A leading set specialising in commercial, construction, insurance and property law
By : David Pliener
Used judiciously there are few remedies as devastatingly effective for a landlord as forfeiture. Yet, so often, it is used neither judiciously nor effectively. There are 2 main reasons for this:
Presuming that the lease contains an appropriate clause permitting forfeiture (this really is worth checking first – it is not unknown for a commercial landlord to proceed to forfeiture without appreciating there is no effective forfeiture clause in the lease) there is much to be said for a remedy that (in non-residential settings) can deliver immediate possession of the property. Whilst there is always the possibility of relief being granted, the landlord can usually be confident that at worst the tenant can only “buy” their way back into the property by remedying all defects and paying their costs.
However, as many landlords know to their cost, forfeiture is not always the panacea it appears to be. Forfeiture brings the lease to an end. In a difficult market this may do the landlord no favours at all. Even worse, where the landlord forfeits by legal proceedings, their position is not very satisfactory during the twilight period from issue until resolution by the court. During that limbo the landlord cannot rely upon the covenants in the lease, but, oddly enough, the tenant can. Whatever the method of forfeiture, the landlord knows that an application for relief might be forthcoming and this can make future development of or dealing with the property more problematic.
A landlord needs to carefully consider the pros and cons of all the potential remedies, including non-litigious ones. For example, rather than forfeit a landlord might choose to:
It is also worth remembering the right to forfeiture is subject to numerous statutory restricts and more are coming. Sections 166-172 of the Commonhold and Leasehold Reform Act 2002 (not yet in force) will limit the use of forfeiture where the property is a dwelling and held on a long lease. A landlord will not be able to forfeit for rent arrears without first serving a notice of arrears providing for payment in no less than 30 days and cannot forfeit at all if the amount of arrears is below a prescribed sum or has not been outstanding for longer than a prescribed period (to be fixed by regulations). Also, a landlord will not be able to serve a s.146 notice to forfeit for breaches of other covenants without there first being a determination by the court that there has been a breach.
There is no exhaustive list of actions that would amount to a waiver of a right to forfeit. However, the principle is straightforward. Where a right to forfeit arises the landlord is put to their election; they must choose to either treat the lease as being at an end or continuing. If the landlord, once aware of the breach, does any act which treats the lease as continuing, they will have waived any right to forfeit that existed at that moment, irrespective of the landlord’s intention.
There is not the space here to highlight the many complications and confusions that this simple principle creates. However, if landlords were to understand the following guidelines, far fewer unintentional waivers would occur:
The good news for lawyers is that the best action a landlord could take would be to seek advice from their lawyers the moment they discover a breach which could give rise to a right to forfeiture.
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