Commercial Landlord & Tenant

If your tenant is in breach of the covenants in the lease, there are a range of legal remedies potentially available to you, including forfeiture of the lease, specific performance of the tenant’s leasehold covenants in the lease, as well as a claim against your tenant to recover any loss and damage caused by the tenant’s breaches.

The choice of remedy will depend on the particular facts of each case. Where commercial property is concerned, the financial needs of the landlord and the financial strength of the tenant will likely influence the best remedy in any particular set of circumstances. For example, you may not want to take any action that may disturb your tenant’s ability to carry on in business in the property.   If that is the case, where your tenant is, for example, in arrears of rent and other sums due under the lease, instead of forfeiting the lease, you may simply decide to commence court proceedings to recover the arrears.

Forfeiture is the process whereby, following a tenant’s breach of covenant or condition in a lease, the landlord is able to end the lease prematurely and recover possession of the property. When a lease is forfeited, it is brought to an end. This means, amongst other things, that the tenant’s obligation to pay rent and other sums due under the lease beyond the date of forfeiture is at and end, although a landlord is entitled to recover sums up to the date of forfeiture. Forfeiture of the lease will also bring to an end any interests of any sub-tenants or mortgagees.

Whether you are able to forfeit the lease because of the tenant’s breach of covenant will depend upon the specific facts of each case.

In order you to be able to forfeit the lease for breach of covenant, the lease must contain an express provision allowing you to do so (often described in the lease as a ‘proviso for re-entry’).

A breach of covenant by a tenant may only entitle the landlord to forfeit the lease.   However, in order to actually forfeit the lease, the landlord must still exercise that right by performing some unequivocal act demonstrating that the landlord considers the relationship of landlord and tenant to be at an end.   This can be done either by issuing court proceedings for recovery of possession or by taking steps to peaceably re-enter the property.  Forfeiture by peaceable re-entry is generally quicker and cheaper than commencing possession proceedings but is recommended only where property is un-occupied. Such procedure is generally only used where a tenant has failed to pay rent and other sums due under the lease that are reserved as rent   The most practical way of effecting peaceable re-entry of commercial property is to turn up after business hours or early in the morning, check that no-one is occupying the property and simply change the locks.   However, this is not always possible. The decision as to whether to forfeit the lease by peaceable re-entry or by commencing court proceedings should be very carefully considered.  In most cases it will be advisable for forfeiture will be effected through court proceedings.

The right to forfeit a lease is easily waived. If in response to a breach of covenant by its tenant, the landlord does nothing or treats the lease as continuing, the landlord may waive (i.e. lose) the right to forfeit the lease in respect of the relevant breach.  Typically, a landlord will waive the right to forfeit the lease by knowing of the breach but nevertheless demanding or accepting rent from the tenant.   If a landlord becomes aware of a tenant’s breach and is contemplating forfeiture, the landlord should immediately stop demanding and/or accepting rent from the tenant.   Even accepting rent by mistake or ‘without prejudice’ will still likely constitute a waiver of the right to forfeit a lease. Before taking action to forfeit a lease, a landlord should always consider whether waiver has occurred.   If it has, and the landlord nevertheless proceeds to forfeit the lease, the landlord will likely be required to allow the tenant back into the property and be obliged to pay the tenant’s legal costs, which may be substantial.

This depends on whether or not the alleged breach of covenant involves non-payment of rent. Before a landlord can forfeit a lease for breaches of covenant that are not the covenant to pay rent (although there are exceptions) the landlord must usually first serve a notice on the tenant under section 146 of the Law of Property Act 1925requiring the tenant to remedy the alleged breaches within a reasonable period of time, to the extent that they are capable of being remedied. Once the period of time given in the ‘Section 146 Notice’ expires, the landlord can then effect forfeiture by either peaceably re-entering the property or by commencing possession proceedings.

In the case of forfeiture for non-payment of rent, a landlord has no need to serve a Section 146 Notice before effecting forfeiture by either means.

If your landlord has forfeited your lease in circumstances where it was not entitled to do so, you may be able to force your landlord to allow you back into occupation of the property and to pay your legal costs. You may also have claim against your landlord for any loss and damage caused to you by your landlord’s unlawful actions; for example loss of profit during the period you were unable to run your business from the property.

Even if your landlord is entitled to forfeit your lease, you may nevertheless be able to apply to the court for ‘relief from forfeiture.’   In respect of the non-payment of rent, relief from forfeiture will usually be granted by the court, and the lease restored, provided you pay the arrears and your landlord’s legal costs.   In the case of breach of other covenants in the lease, in deciding whether to grant relief from forfeiture, the court has a very wide discretion.   The court will carefully balance the harm that the breach has caused your landlord against the advantage your landlord will gain from forfeiting the lease.   The court will also examine whether the breach is capable of remedy.   If it is, and you are willing and able to remedy it within a reasonable period of time, it is likely that relief from forfeiture will be granted by the court, and the lease restored, provided the court is convinced that the breach is unlikely to re-occur.   If you are a persistent non or late-payer of rent the court may not order relief from forfeiture.

In all cases, once you become aware of a landlord’s intention to forfeit the lease, you should act quickly, as any delay is likely to prejudice your position.

A tenant of commercial property has a statutory right to a new business tenancy at the end of the contractual term of their present lease if a Part II of the Landlord and Tenant Act 1954 applies and the lease has not been contracted out of the security of tenure provisions provided for by the Act.   A business tenancy protected by the Act will not terminate automatically at the end of the contractual term of the current lease.  If the tenancy satisfies the qualifying criteria in the Act at the contractual expiry date of the lease, it will continue on the same terms of the current contractual lease until it is terminated in one of the ways specified by the Act and a new lease is granted or not.

There are different procedures for renewal of a business tenancy under the Landlord and Tenant Act 1954, depending on whether the landlord or the tenant initiates the renewal.   The landlord can end the tenancy and propose the terms of a new one by serving notice on the tenant under section 25 of the Landlord and Tenant Act 1954 or the tenant can do so by serving a request for a new tenancy on the landlord under section 26 of the Act.   In order to be valid, a ‘Section 25 Notice’ or ‘Section 26 Request’ must comply with certain statutory requirements.

Once a valid Section 25 Notice has been served, it cannot be unilaterally withdrawn or amended.    Either the landlord or the tenant can then apply to the court for a new tenancy.  The Court application must be made within prescribed time limits or the tenant will lose its right to a new lease.

Once a valid Section 26 Request has been served, if the landlord wants to oppose it the landlord may serve a counter-notice on the tenant within 2 months after the tenant’s Request has been made.  If the landlord and tenant cannot agree on the grant of a new tenancy, either party can apply to the court for a new tenancy.   The Court application must be made within prescribed time limits or the tenant will lose its right to a new lease.

A landlord can oppose a tenant’s statutory right to a new tenancy on any of the grounds set out in section 30(1) of the Landlord and Tenant Act 1954.   The landlord must notify the tenant of its opposition either in the Section 25 Notice (if the landlord is terminating the current tenancy) or in the counter-notice served in response to a tenant’s Section 26 Request.

If the parties cannot agree on the terms of the new lease, either party can apply to the court for an order for the grant of a new tenancy and a determination of the terms of the new lease.   Where renewal is initiated by the landlord, either party can apply to the court as soon as the Section 25 Notice has been served.   Where renewal is initiated by the tenant, neither party can apply to the court until the landlord has served a counter-notice or the date 2 months after the tenant has made its Section 26 Request expires, whichever is earlier. Neither the landlord nor the tenant can apply to the court if the either has already done so and has served their application.

The application to court must be made within prescribed time limits. The period within which any such application is to be made ends on either the date specified as the termination date in the landlord’s Section 25 Notice or the day before the commencement date specified in the tenant’s Section 26 Request.  If no application is made to court by the end of this period, then the tenant will lose its right to a new lease.  The lease renewal process will be over and the tenant will have no right to remain in occupation of the property.  The parties can agree in writing to extend the date for making an application to court, provided they do so before the deadline expires.   Further extensions are permissible provided that the landlord and tenant agree to this in writing before the expiry of the current deadline.   If the parties agree to extend the deadline for applying to the court, the landlord’s Section 25 Notice or the tenant’s Section 26 Request will be treated as terminating the current tenancy at the end of the last extension period agreed between the parties.

A tenant with a right to a new business tenancy and security of tenure under the Landlord and Tenant Act 1954 is entitled to compensation if it does not obtain a new lease solely because a landlord establishes one of the ‘no fault’ grounds set-out in section 30(1) of the Landlord and Tenant Act 1954 (i.e. grounds (e),(f) and (g)).   It is therefore in the landlord’s interests to succeed in opposing the grant of a new lease to a tenant on the ‘fault grounds’ provided for in the Act (i.e. grounds (a), (b), (c) or (d)).   If the landlord successfully opposes a new tenancy on any of the ‘fault grounds’, the tenant will not be entitled to any statutory compensation.   However, even if the tenant is entitled to compensation, the current lease may exclude the landlord’s liability to pay it. Whilst the circumstances in which the landlord can lawfully rely on any such exclusion are limited by the Landlord and Tenant Act 1954, such exclusion may nevertheless be effective in certain circumstances.