- Positive Signs in UK Real Estate Market: Early movement in 2024 indicates positive sentiment in various sectors of the UK real estate market, with rents gradually rising and demand increasing. Landlords are presented with an opportunity to re-evaluate portfolios and address underperforming tenants as the balance of power shifts back in their favour.
- Forfeiture as a Remedy: The article highlights forfeiture as a potential remedy for landlords seeking to take action against tenants in breach of their leases. Two methods are discussed, peaceable re-entry and possession proceedings, each with its own requirements and considerations.
- Waiving and Relief Considerations: Landlords need to be cautious with their interactions with tenants to avoid unintentionally waiving the right to forfeit. The distinction between 'once and for all' breaches and 'continuing' breaches is set out. The importance of understanding a tenant's right to relief after forfeiture and the potential complications is also discussed, including the difficulty in re-letting and the risk of wrongful forfeiture.
Early 2024 sentiment in various sectors of the UK real estate market appears to be positive, after a few turbulent years during, and post-pandemic. Rents appear to be slowly rising again and demand appears to be higher. With this gradual shift in the balance of power moving towards landlords again, landlords may be looking to use the opportunity to re-evaluate portfolios, and consider taking action against underperforming tenants in favour of obtaining better covenants.
Whilst it may have been the case that a poorly performing tenant was viewed as a better option than no tenant at all during the pandemic, for the sake of avoiding business rates at the very least, early signs this year would suggest landlords can aim higher again. The first step to doing so would be to take action against tenants who are consistently in breach of their leases, and with pandemic restrictions against such having long fallen away, we will be focusing on forfeiture as a remedy for the purpose of this article.
When does the right to forfeit arise?
There are two methods of forfeiture: peaceable re-entry and forfeiture by way of court (possession) proceedings.
Peaceable re-entry is by far the quicker and cheaper option, requiring a change of locks (and in some instances, a bailiff) when a tenant is not in physical occupation of premises. This method can only be exercised when a tenant has failed to pay rent (including other sums reserved as rent), however, the precise mechanics will depend upon the exact wording in the forfeiture/re-entry clause in the lease. Peaceable re-entry cannot be exercised where a part of the premises in question are used for residential purposes.
For breaches other than non-payment of rent, a section 146 notice needs to be formally served on a tenant first (carefully following the notice provisions in the lease), giving a reasonable time for a tenant to remedy breaches, before possession proceedings can be sent to court for issue.
Continuing’ and ‘Once and for all’ breaches
Non-payment of rent is known as a ‘once and for all breach’. This means that where, for instance, a tenant has failed to pay its rent on a quarter day and the right to forfeit arises but the landlord continues its relationship with the tenant under the lease, effectively waiving the breach (either purposefully or inadvertently), the landlord will not be able to forfeit for that missed quarter payment in the future. A ‘fresh’ right to forfeit will need to arise for the landlord to lawfully take action in this instance.
An example of a ‘continuing’ breach would be a tenant breaching its repairing covenants under the lease. In such circumstances, a new right to forfeit arises each day the premises remain in disrepair, regardless of conduct between landlord and tenant.
Remediable and Irremediable breaches
Usually, tenants can remedy any breaches of the lease, thereby removing the landlord’s right to forfeit. However, in certain very limited circumstances, the right to forfeit will remain, as such a breach cannot be seen to be undone. This applies with unlawful assignment and subletting (per Scala House & District Property Co Ltd v Forbes [1974]) as well as certain illegal/immoral uses of premises which may be seen to cause irreparable reputational damage to the premises.
How can I avoid waiving the right to forfeit?
Caselaw provides that, typically, any conduct which might be seen as treating the lease as continuing (despite a breach or multiple breaches) can amount to the waiver of a ‘once and for all’ breach. This can include conduct such as:
- Sending automated rent or service charge demands or following up on demands;
- Discussions regarding repairs to premises; and
- Correspondence between agents in respect of the lease or even the wider building, even if unrelated to the breach.
If a landlord is seeking to preserve the right to forfeit, the best course of action would be to ensure all communication with the tenant ceases, including discontinuing all automated correspondence and demands. If a tenant attempt to pay some or all of the rent due, this should immediately be returned to the tenant’s account.