that the lease does not exist. If a tenanted property is subject to a charge or a mortgage, the security for that charge disappears, leaving the lender with nothing to enforce against and a borrower who is liable for a debt with no asset to pay it off.

It is therefore a powerful remedy for a landlord to have in its arsenal.

How to exercise the right to forfeit as a landlord

To exercise the right to forfeit, the lease must contain a forfeiture clause, which most modern leases will have. However, beware the unwritten tenancy, for instance where a tenant has gone into occupation based on a handshake or a ‘gentleman’s agreement’. A landlord will have no right to forfeit if there is nothing in writing.

How you exercise the right to forfeit will depend on the nature in which the lease has been breached:

Failure to pay rent

The most common breach of lease is a failure to pay the rent. Where this has occurred, a landlord may exercise forfeiture of commercial premises by peaceable entry, otherwise known as changing the locks. This can be done without any warning to the tenant.

Tenants can seek to regain possession of the property if they pay off the arrears and the landlord’s costs.

A landlord can carry out peaceable entry personally or, as happens more commonly, it can employ a certified bailiff. When changing the locks on tenanted property, it is imperative that you ensure there is no person physically in the property. If somebody is present when the bailiffs attend and they don’t leave when asked, the peaceable re-entry cannot take place.

The landlord must post notices at the property, advising that the lease has been forfeited, the property repossessed, and detailing who the tenant should contact to collect their belongings. A landlord cannot keep a tenant’s belongings in settlement of arrears – they must be returned.

Other breaches

For all breaches other than non-payment, such as failure to keep the property in good repair, or unauthorised subletting, landlords must serve a notice under Section 146 of the Law of Property Act 1925. Failure to do so would render any subsequent action invalid.

The Section 146 notice must set out:

• the relevant clauses in the lease;
• the nature of the breaches;
• what action is required to remedy them; and
• a timeframe within which this action needs to happen.

If the tenant fails to remedy the breaches within the timeframe given in the notice, the landlord has a couple of options. They can seek to peaceably re-enter the property through the process described above, or they can issue possession proceedings at court. The latter is always required in relation to residential property.

Depending on the circumstances, issuing possession proceedings may also be the better option for commercial property to help protect the landlord; for example, if a landlord were to peaceably re-enter, and a tenant disputed the validity of the repossession, this could lead to the landlord being required to pay damages and costs to the tenant. A court ordered possession may provide more certainty.

How can landlords avoid waiving the right to forfeit?

Earlier, we mentioned that forfeiture deems that the lease never existed. As such, if a landlord acts in a way consistent with the lease continuing, then it’s likely that they will have waived the right to forfeit.

Waiver can happen in a number of ways, the most common of which is accepting or demanding rent. Other actions such as granting consent to carry out works would also amount to waiver.

Continuing breaches

It’s important to note that waiver does not affect a landlord’s rights in respect to future breaches of the lease. Depending on its nature, it may be that the same breach will be repeated in the next week or month.

For instance, a breach of the repairing covenant is known as a “continuing breach”, meaning every day that the property is in disrepair gives rise to another right to forfeit.

With a failure to pay rent, the landlord may waive the right to forfeit in respect to a specific period of rent, but the right to forfeit will arise again if the tenant fails to pay the next lot of rent.

It’s therefore crucial that, when a landlord is considering forfeiture as a remedy, rent demands are stopped, and ideally all contact with the tenant ceases (from both the landlord and their agents).

Seek expert advice

Both forfeiture and waiver can feel like minefields to navigate, so it’s always best to seek professional legal advice as soon as possible. For advice tailored to your situation, please get in touch with our Dispute Resolution solicitors, who would be happy to help.

You can also check out our recent webinar on the right to forfeit here. Our Property Dispute Resolution team provided some practical tips on the subject, as well as lessons to be learnt from case law.