Where a tenant fails to make rent payments or falls behind on them, they can be said to be in default. Default on payment of rent can lead in turn to a landlord being unable to make their mortgage payments, thereby threatening their property interest.
Rent default will permit a landlord to seek forfeiture of the premises, whereupon they can let it out to a new tenant and prevent further financial loss. There are protections available for residential tenants that curtail the enforcement options available to landlords.
Non-payment of rent and forfeiture
Non-payment of rent is a specific ground for a landlord exercising the remedy of forfeiture. Where rent becomes past due, a landlord is not required to provide the tenant who has fallen into arrears with a Section 146 Notice before proceeding with forfeiture remedies. Ordinarily, a Section 146 Notice would be intended to afford a tenant reasonable time to fulfil their obligations under contract.
It is imperative to note that there must be a valid forfeiture clause in the lease agreement in order to use it as a remedy. In many cases, a lease agreement will provide a 14 to 21 day grace period to allow for a tenant to make up arrears.
Commercial property and forfeiture
Where commercial properties are concerned, the landlord is entitled to either (1) peaceably re-enter the premises or (2) seek court proceedings for eviction.
Peaceable re-entry is a cost effective solution where the landlord enters the premises (force is permissible), changes the locks and leaves physical notice that the lease has been terminated on that date.
A landlord engaging in self-help must be diligent in ensuring there are no persons or property remaining on the premises. It is illegal for a landlord to access and change the locks on the premises if there is someone present who objects to the forfeiture.
Residential property and forfeiture
For residential property, a landlord cannot use peaceable re-entry as a means of recovering possession unless it is clear the tenant has vacated the premises and does not intend to return. In almost all cases it is not advisable to use this method for residential property, as a landlord may leave themselves vulnerable to claims for trespass. Instead, a landlord will recover possession of residential property through court proceedings.
Property left on premises
If unaffixed property has been left by the tenant, the landlord may be legally responsible for its safekeeping until the tenant can recover possession. By contrast, if a tenant brought in structures that became fixed to the premises that cannot be removed without damaging it, they will become property of the landlord upon termination of the lease.
Assured shorthold tenancies and non-payment of rent
Section 8 Notices
With regards assured shorthold tenancies, and where non-payment of rent is concerned, a landlord may serve a Section 8 Notice upon the tenant. Typically, 14 days’ notice will be afforded to the tenant before eviction occurs. In doing so, the landlord must explicitly state that the reason for serving the Section 8 Notice is for the basis of non-payment of rent.
Section 21 Notices
If a landlord is not confident an assured shorthold lease tenant will be able to pay rent in the event they seek to renew their lease, they may serve a Section 21 Notice upon the tenant to the effect that they must vacate the premises when their lease term comes to an end.
Relief from forfeiture on the basis of non-payment of rent
Relief can be awarded with regards non-payment of rent, if the tenant pays all sums due five days prior to a court hearing regarding an order for possession. A successful relief from forfeiture will result in the lease being reinstated and the parties returned to the position they were in prior to the alleged breach. Relief can only be awarded by a court, and can be applied for before the relevant County Court or the High Court.
Depending on the nature of the breach and the time elapsed since any court order for possession (usually six months) the courts have varied discretion whether or not to award relief.
If forfeiture is found to be wrongful, the landlord may find himself or herself subject to a damages claim from the tenant.
A landlord must take care to avoid explicit or implicitly waiving their right to bring forfeiture proceedings for non-payment of rent. This can occur where a landlord accepts rent payments after any default on an agreed rent due date in the lease agreement, or where they continue to pursue rent payments instead of seeking forfeiture.
Rent guarantee and legal expenses insurance
As a contingency for tenant default, and court action for its recovery, a landlord may consider obtaining rent guarantee insurance. Such insurance coverage will supplement the shortfall in rent arrears on a monthly basis while the tenant remains in occupancy, and may also be extended to cover legal expenses in seeking court action for recovery of sums owed.
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Where a tenant is in default on their rent due, a landlord is entitled to enforcement action, but must do so in adherence to proper procedure. Failure to do so can result in the tenant being re-instated and entitled to bring damages against the landlord.
At Lewis Nedas, our team of Property Litigation Solicitors have broad experience in both commercial and residential property litigation. We have successfully advised clients with highly complex and multi-faceted cases. To speak with one of our Property Lawyers, please contact us on 020 7387 2032 or complete our online enquiry form.