Tenant rights: what is relief from forfeiture?

When a tenant has built up rent arrears at a commercial property, the landlord can opt to forfeit the lease (if there is the relevant clause). Where this takes place, the tenant can apply to the courts for relief from forfeiture to reinstate the lease.

As a commercial landlord, it’s important to know what rights your tenant has and how applying for relief from forfeiture can affect the process.

Forfeiting a commercial lease

If you have a commercial tenant and they are behind with their rent payments, there is the option to use the Commercial Rent Arrears Recovery (CRAR) process to collect the debt using a Certificated Enforcement Agent (bailiff). However, on some occasions, the landlord wants to take back possession of the property by forfeiting the lease.

A lease forfeit can be conducted without giving any notice to the tenant if it is for rent arrears. This enables the landlord to take back peaceful possession of the property. A certificated enforcement agent and locksmith are usually instructed and they will enter the property outside of trading hours, change the locks and post the relevant notices.

After this has taken place, the tenant can agree to pay off the arrears and you can reinstate the lease. Where the business was struggling prior to the forfeit, the tenant will probably not pursue any further action. The remaining rent arrears can be recovered through a County Court Judgement.

You can find out more about the commercial lease forfeit process here.

What is relief from forfeiture?

If the tenant wants to remain in the property, they could apply to the court for relief from forfeiture. The tenant will need to apply for relief through the Law of Property Act 1925 section 146. When they’ve applied to set the forfeiture aside, the court will examine the case and either agree to grant relief or rule in favour of the landlord and keep the forfeiture in place.

The instances where relief from forfeiture are likely to be granted by the courts are where the breach of the lease, i.e. the rent arrears, have been remedied. If the court can see evidence that the arrears will be paid off under an agreement that the business can stick to, they may rule in the favour of the tenant.

If after conducting a forfeiture of lease the tenant agrees to pay off the arrears, either in full or within a certain timeframe, the best approach is to accept a reinstatement of the lease. When the tenant has already put forward such a proposal, a court would be unlikely to side with the landlord.

The tenant will need to pay their own court costs and legal fees, along with the landlord’s, when they apply. This can often put businesses off taking the process any further, particularly when the company is already struggling financially.

In some cases, the costs of applying for forfeiture, especially if it’s not guaranteed that the court would rule in the tenant’s favour, might not be worth the benefits. If they then lost the case, the company would be left without any trading premises and additional costs to pay.

What happens if a new lease has already been granted to a third party?

A tenant could delay applying for relief from forfeiture. In which case, the landlord may have already granted a lease to a new tenant.

The court would then have to examine a number of factors before granting in favour of the tenant or the landlord. This would include how quick the landlord re-let the property and if they acted reasonably towards the former tenant, as well as how long the tenant has waited before applying.

Where the tenant has delayed the application for relief, a court could rule in the landlord’s favour as they have been denied their right to deal appropriately with their property. However, the landlord might be seen to be in the wrong if they’ve granted a new lease quickly and haven’t given the correct notice to the tenant.

A court will also question if the new tenant knew of the existing forfeiture process prior to taking on the lease. If they were aware that the previous tenant could make an application for relief, it could go against the new occupants.

For landlords, it’s important that they take these issues into consideration before granting a new lease. When a lease has been forfeited for non-payment of rent, the landlord would be wise to inform the former tenant of their intentions to re-let the property. This should provide them with sufficient notice to consider if they want to apply for relief from forfeiture.

Commercial Forfeiture of Lease

At CEA Ltd, we work with many commercial landlords to organise lease forfeits across the country. Our agents work nationwide and can quickly effect forfeiture and secure your property.