Relief from Forfeiture: Understanding the Process
As mentioned above, this article will outline the process for relief from forfeiture under the terms of the Law of Property Act 1925. Subsequently, it will also share how that will affect your business and what you can do to attempt to overcome the proceedings.
Landlord’s rights give your landlord the power to forfeit your lease under Common Law, if your business falls into commercial rent arrears. The termination of your lease is known as forfeiture. This enables the landlord to enter the property when you are not present to take back control of the premises, most commonly achieved by changing the locks outside working hours. Typically, most landlords will use a certified bailiff to do this.
Forfeiture means that your lease is terminated immediately. You can find out more information on this process with our Landlord’s Rights with Commercial Rent Arrears post. However, there are some circumstances that may see your landlord, and your company, continue on with the lease after forfeiture; this is known as relief from forfeiture.
What is Relief from Forfeiture?
If you and your landlord agree to continue after forfeiture of commercial lease, this is, effectively, known as reinstating the lease. Usually, this will mean you have succeeded in paying your commercial rent arrears.
Should you look to reinstate your lease, you will have to go through a long process to do so. As the tenant, you must apply to the court for relief under section 146 of the Law of Property Act 1925. This application is to set the forfeiture lease aside, and the court has the discretion to grant relief from forfeiture or withhold, in favour of landlord’s rights.
Courts will generally grant relief if the tenant has remedied the breach or paid compensation, for example. They can also grant relief if they believe your business will be able to pay and stick to the terms of the lease in the future. Your company’s conduct will therefore be a consideration when applying for relief from forfeiture of a commercial lease.
Before you undertake this process, however, you must consider the costs of the application.
The process of relief from forfeiture is costly for a company, especially as you are already suffering from commercial rent arrears and inability to trade without a premises. In most cases, the tenant will have to pay for their costs and legal fees, as well as those of the landlord when applying for relief. Therefore, applying for relief from the courts may not be the most cost-effective process for your company.
There is a six month time limit to seek relief from forfeiture if your landlord has opted for terminating the lease. Where the landlord has obtained an order for possession by the court, you do not have a right to claim. However, if they have not and your landlord has forfeited by re-entry, you do not have a time limit to claim.
The costs of the proceedings could outweigh the benefits of applying. If you are not granted relief, this could pose a further threat to your business, as the business will be without premises. In such cases, an alternative to the situation could be voluntary liquidation.
Creditors voluntary liquidation could be a viable option if you are suffering from commercial rent arrears, and your landlord is looking into terminating the lease. As we have outlined how the process of relief from forfeiture is costly for a tenant, and voluntary liquidation allows you to take control of the situation.
With voluntary liquidation, the company’s director/s choose to end the business and stop trading. By appointing a liquidator, you choose to liquidate all company assets before insolvency is forced on your business; a very real possibility if you have cash flow problems.
Seeking advice in relation to voluntary liquidation will lead you to discuss your concerns with a licenced insolvency practitioner. They will be able to suggest how your current business could be rescued in its current form or by way of a new company buying the assets, potentially via a pre-pack asset sale. You can find more information on the voluntary liquidation procedure with our comprehensive guide.
To discuss your options if you are suffering from commercial rent arrears, or have any questions regarding voluntary liquidation, feel free to contact one of our business rescue experts today.