Forfeiture of Lease
Do I need to go to court?
If there has been a history of bad debt and the tenant is severely in arrears with rent, the landlord has the option of terminating the commercial lease with the tenant, by way of Forfeiture of Lease.
In most cases it is not necessary to take legal action to forfeit a commercial lease. However, this is determined by:
- Forfeiture clauses within the lease giving the landlord the right to terminate the lease and re-enter the premises following a breach of covenant
- The amount of debt which is outstanding in relation to the rent
- The length of time the rent is overdue, which is usually 21 days or more
- The tenant being made bankrupt
How long must the debt be overdue, to forfeit the lease?
Legislation now states that forfeiture cannot be applied if the debt is small or has not been overdue for a long time. Therefore, it is accepted that for forfeiture to commence for non-payment of rent or service charge arrears, the debt should be in excess of £350 or be in arrears for over three years.
Can I serve a notice of forfeiture for a breach of a covenant or condition?
You can only forfeit the lease for a breach of covenant or lease condition if the tenant has admitted the breach or if it has been determined by the Leasehold Valuation Tribunal (LVT).
Factors to Consider
There are many factors governing forfeiture of lease and the decision to forfeit the lease should not be taken lightly. It is therefore important to consider the following factors that may influence your decision:
- Are you holding a rent deposit?
- Is there a guarantor?
- Is there a former tenant who may be liable?
- In the current market will you be able to re-let the property?
- Will a new tenant pay a rent equal to or in excess of the current tenant?
