Understanding Lease Forfeiture: A Practical Guide

Lease forfeiture is a legal mechanism that allows landlords to end a lease agreement if the tenant defaults on their obligations. This right must be specifically outlined in the lease agreement through a “forfeiture clause” or a “proviso for re-entry”. Unlike a break clause, which also gives landlords the right to terminate a lease, forfeiture is specifically linked to tenant defaults. Importantly, it is only when a landlord exercises the right to forfeit that a tenant can seek relief from forfeiture, as established in Richard Clarke & Co v Widnall [1976].

PREPARATORY STEPS FOR LEASE FORFEITURE

Before proceeding with lease forfeiture, landlords should refer to the proviso for re-entry, which outlines the conditions under which forfeiture is permissible. Generally, this right applies to any breach of covenant by the tenant. However, in cases involving unpaid rent, the right to forfeit typically arises 14 to 21 days after the rent is due. Additionally, forfeiture may apply to situations that do not involve a covenant breach, such as when a tenant enters insolvency proceedings.

Legal Framework for Lease Forfeiture: Statutory Requirements

In addition to contractual obligations, landlords must navigate a detailed statutory framework when pursuing lease forfeiture. Key steps include:

1. Issuing a Section 146 Notice: According to the Law of Property Act 1925, landlords must issue a notice that:

• Notifies the tenant of the specific breach of covenant.

•Provides the tenant with a reasonable timeframe to remedy the breach, although the exact duration need not be specified.

•Demands compensation for the breach.

•Forfeiture cannot proceed until a reasonable period has passed without the breach being corrected, except in cases solely involving overdue rent.

2. Tenant’s Repairing Obligations: If the forfeiture grounds are related to the tenant’s failure to fulfill repairing obligations, landlords must adhere to the Leasehold Property (Repairs) Act 1938. This involves adding specific language to the Section 146 notice and allowing for a tenant’s counter-notice. The landlord must then apply for court permission to proceed with forfeiture, which is only granted if statutory grounds are met. This requirement is waived for leases with less than three years remaining.

3. Dwelling Leases: Under Section 168 of the Commonhold and Leasehold Reform Act 2002, landlords cannot serve a Section 146 notice for dwelling leases without the tenant’s acknowledgment of a breach or a determination by the court or First Tier Tribunal confirming the breach.

4. Insolvency Situations: If a tenant enters insolvency proceedings, court approval is necessary before forfeiture can occur. This applies to tenants in administration (Insolvency Act 1986, Schedule B1, paragraphs 45 and 46), liquidation (Insolvency Act 1986, s130(2)), subject to a voluntary arrangement (Insolvency Act s252 for individuals and Schedule A1, paragraph 12 for companies), or under a bankruptcy order (Insolvency Act, s285(3)).

Methods of Lease Forfeiture and Potential Pitfalls

Landlords looking to forfeit a lease have two primary methods at their disposal:

1. Peaceable Re-entry: This involves the landlord physically retaking possession of the premises without resorting to legal proceedings. While often preferred due to speed and cost-effectiveness, it carries significant risks:

•Criminal Law Risks: Under Section 6 of the Criminal Law Act 1977, using or threatening violence to gain entry is a criminal offence if opposed by someone inside. Notably, committing an offence under this section does not negate the act of forfeiture itself, as seen in Hemmings v Stoke Pages Golf Club [1920].

• Residential Premises: The Protection from Eviction Act 1977 makes it illegal to re-enter any dwelling without court proceedings if someone lawfully resides there. This rule extends to commercial properties with any residential component, no matter how minor, as established in Pirabakaran v Patel [2006].

• Tenant’s Property: Tenant-owned items left on the premises remain their property unless the lease specifies otherwise. Removing them can expose landlords to trespass or conversion claims.

2. Legal Proceedings: Involves issuing court proceedings to formally terminate the lease.

Additional Considerations:

•Interim Injunctions: If there is a possibility that the tenant will apply for relief from forfeiture, landlords should be cautious. Courts may grant interim injunctions allowing tenants to re-occupy the premises while the relief claim is resolved, especially if the tenant shows an intent to remedy the breach or disputes the basis for forfeiture.

•Relief from Forfeiture: Only a court can grant relief from forfeiture. Any agreement between the landlord and tenant to resolve the breach without court intervention results in a new lease, rather than reviving the forfeited one. While this may not affect the landlord and tenant directly, it impacts guarantors and former tenants, whose liabilities end with the original lease.

Landlords must weigh these factors carefully when deciding how to proceed with lease forfeiture.

Advantages of Peaceable Re-entry and Waiver of Forfeiture Rights

When a landlord has a strong case for lease forfeiture and anticipates that the tenant is unlikely to pursue relief, opting for peaceable re-entry can be a more efficient, cost-effective, and certain method compared to initiating possession proceedings in the County Court.

It is vital if you are considering forfeiting a lease by peaceable re-entry that before doing so you seek legal advice (we would be happy to assist in this regard).

Waiver of Forfeiture Rights

When a landlord’s right to forfeit a lease arises, they face a choice: to either proceed with ending the lease or to continue it, thereby waiving the right to forfeit.

To affirm the lease and waive the right to forfeit, the landlord must:

1. Be aware that the right to forfeit exists.

2. Clearly acknowledge the lease’s continued existence.

3. Communicate this acknowledgment to the tenant.

Once the landlord makes this decision, it is irrevocable. If the landlord chooses to affirm the lease, they forfeit the right to terminate it for any breaches that occurred before the affirmation. Conversely, if the landlord opts to forfeit and the tenant agrees to the lease’s termination, the landlord cannot later reverse this decision to reinstate the lease. Only a tenant can seek to revive the lease through an application for relief from forfeiture.

Landlords must carefully consider their position and the potential implications before deciding how to proceed with lease forfeiture or affirmation.

Understanding the Role of Knowledge and Waivers in Lease Forfeiture

Knowledge of Breach

A landlord’s right to elect to forfeit a lease only becomes relevant once they are aware of a tenant’s breach. This awareness also extends to any knowledge possessed by their agents, such as property managers responsible for rent collection or property oversight. However, the obligations of a landlord who has the means to discover a breach but does not actively pursue such knowledge remain somewhat ambiguous.

Unequivocal Recognition of the Lease

A landlord may waive their right to forfeit if they take actions that clearly acknowledge the continuation of the lease. This determination is highly context-dependent, meaning an action that results in waiver in one scenario might not have the same effect in another.

One notable exception involves the acceptance of rent. Traditionally, if a landlord accepts rent that becomes due after the right to forfeit has arisen, this act can waive the right to forfeit. Even if rent is merely demanded and not received, the act of demanding rent might still constitute a waiver for prior breaches, as seen in cases like Segal Securities v Thoseby [1963]. However, this interpretation has faced scrutiny, as discussed in Expert Clothing v Hillgate House [1986] and later cases.

A complex issue arises when the landlord accepts rent after a breach occurs but before they become aware of it. In such situations, if the breach occurs (1) before rent is due, (2) the rent becomes due, (3) the landlord learns of the breach, and (4) then accepts the rent, the question is whether this sequence results in a waiver. The case of Osibanjo v Seahive Investments Ltd [2009] touched on this issue. Mummery LJ suggested there is no waiver if the landlord learns of the breach after the rent is due but before accepting it. Conversely, Rix LJ argued that if the landlord knew about the breach when accepting rent, it would constitute a waiver. Rix LJ’s perspective seems more coherent, yet it remains unresolved which view would prevail in future legal decisions.

Relief from Forfeiture

Jurisdiction

Traditionally, prior to the merging of law and equity in 1873, common law courts strictly upheld forfeiture clauses, whereas only equity courts provided the option for relief from forfeiture. Over time, equity courts developed what is now the current jurisdiction to offer relief from forfeiture, ensuring that landlords are compensated for any losses resulting from a breach of covenant.

In contemporary times, the authority of courts to grant relief from forfeiture in landlord-tenant relationships is entirely statutory. There is no remaining jurisdiction to provide relief from forfeiture in cases that do not meet the specific statutory criteria as was confirmed in Billson v Residential Apartments Ltd [1992].

Forfeiture for Non-Rent Breaches

Under Section 146(2) of the Law of Property Act 1925, courts have the authority to provide relief from forfeiture to tenants whose leases are terminated for reasons other than non-payment of rent (as specified in s146(11)). This jurisdiction comes into play when a landlord initiates proceedings to enforce a right of re-entry. The process begins when the landlord issues a section 146 notice, allowing the tenant to seek court relief from forfeiture even before the lease is officially terminated (Pakwood Transport v 15 Beauchamp Place [1978]). The landlord is considered to be pursuing enforcement until they obtain possession through a court order. Once possession is secured, the tenant loses the right to request relief, unless they can challenge the validity of the forfeiture, for example, by proving there were no grounds for it or that the landlord waived their right to forfeit. However, if the landlord re-enters peacefully without formal proceedings, the court retains jurisdiction to grant relief under s146(2), as the landlord is still considered to be proceeding to exercise their re-entry rights (Billson v Residential Apartments).

The subsection does not define specific criteria for the court’s discretion, which is described as having the “widest discretion” (Chatham Empire Theatre v Ultrans [1961]). The remedy’s goal is to ensure tenants adhere to their lease obligations, not to provide landlords with an unexpected benefit by prematurely regaining possession before the lease term naturally ends.

In cases of “wilful” breaches, courts may be less inclined to offer relief (Shiloh Spinners v Harding). However, a wilful breach doesn’t automatically mean relief should only be granted in rare situations. It is merely one consideration among many, with the significance of the tenant’s intentions varying based on each case’s context (Southern Depot v British Railways Board [1990]). The Court of Appeal in Freifield v West Kensington Court Ltd [2015] reinforced the standard view that wilful breaches do not inherently argue against granting relief. The Court overturned a trial judge’s decision denying relief, indicating the judge had overly emphasised the wilfulness of the breach (unlawful subletting) without considering the landlord’s potential windfall from repossessing a property under a long lease.

Terms of Relief: Forfeiture for Breaches Other Than Non-Payment of Rent

When it comes to granting relief from forfeiture for breaches other than non-payment of rent, the statutory jurisdiction does not specify the exact terms for granting relief. Generally, the aim is to restore the landlord to the position they would have been in if the tenant had not breached the lease agreement: Egerton v Jones [1939]. This typically involves the tenant covering the landlord’s reasonable costs, often calculated on an indemnity basis: Patel v K & J Restaurants [2011].

Forfeiture for Non-Payment of Rent

In cases where a lease is forfeited due to unpaid rent, the court’s authority to provide relief partially stems from its traditional equitable jurisdiction.

In the County Court, when proceedings are based solely on rent arrears, the court follows a specific procedure as outlined in s138:

1. Determination of Entitlement: The court first assesses whether the landlord was justified in forfeiting the lease, considering any existing rent arrears or if the right to forfeit was waived.

2. Possession Order with Relief: If the landlord is entitled to forfeit, the court must issue a possession order. However, relief is possible if the tenant pays all owed rent, interest, and costs within a minimum of 28 days.

3. Extension of Time: The court has the discretion to extend this 28-day period, and the tenant may request further extensions after the initial order under s138(4).

Section 138 of the Law of Property Act 1925 is relevant when a landlord initiates legal proceedings in the County Court for non-payment of rent. If a landlord opts for peaceable re-entry rather than court action, the County Court’s authority to grant relief from forfeiture is guided by Section 139(2), allowing it to impose the same conditions as the High Court.

The High Court’s authority to grant relief for non-payment of rent is derived from Section 38 of the Senior Courts Act 1981. In cases of peaceable re-entry where the tenant seeks relief in the High Court, the court exercises its inherent jurisdiction (Billson v Residential Apartments). The High Court has broader discretion compared to the County Court, which is limited by Section 138, although relief typically requires payment of arrears and costs. In rare situations, the High Court might deny relief due to other significant breaches affecting the property. However, following the Court of Appeal’s decision in Thomas v Ken Thomas [2006], it is debatable whether a tenant willing to pay all properly forfeited arrears can be compelled to settle additional arrears to receive relief.

Tenants must apply for relief in the High Court within six months of a writ of possession being executed after a lease is forfeited for non-payment of rent, as per Section 210 of the Common Law Procedure Act 1852. This timeline does not obligate the court to accept any application filed within six months. If a landlord is misled into believing the tenant won’t seek relief and subsequently re-lets the property, the tenant’s delay may prevent them from obtaining relief: Silverman v AFCO (UK) [1988]. When a landlord peaceably re-enters, the six-month limit is not strictly enforced but serves as a strong guideline: Thatcher v LH Pearce & Son Contractors [1968].

This blog was prepared by Alexander JLO’s senior partner, Peter Johnson on the 29th March 2025 and is correct at the time of publication. With decades of experience in almost all areas of law Peter is happy to assist with any legal issue that you have. He is widely regarded as one of the capital’s leading business lawyers. His profile on the independent Review Solicitor website can be found here.

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