For businesses operating in the UK, entering into commercial leases is a common way of securing your business premises. A commercial lease is a contractual arrangement between a landlord and a tenant for the rental of a commercial property. However, there are instances where tenants may face difficulties in paying their rent, leading to the risk of forfeiture of their lease.
In this article, we’ll provide an overview guide to help both landlords and tenants understand the forfeiture of commercial leases, its procedures and possible alternatives.
What is forfeiture?
Forfeiture is the legal process through which a landlord can terminate a commercial lease due to the tenant's breach of contractual terms. The most common cause for forfeiture is nonpayment of rent. When a tenant falls into rent arrears and fails to remedy the breach, the landlord may resort to forfeiting the lease.
It’s important to note that forfeiture is a serious step and shouldn’t be taken lightly. Both landlords and tenants should seek legal advice in these situations.
Forfeiture of a commercial lease for nonpayment of rent
One of the primary reasons for forfeiting a commercial lease is the nonpayment of rent by the tenant. Under the Commercial Rent (Coronavirus) Act 2022, commercial landlords were temporarily prohibited from forfeiting the lease for nonpayment of rent due to the economic impact of the pandemic. However, since the moratorium has expired, landlords can now consider forfeiture proceedings for non-payment of rent.
Forfeiture of commercial lease procedure
The process of forfeiting a commercial lease typically involves serving a notice of forfeiture to the tenant. The notice must clearly state the breach and provide a reasonable period for the tenant to remedy the breach (if capable of remedy).
This period must be as specified in the lease or as required by law. If the tenant fails to remedy the breach within the given time frame, the landlord can proceed with the forfeiture. You have to be very careful with this and take advice, as the tenant can claim wrongful forfeiture if the landlord acts too soon and tries to forfeit the lease before the right has arisen.
Serving notice of forfeiture for a commercial lease
When serving a notice of forfeiture, it’s important to ensure that the notice is valid and properly delivered to the tenant. The notice can be served by hand delivery, post or email, depending on the terms of the lease. To avoid potential disputes, landlords may consider using recorded delivery or obtaining proof of receipt for postal notices. Seeking legal advice during this process can help landlords ensure compliance with all legal requirements.
If the lease is forfeited by a process known as ‘peaceable re-entry’, the premises should be secured (ideally by changing the locks) and a notice should be immediately affixed to the premises confirming the forfeiture. This is usually done outside of working hours, so that the premises are vacant, as a criminal offence can be committed if violence is used to gain entry and there is someone physically at the property who’s opposed to the re-entry.
Alternatively, forfeiture can be carried out by the landlord bringing court proceedings.
Moratorium on forfeiture of commercial leases
As mentioned previously, there was a temporary moratorium on forfeiture due to the COVID-19 pandemic. However, that moratorium has since ended, and landlords can now initiate forfeiture proceedings for nonpayment of rent or other breaches. Despite this, it’s still essential for both parties to communicate and attempt to find a resolution before resorting to forfeiture.
Is there an alternative to forfeiture of a commercial lease?
For both landlords and tenants, forfeiture of the lease shouldn’t be the first option considered when facing difficulties. Communication and cooperation between parties can often lead to mutually beneficial solutions and forfeiture should be seen as a last resort.
Legal advice for landlords and tenants
Commercial lease forfeiture is a complex legal matter and it’s critical for landlords and tenants to seek legal advice from experienced professionals. This advice can help parties understand their rights and obligations, explore alternatives and navigate the legal process effectively.
Get legal assistance from LawBite
Forfeiture of a commercial lease is a serious step that requires careful consideration. For landlords, it’s important to follow the proper procedures when serving notice of forfeiture and seek legal advice throughout the process. For tenants, it’s crucial to be aware of the risks and potential alternatives to remedy breaches and avoid forfeiture.
At LawBite, we believe in making legal services more affordable and accessible to small businesses. We encourage both landlords and tenants to seek legal advice early on to protect their interests.
By seeking legal advice and approaching the matter with a problem-solving mindset, landlords and tenants can work together to find the best possible outcome. To speak to one of our commercial property lawyers about a forfeiture matter, book a free 15 minute consultation or call us on 020 3808 8314.