Forfeiture or re-entry is the landlord’s right to terminate the lease if:
- the tenant is in breach of any provisions of the lease; and/or
- the tenant becomes insolvent.
Forfeiture can take place either by peaceable re-entry or by commencing court proceedings for possession of the leased property.
Peaceable re-entry can take place by the landlord changing the locks when the tenant is not in the property. Usually, this is carried out by commercial bailiffs. Alternatively, the landlord can commence court proceedings for possession of the leased property, to obtain a possession order, which would permit the landlord to enter the property and terminate the lease.
Landlords should be careful when proceeding with forfeiture, especially if there is a risk that the property will be vacant for some time. In other words, the landlords should consider the letting market before taking any steps to forfeit the lease.
Landlords cannot pursue a right of forfeiture for breach of covenant, other than for non-payment of rent, unless it serves a section 146 notice.
Before instigating any forfeiture proceedings, landlords should check whether the right of forfeiture has been waived.
Waiver of the right to forfeit
When a landlord determines that the right to forfeit has arisen, the landlord should be careful not to do anything that would invalidate or waive its right. Normally, waiver will occur in the following situations:
- where the landlord has knowledge of the tenant’s breach of the lease; and
- the landlord performs an unequivocal act recognising the lease as continuing to exist, for example, accepting rent payments from the tenant or otherwise treating the lease as ongoing.
Relief from forfeiture
Once a landlord has exercised its right to forfeit the lease, a tenant or lender has the right to apply for relief from forfeiture.
If the tenant succeeds with its right to claim relief from forfeiture, the lease will be restored to where it was prior to the forfeiture. Generally, the court will grant relief if:
- the tenant pays compensation for breach of the lease; and
- the court is satisfied that the tenant will perform its obligations under the lease going forward.
Coronavirus Act 2020
Please be aware that the Coronavirus Act 2020 might affect a landlord’s right to proceed with forfeiture during the pandemic. This is an evolving situation so it is advisable to contact us for the latest up to date information.
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