If you're running a business under a commercial lease, it's important to understand the rights of your landlord. It's easy to think that commercial landlords operate much like residential ones, especially if it's your first time renting. But there are some important differences.

One is the power of commercial landlords to evict you. If you breach the terms of your commercial lease, they're able to lock you out – something that's illegal in residential law, where an eviction notice has to come through the courts.

In this article, we take a look at this right and the conditions in which it can be exercised.

What is forfeiture?

Forfeiture – or the "right of re-entry" – is a commercial landlord's right to evict a tenant early. It's enshrined in a contract's forfeiture clause.

To forfeit a lease means bringing it to an immediate end. A landlord has the right to simply turn up at the property and change the locks. From this moment on, the tenant can't trade on the premises.

The issue of forfeiture is especially relevant at the time of writing because there was a moratorium on forfeitures during the COVID-19 pandemic that has only recently been lifted. In the Coronavirus Act 2020, landlords were prevented from exercising the right of forfeiture. 

The ban was lifted in March 2022. Commercial landlords again have the right to change the locks – but only with respect to rent arrears accrued before March 2020 and since July 2021. Arrears accrued since March 2020 are only considered fair game when the business wasn't required to close.

How does forfeiture work?

Typically, the right of forfeiture is exercised in the event of rent arrears. But there are other legal reasons that allow its use, including:

• Using the property for an illegal purpose
• Insolvency
• The tenant having abandoned the property
• Any breach of the lease

There are two ways in which a landlord can exercise forfeiture. The first is by court order and the second by "peaceable re-entry" – in other words, changing the locks on the property.

Route one: court proceedings

If the landlord serves "possession proceedings", then they are opting to end (forfeit) the lease. This typically goes through the County Court and can take a while.

It's important to note that eviction doesn't cancel rent arrears – even after forfeiture, the landlord is entitled to claim unpaid rent from the tenant.

A court application is likely to be chosen if the landlord and tenant disagree about the amounts owed or if peaceable re-entry isn't physically possible.

Route two: peaceable re-entry

Pretty much every commercial lease will contain a forfeiture clause allowing the landlord to end the lease in the event of rent not being paid for a specified amount of time (usually somewhere between 14 and 28 days).

The landlord is obligated to specify this time frame and in doing so give the tenant a chance to pay back the rent. If this period lapses and the tenant still hasn't paid, the landlord can exercise the right of peaceable re-entry – usually entering the property in the early morning or late at night when the tenant won't be there. They can do this with or without bailiffs.

This action has to be understood by the tenant to represent the termination of the lease – and the landlord should leave a notice on the premises with words to this effect.

Peaceable re-entry is quicker and cheaper than court proceedings.

What can a tenant do when faced with forfeiture?

Once the landlord is in the property and has changed the locks – or the court has issued an eviction notice – there is still room for resistance from the tenant. They can apply to court for relief from forfeiture, the aim being for the lease to be reinstated.

Although there's no cast-iron deadline, tenants can increase their chances of being granted relief by applying for it promptly – and also by paying their arrears. If you're given this relief, the eviction is called off.

What happens to the tenant's fixtures and goods?

Once the lease has been forfeited, the fixtures all revert to the landlord – the tenant doesn't have any right to remove them.

In the case of goods left behind, however, the tenant is still the legal owner. If the landlord sells or disposes of any left-behind possessions, they open themselves up to the possibility of a lawsuit.

If the landlord can establish that…

1. the goods have been physically abandoned and
2. the owner intended to abandon them

…then they have the right to sell or dispose of them. But this is rarely the case in the context of forfeiture.

The landlord has a legal obligation to serve a notice to the tenant with regard to possessions left behind on the property. The goods must be collected within a reasonable time – if they're not, the landlord has the right to sell them. This notice should also be attached prominently to the premises.

How we can help

Whether you're a tenant facing eviction or a landlord wishing to exercise the right of forfeiture, be aware that this is a complicated area of law that often requires expert guidance.

You may find it best to seek legal help so you know your rights from the offset and don't find yourself blinded by science – a very real possibility in the knotty depths of contract law.

At Milners Law, our commercial team pride themselves on being transparent, business-oriented and – above all – straightforward. They cut to the chase and help you to achieve your goals with a minimum of stress and jargon.

We have a proven track record of dealing with issues such as:

• Business tenancies
• Commercial property development
• Commercial property acquisitions
• Property disposals
• Secured lending
• Lasting powers of attorney

If you're looking for guidance on any area of commercial property law, please don't hesitate to contact us for a free consultation.