Where a commercial tenant has failed to pay rent that is lawfully due, a landlord has several options, one of which is to forfeit the lease.
Forfeiture is a landlord’s legal remedy to terminate a lease when a tenant breaches its terms, most commonly by failing to pay rent. While the procedure usually requires formal notice, such as service of a Section 146 notice under the Law of Property Act 1925 (s146), there are exceptions for non-payment of rent.
What is a Section 146 Notice?
An s146 notice is a formal document to notify a tenant of a breach of lease and the landlord’s intention to forfeit the lease. It typically applies to breaches other than non-payment of rent, such as property damage or failure to maintain the premises. For non-payment of rent, however, landlords are not required to serve an s146 notice before pursuing forfeiture, provided the lease contains a valid forfeiture clause.
Legal Basis for Forfeiture Without an s146 Notice
In cases of non-payment of rent:
• Forfeiture by clause: The lease must include an explicit clause allowing forfeiture for non-payment of rent.
• Unpaid rent: The rent must remain unpaid for a specified period, which will usually be outlined in the lease (e.g., 14 or 21 days after the due date).
• Demand requirements: Modern leases often waive the requirement for a formal demand to be sent.
Since non-payment of rent is considered a straightforward breach, the landlord can proceed directly with forfeiture after confirming the breach without issuing a s146 notice.
Steps for Forfeiture Without AN s146 Notice
• Lease terms: Ensure the lease includes a forfeiture clause and confirms the conditions under which the clause can be enforced.
• Peaceable re-entry (if applicable): In some cases, landlords may re-enter the property peaceably to take possession. This must be done without causing a disturbance or using force, as unlawful entry can expose the landlord to legal claims for damages.
• Court proceedings: If peaceable re-entry is not feasible or poses legal risks, landlords can apply to the court for a possession order.
Tenant Protections and Relief from Forfeiture
A tenant who faces forfeiture for unpaid rent has the option to seek relief:
• Payment of rent: Tenants can pay the overdue rent, including interest and costs, to prevent forfeiture or regain possession.
• Application for relief: Tenants may apply to the court for “relief from forfeiture,” which, if granted, restores the lease on the condition that arrears are paid. Courts are generally inclined to grant relief if the tenant’s financial difficulties are temporary and the breach is rectifiable.
Risks for Landlords
Forfeiture without proper notice or legal compliance can lead to significant risks:
• Claims for wrongful forfeiture: If the lease does not allow forfeiture or the landlord fails to follow the correct process, the tenant can claim damages.
• Disruption in rent recovery: Forfeiture ends the lease, but does not resolve arrears. Separate legal action may be needed to recover unpaid rent.
• Waiver of right to forfeit: It is important that a landlord does not waive the right to forfeit by taking a positive act recognising the continued existence of the lease.
• Vacancy risks: Repossessing a property does not guarantee immediate re-letting, potentially causing further financial losses as the landlord will be liable for rates and insuring the vacant property.
Conclusion
Forfeiture without a Section 146 notice for non-payment of rent is legally permissible but must be handled with precision and care. While the law may allow landlords to bypass notice requirements, failure to adhere to lease terms or legal procedures can expose landlords to significant risks. Tenants facing financial difficulties should engage with landlords early to avoid escalation.
If you are faced with a tenant failing to pay rent that is lawfully due it is important to seek legal advice before taking any action and we are here to help.
