The monthly magazine providing news analysis and professional research for the discerning private investor/landlord

Lease Forfeiture and Inadvertent Surrender

Joanna Clark, Partner at Adams & Remers LLP comments

Unfortunately, many of our investor clients continue to deal with tenants who seem to struggle each quarter to pay the rent. Commercial property landlords start to lose patience with continually accepting late payment, reduced payment and listening to excuses from the tenants. However, often a bad tenant is better than no tenant where the alternative is taking back a dilapidated property and paying business rates.

However, if a new tenant can be found or the landlord loses patience, a landlord can consider forfeiting the lease. This is a very powerful weapon for the landlord - if used properly. Landlords are generally aware of this right to forfeit where a tenant is in breach of its covenants, including failure to pay rent. There must be a specific right to forfeit set out in the lease and this is, indeed, very common in modern commercial leases. The clause will need to be carefully checked and it will often give the tenant 14 or 21 days grace period in which to pay the rent. If the rent has not been paid after that grace period then the landlord can forfeit. However, it is often during this grace period that a landlord can inadvertently shoot itself in the foot. This is because the landlord's right to forfeit can be waived by the landlord's actions.

When faced with a breach, the landlord must decide whether or not to forfeit in relation to that particular breach of covenant. If the landlord decides to forfeit then the landlord must immediately act as though the lease has come to an end. This means that the landlord must not do anything to suggest the landlord and tenant relationship is continuing.

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