A forfeiture clause provides a landlord with the right to re-enter the property if rent has not been paid a certain number of days after it is due. For commercial leases, the introduction of S.82(1) of the Coronavirus Act 2020 (‘CVA 2020’) meant landlords could not exercise this right between 21 March 2020 to 25 March 2022.
As 25 March 2022 has come and gone, many landlords are looking to forfeit their leases with existing tenants in an attempt to increase their rental income. Protected rent debt will now be capable of being referred to arbitration by either the landlord or the tenant, and the usual remedies for non-payment of rent will not be available to landlords in relation to those protected rent debts. To forfeit the lease, the landlord may insist on receiving payment of the non-protected rent arrears that built up during the lockdown. If this is a significant amount and the tenant cannot pay, the landlord can use this to forfeit the lease. As discussed above this means they will have the right to re-enter the property. They will then be able to change the locks effectively removing the tenant. Once they have possession of the property again, they will be able to remarket at a high rent.
As a tenant, it is important to remember that a landlord can do this with little notice so long as it has been provided for in the lease, which is why is it important for tenants to be aware of what their own leases provide for.
A crucial point in favour of the tenant is the option to make an application to the court for relief. This relief from forfeiture application can be made so long as it is done within six months.
When making an application the tenant should make sure they understand two points. Firstly, any rent arrears need to have been paid in full, and even if they have been, a history of late payments and other breaches will likely lead to the landlord rejecting the application for relief. Secondly, the tenant should be aware that there is a high likelihood of having to pay the landlord’s costs for proceedings.
For landlords is important to consider taking professional advice before exercising a right to forfeit as some statutory restrictions do exist. In particular, advice on whether a right to forfeit has been waived should also be sought as any right to forfeit not expressly waived prior to 25 March 2022 could now be waived by conduct.
If a right to forfeit has been waived, then the tenant could apply for a declaration that the lease has been wrongfully forfeited, usually alongside an alternative application for relief. If the court holds that the lease has been wrongfully forfeited, then the court can order the landlord to pay the tenant’s costs of the application.
To conclude, a tenant can make an application for relief when facing forfeiture; in most cases, relief will be granted provided the relevant conditions are met. If a landlord does forfeit the lease, then the lease ends at that point. The tenant will no longer have to pay rent or make any other payments under the lease, they will not be bound by any of the covenants. A landlord should carefully consider the current circumstances of the lease before going ahead and forfeiting the lease to avoid any unintentional costs.
If you require assistance relating to forfeiture then call us today, on 0121 268 3208 or send us an email at email@example.com with your query and we will get back to you.