Forfeiture will, in certain circumstances, give a landlord an opportunity to terminate their tenant’s tenancy and recover possession of their land.
Forfeiture is therefore a powerful right, and should not be exercised without the landlord first considering (a) the consequences of forfeiture; (b) the conditions necessary to effect forfeiture; and finally (c) the steps the landlord must take to ensure the right to forfeit is not waived. Once a landlord has considered those issues, they should assess whether commercially, forfeiting their tenant’s tenancy is to their advantage.
This note concerns forfeiture of land subject to agricultural tenancies granted in accordance with the Agricultural Holdings Act 1986 (“1986 Act”) and Agricultural Tenancies Act 1995 (“1995 Act”).
Although forfeiture may be exercised against commercial and residential tenants, the position is more complicated in relation to residential dwellings. This creates an area of risk for the unwary landlord since it is not uncommon for an agricultural holding to include a farm cottage and therefore a residential element, which will attract protection under the Rents Act 1977. A landlord of a holding which includes a residential dwelling, should never try to forfeit their tenant’s tenancy by peaceable re-entry.
When does the right to forfeit a tenancy arise?
Forfeiture is a landlord’s right to prematurely terminate their tenant’s tenancy for (a) a breach of the tenant’s obligations; or, (b) events specified in the tenancy.
The right to forfeit must be expressly reserved in the tenancy agreement. If the landlord has not reserved a right to forfeit their tenant’s tenancy, an implied right will exist but may only be implemented if the tenant (a) denies the landlord’s title; or, (b) breaches a condition upon which the tenant is entitled to occupy the holding.
Once the right to forfeit the tenancy has arisen, a landlord may if not careful, waive their right to forfeit by committing some unequivocal act which treats the tenancy as continuing. Common pitfalls include: demanding and accepting rent, or, exercising one of the landlord’s rights under the tenancy, such as implementing a rent review or obtaining permission to enter the holding for the purpose of carrying out an inspection.
If, despite waiving their right,a landlord attempted to forfeit their tenant’s tenancy, the landlord could become liable to the tenant for damages arising from the landlord’s breach of the landlord’s covenant to give the tenant quiet enjoyment of the holding.
How may forfeiture be effected?
To effect forfeiture, a landlord must take a step that demonstrates clearly and unequivocally that the landlord and tenant relationship is at an end. This is often achieved by :
- Peaceably re-entering the holding; or,
- Issuing and serving a claim for possession of the holding.
Forfeiting a tenancy by peaceably re-entering land let to the tenant, is often the quickest and cheapest way a landlord can bring their tenant’s tenancy to an end and recover possession of the holding. It is quick and cost effective because the landlord will simply have to re-enter the holding and resume possession tocommunicate that the tenant’s tenancy has been forfeited.
There are however a number of provisos:
- The right to forfeit by peaceable re-entry must be expressly reserved in the tenant’s written tenancy agreement. If the right has not been expressly reserved, the landlord cannot forfeit the tenancy by peaceably re-entering the holding and must issue a claim for possession of the holding.
- Although a landlord may forfeit a 1986 Act tenancy by peaceable re-entry, case law and commentary on the subject states that there must exist, within the tenancy agreement: (a) express term permitting the landlord to forfeit the tenant’s tenancy; and, (b) a requirement for the landlord to give the tenant more than 6 weeks’ notice of his intention to forfeit the tenancy. Anything less than an express right to forfeit a tenancy, with a requirement to give more than 6 weeks’ notice, will affect the validity of the forfeiture clause.
- The right to forfeit must have arisen, and any pre-requisites must have been completed. In relation to arrears of rent, the right to effect forfeiture by peaceable re-entry will often not arise until a specified period of time has passed since the rent first fell due. In relation to a breach of the tenant’s covenants, the right to forfeit the tenancy must be preceded by the service of a section 146 notice on the tenant.
- Following forfeiture, the tenant’s tenancy is brought to an end and cannot be reinstated without an order from the Court. To reinstate the tenant’s tenancy, the tenant would have to apply to Court for relief from forfeiture; an application the tenant can make, typically, up to six months following the forfeiture of the tenancy. The tenant’s right to apply for relief for up to six months can make re-letting the holding difficult for a landlord.
- If the tenant is subject to a form of insolvency, the landlord may not be able to forfeit the tenant’s tenancy without permission from the tenant’s insolvency practitioner or the Court.
- From a practical point of view, if the holding is large, the landlord may have difficulty demonstrating to the tenant an unequivocal act to forfeit the tenant’s tenancy.
By issuing a claim for possession
A tenancy may be forfeited by a landlord serving Court proceedings on their tenant for possession of a holding. This is because the service of Court proceedings is a clear and unequivocal act confirming that the landlord and tenant relationship is at an end.
The advantage of forfeiture by Court proceedings is that the landlord will draw out from the tenant any claim the tenant has for relief from forfeiture within the Court proceedings. The landlord may also overcome any difficulty the landlord may have, demonstrating to their tenant clearly and unequivocally that the tenant’s tenancy has come to an end.
The costs and time involved with Court proceedings are the principle disadvantages of forfeiting a tenancy by Court proceedings. Those costs will be significantly more than the costs of forfeiting a tenancy by peaceable re-entry, but certainly may be worth the investment.
Which approach is most suitable for land subject to a 1995 Act “Farm Business Tenancy”?
Court proceedings are often the preferred method of forfeiting a Farm Business Tenancy because of the practical difficulties a landlord may have demonstrating that a tenancy has been forfeited by peaceable re-entry. This problem is often compounded by the difficulties a landlord may have trying to secure agricultural land to prevent the tenant from trying to resume possession.
If however, the holding was relatively small and perhaps limited to a few agricultural buildings, a landlord may elect to forfeit their tenant’s Farm Business Tenancy by peaceable re-entry.
Which approach is most suitable for land subject to a 1986 Act tenancy?
The position is more complicated in relation to tenancies granted under the 1986 Act because the 1986 Act provides a statutory mechanism that may enable a landlord to terminate a tenancy and recover possession for breach of covenant and non-payment of rent.
In my earlier article, The case for terminating an AHA tenancy, I referred to the various Case Notices under schedule 3 of the 1986 Act, which may be served by a landlord in an attempt to bring their tenant’s 1986 Act tenancy to an end. One of those Case Notices, specifically the Case D Notice, may be served in circumstances where the tenant has failed to remedy a breach, notwithstanding an earlier request by the landlord, in the form of a Notice to Pay or Notice to Remedy.
In my experience, the service of a Case D Notice has long been the preferred method of terminating a 1986 Act tenancy following a breach of covenant, I suspect, because the process can be implemented without the practitioner having to concern themselves with the technicalities and risks associated with forfeiture by Court proceedings. Additionally, a Case D notice may be served irrespective of whether upon the holding there is a residential dwelling. There are however advantages and disadvantages to both approaches which should be considered:
The advantage of forfeiting a 1986 Act tenancy is that the landlord can bring the tenant’s tenancy to an end without giving the 12 months’ notice required by the Case D Notice. The landlord can therefore potentially recover possession of the holding within a shorter timescale. Speed is particularly significant when considering the potential delay a tenant could cause by demanding arbitration in response to a landlords’ Notice to Remedy or Case D Notice.
The major disadvantage is that the costs associated with forfeiture will inevitably be incurred early, often on issue of Court proceedings for possession. The landlord will be exposed to an unavoidable risk that the tenant may repay those arrears and offer to repay the landlord’s costs, forcing the landlord to consent to a Court order, reinstating the tenant’s tenancy of the holding.
Forfeiture is a useful method of terminating a tenancy following a tenant’s breach of a covenant. It is however not without some risk and there are procedural steps which may be unique to each individual case.
Landlords considering forfeiture should take independent legal advice on their rights under the tenancy agreement and whether there are any other options available to the landlord to bring their tenant’s tenancy to a premature end.