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Lease Forfeiture: The Basics

Thursday, 3 April 2014

Forfeiture is the right of a landlord to re-enter a leased premises and terminate a lease if certain specified events occur. It is the ultimate remedy available to landlords and management companies for dealing with problematic tenants in both residential and commercial properties.

Forfeiture is certainly an important tool for property managers but it must be handled with care and professional advice is essential. In addition, the lease must contain an explicit right to forfeit in particular circumstances because the right to forfeit does not otherwise exist, it is not automatic.

Tenants facing forfeiture should also understand their rights and seek immediate legal advice.

Understanding the Implications of Forfeiture

As already noted, forfeiture is a nuclear option for landlords seeking to enforce their rights against defaulting tenants. This severity means forfeiture procedures must be followed carefully to avoid wrongful forfeiture and potential damages claims. Due to the ultimate nature of forfeiture, even if a tenant breaches a covenant in their lease and there is provision for forfeiture, it is not necessarily the best option for either party.

Landlords must consider the costs of forfeiture, both direct and indirect, versus the benefits of trying to resolve any breach of covenant by the tenant and allowing them to stay on. Forfeiture inevitably entails professional fees for dealing with the proceedings and may incur other costs such as repairing the premises for re-letting and covering all the costs of vacant property such as maintenance, rates and utilities.

Notwithstanding the potential costs, the risks of waiving the right to forfeiture must also be taken into account.

Waiving the Right to Forfeit

Alternatives to forfeiture might include seeking damages against the tenant for breach of covenant, making claims against guarantors for non-payment of rent or coming to an arrangement for the tenant to pay rent on a different basis to that specified in the lease in order to assist with cash flow problems. Although there may be a case for waiving the right to forfeit in certain circumstances, this should only be done with great caution and professional advice.

It is also vital that the landlord does not waive their right to forfeiture unintentionally as this may have disastrous consequences. For example, waiver may occur if there is a known breach of covenant by the tenant and the landlord communicates to the tenant its acknowledgement that the lease is continuing. If forfeiture proceedings are then brought, the tenant will have a claim for wrongful forfeiture and can seek damages.

Comment

Forfeiture is an important legal tool for landlords and property management companies but it must be handled with care. Specific considerations must also be made when dealing with particular types of tenants such as residential tenants or commercial tenants.

For specialist advice contact Peter Gourri today by email PGourri@rollingsons.co.uk or telephone 0207 611 4848.

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