Landlord problems: Unlawful Forfeiture

Following on from our previous instalment, the fourth instalment in our series of practical guidance for Landlords continues with the topic of forfeiture, in particular unlawful forfeiture.

Scenario: a commercial property is let out to a tenant under a commercial lease with the rent payable on the 1st day of each month. The lease contains a forfeiture clause permitting the landlord to forfeit the lease if the rent is overdue by 14 days or more. On the 10th day of the month, the landlord contacts the tenant to notify them that the rent is overdue. After the 15th day the Landlord re-enters the property and changes the locks.

In this case, the landlord has waived its right to forfeit and its purported forfeiture is unlawful.

Unlawful Forfeiture

Unlawful forfeiture occurs if the landlord forfeits the property before a forfeiture event has occurred or after they have waived the right to forfeit. If the landlord unlawfully forfeits a property, the tenant may be able to apply to court for the following remedies:

1. A declaration that the purported forfeiture was unlawful;

2. An injunction allowing the tenant to re-occupy the property;

3. A damages claim;

4. A business disruption claim.

Of course, the tenant is also likely to be awarded their costs of any action they take to remedy the scenario above.

What damages can the tenant claim?In addition to making an order granting the tenant re-entry into the property, a court may also order an award of damages for breach of contract.

If the tenant successfully made a claim for breach of contract, the landlord would be liable to pay damages to the tenant for any losses arising from the unlawful forfeiture. Damages in contract law seek to put the injured party in the position they would have been in had the contract been performed in the way it should have, which may include damages for loss of business, disruption and any inconvenience suffered.

The tenant may also have a claim in tort for trespass to recover damages in respect of all losses suffered because of the trespass. Damages for trespass are compensatory in nature and so the tenant would be able to claim for loss of business as a result. However, it is unlikely that this head of claim would be available if the tenant was successful in making a claim for breach of contract.

Is there anything else the tenant may claim for?As well as applying to the court for the remedies above, the tenant may also apply to the court for relief from forfeiture. An application for relief from forfeiture may be successful where a claim for unlawful forfeiture is not. This would have a similar effect of letting the tenant re-occupy the property.

How to avoid this?

Defending a claim for unlawful forfeiture and/or an application for relief from forfeiture where the tenant is justified in proceeding along that path will be costly and embarrassing to the landlord. Significant amount of time and cost will be spent trying to mitigate the problem.

If, as in the scenario above, the tenant has not paid rent and the landlord wishes to forfeit, it is important that the landlord does nothing to reaffirm the landlord and tenant relationship. Reaffirming the landlord-tenant relationship such as chasing outstanding rent, will waive the right to forfeit for that period and the landlord will have to wait for another forfeiture event to occur before proceeding.

It is critically important that a landlord carefully plans ahead of taking drastic action such as forfeiture and obtains the right professional advice at the outset so as to minimise the risk of the procedure being unlawful.