property Exercising the right of forfeiture The relationship between commercial landlords and tenants can sometimes become strained
Rent payments can cause tenant insolvency, as in the recent administration of BHS, which claimed high rent on premises was one of the key factors in the retail chain’s insolvency.
In a well drafted lease, tenant insolvency is usually a trigger for forfeiture and re-entry of the premises by the landlord, as are rent arrears and other breaches, such as failure to comply with the tenant’s repairing obligations.
Forfeiture enables the landlord to take back possession of commercial premises and, if executed correctly can be a relatively quick and inexpensive method of damage limitation from a landlord’s perspective. In many cases it is preferable
for the landlord to ‘cut his losses’ if a tenant persistently breaches tenant covenants. The longer a landlord waits to exercise his right of forfeiture, the greater the financial losses can be, particularly if the premises are desirable and likely to be re-let quickly to an alternative tenant.
One must exercise caution when forfeiting a commercial lease. Mixed-use premises, such as a shop with a residential flat above, cannot be forfeited by the landlord without an order of the court even if the lease covers the whole property and provides for forfeiture. An Order for Possession is required. Failure to do so can lead to a claim by the tenant for unlawful eviction.
The landlord must also be careful not to inadvertently waive a tenant’s breach of covenant if he wants to exercise a right of forfeiture. A landlord can unwittingly waive a breach in a number of ways, including demanding rent after becoming aware of the breach. Tenants may seek relief from forfeiture via the courts and judges can be generous to tenants, often giving a tenant time to remedy the breach upon which the landlord’s right of forfeiture was exercised. If the landlord has not followed the correct procedure in forfeiting the lease, he can be exposed to an adverse costs order.
Time is often of the essence when a landlord is contemplating forfeiture;
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informed and decisive action must be taken to minimise losses. Landlords must get the right advice on the terms of the lease, the particular circumstances giving rise to a potential forfeiture situation and getting the procedure right.
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The litigation and commercial property departments at Colemans Solicitors LLP work closely together to advise landlords and tenants when forfeiture is an option, to make sure that they are aware of their options and don’t fall foul of the many potential pitfalls and to offer support and advice if the matter does go to court. Kate Williams (pictured), partner and the firm’s head of the litigation department, often deals with such matters from both the landlord and tenant perspective.
Kate Williams 01628 631051
kate.williams@colemans.co.uk www.colemans.co.uk
12
businessmag.co.uk
THE BUSINESS MAGAZINE – THAMES VALLEY – SEPTEMBER 2016
DATE:
Thurs 8th Sept 2016
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