We were instructed on behalf of a commercial landlord who was seeking to take back possession of its premises because the tenant was not paying rent. The tenant was in substantial arrears, but was continuing to carry on a restaurant business from the premises. From the grant of the lease, some 2 years before, the tenant had always been late paying rent and the landlord was always chasing for payment and had finally lost patience. The landlord sought our advice as to how it could forfeit the lease.
What is forfeiture?
Forfeiture is a landlord's right, in certain circumstances, to regain possession of the premises and bring the lease to an end. The right is set out in a clause of the lease. In fact, the right to forfeit must be expressly reserved in the lease.
An example of a forfeiture clause contained within a lease is as follows:
The Landlord may re-enter the property at any time after the following occurs:
a) Any rent is unpaid for 21 days after becoming payable whether it has been formally demanded or not;
b) Any substantial material breach or any condition of a tenant covenant of this lease;
c) An act of insolvency.
If the Landlord enters the property pursuant to this clause, the lease shall immediately end, but without prejudice to any right or remedy of the landlord in respect of the tenant or guarantor.
Has the right to forfeit arisen?
In this case, our client contacted us in August 2017 to advise that the tenant had not paid rent on the usual quarter day of 24 June 2017. Based on the above clause, the right to forfeit would have arisen as rent had not been paid, and more than 21 days have elapsed since it became due.
Even though the right to forfeit had arisen, we had to consider whether the landlord could go ahead and retake possession.
The right to forfeit presents to a landlord an option, an option to elect to bring the lease to an end or to elect to acknowledge that the lease continues. If once the right to elect has arisen i.e. the landlord becomes aware of a breach which gives rise to the right to forfeit, the landlord, by its conduct "elects" to acknowledge that the lease is continuing, the landlord is said to have waived the right to forfeit.
What constitutes waiver?
There are a number of ways in which the right to forfeit can be waived, for example:
- By formally demanding the rent or agreeing a payment plan with the tenant for outstanding arrears;
- By exercising Commercial Rent Arrears Recovery;
- Serving a notice to quit or s.25 Notice under the Landlord and Tenant Act 1954;
- Bringing court proceedings for rent arrears, where those proceedings are not part of forfeiture proceedings;
- Any negotiations regarding the breach (for example discussing a payment plan) unless they are without prejudice;
- Any action which might be construed as treating the lease as continuing.
In this case, our client had been demanding payment the rent on a weekly basis via chaser letters sent by their accounts department and open discussions had been held concerning payment plan for the arrears. The right to forfeit in respect of the June payment had therefore been waived.
If the right has been waived – what next?
In cases where the right to forfeit has been waived in relation to a particular breach, the right may arise again if the breach is a continuing one. An example of a continuing breach is the failure to comply with a repairing obligation. However, failure to pay rent is no a continuing breach.
In this case the tenant had failed to pay the June rent payment, with the next payment being due on 29 September 2017. We therefore advised our client that if the tenant failed to pay the September rent payment within 21 days of it become due, then the right to forfeit would arise again.
The tenant failed to pay the September quarter and our client was able to successfully forfeit the lease.
It is important when considering forfeiture for the non-payment of rent, that correspondence with the tenant regarding the rent is ceased; this may involve internal departments ensuring that they are all aware that rent is not to be demanded or chased.
It is important where a landlord is considering forfeiting a lease for non payment of rent (or any other breach) that legal advice is sought at the earliest opportunity to ensure that the correct process is followed and any right to forfeit is maintained and is not inadvertently waived.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
