Forfeiture of Commercial Lease

Forfeiture of Commercial Lease

A lease for commercial premises is a contractual agreement between the lessor and lessee and is governed by Common Law. This is different to tenancy agreements for residential premises which are governed by the Housing Act 1988. A commercial lease will commonly have a start and an end date — the end date being the date when the lessee will be entitled to vacate the premises and the lessor entitled to take possession of a vacant property.

Break Clause 

It is indeed possible to end a lease before the actual end-date stated on the lease agreement, provided the parties inserted a break clause into the lease agreement. A break clause in the context of a lease is a stated date or period prior to the actual end-date when the lease may be terminated by either the lessee or the lessor without fear of a penalty. Where there is a break clause in the lease there will often be an agreed notice period where the party intending to break the lease will give notice to the other party of their intention. The length of the notice period required will be stated in the lease and will often range from two to six months’ notice.

Other grounds for terminating a lease

Not all lease agreements have a break clause. The lack of a break clause in a lease does not prevent a party from breaking the lease before the stated end date. A party may break the lease if the other party agrees to the termination of the lease. Subject to the terms of the lease, a tenant may assign the lease to a third party or sub-let parts or all of the property. Assignments and subletting often require the express consent of the landlord.

Although the right of a landlord to forfeit a lease is not automatic, most lease agreements contain the right to forfeit. The right to forfeit is usually dependent on the tenant breaching a fundamental term of the lease, such as failure to pay rent. Upon forfeiture, the lease ends on the date the forfeiture takes effect. The effect of forfeiture is that the lease is terminated and the parties’ rights and responsibilities under the lease cease. 

Procedure for forfeiting a lease

In order to forfeit a lease, the landlord is required to first give the tenant notice pursuant to section 146 of the Law of Property Act 1925. The notice must specify the nature of the breach complained of, whether the breach can be rectified, give the lessee a reasonable time to remedy the breach, and require the lessee to compensate the lessor for the breach. Although “reasonable time” is not defined under the Law of Property Act 1925, the length of time given to the lessee to remedy the breach will often depend on the nature of the breach. 

Where the breach is not remedied within a reasonable time, the lessor may forfeit the lease. The lessor may then exercise the right to peaceable re-entry or issue court proceedings to obtain a possession order against the lessee. The right to peaceable re-entry means that the lessor or an appointed agent re-enters the property when there is no one inside and change the locks to prevent the lessee from entering the premises. 

Securing possession of premises

To ensure peaceable re-entry, it is common practice to re-enter the property and change the locks outside business hours when no one is on the premises. Nonetheless, peaceable re-entry can be a complicated matter, especially if the lessee later applies to a court for relief. If the court grants that relief and permits the lessee to return to the premises, then the lessor will be in a very difficult position if the property has been re-let to a third-party. Further, there is no right to peaceable re-entry if the property is let as a dwelling.  Therefore, it is best practice to obtain a possession order from a court after serving a notice under section 146 and allowing reasonable time to elapse.

 

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For advice on commercial leases, please call us on 0203 488 3078 or email at ask@penerley.com 

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