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Commercial Lease Forfeiture

Written by Tim Mount on 06 February 2009

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Most leases of commercial property have a clause which gives the Landlord the right to forfeit (cancel) the Lease if the rent falls into arrears for more than a specified period, often 21 days. Similar provisions generally provide for forfeiture of the Lease if a tenant is declared bankrupt.

If you are the landlord it is wise when you have a commercial lease drawn up to check that the lease contains a clause allowing you to re-enter the premises in certain circumstances, e.g. where there has been a breach of the lease.

If you are a tenant and the lease does not contain a re-entry clause, the landlord will only be able to forfeit it if there has been a breach of an implied condition by you. This occurs where a tenant acts contrary to a fundamental aspect of the landlord and tenant relationship. This might be where the tenant denies the landlord's title.

Also, check whether the lease specifies any pre-conditions for exercising the right to forfeit, e.g. a grace period for paying sums due under the lease.

For all breaches other than the non-payment of rent, the landlord will need to give the tenant notice of intention to forfeit the lease under Section 146 of the Law of Property Act 1925 - a failure to do so will make the forfeiture unlawful. If a commercial landlord is forfeiting for non-payment of rent however they do not need to give any notice.

And unlike residential landlords, commercial landlords do not need a court order to retake possession of leased property if their right to forfeit the lease has arisen because of late payment of rent. Going to court is an available option which landlords often choose if there is likely to be a dispute as to whether the tenant is in breach of its obligations under the lease.

If a commercial landlord forfeits for arrears of rent, they will often change the locks immediately. If they go to court, it will take at least 6 weeks to get a court order.

Alternatively a Statutory Demand may be served on the tenant if the arrears are £750.00 or more. If the Statutory Demand is not complied with within 28 days then action for bankruptcy can follow. This will not necessarily assist the Landlord however.

The landlord will waive the right to forfeit if they know of a tenant's breach, and do something which treats the lease as if it is still in existence. It is possible to either have a once-and-for-all waiver, or a continuing waiver. Contact Lawdit to talk more about these issues.

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