21 March 2022

Forfeiture is returning; Tenants and Landlords beware

Over the last two years Coronavirus regulations have prevented landlords from forfeiting a lease on the grounds of rent arrears. With those regulations coming to an end on 26 March 2022, Graham Halsall considers whether tenants and landlords are prepared for the landscape ahead.

Forfeiture is a remedy available to a landlord in circumstances where the tenant has breached a covenant or condition in the lease, for example the covenant to pay rent. The effect of forfeiture is to terminate the lease, subject to the tenant’s right to claim relief from forfeiture.

With many businesses forced to close during the pandemic, the government introduced a number of protections for commercial tenants unable to pay their rent. Among those protections was a moratorium on forfeiture on the grounds of rent arrears. That moratorium is coming to an end on 26 March 2022. In its place, will be an entirely new set of protections brought in by the Commercial Rent (Coronavirus) Bill. I posted a blog about this last year: https://www.scwlegal.co.uk/blog/gh-commercial-rent-scheme.html.

Whilst this legislation will introduce a new moratorium on forfeiture, this will be far more limited in its application. The new moratorium will only apply to “protected debt rent”, meaning that not all rent arrears will be protected. As a result, landlords and tenants need to be prepared for the return of forfeiture and, after such a long hiatus, it is worth a reminder of some of the pitfalls in this area.

Forfeiture by peaceable re-entry

One of the immediate pitfalls for tenants is forfeiture by peaceable re-entry. This is where the landlord effects forfeiture by physically entering the property and recovering possession (for example, by changing the locks). This can be done without a Court order and usually takes place without notice and when the property is empty.

Tenants that are in arrears of rent that do not fall into the category of “protected debt rent” will be exposed to this kind of action as soon as the clock strikes midnight on 25 March 2022. Many tenants could find themselves locked out of their premises and unable to operate their business. In these circumstances, the tenant can apply to Court and seek relief from forfeiture and, in emergency cases, it may be possible to obtain an injunction to reinstate access pending the outcome of the relief application. However, these are costly and potentially time-consuming remedies and success cannot be guaranteed. Moreover, the delay in reinstating access may cause irreparable damage to the tenant’s business.

Tenants should be alive to the risk of forfeiture, but particularly forfeiture by peaceable re-entry. Otherwise, they could find themselves ejected from their business for an unsustainable period of time.

Waiver

Waiver occurs when the landlord, with knowledge of the breach of the lease, acts in a way which acknowledges the continued existence of the lease and communicates this to the tenant in some way. Demands for rent are a classic example of waiver, but it could be any conduct. It is easy for a landlord to inadvertently waive forfeiture.

If the landlord has waived the right of forfeiture, then the remedy is no longer available for that particular breach (unless the breach is of a continuing nature). For rent arrears cases, that means the right of forfeiture could be lost forever.

During the pandemic, landlords have benefited from their own form of moratorium, such that the landlord’s conduct could not amount to waiver in relation to rent arrears (other than an express waiver in writing). This protection similarly ends on 26 March 2022. Therefore, landlords with intentions to forfeit need to be wary about their conduct from this point on.

Relief from forfeiture

Forfeiture brings about the end of the lease. However, the lease can be reinstated if a Court makes an order for relief from forfeiture. Generally, the Court will grant relief if the tenant has remedied the breach and is satisfied that there will be no similar breaches in the future. If granted, relief has the effect of restoring the lease as though the forfeiture had never taken place.

Even if a forfeiture dispute is settled by agreement, it is important to remember that the landlord and tenant relationship going forward needs to be regularised. This could be done either by the tenant securing an order for relief from the Court (which can be done with the consent of the landlord) or by the parties entering into a new arrangement. If nothing is done to regularise the relationship, this can lead to uncertainty and problems can arise further down the line. In the aftermath of a dispute, this can be overlooked.

Forfeiture was already a complicated area. With all the introduction of new rules and protections, it has become even more so. If you are considering or facing forfeiture action, please do not hesitate to contact us for advice.