Changing the locks is a quick way for a landlord to forfeit a commercial lease and evict the tenant. However, it could prove to be an expensive mistake. If the tenant brings a court claim, and the court decides that the forfeiture was wrongful, the tenant could be entitled to the following remedies:
- An injunction allowing it to re-occupy the premises.
- An award of damages (compensation).
The first part of this article looks at how a commercial lease can be forfeited lawfully.
The second part of this article looks at how compensation was calculated in the important commercial case of Restaurant EC3 Ltd v Tavor Holdings Ltd [2024] EWHC 3104 (Ch). Judgment was handed down by the High Court in December 2024.
Lawful forfeiture
Typically, a landlord is only entitled to forfeit if all the following apply:
- The right to forfeit is expressly permitted in the lease.
- They tenant is in breach of one or more of its obligations in the lease. For example, a lease might state that the right to forfeit for non-payment of rent arises where the rent is unpaid for 21 days after it falls due. In such a case, the right to forfeit will arise once those 21 days has expired.
- The landlord has served a section 146 notice giving the tenant a reasonable time to remedy the breach, if it is one that is capable of remedy. For example, if the tenant has failed to perform its obligation to keep the property in good repair, the section 146 notice may require the tenant to put the property in good repair. A section 146 notice does not need to be served if the breach is non-payment of rent.
- The landlord has not waived its right to forfeit. For example, if a tenant breaches an obligation within the lease giving rise to the landlord’s right to forfeit, and the landlord accepts rent with knowledge of the breach, the landlord may have waived its right to forfeit in respect of that breach.
Even if the forfeiture is lawful, this does not necessarily mean that the lease is permanently forfeited. The tenant could apply to court for relief from forfeiture. The court may grant relief from forfeiture on any terms it sees fit.
Restaurant EC3 Ltd v Tavor Holdings Ltd
Restaurant EC3 Ltd (“Restaurant”) was the tenant under a commercial lease. Tavor Holdings Ltd (“Tavor”) was the landlord. The rent payable was a market rent, known as a rack rent.
On 16 October 2022 Tavor evicted Restaurant and changed the locks. On 22 March 2023 Restaurant commenced proceedings in the County Court alleging that the eviction was unlawful and that Tavor now occupied the premises as a trespasser. Restaurant claimed possession of the premises and damages.
The High Court had to consider a discrete issue: whether Restaurant would be entitled to substantial compensation if the eviction had indeed been unlawful.
The High Court held that Restaurant would not be entitled to substantial compensation. Restaurant had lost the use of the premises, but it had ceased to pay any rent for the premises. Given that the rent payable was a market rent, these two things effectively cancelled each other out.
If Restaurant had suffered any business interruption and trading losses because of the eviction, Restaurant may have been entitled to considerable compensation on that basis. However, such a claim could not succeed in this case because Restaurant did not operate its business from the premises. Business was carried on by two related companies.
The Birketts view
A landlord should think carefully before forfeiting a commercial lease by changing the locks. This is especially true in the following circumstances:
- The rent payable under the lease is significantly less than the market rent, and/ or
- The tenant operates its business from the premises.
Even if it transpires that the tenant is not entitled to any remedy, the landlord may incur substantial legal costs in defending a legal claim brought by its tenant. The landlord may not be able to recover any or all those costs.
Our Property Disputes Team has extensive expertise in advising commercial landlords and tenants in connection with breaches of lease obligations; termination/ forfeiture of leases; and applications for relief from forfeiture.
Contact Birketts today to discuss your situation. We would be happy to assist you.
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The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at December 2024.