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Landlord’s beware: The implications of granting a new lease upon forfeiture

Forfeiture is the landlord’s right to re-enter business premises and bring a lease to an end. In general a lease can be forfeited where the tenant does not pay the rent, breaches the other terms of the lease or becomes insolvent.

Are you are Landlord who has recently exercised your right to forfeiture? If so, it is understandable that you will already be seeking to minimise any period of rental income loss by securing a new lease of your premises.

In pursuing this, you should be cautious of the implications of granting a new lease. Former tenants may apply for ‘relief’ from forfeiture while the landlord is ‘proceeding to enforce his right of re-entry’ either by issuing proceedings in court or re-entering the property under the Lease peacefully.

Landlords in this situation should therefore consider the following before granting a new lease in such circumstances…

Tenant’s application to relief from forfeiture

If the tenant makes an application for relief from forfeiture, the court has a certain amount of discretion when considering whether to grant relief. The court will consider a number of factors when determining whether to exercise its discretion. In particular, the court will consider the following:

  • Whether any third party interests have been created since the forfeiture
  • Whether you as Landlord acted too quick and unreasonably when creating the third party interest
  • Whether there was any delay in the tenant making an application for relief from forfeiture

The court will balance your right to deal with your own property with the former tenant’s right to apply for relief from forfeiture.

One requirement of the relief will be that the tenant remedies the breach leading to forfeiture, which understandably you may not be satisfied with given the risk that your forfeiting tenant may commit the same breach again.

The new lease to a third party

The court will consider whether the incoming tenant knew about the forfeiture and the risk of an application for relief being made before it agreed to take the lease.

You should be aware that if the new tenant did know, this will very much fall in the favour of the current tenant when deciding whether or not to grant relief.

The court will also consider the length of time it has taken the tenant to make the application for relief.

Such an application can only be made once a S.146 notice is served under the lease and if there is a long delay between your service of this and the tenant’s application, this will go against them.

On the other hand, you should be careful not to grant a new tenancy immediately, without giving notice to the current tenant as this will go against your case against granting the relief.

Consequences of relief

If relief from forfeiture is granted, the original lease will be reinstated. In addition, the new tenant may have a claim in damages against you, as its lease will become an intermediate lease between the original lease and you.

How to minimise your risk

You can minimise the risk of relief from forfeiture by taking a number of protective measures.

In brief these consist of:

  • Writing to all those who have a right to apply for relief;
  • Putting them on notice that a new tenancy will be granted; and
  • Asking that relief is applied for immediately it they intend to do so.

If no application is made it will not prevent an application for relief from forfeiture being made in the future, but the above steps will go in your favour when the court is exercising its discretion.

Here at Linder Myers we are equipped with the commercial expertise to assist you in correctly executing the above measures to maximise rental income and minimise risk, should you forfeit your current lease and seek the grant of a new lease.

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