Landlords have both rights and responsibilities towards their tenants. While they need to rent their commercial property for a fair price, they can also take it back when the lessee can no longer pay.
The problem is not many landlords in the UK are familiar with options, such as commercial forfeiture of lease. They may then benefit from this list of basic FAQs:
1. What Is Commercial Lease Forfeiture?
Forfeiture means the repossession of an asset. In this case, it’s the commercial property. It may refer to a single unit in a large building or the entire premises. It is different from asset forfeiture, which usually happens when the government or a law enforcement agency seizes a person’s possession. It may occur when authorities believe that the person acquired the assets illegally or criminally.
One of the primary reasons for commercial lease furniture is a breach of contract (or covenant). It means the tenant violated one or more provisions in the agreement. An excellent example is a failure to pay the rent.
A landlord may still begin a forfeiture process even when the reason isn’t explicit in the contract. However, it may be complicated to implement.
2. Can a Commercial Lease Forfeiture Immediate?
The forfeiture process can be immediate, but the law also protects the rights of the tenants. Usually, landlords will need to provide a notice to their lessees.
One of these notices is section 146 notice, which is the termination of the lease. It is a document that informs the lessee the following:
- Kind of breach committed
- Breach remedy if there’s one
- Breach compensation if the remedy is not available
The notice needs to meet many conditions for it to be valid. For example, the non-payment must reach a certain amount or number of months or years before the landlord can opt for re-entry or repossession. That’s why lessors need to work with an expert in commercial forfeiture of the lease to guide them through the process.
If the breach has a remedy (for example, the landlord may allow repairs for dilapidations or payment of rent), then the lessor has to provide a reasonable amount of time to accomplish it. Otherwise, the notice becomes void. The law doesn’t specify any duration, though.
3. What Is a Waiver of Forfeiture?
A waiver of forfeiture means that the landlord loses the right to re-entry or repossession of the commercial property. It happens when the lessor is aware of the breach of the covenant but still performs an unequivocal act that implies the relationship between tenant and landlord still exists.
A good example is the acceptance of partial rent payment. One of the common reasons for commercial lease forfeiture is delayed rent. If the landlord is aware of this breach, starts the forfeiture process, but still accepts partial payments, then they may have already waived their right to re-entry.
4. What Is the Option of Tenants During Forfeiture?
Besides the right to seek remedy and fulfil it, they may also ask the court for forfeiture relief. In other words, they want the landlord to stop the process.
When this happens, landlords may find themselves in a time-consuming and expensive legal battle. Thus, it’s essential that they have a clear contract with the tenant and that they work with specialists in case they want to implement forfeiture.
In an ideal world, a landlord has a responsible, solvent tenant. In reality, it doesn’t happen all the time. Fortunately, lessors have rights, which they should temper with obligations towards their lessees.