Relief from Forfeiture: Commercial Lease

What is forfeiture?

Forfeiture of commercial leases, is a legal process through which a landlord can terminate the lease before its natural expiration date due to a breach of its terms by the tenant. This allows landlords to reclaim possession of their commercial property under specific circumstances.

The legal basis for forfeiture is typically outlined in the terms of lease agreement itself. This will specify the conditions under which the landlord may exercise this right. Common grounds for forfeiture include:

  • Non-payment of rent: This is the most straightforward and common ground for forfeiture. If the tenant fails to pay rent on time, the landlord may have the right to terminate the lease.
  • Breach of lease covenants: These can include failure to maintain the property in good repair, unauthorised use of the property, or any other violation of the terms agreed upon in the lease.
  • Insolvency: If the tenant becomes insolvent, this may trigger the right of forfeiture, as it poses a significant risk to the landlord’s interests.

Forfeiture can occur through two main methods: peaceable re-entry or court proceedings. Peaceable re-entry allows the landlord to regain possession of the property by re-entering the premises and changing the locks.

Re-entering the property is often faster and less expensive than going through court and is commonly utilized in situations of rent non-payment.

On the other hand, court proceedings present a lower risk for landlords and are generally more suitable for cases where there is a dispute, such as allegations of failing to carry out repairs or unauthorised tenant alterations.

Landlords must serve a Section 146 notice, named after Section 146 of the Law of Property Act 1925, before taking action to forfeit a lease for breach of any covenant or condition in the lease, other than non-payment of rent.

It is important to note that there are certain actions that can be taken by a landlord which waives their right to forfeit. These include actions that may indicate they recognise the lease is still continuing. This may include accepting rent payments, contacting tenants directly to demand payment of rent, or carrying out any property works.

Relief from forfeiture: Commercial lease

Relief from forfeiture is a legal remedy available in the context of commercial leases under the law in England and Wales.

It is designed to provide commercial tenants with an opportunity to rectify certain breaches of their lease. It is specifically used for those breaches that would otherwise result in the forfeiture, or termination, of the lease by the landlord.

This is an equitable remedy. It aims to balance the interests of both landlords and tenants by preventing a disproportionate loss to the tenant over breaches that can be remedied.

Relief from forfeiture is governed by various pieces of legislation and common law principles. Key statutes include the Law of Property Act 1925, the Leasehold Property (Repairs) Act 1938, and the Common Law Procedure Act 1852.

These laws set out the framework for when and how a party may seek relief from forfeiture. It primarily focuses on breaches related to non-payment of rent, breach of covenant (such as repair obligations), and insolvency events.

Application for relief from forfeiture: Commercial lease

  • Initiation: The tenant, upon facing forfeiture by the landlord, may apply to the court for relief from forfeiture. This typically follows a formal process of eviction or forfeiture action taken by the landlord.
  • Notice: Depending on the nature of the breach, specific notice requirements may apply. For instance, for non-payment of rent, the landlord may be required to serve a formal demand for the rent before forfeiture action can commence.
  • Court Application: The tenant must file an application with the court, setting out the grounds for relief and how they intend to remedy the breach. The court has discretion to grant temporary relief, preventing forfeiture while the case is considered.

Factors Considered by the Court

When deciding whether to grant relief from forfeiture, the court considers several factors:

  • Nature of the Breach: The severity and type of breach play a critical role. Breaches that go to the heart of the lease agreement, such as non-payment of rent, are treated with particular seriousness.
  • Remedial Action: The tenant’s ability and willingness to remedy the breach, including paying any rent arrears and costs, are crucial considerations.
  • Conduct of the Parties: The court looks at the conduct of both the landlord and the tenant, including any history of breaches and attempts at resolution.
  • Equity and Fairness: Overall, the court assesses whether granting relief would be equitable under the circumstances, aiming to avoid unjust enrichment or disproportionate punishment.

Case law examples

Shiloh Spinners Ltd v Harding (1973): This case is a landmark decision where the House of Lords considered the equitable jurisdiction to grant relief from forfeiture for breaches of covenant other than non-payment of rent. The court held that relief could be granted if it would be equitable to do so, taking into account the conduct of the tenant and the nature of the breach.

Central London Property Trust Ltd v High Trees House Ltd (1947): Known as the High Trees case, it is foundational to the doctrine of promissory estoppel but also relevant to discussions of equity and fairness in contractual relationships, including leases. The principles of fairness and equity underpinning this case influence courts when considering granting relief from forfeiture.

Magnic Ltd v Ul-Hassan & Anor (2015): In this case, relief from forfeiture was denied where the tenant had been found to be in breach of a lease due to unauthorised use of the premises. The court found that the breach went to the heart of the lease and that the landlord had a legitimate interest in terminating the lease to regain control of how their property was used.

How can Expert Commercial Law assist?

When seeking relief from forfeiture (commercial lease), it is important to seek legal advice and assistance. A property law solicitor can ensure the right approach is being taken and that applications are being made correctly and in line with any time limits.

Please note we are not a firm of solicitors. We maintain a panel of trusted and regulated legal experts. If you contact us in relation to a commercial law case, we will pass your case on to a panel firm in return for a fee from our panel firms. We will never charge you for passing on your case to a panel firm.

Each solicitor is vetted before being allowed onto our panel, and we only select the best in the business. All of our solicitor firms are authorised and regulated by the Solicitors Regulation Authority (SRA).

Our solicitors also help with commercial claims, such as breach of contractwinding up proceedings and statutory demands.

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Please note, we are not a firm of solicitors; however, we maintain a panel of trusted and regulated legal experts. If you contact us in relation to a commercial law case, we will pass your case onto a panel firm in return for a fee from our panel firms. We will never charge you for passing on your case to a panel firm. 

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