Forfeiture of Commercial Leases - Court of Appeal Test Case

Commercial tenants whose rights are trampled upon by their landlords are far from powerless and should seek legal advice right away. A shopkeeper who did just that after his lease was unlawfully forfeited and his stock seized won the right to substantial damages in a guideline case.

On the basis that the shopkeeper was in arrears of rent, his landlords purported to exercise the commercial rent arrears recovery (CRAR) procedure laid down by the Tribunals, Courts and Enforcement Act 2007. At the landlords' behest, enforcement agents attended the premises and took control of the shopkeeper's stock with a view to recovering the alleged arrears and their fees.

Three days later, the shopkeeper paid to the enforcement agents by electronic funds transfer the full amount that he was said to owe. The landlords, however, later purported to forfeit the lease by peaceably re-entering the premises. The lease had more than 18 years to run at the time and was subject to the protection afforded by the Landlord and Tenant Act 1954.

After the shopkeeper launched proceedings, a judge found that the purported forfeiture was unlawful and ordered the landlords to pay him damages for trespass and for their breach of a covenant in his lease which entitled him to peacefully enjoy the premises. The landlords' appeal against the judge's order was subsequently rejected by the High Court.

In dismissing the landlords' challenge to that outcome, the Court of Appeal noted that, by virtue of Section 79(4)(a) of the 2007 Act, CRAR cannot be exercised by a landlord after termination of a lease by forfeiture. By electing to adopt that procedure, the landlords had unequivocally acknowledged the continuing existence of the lease. They had thereby waived any right they may have had to forfeit the lease for non-payment of rent.