At some point landlords might have the misfortune of their tenant falling into rent arrears and this often leaves landlords unsure of their rights, while at the same time wanting to ensure that they continue to receive rental income. What can a landlord do about a defaulting tenant? This blog considers one of the rights available to a landlord – the right to forfeit.
What is forfeiture?
It is the ability of a landlord to re-enter their property following a breach by the tenant, and by peaceably re-entering, terminating the lease? In practice however a Landlord may be, depending on the breach; entitled to re-enter the property thereby forfeiting the lease; or he will, in certain circumstances, be required to serve a notice [s.146 Notice under the Law of Property Act 1925]; and in some instances issue proceedings, before termination takes effect.
When is a Landlord entitled to forfeit a lease?
In the first instance, there must be a specific clause contained in the lease entitling the landlord to re-enter the premises in certain circumstances.
It is however important to remember that, in some situations, a landlord can exercise a right to forfeit in the absence of a specific clause in the lease, for example where a tenant has breached a condition of the lease which is a fundamental provision going to the very root of the agreement/lease. In these instances, the right arises automatically.
This is however a very risky option, as to do so without legitimate cause i.e. based on a breach which is not considered to go to the root of the lease, will result in the landlord being in breach. As such, it is always important for landlords to take independent legal advice before considering forfeiture in absence of an express right contained within the terms of the lease.
The position is different if the breach relates solely to rent arrears or a breach other than rent arrears, and further still if one is dealing with residential and commercial properties.
In so far as residential properties are concerned, a landlord cannot simply re-enter the premises (regardless of what the lease terms state) and take possession because the lease has been breached, it must follow the required procedure. This is because section 2 of the Protection from Eviction Act 1977 states that it is not lawful to forfeit a lease without first obtaining a court order.
In addition, the landlord cannot serve the notice if the lease has been breached for non-payment of the rent, service charges or administration charges unless the amount owed is either (a) over £350 or (b) includes part that has been unpaid for 3 years.
In the case of non-payment of service charges, administration charges or other breach of covenant in the lease, section 168 of the Commonhold and Leasehold Reform Act 2002 and section 81(1) of the Housing Act 1996 apply.
If the right to forfeit arises in relation to rent alone, then a landlord will be entitled to peaceably re-enter the premises and change the locks. It is best to instruct an enforcement agent to carry out the re-entry as the landlord will, following the forfeiture, become an involuntary bailee of the tenant’s goods that remain on the premises and will therefore be liable for any damage or loss. An independent enforcement agent can be instructed to take a detailed inventory including photographic evidence of the goods on site and their condition.
If the lease comprises both commercial and residence premises i.e. shop unit below with a flat above, then a landlord will not be entitled to peaceably re-enter and will be required to serve a notice under s.146 of the Law of Property Act 1925.
There is a requirement that the landlord serve a section 146 notice on the tenant where a breach other than rent arrears is relied upon. A section 146 notice must be served upon the current tenant, giving them time to remedy the breach in question. The notice must set out the breach complained of and if the breach is capable of remedy, contain a request to do so and/or pay monetary compensation. It is only following the service of this notice, and the subsequent failure by the tenant to remedy the breach within a reasonable or stated period, and/or pay reasonable compensation that a landlord can exercise its right to forfeit.
If the breach is not remedied within the reasonable time specified, and there has been no waiver of the breach, the landlord can proceed to forfeit the lease by peaceable re-entry or by court proceedings.
It is important where a landlord believes, even if it is not certain, that there has been a breach that they do not act in any way to lose the right to forfeit (waiver). The test of waiver is objective, and the landlord’s intentions are immaterial, so once the landlord has knowledge of the breach (which includes imputed knowledge) and acts in a way which recognises the continued existence of the lease, then the right is lost and the landlord is deemed to have waived his right to forfeit.
Ideally therefore, a landlord should have no contact with the tenant or its representatives until the position has been fully considered. If communication is unavoidable, any discussions regarding the breach should be limited and stated to be ‘without prejudice’. The use of this term may limit the effect of such conversations further down the line, however this cannot be guaranteed.
Waiver requires a positive act on the part of the landlord. Acts of waiver include:
- Demanding or accepting rent/other sums. Note that acceptance of rent by a landlord’s agent will still amount to a waiver, even if the agent has been instructed not to accept rent.
- Giving notice of intention to enter the premises to carry out repairs under a Jervis v Harris type clause.
- Sending in the bailiffs (exercising the Commercial Rent Arrears Recovery procedure).
- Granting any type of licence under the terms of the lease.
What is the relevance of ‘continuing’ and ‘once and for all’ breaches?
Waiver will only affect breaches that occurred prior to the act of waiver. If the breach re-occurs or continues, a new cause of action will arise to allow the landlord to decide again whether to forfeit. It is as such important to distinguish between ‘continuing’ and ‘once and for all’ breaches.
Where a continuing breach is waived, the option to forfeit will reoccur, usually on a day to day basis e.g. failure to keep open or wrongful use. Whereas in the case of a ‘once and for all’ breach is concerned, the waiver will be fatal and result in the landlord losing the right to forfeit for that particular breach permanently e.g. unauthorised assignment, sub-letting, or alterations. If the tenant however breaches again e.g. by making a further unauthorised alteration, then the landlord will be entitled to exercise its right to forfeit for the latter breach.
Effects of forfeiture
Forfeiture brings the tenancy, and all interest derived from the tenancy (such as sub-tenancies) to an end.
The decision whether to ‘peaceably re-enter’ the premises or to issue court proceedings is an important one for a landlord to consider. As stated above, a landlord should be aware that it becomes responsible for any goods remaining on the premises. The landlord must therefore be able to ensure the safety of any of the tenant’s property remaining on the premises, to avoid the potential for subsequent claims from the tenant for loss due to damaged goods.
Issuing court proceedings has possible advantages to re-entry but can be a lengthy process incurring additional legal fees.
Relief from Forfeiture
Landlords should also be aware that a tenant, including a sub-tenant, has the right to apply to court for relief from forfeiture. A tenant or sub-tenant may still as such be able to remain in the property and relief may even be granted where the landlord has already re-entered the property.
This blog highlights some of the main considerations which a landlord should be aware of. Given the many pitfalls involved, it is important for landlords to seek legal advice at an early stage when considering forfeiture.
Darryn Harris – rhw Solicitors LLP