Commercial Lease Forfeiture: Re-entry vs Court Proceedings

If a commercial tenant falls behind on rent or breaches another term of the lease, forfeiture is one of the main remedies open to the landlord. It brings the lease to an end and allows the landlord to take back possession. The rules around it are technical, and a landlord who gets it wrong can end up facing a claim for damages or find the lease still very much alive.

This article sets out the basics: when a landlord can forfeit, the two practical routes for doing so, the traps around waiver, and the tenant's right to apply for relief.

The right to forfeit

Forfeiture is not automatic. A landlord can only forfeit if the lease contains an express forfeiture clause, sometimes called a right of re-entry or proviso for re-entry. Almost every commercial lease drafted by a solicitor will include one, usually allowing forfeiture if rent is unpaid for a set number of days (often 14 or 21) or if the tenant breaches any other covenant.

Without such a clause, the landlord generally has no right to end the lease early for breach and will have to pursue other remedies, such as suing for the rent or using the Commercial Rent Arrears Recovery procedure (CRAR).

For non-rent breaches, the landlord must also serve a section 146 notice under the Law of Property Act 1925 before forfeiting, giving the tenant a chance to put things right. Rent arrears are treated differently and no section 146 notice is needed for non-payment of rent.

Peaceable re-entry

Peaceable re-entry means physically retaking the premises without going to court. In practice this usually involves instructing a certificated enforcement agent to attend the property outside trading hours, change the locks, and post a notice on the door confirming that the lease has been forfeited.

It may appeal to landlords because it is fast, costs less than litigation, and avoids months of waiting. A landlord whose tenant has stopped paying rent and abandoned the unit can have the premises back within days.

The risks need weighing carefully:

• Entry must genuinely be peaceable. If anyone is on the premises and objects, the landlord cannot force their way in. Doing so risks criminal liability under section 6 of the Criminal Law Act 1977.
• If the landlord has miscalculated, for instance the rent was not actually due, or the right to forfeit has been waived, the tenant can sue for wrongful forfeiture and damages can be significant.
• The tenant's goods will often still be inside. Under the Torts (Interference with Goods) Act 1977, the landlord has duties as an involuntary bailee, including a duty to take reasonable care of the goods and follow the statutory procedure before disposing of them.
• The tenant may apply to court for relief from forfeiture and, if granted, the lease is reinstated as if nothing had happened.

Peaceable re-entry is often more suitable for straightforward rent arrears cases where the tenant has gone quiet or walked away, and the landlord is confident there has been no waiver.

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Forfeiture by court proceedings

The alternative is to issue a possession claim in the County Court, or the High Court in higher value or more complex cases. The landlord claims possession, arrears and mesne profits (compensation for the tenant's continued occupation after the lease has ended), and the court decides whether forfeiture is made out.

This route is slower and more expensive. Hearings can take months to come round, and the tenant has opportunities to apply for relief along the way. The trade-off is that a court order is much harder to challenge after the event. If the landlord has any doubt about the strength of the case, the waiver position, or the risk of the tenant turning up with a relief application, proceedings are usually the safer choice.

Court proceedings are also the only realistic option where the premises are occupied and the occupants are not going to leave voluntarily, or where there is any residential element to the property.

Peaceable re-entry is not permitted where any part of the premises is let as a dwelling. Section 2 of the Protection from Eviction Act 1977 makes it unlawful to enforce a right of re-entry without a court order while any person is lawfully residing in the premises or part of them. That catches mixed-use properties, such as a shop with a flat above let under the same lease, or a pub with residential accommodation. Even if the residential part is tiny compared with the commercial part, the statutory bar applies and the landlord must go to court. Before instructing agents, a landlord should check the lease carefully and consider what is actually happening at the property. Subletting or informal residential use that the landlord knows about can also create difficulties.

Waiver, the easy mistake

Waiver simply means the landlord has done something, knowing about the breach, which treats the lease as still running. Once that happens, the right to forfeit for that breach is usually lost.

The classic example is demanding or accepting rent that fell due after the breach. If the landlord's system keeps issuing rent demands after arrears have built up, or the bank keeps banking standing order payments, the right to forfeit for those arrears can vanish without anyone intending it. Other acts can also amount to waiver, including sending out service charge demands, negotiating new lease terms, or granting consents under the lease.

Knowledge held by the landlord's managing agents is generally treated as the landlord's own knowledge, so a demand sent out by agents who knew about the breach will usually waive the right to forfeit in the same way as a demand sent by the landlord directly.

A few practical points follow:

• Once forfeiture is being considered, rent demands should be stopped and standing payment arrangements reviewed.
• Continuing breaches, such as disrepair or unauthorised use, give rise to a fresh right to forfeit each day, so waiver is less of a problem. One-off breaches, including non-payment of a particular quarter's rent, are easier to waive.
• If rent is accidentally accepted, the landlord may need to repay it and still be unable to rely on that breach.

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Relief from forfeiture

Forfeiture is not always the end of the story. Tenants, and sometimes sub-tenants or lenders with a charge over the lease, can apply to court for relief. If granted, the lease is reinstated.

For rent arrears, relief is usually given if the tenant pays the arrears, interest and the landlord's costs within a reasonable period. Courts tend to lean in favour of granting relief where the tenant can pay, on the basis that forfeiture for rent is essentially security for the debt rather than a punishment.

For other breaches, relief is more discretionary. The court looks at the seriousness of the breach, whether it can be remedied, the tenant's conduct, and the proportionality of losing the lease.

Timing matters, and the position differs depending on the route used. Where forfeiture was by court proceedings, the tenant can generally apply for relief at any point up until the possession order is executed. Where forfeiture was by peaceable re-entry, the application needs to be made within a reasonable time, and courts will look at how long the tenant has left it and what has happened in the meantime.

Practical takeaway

Forfeiture can be an effective remedy, but the route chosen matters. Peaceable re-entry is fast and cheap when it works, and expensive when it does not. Court proceedings are slower but give a cleaner outcome. Either way, the lease needs to allow it, the breach needs to be live and unwaived, and residential elements rule out self-help entirely.

After retaking possession, a landlord should also think about the practical aftermath: securing the property, dealing with any goods left behind in line with the 1977 Act, making sure the premises are safe while vacant, and keeping insurers informed of the change in occupation. Given how easy it is to slip up on waiver or on the section 146 procedure, most landlords will want specific legal advice before acting.

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