Forfeiture Flashcards
What is forfeiture?
Landlord’s right to determine the lease where the tenant is in breach of any of its obligations under the lease or on the occurrence of certain events specified in the lease
What is the fundamental consideration in forfeiture advice?
Whether it is in the landlord’s commercial interests to take the property back. Can they obtain a higher rent? Is the property likely to be empty? Are other remedies more suitable? Liability for business rates?
By what methods can the landlord re-enter the property and obtain possession?
By peaceable re-entry
By court order for possession
What are the landlord’s alternatives to forfeiture?
- Rent deposit - potential draw-down before lease expiry
- guarantors
- statutory demand
- CRAR
- Court proceedings to recover the debt
- Jervis v Harris clause
- Injunction
What is the key requirement for forfeiture?
It must be expressly reserved in the lease
When does the LL’s right to forfeiture arise?
Where the tenant is in breach of any of its obligations under the lease
On the occurrence of certain events specified in the lease, such as the tenant’s insolvency
How does forfeiture take place?
By peaceable re-entry or by commencing court proceedings for possession
Points to consider pre-forfeiture
- current market
- liability for rates (3 months)
- Original tenant or guarantors released on forfeiture
- Opportunity for redevelopment
- Risk of squatters
Alternatives to forfeiture to consider
- Rent deposit deed - sufficient to compensate for breach?
- Any guarantors or former tenants that could be pursued instead
- Statutory demand
- CRAR (must be written lease) and will amount to waiver of right to forfeit
- Proceedings to recover the debt (long/expensive)
Prerequisites for forfeiture
- Right must be expressly incorporated into lease
- Implied right only arises if tenant denies LL’s title or breaches a conditions (as opposed to a simple covenant)
Restrictions on forfeiture (in addition to waiver or statutory relief) s146
Must serve s146 notice unless for non-payment of rent. Notice sets out breach, requirements to remedy, and compensation for LL if applicable
Restrictions on forfeiture (in addition to waiver or statutory relief) s1 Leasehold Property (Repairs) Act 1938
Applies if a lease is granted for a term of 7 years or more an has at least 3 years left to run, a LL is not allowed to bring an action for damages unless it has served a s146 notice at least 1 month before brining the action
Notice must draw tenant to the LPRA 1938.
Tenant has 28 days to serve a counter-notice. it tenant serves counter-notice, LL needs consent of court before it can forfeit or claim damages.
LL damages capped according to s18 LTA 1927 - diminution of the reversion
Restrictions on forfeiture (in addition to waiver or statutory relief) s2 Protection from Eviction Act 1977
Cannot be used for premises let as a dwelling
If mixed used premises, court permission must be sought
Restrictions on forfeiture (in addition to waiver or statutory relief) - Insolvency
May require consent or permission of the court
3 requirements for waiver
- LL has knowledge of tenant’s breach
- LL performs an unequivocal act which recognises the lease as continuing to exist
- LL communicates this act to the tenant
Waiver - general
LL cannot say that the lease has come to an end but then do something that is consistent with the lease continuing - i.e. demand or accept rent
Waiver: What constitutes knowledge of the breach?
Objective test- LL must have knowledge of the basic facts that in law constitute a breach of covenant or condition giving rise to the right to forfeit
Burden is on T to show that the LL had knowledge
Can be imputed- i.e. employee or agent
Suspicion does not amount to knowledge
Waiver: What constitutes an unequivocal act recognising the lease as continuing?
Requires positive act from the LL:
- Accepting / demanding rent
- CRAR
- Service of s25 notice
Waiver: What positive acts do not constitute an unequivocal act recognising the lease as continuing?
Service of s146 notice
WP negotiations
Waiver: What constitutes communication?
Speaks for itself - without communication by the LL there will be no waiver
Continuing Breaches
Where there is a continuing breach, a fresh right to forfeiture will accrue each day that the breach continues
Waiver will operate only in relation to breaches carried out prior to the LL’s act of waiver - it will not prevent the landlord from forfeiting for the continuing breach, after the act of waiver, when the right to forfeit will arise again
Example of continuing breaches
- Breach of covenant to keep in repair
- Breach of user covenant
- Breach of covenant to insure
Is a fresh 146 notice required following waiver of right to forfeit for a continuing breach?
No, unless there has been a change in condition of the premises since the date of the notice
Examples of once-and-for-all breaches
- breach of covenant to carry out repairs by a specified date
- Breach of covenant to pay rent
- Breach of covenant against assigning or subletting
- Breach of covenant not to make alterations
Once-and-for-all breaches
Right to forfeit will be lost upon waiver
Will have to wait for the right to arise again
Waiver: Accepting Rent
If the tenant commits a breach of covenant of its lease giving rise to the LL’s right to forfeit, and the LL accepts rent with knowledge of the breach, then the LL may have waived its right to forfeit in respect of that breach
Test for acceptance of rent amounting to waiver
- Accrued due after the date of the breach of covenant of which the LL subsequently has knowledge
- Been offered and accepted as rent by LL
When will acceptance of rent not amount to waiver?
LL accepts rent which accrued before the tenant committed the breach giving rise to right to forfeiture
[generally give advice to refuse acceptance to avoid arguments of waiver]
Where rent is paid to LL’s account and is rejected as quickly as circumstances permit
Payment by guarantor as a guarantor does not pay rent
What type of acceptance of rent amounts to waiver?
LL accepts rent from third party on behalf of tenant
Acceptance by LL’s agent even if not authorised to accept
Waiver: Demanding Rent
Unambiguous demand for rent falling due for breach of covenant is an election to treat as continuing, and will amount to waiver if the LL or its agent has sufficient knowledge of the breach
Court proceedings to recover rent after the right to forfeit has arises will amount to waiver unless the rent claim is included in the forfeiture proceedings
Where LL makes an election to forfeit the lease by serving forfeiture proceedings or by peaceable re-entry, the demand of mesne profits after service of the proceedings on the tenant will not waive the right to forfeit
Other conduct amounting to waiver
CRAR
Service of s25 notice
Service of notice to quit
Other conduct not amounting to waiver
Service of s146 notice
Without prejudice negotiations
Distinction between Waiver of Breach of Covenant and Waiver of the Right to Forfeit
Waiver of right to forfeit only prevents the LL from being able to forfeit for the breach in question. It does not prevent the LL from pursuing other remedies, such as a damages claim, for that breach
Waiver of a breach of covenant is based upon the inference of consent and prevents the LL from pursuing all remedies for the breach of covenant
Procedure for Forfeiture - general
Any act of the LL must be unequivocal (act of forfeiture cannot be retracted)
LL must communicate its act of forfeiture to the tenant
Peaceable Re-entry
Terminates the lease subject to any claim for relief by the tenant or third party with an interest in the tenancy
Whet right to peaceable re-entry arises
Cannot be effected for arrears of rent until the right to forfeit has arisen in accordance with the terms of the lease. LL must wait for the specified period of non-payment of rent before attempting entry
Breach for something other than non-payment of rent, a s146 notice should be served before peaceable re-entry, giving the tenant reasonable time to remedy the breach
Issues with peaceable re-entry before right arises
Tenant can make an application for the following remedies:
- Declaration of wrongful forfeiture
- Injunction
- Damages
[usually claim will be accompanied by a claim for statutory relief in case the claim is unsuccessful]
When can peaceable re-entry not be used?
Residential premises - s1-2 Protection from Eviction Act 1977. Criminal offence.
Exception where LL has reasonable belief that the tenant has stopped occupying the premises
How to exercise peaceable re-entry
Peaceable to the person and not the property, but excessive force is not permitted
Act must be unequivocal - change locks / chain to prevent access to open land
Criminal offence if violence is used to gain access to the property
Should be mindful when instructing bailiffs as they are agents of the LL
Changing locks and not wishing to forfeit
Possible for the LL to change the locks to secure an empty property without it amounting to peaceable re-entry or a surrender by operation of law where the landlord has no intention to forfeit
Forfeiture by proceedings
Lease will determine upon service of the proceedings
LL should demand mesne profits in the period between service and judgement - LL may make application for interim payment under CPR 25.7(1)(a)
Procedure contained in CPR 55
Forfeiture and Under-tenants and mortgagees
Forfeiture will bring an end to these interests
have the right to apply for statutory relief
Where the LL forfeits the lease and wishes to grant a new lease to a third party, it should notify any party who may be entitled to make an application for relief before granting a new lease
Relief from Forfeiture
Discretionary equitable remedy
Available to a tenant or third party with an interest in the lease after a LL has exercised it’s right to forfeit
For unpaid rent (court) - tenant must pay all arrears, interest, and costs of the action to the LL no less than 5 days before the first hearing of the LL’s proceedings
For unpaid rent (peaceable re-entry) - tenant may apply to the county court within 6 months of the re-entry - pay arrears as per above
Post-Forfeiture Considerations - HMLR
Removal of entries on title
Post-Forfeiture Considerations - Rent
If LL forfeits for non-payment of rent, he can recover the whole quarter’s rent in advance which fell due before the forfeiture, even if the forfeiture date falls in the middle of the quarter to which the payment relates
Post-Forfeiture Considerations - Rates
LL will become liable for rates (subject to any reliefs that may be available)
Post-Forfeiture Considerations - Tenant Fixture
In the absence of an special provisions in the lease, where the lease is forfeited by peaceable re-entry, the right for the tenant to remove any fixtures is lost
Where the LL brings forfeiture proceedings, the tenant can remove its fixtures pending judgement by the court
Post-Forfeiture Considerations - Tenant’s chattels
Tenant will generally be obliged to remove it’s chattels at the end of the term
Lease will often specify what the LL can do with any chattels left at the end of the term
In the absence of any express term, the LL will become an involuntary bailee of tenant’s chattels
Post-Forfeiture Considerations: Tenant Chattels - What must the LL do as an involuntary bailee?
Not deliberately or recklessly damage or destroy goods
Take care, if returning the goods to the owner through a third party, to confirm that the third party has the owner’s authority to receive them
Post-Forfeiture Considerations: Tenant Chattels - abandoned goods
Person who finds or takes possession of them may become the new owner of them. LL should make sure they are abandoned to prevent a claim for conversion.
As being an involuntary bailee can be expensive, the LL should take steps to ascertain that the chattels have been abandoned
Post-Forfeiture Considerations: Tenant Chattels - Torts (Interference with Goods) Act 1977 (s1) Notice
Requires the tenant to come and collect goods and informing them of the LL’s intention to dispose of uncollected items
Post-Forfeiture Considerations: Tenant Chattels - Third Party
LL should be aware of possibility that some of the goods may be owned by a third party.
Disposing of such goods may expose the LL to a claim for conversion from any third parties.
if the gods are reclaimed, the LL should obtain written confirmation from the person collecting them that they are the true owner of the goods
Prudent for LL to document all action taken in case evidence is required to defend a claim for damage or conversion and to establish a defence of abandonment
