Forfeiture – How Does It Affect Commercial Sub-Tenants?

With many commercial tenants feeling the impact of increased costs, pressure on rental payments is on the rise.

During the pandemic, the landlord's right to forfeit (terminate) the lease was restricted, giving much-needed protection to tenants.

However, that protection was lifted in March 2022, and forfeiture is once again an option for landlords and is frequently being utilised despite the potential difficulties they may face in re-letting the property.

When faced with financial pressures, many tenants may look to assign or sub-let the lease as a way of mitigating their liability for the lease provisions.

In this blog, we review the basics of forfeiture and then look at the status of a sub-tenant where the landlord takes action to forfeit the headlease.

Landlords can forfeit by using peaceable re-entry (changing the locks) or by issuing court proceedings for a forfeiture order.

Peaceable re-entry can only be used where the breach is non-payment of rent.

For all other breaches, the landlord must first serve a notice under s.146 of the Landlord and Tenant Act 1925 requiring the tenant to remedy the breach "if it is capable of remedy".

The granting of relief is at the court's discretion, and the court may impose conditions such as requiring the sub-tenant to comply with the terms of the headlease.

The sub-tenant should be aware that if it is a sub-tenant of part, the court may require it to take a new lease of all of the property comprised in the headlease or pay the arrears of rent relating to the whole as a condition of granting relief.

• Landlords should consider applications to sub-let carefully, as if they ultimately decide to forfeit the headlease, the sub-tenant could become their direct tenant.
• Similarly, landlords should review their portfolios regularly and ensure tenants are not sub-letting without the landlord's consent.
• If a sub-tenant finds itself in a position where the headlease has been forfeited, they should be comfortable taking on a lease of the whole before making an application for relief.