When a commercial lease is in place the tenant normally holds the right to remain in occupation until the lease expires. However, as a landlord there are some circumstances where you can take back the premises during the term by issuing a commercial lease notice to vacate.
Tenants will often challenge a notice to vacate and the legal arguments surrounding commercial leases can often be complex so legal advice should be sought before beginning this process.
Forfeiture allows a landlord to end a lease because of a breach by the tenant. A landlord can only terminate a lease in this manner if the lease contains a forfeiture clause and the clause allows the landlord to forfeit for this breach. Forfeiture should be considered carefully as it is an act that cannot be retracted.
If the lease has been breached through non-payment of rent the landlord has the right to re-claim the property through peaceable entry without issuing a commercial lease notice to vacate. Landlords normally choose to instruct an Enforcement Agent to visit the property, change the locks and deliver a commercial lease notice to vacate. If forfeiture through peaceable re-entry is successful the lease agreement will be automatically terminated and any obligations held by the tenant or the landlord will cease.
If the peaceable re-entry is not successful or the landlord wishes to pursue forfeiture through the courts they can choose to serve a commercial lease notice to vacate as detailed below.
Forfeiture through Section 146 of the Law of Property Act 1925
If the breach does not relate to rent a commercial lease notice to vacate needs to be served to the tenant in accordance with Section 146 of the Law of Property Act 1925. A landlord can also choose to pursue non-payment of rent through the courts in this manner.
The notice to vacate must detail the specific breach, advise if the breach can be remedied by the tenant and state if compensation is required for the breach.
If the tenant does not respond to the notice in reasonable time the landlord can forfeit the lease through peaceable re-entry or court proceedings.
If the landlord accepts rent or acts in any other way that suggests the lease is continuing after the notice has been served the landlord will lose the right to forfeiture.
Can a tenant contest forfeiture?
Tenants can apply to court for relief from forfeiture and if they are successful the lease will be returned to the tenant for the remainder of the term.
This relief is normally only granted on certain conditions – the tenant must remedy the breach, pay any rent arrears and also reimburse the landlord for any legal costs incurred through the forfeiture.
In these cases rent arrears will include all rent due up to the date of the court hearing, including that after the date of forfeiture, in order to ensure the landlord is duly compensated.
The law surrounding forfeiture of a commercial tenancy is complex and often contested. There are strict procedures that must be followed or landlords are at risk of losing their right to forfeiture. Lease forfeiture is often contested by tenants so it is recommended that landlords seek legal advice before starting the forfeiture process or taking any action against a tenant.
Breach of a repairing covenant
Landlords looking to serve a 146 notice for breach of repairing covenant should consider the implications of the Leasehold Property (Repairs) Act 1938. If a commercial lease is granted for seven years or more and there are at least three years left of the term the legislation limits the landlord’s ability to forfeit. The notice must be served to the tenant at least one month before bringing the action to forfeit. The tenant can serve a counter notice and the landlord may not proceed to forfeit without consent from the court.
Can a tenancy be terminated at the end of the fixed term?
The ability of a landlord to terminate a lease at the end of the fixed term is dependent on whether the lease falls under The Landlord and Tenant Act 1954.
This act was put in place to afford commercial tenants a degree of security when the fixed period of their lease ends. If the fixed period is over 6 months or if they have occupied the property for over 12 months the tenant, in principal, has the right to renew their lease on similar terms.
There are some circumstances where a landlord could still terminate a tenancy protected by the 1954 act. To do this the landlord must can a Section 25 notice detailing legitimate reasons for not renewing the lease. A landlord may justify this if the tenant has failed to fulfil their obligations or if the landlord has fixed plans in place to redevelop the property. A Section 25 notice does not guarantee termination of the lease as the tenant may choose to challenge this in court.
If both parties opted out of the 1954 legislation as part of the lease the tenant does not have an automatic right to extend the lease. If either party wishes to end the tenancy in these circumstances they must simply inform the other in writing. If either party refuses to end the lease court proceedings may need to be considered.
Enforcing a lease break clause
Landlords may seek to have a break clause included in a lease if they have future plans to occupy, redevelop or want to keep their options open. If a commercial lease contains a break clause either party can seek to terminate the lease before it’s expiry.
If a landlord wants to enforce a break clause the lease will usually need to be excluded from the Landlord and Tenant Act 1954. There are some circumstances (if a landlord has redevelopment plans for example) where the landlord may have statutory grounds for countering a protected tenant’s attempt to renew, and therefore enforce a break clause.
Negotiating a deed of surrender
It can be beneficial for landlords to negotiate a deed of surrender with their tenant rather than enter into a lengthy and costly dispute. This is a document where both parties agree to terminate a lease before the end of the term.
A commercial law specialist can draft a deed of surrender that covers details including the tenant leave date and the continuation of tenant obligations until property vacation. Negotiating a deed of surrender can be an involved and sensitive process and if a tenant is unwilling to surrender the property a solicitor will advise on the benefits of offering premiums in order to reach a consensus.
Help and legal advice
Landlords looking to to end a commercial lease and serve their tenant a notice to vacate should seek advice from a specialist commercial property solicitor. Commercial leases are a complex area of law, and terms and clauses can be open to legal interpretation.
Even in cases where the lease is legally forfeited by a landlord a tenant may pursue a court claim for relief from forfeiture. If the tenant pays all arrears then this claim for relief is likely to be successful so prompt negotiations and the support of a specialist lawyer can be imperative in resolving disputes swiftly.