If your commercial lessee is in breach of their lease, you may decide that it is appropriate and necessary to forfeit their lease. Depending on the breach and whether or not the breach has been waived (is the breach a once and for all breach or a continuing one?), it will determine whether or not successful forfeiture proceedings can be commenced. Before doing so it may be necessary to serve a s146 notice, a document that formally notifies the lessee of the breach and requires its rectification.
If the lease is forfeited the landlord gets back their property. For numerous reasons, this may not be advantageous to a landlord e.g. it’s difficult to re-let the property and the landlord then becomes responsible for expensive business rates. So is there alternative action or tactics that a landlord may consider to achieve the lessee’s compliance with the terms of their lease?
If there are rent arrears a landlord could:
- Serve a statutory demand, a precursor to bankruptcy or insolvency proceedings. The debt must be over £5000 and £750 respectively.
- Issue County Court proceedings to secure a County Court Judgment. Most individuals (whether a person or a company) will do everything reasonably possible to avoid getting a CCJ registered against their name.
- Is there a guarantor upon whom a demand for payment can be made?
- Is there a rent deposit deed against which the landlord can enforce/drawdown?
- Is there a former tenant or guarantor that can be claimed against? This will be influenced by the timescales set out in the Landlord and Tenant (Covenants) Act 1995 N.B. after 1 January 1996 the former tenant must have given an “Authorised Guarantee Agreement”.
- Instruct an enforcement agent to take control of the lessee’s goods and to sell them to recover the equivalent value of the rent arrears.
If the breach relates to a lack of repair a landlord may be able to:
- Demand entry to inspect and then undertake the works and look for recovery of costs incurred from the lessee. Indeed this may be a prudent step rather than awaiting the end of the lease and seeking damages for breach of the repairing covenant. The latter may be severely curtailed further to s18 of the Landlord and Tenant Act 1927.
- Threaten and then issue injunctive proceedings to demand compliance with the terms of the lease.
If the lessee does not comply with the lease terms and the landlord is successful with their action, then invariable they will be able to ask the lessee to also pay their costs. It is highly likely that the lessee covenanted to pay their landlord’s costs, possibly even on the indemnity basis, which means that it is very difficult for the lessee to successfully seek a significant reduction (or “assessment”) of their landlord’s costs.
If despite the above, a lessee remains in breach then possibly the landlord will be left with little option but to seek forfeiture of the lessee’s lease. Then there will need to be careful consideration of how this is achieved e.g. peaceable re-entry or via court proceedings.
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