How Can I Recover Commercial Rent Arrears: Part 2

What is Forfeiture and When Can I Use It?

In our previous blog, we looked at how a commercial Landlord can recover rent arrears by utilising their right to Commercial Rent Arrears Recovery (“CRAR”). Here, we consider how the Landlord can bring a Lease to an end by utilising its right of forfeiture.

When does Forfeiture Arise?

The right applies where the Lease contains an express clause which allows for forfeiture either contingent upon a certain event (i.e. non payment of rent), or where there is a breach of any covenant contained within the Lease. The right to forfeit can; however, be implied into a Lease whereby the breach of covenant is considered to be a breach of condition (i.e. where the breach of covenant goes to the heart of the Lease itself). Whether a term of the Lease amounts to a condition will depend on the terms of the Lease and circumstances of the particular case. In this blog, we consider only a breach of lease by non-payment of rent.

Waiver

Even where there is an express right to forfeit the Lease, a Landlord may still not be able to forfeit the Lease if they have waived their right to do so. For example, in relation to rent arrears, a Landlord is put to election as to whether it wishes to forfeit the Lease, or waive the right to do so and allow the Lease to continue, the moment it has knowledge of the breach.

Part of identifying the extent to which a Landlord is able to waive its right to forfeit is determining whether the breach complained of is to be treated as a ‘once and for all’ breach, or, a ‘continuing’ breach.

The significance of whether a breach is of a once and for all or continuing nature, is that if a Landlord waives their right to forfeit in respect of a once and for all breach, it will have permanently lost its right to forfeit. However, if a Landlord waives their right in respect of a continuing breach, a new right to forfeit in respect of that breach will arise again the next day.

Non payment of rent amounts to a once and for all breach, and therefore if the rent is demanded or the Landlord takes any other act which amounts to recognition of the continuing existence of the Lease, the right to forfeit will be lost. Exercising the right to CRAR would amount to a waiver of the right to forfeit.

Proceedings or Peaceable Re-Entry?

There are two methods of forfeiture available to a commercial Landlord.

Peaceable Re-Entry

In solely commercial premises, the Landlord has the right to exercise peaceable re-entry in relation to rent arrears. There is no requirement to first serve a notice pursuant to section 146 of the Law of Property Act 1925 (a “Section 146 Notice”) in relation to commercial rent arrears, unlike other breaches.

It is important that professional advice is sought prior to exercising the right of peaceable re-entry, as in certain circumstances re-entry can amount to a criminal offence. It must also be determined whether there was an obligation within the Lease to formally demand the rent, and whether this has been complied with.

 Relief

If forfeiture by peaceful re-entry has not been correctly affected, then the Tenant can make an application for relief from forfeiture. If successful, the Landlord may be liable to pay damages and the Tenant’s costs for bringing such an application.

Circumstances where relief may be granted include, where a Landlord was able to utilise a Rent Deposit or a Guarantor Agreement as a way to recover arrears.

The terms of the relief are ordinarily the payment of the arrears and payment of the costs of the relief proceedings. These costs are usually on an indemnity basis.

Proceedings

If peaceable re-entry is not available to a Landlord or the Landlord would like to avoid the cost risk of a relief claim, the Landlord may wish to notionally re-enter by commencing possession proceedings based on forfeiture.

In these circumstances, careful consideration should be given as to whether a Pre-Action Protocol Letter of Claim (“PAPLOC”) should be sent to the Tenant, in light of the waiver provisions outlined above.

Relief

The provisions as to relief apply to forfeiture by proceedings, just as they do for forfeiture by peaceable re-entry. Automatic relief will be granted if the Tenant pays into court the arrears plus costs of the proceedings not less than 5 days before the hearing. Costs will usually be awarded on an indemnity basis.

How can Ellis Jones help?

At Ellis Jones, we specialise in dealing with all aspects of commercial lease disputes and helping our clients recover monies they have lost as a result of tenants falling into arrears.

If you are a landlord who has a commercial tenant in arrears and you wish to discuss this with one of our contentious property solicitors, please get in touch with our Property Disputes team by calling 01202 525333 or by emailing resolution@ellisjones.co.uk to discuss your needs and how we may be able to assist you.