Forfeiture Of Commercial Lease

Have you been locked out of your commercial property & business overnight by your landlord?

Is your landlord telling you that your lease has been forfeited and you no longer have any right over the property or your business?

Is your landlord trying to create a new tenancy in the property by way of selling your business which you have developed over time with your hard work?

As a law firm specialising in leases and tenancies of commercial and residential properties, we often come across hapless clients who have been dispossessed overnight of their lawful business and occupation of the property by the landlord. Normally a landlord has the right to forfeit a lease and take possession of a commercial property when rents are due amongst other breaches. However, a forfeiture is not a matter of right for the landlord as several conditions have to be met before a landlord can execute the harsh step of dispossessing a leaseholder tenant of the property and business overnight. More, often than not we have seen landlord’s being advised wrongly to forfeit a lease which was otherwise not permitted.

We have advised both landlord’s and tenants on the issues and conditions of forfeiture and in this article, we would summarise a recent case where our client had been successful in gaining possession of the property and his business back, after he was dispossessed of property as well as the long running and well established business overnight due to non-payment of rent for just over 4 months.

Background

Our Client (“claimant”) was carrying on its successful business as a tenant (the “tenancy”) of a leasehold commercial property. The ground floor of the property was used as a commercial unit and the first floor as a residential by the employees working in the business and their families. The claimant had a shortfall in paying the rent for four months as the business suffered due to various reasons including health issues of the directors and their family members. The claimant had also kept the landlord informed about the health problems and promised to make good the shortfall of rents in the near future.

The landlord in spite of having knowledge about the difficulties that the claimant was facing, forfeited the tenancy and took possession of the property by instructing professional bailiffs and changing the locks of the commercial and residential parts of the premises.

The claimant managed to clear the rent arrears for two months and further requested the landlord to let it back into the property on the basis of an undertaking to clear the arrears within a reasonable period of time. The landlord however was adamant on not letting the claimant take possession of the said property and even went to the extent to change the name and sign board of the business with a view to run the business himself.

Legal Pleadings

The claimant having no other alternative, approached us to seek legal advice and to take repossession of the property.

Considering the facts of the case we had advised the claimant to immediately file a claim for relief from forfeiture and to take back possession of the property along with an application for interim injunction to prevent the landlord from creating any new tenancy in the premises.

The claimant pleaded that the forfeiture was illegal on the following grounds:

• The breach was not willful as the Claimant experienced exceptional circumstances beyond its control at or around the time when the rent for the premises was unpaid and had further promised to the landlord that he would pay the unpaid rents in the near future as the claimant was expecting the business to become profitable in the upcoming festive seasons.
• The landlord took possession of the premises, which was partly commercial and partly residential and without serving any prior notice on the claimant or its occupants.
• The tenanted premises being partly residential and is let as a dwelling within the meaning of section 2 of the Protection from Eviction Act 1977 (‘PEA 1977’) the right to forfeiture must be exercised through court proceedings as has been held in the matter of Pirabakaran v Patel & Anor [2006] EWCA Civ 685 (26 May 2006) per Wilson LJ at [5] and 34]. The landlord in the instant case did not follow any due process before he took possession of the residential part of the tenanted premises.

The landlord had sought rents from the claimant even after the forfeiture of the lease and by seeking payment of the rent after forfeiture would amount to a waiver of the right of the landlord to continue with the forfeiture or termination of the lease..

Hearing & Consent Order

At the hearing upon directions from the court, the case was settled by way of a consent order whereby the claimant got immediate possession of the premises upon payment of one month and a timeline agreed to pay the remaining sum in installments.

Conclusion

In a case of forfeiture of lease the tenants should always be prepared to pay or undertake to court to pay the unpaid rent at a short notice. The legality of a forfeiture can only be adjudged after a full hearing and trial and in the meantime if the tenant wanted to have possession of the premises then it is imperative that the tenant ensures that it has enough funds to immediately clear the unpaid rents that are due.

Similarly, from the landlord’s point of view it is important that one takes proper legal advice before walking into a commercial premise and especially if it contains a mixed commercial and residential premise. A commercial leasehold premises with a residential dwelling can only be repossessed with an order of court. In the instant case the landlord was ready to settle the matter as the actions of the landlord were per se illegal and there were real possibilities of the landlord in similar circumstances failing to prove a legal forfeiture would suffer financial loss and would pay the legal costs of the winning party in such claims.

The claimant has now been in possession of the commercial premises and the business that it managed to reopen well in time for the festive season.