In Short
- Forfeiture allows a landlord to evict a tenant and terminate a commercial lease, typically for breaches like unpaid rent.
- It is a serious action with potential repercussions, such as loss of rental income and a vacant property.
- Before forfeiting, landlords should consider alternative solutions and seek legal advice.
Tips for Businesses
Before forfeiting a commercial lease, consider alternatives such as negotiating with the tenant or recovering unpaid rent through a deposit or guarantor. Weigh the costs of losing rental income and the challenges of leasing a vacant property. Always seek legal advice to ensure compliance and avoid unforeseen risks.
Table of Contents
When you lease your commercial property to a business owner, they will be your commercial tenant for the lease term. However, leases do not always run smoothly; sometimes, a tenant may not comply with their obligations under the lease. Any breach by the tenant can be a problem, as it may lead to a loss of rent or other costs. Where this occurs, you may consider your right, as a landlord, to forfeit the lease. This article explores key considerations before forfeiting a lease.
What is Forfeiture?
Forfeiture in a commercial lease is when the landlord evicts a tenant, and the lease terminates. This process allows the landlord to gain access to the property and retake possession, also known as ‘re-entry’.
Most leases contain an express right to forfeit the lease, which is explicitly set out in the lease agreement. The relevant provision will usually set out the grounds for which you can exercise forfeiture. In the case of rent, this may include an arrears buffer before the right arises, such as 21 days. If there is no express right to forfeit the lease, the ability to do so becomes more technical. It can still arise, but only for breach of a condition which is a matter of legal interpretation.
A landlord may decide to forfeit the lease if the tenant does not comply with their obligations or has not paid their rent. However, forfeiting is often the last option landlords resort to, as it is particularly harsh for tenants and also means they regain an empty property, which may then be subject to rates and other costs.
Key Considerations
Is This the Most Appropriate Action?
Before deciding to forfeit your commercial lease, consider whether it is the most appropriate course of action in the circumstances. Notably, is there a real benefit to taking back possession of your property? It follows that you must begin advertising your property and looking for a new tenant. There may also be a period when you are without rental income, and the property appears vacant.
If you can discuss the issues with your tenant and come to a resolution, forfeiture is unnecessary. Negotiation with your commercial tenant can be highly relevant where their lease breach is not for rent arrears.
There are other, less extreme alternatives to forfeiture. If the reason for a breach of the lease is that your tenant has unpaid rent, you may be able to secure the rent in another way. For example, you might:
- draw on your tenant’s rent deposit;
- speak to a guarantor (if there is one) and ask them to pay the unpaid rent;
- initiate a standard claim for debt recovery with your county court to cover the arrears; or
- initiate the commercial rent arrears recovery process.
What are the Potential Repercussions?
Forfeiture of a commercial lease carries repercussions for a landlord. For instance, you will likely be left with a vacant property that you must lease again to gain income. This requires you to assess the current rental market, as it will indicate how quickly or slowly it may be to find a new commercial tenant. When you do so, it is helpful to consider:
- current average rental amounts;
- length of time properties have been on the market; and
- number of similar commercial properties currently on the market.
You need to consider the possibility of harsh competition or low demand. Consequently, you may be left without a new tenant and incoming rent for some time.
In addition to a lack of rental income, you will need to take steps to secure your property. If left vacant for a while, you risk squatters, which could cause long-term issues for you as a property owner. Long-term squatters could become the registered owners of your commercial property.
By assessing the potential repercussions of the forfeiture process, you should get a clear indication as to whether forfeiture is genuinely beneficial for you or not.
Do You Need Legal Advice?
A final, but equally important, question you should ask yourself before forfeiting a commercial lease is whether you need legal advice. Your commercial lease is a legally binding contract between you and your tenant. Your agreement details the rights and obligations that accompany this.
Before you take possession of your property, consult your lease agreement. For instance, there may be detailed steps to follow to ensure the forfeiture process is conducted properly in accordance with the agreement. There may also be compulsory steps for dispute resolution. A property solicitor can assist you with the best course of action.
Under common law, tenants still have some protection as to how forfeiture is exercised, which can lead to unforeseen consequences for the landlord. For example, the tenant could be granted relief from forfeiture by a court if they agree to a payment plan for arrears. Another example is where a landlord waives forfeiture by acting as if the lease is continuing, such as requesting the regular rent payment.
This cheatsheet includes practical tips to understand key clauses and avoid disputes in leasing agreements.
Key Takeaways
If you are a commercial landlord considering forfeiting your lease, you need to consider several key issues before doing so. Forfeiting a lease is a significant move, and it is best to consider alternative, less extreme actions.
If you are considering forfeiting a lease, our experienced leasing lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents for a low monthly fee. Call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
Forfeiture in a commercial lease is the process by which a landlord evicts a tenant, thereby terminating the lease. This allows the landlord to regain possession of the property, also known as ‘re-entry.’
A landlord can forfeit a commercial lease if the tenant breaches their lease obligations or if other conditions specified in the lease agreement are met. However, forfeiture is only an option if the lease contains a forfeiture clause.
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