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What can you do if a commercial tenant stops paying rent?

What can you do if a commercial tenant stops paying rent?

Forfeiture for non-payment of rent can be the quickest, cheapest, and most effective means of securing payment of rent arrears or gaining possession of the property. That being said, forfeiture is complex and unless it is done correctly, it could lead to a claim for unlawful eviction.

What is Forfeiture?

If a tenant has failed to pay rent due under the terms of the lease, beyond any grace period the lease allows for, a landlord can bring the lease to an end through forfeiture. 

Forfeiture is a contractual right, meaning the first thing to consider is whether the lease contains a clause which allows the landlord to forfeit the lease.

Should you forfeit the lease?

The answer to this depends on your ultimate goal.

If you want to regain possession of the property so that you can sell it or find another tenant, then forfeiture is a good option. It can also be effective if you want the rent arrears paid as the tenant may pay to recover possession and the remainder of the lease.  However, there is a risk with a vacant property that you will have to cover ongoing expenditure and in a difficult market it could be difficult to find a new tenant.

Other concerns include any goods stored at the property belonging to the tenant, as these cannot simply be thrown away. The act of forfeiture also releases any guarantors or former tenants from their obligations, so if it important to consider pursuing the rent arrears from any relevant person before forfeiting the lease.

Issues which may prevent forfeiture.

There are two potential issues you may face in a claim for forfeiture.

  • The landlord has waived their right to forfeit the lease.

It is extremely easy to waive your right as a landlord to forfeit the lease and this can often be done unintentionally. All it takes is for the landlord to acknowledge the existence of the lease. For example, if your tenant pays rent monthly and they have not paid rent from January until July, but they pay  August’s rent, accepting this rent payment would waive your right to forfeit the lease. You would have to wait until they defaulted on the rent again to be entitled again to forfeit the lease. If you are looking to forfeit the lease for non-payment of rent, it is recommended that you do not accept and return any subsequent rent paid by the tenant.

  • The tenant or any relevant person applies for relief from forfeiture.

The tenant may apply for relief from forfeiture to have the lease reinstated. However, to be successful they would first have to pay the rent arrears. It is important to note that anyone with a derived interest, such as mortgagees or guarantors can also pay the rent arrears to have a new lease granted to them.

How to forfeit the lease?

There are two ways to forfeit the lease.

  • Forfeiture through Court proceedings

You can apply to the court to forfeit the lease. This action is irrevocable, but provisional depending on the outcome. The period in between the claim being filed and the court order being given is known as the twilight period. During this period the landlord cannot enforce any lease covenants, but the tenant can enforce them against the landlord.

  •  Forfeiture through peaceful re-entry

This would simply mean attending the property and changing the locks. This option in not available if the property includes a dwelling.  The procedure is best carried out by professional bailiffs in order to avoid any problems. You cannot proceed if there is a person present at the property who opposes to the forfeiture.

In both cases there is an overarching common law requirement for a formal demand to be made for payment. It is important to check the lease to see whether this requirement has been excluded, in which case no demand will be required.

Article written by Megan Wood – Trainee Solicitor in the Litigation Department

If you have any questions in relation to this article or require advice in relation to the topics discussed, please contact Justine McCool at [email protected]

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