What happens if a lease is forfeited?
Posted on 12th March 2020
Invariably, a lease will contain a provision that in the event the rent is not paid, or some other covenant is breached, then the lease can be brought to an end by the landlord. The impact of this on the lease is that legally it no longer exists. This can leave a landlord with a free property and a tenant will not be able to claim any interest in the property whatsoever. The interest the tenant had in the property effectively “reverts” back to the landlord.
What steps should be taken if a lease if forfeited?
Forfeiture is seen by the Courts as a draconian measure and the ability to apply for relief from forfeiture counters the severe implications of it. In order to claim relief from forfeiture, a tenant must either respond to the claim for forfeiture by seeking relief, or by bringing their own separate application on Claim Form N5A. Usually, a tenant will have to remedy the breaches of lease complained of, and pay the legal costs of the landlord in order to obtain relief from forfeiture, but a Court does have power to set appropriate terms of settlement, if there is a dispute between the parties as to what the tenant must do to get the property back.
Even if the parties agree to what should be done to remedy the breaches of lease, then it may still be necessary to obtain a Court Order confirming relief from forfeiture pursuant to the case of Zestcrest Limited v County Hall Green Ventures Limited . In certain circumstances, if a Court order is not obtained, the status of the tenants’ interest can become complicated and there is no guarantee that such agreed terms would continue in line with the previously forfeited lease terms. This makes it important to obtain an order from Court, where the lease has been fully forfeited to ensure the previous lease is legally reinstated.
What about other interests in the leasehold title?
The finality of forfeiture also results in any legal charges coming to an end too. For mortgage providers this can raise alarm bells, as it will mean that they do not have the benefit of the security for their mortgage advance. Forfeiture therefore forces the mortgage providers to act to protect their interests and can result in them remedying the breaches on behalf of their customers. In instances where the breaches are non-payment of rents or service charges, this can result in payments being made to the landlords and sums being added on to their customers’ mortgage accounts. Depending on the terms of the mortgage conditions, this may incur additional administration charges, which may have to be paid over the remainder of the term of the mortgage.
It is therefore important to ensure that a lease is legally reinstated, if it has been fully forfeited by a landlord to make sure the lease properly continues. Without an order of the Court, the nature of the ownership of the property can be placed in jeopardy. Where there is a mortgage provider who has security over the property, then it may be that they elect to end the proceedings, but this may incur costs to the tenant. Even if a mortgage provider has made payment, a tenant should still explore the status of their lease.