Forfeiting a business lease: the right to re-enter, the section 146 notice and relief from forfeiture

Does the landlord need a right to re-enter in the lease?

Section 146(1) of the Law of Property Act 1925 applies to “a right of re-entry or forfeiture under any proviso or stipulation in a lease”. The section makes that right unenforceable until the statutory notice is served (section 146(1)). The Law Commission notes that a landlord can only forfeit for breach of covenant where the tenancy contains a forfeiture clause (Law Com No 303, paragraph 1.12(1)). Check the lease for the forfeiture clause before anything else.

What notice must a landlord serve for a breach other than rent?

For a breach of covenant or condition other than non-payment of rent, the right to forfeit cannot be enforced, by action or otherwise, until the landlord serves a notice that does three things, and the lessee then fails, within a reasonable time, to comply (section 146(1)). The Act does not define “capable of remedy” or fix the reasonable time:

Section 146 does not affect the law on re-entry or forfeiture for non-payment of rent, save as the section otherwise mentions (section 146(11)). A rent arrears claim therefore follows the rent route described below.

Can a tenant get relief from forfeiture?

Yes. On a section 146 claim, the court may grant or refuse relief, having regard to the proceedings and the conduct of the parties (section 146(2)).

For non-payment of rent in a county court action, the lessee can stop the claim by paying into court, or to the lessor, all the rent in arrear and the costs of the action not less than five clear days before the return day. The action then ceases (County Courts Act 1984, section 138(2)). That does not apply if the landlord also claims forfeiture on another ground, or makes any other claim besides the forfeiture and the arrears, in the same action (section 138(6)).

If the action has not ceased and the court finds the landlord entitled to forfeit, it orders possession, to take effect after not less than four weeks (section 138(3)). Only after that order, if the landlord recovers possession, the lessee may apply for relief within six months of that date, and the court may grant it on such terms as it thinks fit (section 138(9A)).

In the High Court, for an action for forfeiture of a lease for non-payment of rent, the court has power to grant relief against forfeiture in a summary manner, on the terms it considers appropriate (Senior Courts Act 1981, section 38(1)).

How can a landlord lose or limit the right to forfeit?

The commonest way to lose the right is waiver. If the landlord, knowing of the tenant’s breach, deals with the tenant as if the tenancy is continuing (for example, by demanding rent), the right of re-entry is waived, whatever the landlord actually intended (Law Commission, Law Com No 303, paragraph 1.10). The landlord can then no longer forfeit on that ground (paragraph 3.105). A landlord should take advice before demanding or accepting rent once it knows of a breach.

A landlord who re-enters without going to court takes a risk. Using or threatening violence to get into premises is an offence where someone opposed to the entry is present and the person using the violence knows it, and having an interest in the premises is not lawful authority for it (Criminal Law Act 1977, section 6).

Where the premises are let as a dwelling, for example a flat above a shop let together with it, the landlord may not enforce a right of re-entry without court proceedings while anyone is lawfully living there (Protection from Eviction Act 1977, section 2).

A subtenant is not left without a remedy. While the landlord is enforcing the forfeiture, the court may, on a subtenant’s application, vest the property in that subtenant for the term of the sublease or a shorter one, on conditions it thinks fit (section 146(4)). In a county court rent action, a person with an interest under a lease derived from the tenant’s can apply for relief as if they were the tenant (section 138(9C)).

Does the Commercial Rent (Coronavirus) Act 2022 still matter?

Only for rent attributable to the protected period, and only where the tenancy was adversely affected by coronavirus (section 3(2)). The protected period began on 21 March 2020 and ended on 18 July 2021 in England, or on 7 August 2021 in Wales, unless an earlier day applies under section 5(2) (section 5(1)–(2)).

Arrears for later periods are not protected rent under the Act (section 3(2)). If an old Covid-era arrears dispute is still open, check its status with a solicitor.

What should a tenant do when a forfeiture notice arrives?

Check each of these points on receipt:

• Find the right of re-entry or forfeiture in the lease, since the statutory notice rules apply to it (section 146(1)).
• For a non-rent breach, check the notice names the breach, requires a remedy and requires compensation in money (section 146(1)).
• For rent arrears, note the five clear day payment window before the return day (which is lost if the landlord joins other claims), and the six-month relief period after a possession order and recovery of possession (County Courts Act 1984, section 138).
• If you want to keep the lease, seek advice promptly and consider an application for relief (section 146(2)).