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Forfeiting a Commercial Lease

Monday, 7 April 2014

Most commercial tenancies are forfeited due to non-payment of rent. Breach of other covenants in the lease may give rise to forfeiture but this is less common. The first step down this path requires the landlord to ascertain that the right to forfeit has arisen.

Before opting for forfeiture, commercial landlords must consider the pros and cons of bringing their lease to an end in this way.

Once the decision to forfeit has been made, it is essential to follow the correct procedure to avoid unnecessary costs and to ensure the best chance of a successful outcome.

Do You have the Right to Forfeit?

Non-payment of rent is a clear breach of the lease but it does not automatically mean that the landlord has a right to forfeit.

The lease must contain a specific right to forfeit the lease in the event that rent remains unpaid after a specified period of time. Check the lease for the following:

· The due date for rent payment

· That it is payable without deduction or set off

· That the landlord has a right to forfeit the lease or re-enter the premises and end the lease if the rent remains unpaid for either 14 or 21 days

If the lease contains these provisions and the rent remains unpaid after the specified time, it is important that rent is not accepted beyond this date or the right to forfeit will be waived. Other actions that indicate to the tenant that the lease continues to exist will also waive the right to forfeiture.

Commercial Considerations

There are various commercial considerations that landlords need to take into account before deciding to forfeit, some are obvious and other less obvious.

Starting with the obvious points, forfeiture proceedings will incur professional fees – proper advice is essential and agent’s fees are likely to be incurred in the re-letting process. In a tough property market forfeiture means that the premises will become empty and it may be difficult to find new tenants.

Once a property reverts to the landlord, the costs of preparing the property for new tenants, paying business rates and paying utilities will arise. Damages for repairs may be claimed off the tenant but this cannot happen until after the forfeiture proceedings are completed which can take time, particularly if the tenant claims relief. If relief is granted and the tenant remains, proceedings to enforce repair covenants can only take place afterwards.

Less obvious issues may be the effect of empty space on neighbouring premises. Also landlords should not rely on any existing sub-lettings remaining in place; if the lease is forfeited then any sub-leases will also come to an end and new leases will need to be entered into.

Following the Correct Procedure

Forfeiture is a drastic remedy for landlords and is best used either as a threat or as a last resort. Failure to follow the correct procedure can be time-consuming, costly and even lead to criminal offences if carried out incorrectly. Professional advice is essential.

For specialist advice contact Peter Gourri today by email or telephone 0207 611 4848.

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