Forfeiture of a Commercial Lease is a critical issue for both landlords and tenants. Understanding the intricacies of this process is essential for both landlords and tenants to protect their interests.
What is Commercial Forfeiture?
Commercial forfeiture is the termination of a commercial lease by a landlord as a result of a tenant’s breach of a term of the lease. A commercial lease is a binding agreement between a business tenant and their landlord, typically allowing the tenant the right to use the landlord’s property to operate their business for a specified term. Forfeiting a commercial lease is the act of bringing a lease to its end before the natural termination date.
The most common reason for forfeiture is for non-payment of rent however, other breaches can also trigger forfeiture if left unresolved, including, unauthorised use of the premises or sub-letting without the landlord’s consent. The lease will typically contain a forfeiture clause which will outline the conditions under which the landlord can terminate the lease.
Key Steps for Landlords to consider
If a commercial landlord is seeking to forfeit a lease, the following key steps should be considered:
- Identity the Breach
The landlord must ensure that the tenant has clearly breached a term of the lease.
- Serve Notice
For a breach other than non-payment of rent, the landlord is required to serve a forfeiture notice, detailing the breach and providing a period of reasonable time for the tenant to remedy the situation if the breach can be remedied.
If the breach is for non-payment of rent, the Landlord can usually proceed straight to the next step without serving notice.
- Re-entry or Legal Proceedings
If the tenant fails to remedy the breach within the notice period or the breach is for non-payment of rent, the landlord has the right to re-enter the premises. The landlord can do this peaceably by re-entering the property and securing it by changing the locks, or by obtaining a court order. Legal advice is crucial to ensure that re-entry is effected correctly.
- Alternatives
Before proceeding with forfeiture, landlords may opt to consider alternatives such as the Commercial Rent Arrears Recovery (CRAR) procedure or negotiating with the tenant. This can preserve the landlord-tenant relationship.
Key Steps for Tenants to consider
If a commercial tenant is at risk of forfeiture, the following key steps should be considered:
- Understand the Terms of the Lease
Commercial tenants should have a good understanding of their lease agreement as not all leases will have forfeiture clauses. Also, being aware of the conditions and consequences of forfeiture will help in ensuring that you are not in breach.
- Address Breaches Quickly
If a breach does occur, commercial tenants should act quickly to remedy it. For example paying outstanding rent or repairing damage can help prevent forfeiture.
- Communicating with the Landlord
Communication is pivotal as it can help resolve issues without legal action / consequences. Tenants should inform the landlord about any difficulties they have in meeting an obligation under the lease and propose solutions.
- Seek Legal Advice
If a tenant is facing forfeiture or their lease has been forfeited, they should seek legal advice as soon as possible as they may be able to seek relief from forfeiture from the court.
How we can help ?
Commercial forfeiture is a complex and serious matter. By understanding their rights and obligations, both landlord and tenants can navigate the process more effectively. If you require assistance in forfeiting a commercial lease or you are at risk of your lease being forfeited, please reach out to our Dispute Resolution Team.
You can email us at [email protected] or call us at 020 3440 8000. Let’s work together to find the best path forward for your dispute.
This article was first published in The Auckland Business Matters magazine in September 2024.
Disclaimer: The information on the TV Edwards website is for general information only and reflects the position at the date of publication.
