Forfeiture of lease allows landlords of leasehold properties to terminate a lease and regain possession of a property from leaseholders.
The landlord forfeiture of a lease can only occur when there is an express peaceable re-entry or forfeiture clause in the lease and the leaseholders breached some terms; for example, they did not pay rent or service charges when they became due.
The legal procedure for forfeiture of a lease that the landlord must follow depends on the type of breach: whether it is for non-payment of rent or other charges, or the breach of a different term in the contract.
It is essential that landlords considering lease forfeiture against their tenants understand the potential risks involved and follow the correct legal processes. This is to avoid criminal prosecution or claims for damages.
Understanding Lease Forfeiture
When the leaseholders of a property persistently and seriously breach the terms of their lease and do not remedy the breach even after notice to do so, the landlord’s only option might be forfeiture of a lease.
What is Lease Forfeiture?
Lease forfeiture is the right of a landlord to terminate a lease early due to a tenant's breach of contract. Forfeiture is a drastic remedy and should be approached with caution. A tenant can apply to the court for relief from forfeiture. Courts can decide that the breach can be remedied and that the forfeiture of the lease would be disproportionate.
Landlord forfeiture of lease is a legal remedy available only against tenants of leasehold properties with long leases. A long residential lease should usually last for 21 years or longer. Tenants with long leases are generally called leaseholders. For more information on long leases and the rights and responsibilities of leaseholders, see Leasehold Property.
Grounds for Forfeiture
The grounds for forfeiture of a lease depend on the wording of the forfeiture clause in the lease and the lease itself.
The forfeiture clause in the lease must be clear and specify under which circumstances it is triggered. Theoretically, any breach of a term by the tenant can result in forfeiture. However, as forfeiture is a serious matter and the landlord must follow strict and costly legal processes, it should be used as a remedy of last resort, even when the forfeiture clause empowers the landlord to terminate the lease and regain possession of the leasehold property.
The most common examples of grounds for forfeiture are:
- Non-payment of rent or other charges: When the tenant fails to pay ground rent, service charges, insurance premiums or other administration fees and accumulates arrears of more than £350 or left outstanding for more than three years
- Unauthorised subletting: When the tenant lets out their property to other people without the landlord’s permission and the lease clearly forbids subletting
- Alterations without consent: When the lease includes a clause requiring tenants to obtain the landlord's written consent before making structural or significant alterations to the property and the tenant makes alterations without obtaining that consent
- Property damage due to failure to repair or maintain: When the lease places a responsibility on the leaseholder to maintain the property in a good state of repair and the tenant fails to do so causing damage to the premises
- Criminal activity: When the tenant uses the property for unlawful activities such as drug dealing, human trafficking, or any form of illegal misuse
Sometimes also the bankruptcy or insolvency of the leaseholder can activate the forfeiture clause of a lease if it contains a specific insolvency clause. This is more common in commercial leases rather than residential. However, if a residential leaseholder has obtained a mortgage to purchase the lease, when they go insolvent or bankrupt the lender might appoint a receiver to pay monies owed on the lease to prevent forfeiture and protect its security. The amount paid is usually added to the mortgage.
For more information on priority and non-priority debts see Citizens Advice.
Types of Forfeiture
There are two distinct legal processes that a landlord must follow to forfeit a lease according to the nature of the breach. These are:
- Forfeiture for non-payment of rent or other charges
- Forfeiture for breach of non-rent terms in the lease
There is also a common distinction between two methods of forfeiture:
- Peaceable re-entry (without court involvement) is a quicker and cheaper method of regaining possession of the property by forcing entry into the premises and changing the locks
- Forfeiture by court order which requires the landlord to apply to the court for an order and enforce it via court bailiffs or authorised enforcement agents
The Forfeiture Process
A landlord forfeiture of a lease typically falls into two main categories according to whether they are rent breaches or non-rent breaches.
Forfeiture Process for Non-Payment of Rent
When the tenant fails to pay ground rent, service charges, insurance premiums or other charges payable in respect of the lease, the landlord must send a notice that rent is due in the form prescribed by The Landlord and Tenant (Notice of Rent) (England) Regulations 2004.
The rent demand notice must give the tenant a period between 30 and 60 days to pay any outstanding sums and must specify:
- the name of the leaseholder
- the period to which the rent demanded is attributable
- to whom and where to make the payment
- the name and address of the landlord
- any other information prescribed in the Schedule to the Regulations
The Rights of Re-entry and Forfeiture (Prescribed Sum and Period) (England) Regulations 2004 requires that the amount of unpaid rent, service charges or administration fees is more than £350 in total, or has been outstanding for more than three years before a rent demand notice can be served.
If the breach of the lease concerns non-payment of service charges or administration fees, Section 81 of the Housing Act 1996 requires additionally that the leaseholder has admitted that the debt is payable, or there is a final judgment by a court, tribunal or arbitrator before a right of re-entry or forfeiture can be exercised.
Once the period of notice has expired, the landlord must apply to the court for a possession order.
Forfeiture Process for Non-Rent Breaches
If the tenant’s breach of contract relates to another term of the lease, the landlord must serve a notice of forfeiture under Section 146 of the Law Property Act 1925. This notice must specify:
- the term of the lease that the leaseholder has breached
- a request for the breach to be remedied (if remedy is possible)
- amount of damages demanded
The notice of forfeiture does not need to be in any particular form and must give the tenant a reasonable amount of time to remedy the breach and/or pay damages to the landlord.
Once the notice period has expired, the landlord must apply to the court for an order of possession before exercising their right of re-entry or forfeiture. This is particularly advisable in the case of occupied residential property to comply with Section 2 of the Protection from Eviction Act 1977.
In the case of commercial property or vacant residential property, it might be safe to exercise the right to peaceable re-entry without court involvement depending on the circumstances of each case.
Forfeiture by Court Order vs Peaceable Re-Entry
Depending on the circumstances of their case, landlords wanting to regain possession of a property rented out under a long lease can decide which method to use between peaceable re-entry without court involvement and forfeiture by court order. In most cases of residential properties with tenants in occupation, landlords should go for forfeiture by court order as the consequences of illegal evictions of residential leaseholders are great and costly!
Peaceful re-entry is cheaper and quicker. This method of forfeiture is only advisable when the premises are absolutely vacant or where they rent out under a commercial lease (not a mix of residential and commercial). With this method, the landlord can take back possession of the property without seeking a court order. This is often achieved by changing the locks or physically re-entering the property when the tenant is not there so to avoid any physical confrontation. Peaceable re-entry is generally not permitted in residential leases due to stronger tenant security of tenure and protections. If peaceful re-entry without a court order is done improperly, it can lead to grave legal penalties for the landlord, such as claims of unlawful eviction or trespass by the tenant.
Forfeiture by court order is advisable in any case where there is the risk of the leaseholders resisting the forfeiture of the lease. A court order gives powers to the landlord to act safely, without the risk of committing a criminal offence and being ordered to pay damages on top of all legal costs incurred by the landlord to take forfeiture actions and by the leaseholder to defend it. This method involves a lengthy and more costly procedure where the landlord applies to a court, serves notice to the tenant, demonstrates grounds for forfeiture, and seeks court enforcement of the possession order. This is the standard procedure for terminating residential leases early; it can be for mixed commercial and residential leases where peaceable re-entry is not possible or deemed too risky.
So, while peaceable re-entry is faster and less costly, it might involve significant risks if conducted wrongly. Forfeiture by court order, even though more time-consuming and expensive, can offer greater guarantees and legal protection to landlords and is often the only option available in case of non-vacant residential leases. An experienced landlord and tenant lawyer should be consulted to decide the best approach to follow in each case.
Tenant's Right to Relief from Forfeiture
A leaseholder can ask for relief from forfeiture from the court when they receive a notice of forfeiture or if the landlord is already taking forfeiture action.
What is Relief from Forfeiture?
A tenant can apply to the court for relief from forfeiture and regain their lease after it has been forfeited by the landlord. In England and Wales, the competent court is usually the County Court. An application for relief from forfeiture must be made without delay after the forfeiture, as delays can be taken into consideration by the court against the tenant's case.
When deciding whether to grant relief from forfeiture, the court can consider several factors, including:
- the nature and seriousness of the breach of lease
- whether the breach can be remedied and the willingness of the tenant to remedy it
- whether granting relief would be fair and equitable to both the landlord and the tenant
The court is likely to grant relief from forfeiture if the tenant’s breach of the lease is of a minor or technical nature and can be rectified. However, if the breach relates to non-payment of rent or other charges, the tenant might need to agree to pay any outstanding amount on top of interest and legal costs to persuade the court to grant relief. For other (not rent-related) types of breach, the tenant might need to take specific actions to remedy the breach, for example undoing unauthorised alterations or compensating the landlord for any damages caused to the property.
The court can either grant or deny relief from forfeiture to the tenant. If relief is granted, the lease continues as if it was never forfeited, and the tenant can go back to occupy the property. In such a case, the landlord might also need to pay legal costs.
Waiver of Forfeiture
Landlords can inadvertently waive their right to forfeit if they continue to accept rent or act in a way that acknowledges the continuation of the lease. Despite the clear forfeiture clause and the breach of the lease by the tenant, they may lose the right to forfeit.
Wrongful Forfeiture
Wrongful forfeiture arises when a landlord regains possession of a property from a long-lease tenant without complying with the terms of the lease or respecting the applicable laws. This could happen if the landlord forfeits the lease without a proper ground for forfeiture or when they do not follow the correct legal procedures.
For example, wrongful forfeiture can happen when:
- the tenant has not breached the lease, or the forfeiture clause did not clearly cover the breach
- the landlord did not serve a valid notice (either a notice of forfeiture under Section166 of the Commonhold and Leasehold Reform Act 2002 or a notice of forfeiture under Section 146 of the Law of Property Act 1925 depending on the circumstance of the breach) before taking forfeiture action against the leaseholder
- the landlord waived their right to forfeiture by knowingly acting in a way that asserted the continuation of the lease, for example, they accepted rent payments after the tenant’s breach
- the landlord did not obtain a court order before re-entering the property
To guard against wrongful forfeiture, tenants should ensure they understand the terms of their lease and their legal rights. If served with a notice or facing forfeiture, seeking legal advice promptly is critical.
In all cases of wrong forfeiture of a lease, the tenant can sue the landlord for damages and the court has the power to reinstate the lease and allow the tenant back in the property. The landlord can also be ordered to cover the tenant's legal costs of defending the forfeiture action.
Potential Legal and Financial Consequences
Landlords may face substantial consequences if they undertake wrongful forfeiture.
If a court decides that the landlord’s forfeiture of the lease was wrongful, the landlord can be ordered to pay damages to the tenant, including costs of relocation or disturbance to the tenant’s right to quit enjoyment, legal expenses incurred to contest the forfeiture, in cases of commercial leases they can even cover loss of business income or profits.
If the court finds that the landlord acted improperly or failed to follow the correct legal procedures, it can order that the lease be reinstated and allow the tenant to resume their tenancy as if the forfeiture never occurred.
As already mentioned, if the court decides that the landlord acted disproportionately or unlawfully, the landlord may also be required to cover the tenant's legal costs.
Wrongful forfeiture can additionally destroy the landlord's reputation, specifically in the context of commercial properties. New prospective tenants might become hesitant to lease properties from a landlord who has previously engaged in unlawful actions and behaviours.
Especially in the case of residential leases, if the landlord’s actions are not fully law-compliant, such as in cases of forcible eviction of a tenant without proper court order, those actions may constitute unlawful eviction and result in criminal penalties.
During the forfeiture process, the landlord may also incur lengthy delays and lose rent income.
In Conclusion
Landlords must consider forfeiture action against long leaseholders strictly adhere to the terms of their lease and follow all applicable legal. Forfeiture is a powerful remedy for landlords, but it should be used responsibly and only as a last resort.
Landlords should communicate openly with tenants and try to resolve breaches before resorting to forfeiture. If forfeiture action is unavoidable, to avoid pitfalls landlords should seek specialistic legal advice before initiating any forfeiture proceedings. A solicitor can advise on the best course of action and ensure that the legal process is followed correctly.
Instructing experienced professional services throughout the journey will guarantee compliance with all the relevant legal requirements. It will avoid the risks of unlawful eviction of residential tenants and its criminal consequences, it will circumvent the risks of wrongful forfeiture and its grave financial repercussions, it will help to decide on the most realistic course of action and alleviate the emotional stress of all parties involved when things become difficult.
The landlord and leaseholder should try to resolve any disputes by negotiation before resorting to court or tribunal action. They should consider getting legal advice at an early stage before costs and interest become high and before positions are entrenched.
What We Can Do
Expert legal advice and assistance at an early stage can help a landlord understand their options to recover a long lease from a leaseholder and avoid costly mistakes. For example, it can help anticipate the potential tenant’s defences to forfeiture action and realistically assess the possible outcomes. It can ensure that the lease agreement covers the tenant’s breaches and that all the forfeiture clauses are valid and clearly express the tenant’s obligations and the landlord’s powers. It can facilitate the resolution of any dispute with out-of-court settlements and prevent costly and lengthy legal action.
When forfeiture action is the only option, an experienced Landlord and Tenant Law Practitioner can guide landlords on the best approach to take and the correct procedures to follow step-by-step. Both for rent and non-rent breaches of the lease, expert advice can assist with serving valid notices, giving the appropriate period of notice to the tenants, and following the right legal procedures to prevent technical errors and unnecessary delays in the recovery of the leasehold property from the leaseholder. If the landlord needs to get a monetary judgment before taking forfeiture action, an expert professional can assist in making a County Court Money Claim or obtaining an arbitrator's final determination against the tenant to minimise risks of errors and delays.
As experts in residential property law and recovery of property from tenants, we can provide expert legal advice and representation on any matter concerning property and debt recovery. We can guide landlords through the legal processes, advice on the best strategies to follow, serve notices and negotiate with the leaseholders, their lenders, and any relevant third party. We can help to deal with problems effectively and make court applications on behalf of landlords. Being peaceable re-entry or court forfeiture, we can assist landlords in addressing matters rightfully and efficiently. Contact us on 0330 173 6983 or send us an email for more information.
