Property Law – Forfeiture… Actually

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:

• When faced with an assortment of remedies, landlords often pick forfeiture when another option may have been the wiser choice and, not infrequently, shy away from forfeiture when it provides by far the best alternative; and
• By the time the lay client seeks legal advice, any right to forfeit has long since been waived.

Choosing the Remedy

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:

• Sue for arrears of rent, damages, injunctions etc
• Distrain for arrears
• Seek the arrears or other remedies from a guarantor
• Seek arrears or other remedies from an original tenant
• Negotiate a surrender or assignment

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.

Waiving your Rights away

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:

• Demand for or acceptance of rent which accrued due after the landlord became aware of a right to forfeit, whether payable in arrears or advance, will waive the right to forfeit. Crucially, this cannot be avoided by couching such acceptance as “without prejudice” to the right to forfeit.
• Demand for or acceptance of rent which accrued due before the landlord became aware of a right to forfeit, whether payable in advance or arrears, will not waive the right to forfeit (see helpful comments of Rattee J in Re a Debtor [1995] 1 WLR 1127).
• Generally, distraining for rent waives any right to forfeit up to the date of distress.
• Breaches are either ‘once and for all’ (such as arrears of rent) or ‘continuing’ (such as failure to keep the premises in repair). Where a landlord acts in such a way as to elect to treat the lease as continuing, this will absolutely waive once and for all breaches, but will only waive continuing breaches up to the date of waiver. If the breach continues the following day a fresh right to forfeit will arise.
• No act will amount to a waiver once an act of forfeiture, whether by peaceable re-entry or service of proceedings, has been taken, as the act itself amounts to an absolute election to treat the lease as having ended.

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.

Contact

Please note that we do not give legal advice on individual cases which may relate to this content other than by way of formal instruction of a member of Hardwicke.  However if you have any other queries about this content please contact:

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