Should a commercial landlord forfeit the lease when their tenant is in rent arrears?
Being a commercial landlord undoubtedly has its benefits. However, there are times when a tenant either cannot or will not pay their rent. In these situations, the landlord has to consider whether to forfeit the lease. We look at the circumstances surrounding forfeiture and ask whether it’s always best to forfeit.
The word ‘forfeit’ comes from the Middle English via Old French, and means a crime or transgression which must be made good with a fine. Today, if a commercial tenant is in rent arrears the landlord is entitled to forfeit the lease before the lease’s specified termination date, without recourse to the courts. However, the landlord does not have an automatic right to do so – the right to forfeiture must be specified within the clauses of the lease.
If the lease does contain a forfeiture clause, it usually allows the landlord to begin the forfeiture proceedings within a specified period – typically 21 days after the amount of rent is payable. If the tenant has not paid by the specified time, the landlord then has the right to enter his or her property by peaceful re-entry and forfeit the lease. Most landlords use Enforcement Agents who act on their behalf to ensure that proceedings are carried out correctly – they also have the authority to change any locks on the premises and display relevant forfeiture notices. If a tenant refuses to leave, the landlord can apply to the court for possession of their property. The result of forfeiture is that the lease is considered to have ended from the date of the act of forfeiture, and that any obligations which the landlord had towards the tenant will cease from that date.
The landlord must take great care not to waive their right to forfeiture, if that course of action is decided upon. Waiving their right is defined as doing something that acknowledging that the lease still exists, such as demanding the outstanding rent, or accepting rent payments after the period of time that enables forfeiture to arise.
For tenants, a right to apply for relief of forfeiture exists. This will usually be granted if the full amount of arrears is paid, together with the costs of any proceedings.
The landlord’s dilemma
Sometimes, however, landlords must ask themselves whether forfeiture is always the best course of action. It’s not uncommon for tenants to be affected by the supply/payment chain, especially in today’s financial climate, and for the non-payment to be only a temporary situation. For repeat ‘offenders’, however, the latest missing rent payment may be the straw that broke the landlord’s back, as it were.
Landlords must also question the viability and expense of sourcing a new tenant after forfeiture has taken place. Are they willing to have an empty property with no rental income for however long it takes to replace the tenant?
One possible solution is for the landlord to use the Commercial Rent Arrears Recovery (CRAR) process, whereby a Certified Enforcement Agent (formerly called a bailiff) recovers any arrears. This enables the tenant to continue in the property and means that the landlord doesn’t suffer financially through having an empty property or by having to find new tenants.
If you need advice or information on any aspect of forfeiture our skilled and highly-qualified staff can guide you through the process to ensure that the course of action you take is the correct one for you.
Written by: Steven Jones on Monday 11/07/2016