What is forfeiture of business lease?

It’s possible that at some point you'll face tenants who fail to pay their rent. In many cases, arrears can be resolved and the tenancy can happily continue. But, in cases of extreme rent arrears or some other breach of contract, it may be time to consider forfeiting the lease. Just be sure to know your rights and  obligations as a landlord  before you take the plunge.


What does forfeiture of a lease mean?

Essentially, the right of a landlord to forfeit a lease is the right to summarily end the tenancy, regaining possession of the property. In many cases, forfeiture is a final, drastic course of action for a landlord whose tenants are in serious arrears. So it's worth making sure that it's the right step before taking it.

Above all, you must comply with Section 146 of the  Law of Property Act 1925 , which includes serving your tenant the appropriate notice.


Make sure it's the right decision

While repossessing a commercial property is one way to end current difficulties with a tenant, it might not always be the wisest move. It's a fairly complicated process, and, if handled incorrectly, could leave you vulnerable to accusations of illegal activity. Before making the decision to forfeit a lease, ask yourself:

  • How much longer will the current  tenancy agreement agreement last?
  • How easily – and how quickly – would you be able to fill the vacant property after repossession?
  • Are the occupying business's financial difficulties likely to be lasting, or only very temporary?
  • Am I willing to simultaneously lose potential rental income while taking on all costs associated with the property – such as business rates, maintenance and utility bills?

Once you've thought about these questions, you’ll be in a better position to decide whether or not to proceed with forfeiture.


Understand your options

Typically, you have two methods of forfeiting a business lease: through peaceable re-entry, or through court proceedings.

The first option – peaceable re-entry – is certainly the most risky. You may be able to enter the property while it's unoccupied and change the locks, but this could lead to accusations of damage or theft of the tenant's property. The tenant could even claim against you for loss of business. If you feel you must use this method, it's best to seek prior legal advice and employ professional bailiffs.

The second – and usually more prudent – method is to apply for a court order for possession. The tenant will usually have 14 days to file their defence, and, if a possession order is granted, they'll normally have 28 days to vacate the property.


Take care not to waive your right to forfeit

It's important that you make sure you don't do anything that might look like you're accepting the continuation of the lease, such as receiving further rent payments. While this doesn't negate the breach of contract, it may waive your right to forfeit the lease. And any continued attempts to forfeit afterwards might leave you open to claims of wrongful forfeiture, including any associated damages suffered by the tenant.

Choosing to forfeit on your commercial lease might be an effective way to terminate an agreement with a tenant – but that doesn't make it straightforward or risk-free. If you’re in doubt, ask a legal expert with commercial property experience.

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