EWJ June 2024 web - Journal - Page 91
How Forfeiture and Relief Clauses
Benefit Landlords and Tenants
Commercial leases are beneficial to both the landlord and tenant in many different ways.
However, leases also contain an element of risk which both landlords and tenants need to be
aware of and take steps to protect themselves against.
In addition to the break option clauses we discussed in
a recent blog, (https://awh.co.uk/2023/09/04/break-optionswhat-they-are-and-how-to-exercise-them/) one way landlords often protect their investments is through the
inclusion of forfeiture clauses. In this article we will
take a brief look at what forfeiture is and what relief
tenants may be able to receive should the landlord
exercise their right of forfeiture.
How the right to forfeit is exercised
There are two ways a landlord can exercise their right
of forfeiture. The first is called peaceable re-entry,
which involves the landlord taking back possession of
the property by physically re-entering it. Normally,
landlords will change the locks in these instances, to
stop the tenant from gaining further access to the
commercial property.
What is forfeiture?
The Right of Forfeiture provides a landlord a method
of terminating a lease and thereby taking back possession of the property in the event that the tenant is
in breach of the lease. Examples of breaches which
may result in a landlord choosing to exercise their
right of forfeiture include things such as the tenant
not paying rent on time or not keeping the property
in a state of good repair.
Peaceable re-entry is often used when a tenant has
failed to pay the rent, thereby breaching the rental
agreement. If the landlord accepts payment of the outstanding rents they may end up waiving their right to
forfeiture by mistake, so it is always a good idea to check
with a solicitor before taking this course of action.
The second way a landlord can exercise their right of
forfeiture is through Court proceedings. While Court
proceedings can often take longer and cost more, they
carry with them less risk for the landlord as getting
peaceable re-entry wrong could cause additional complications, for instance if the commercial property includes any form of residence, such as a flat above a
shop.
The decision to exercise their right of forfeiture is not
one that landlords will take lightly. After all, having a
vacant commercial property is likely to result in a loss
of income until a new tenant can be found.
While break options are available to both the landlord
and the tenant, the right of forfeiture is only available
to the landlord and it is only once the right to forfeiture has been exercised that the tenant can apply for
relief against it.
EXPERT WITNESS JOURNAL
How a landlord exercises their right of forfeiture by
issuing Court proceedings will depend on the breach
to the lease agreement. If the forfeiture is for nonpayment of rent, most commercial agreements will
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