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What is a Lease Forfeiture?

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  • Written By: N. Madison
  • Edited By: Jenn Walker
  • Last Modified Date: 01 December 2016
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The term lease forfeiture is often used to refer to situations that arise with commercial leases. In some countries, a landlord of a commercial property has the right to end a lease if a tenant fails to adhere to the terms of the contract. Typically, landlords exercise the right to a lease forfeiture when a tenant has failed to pay the agreed amount of rent on a commercial property. In some cases, however, a landlord will also exercise his forfeiture rights because the tenant has breached the lease agreement in some other manner. For example, a landlord may want to end a lease because the tenant is engaged in illegal activity on the premises.

The laws that govern lease forfeiture may vary from jurisdiction to jurisdiction. As such, it is wise for landlords and tenants to learn the specific rights and responsibilities they have in their jurisdiction before signing a lease. Some jurisdictions require a particular amount of notice before a landlord can complete a forfeiture, but others do not set a particular notice period. Often, commercial leases contain a forfeiture clause to let tenants know what to expect.

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In some places, a landlord has the right to begin a lease forfeiture without going into court first. For example, if a landlord rents a property that is used for business purposes, he may have the right to proceed with a forfeiture for non-payment of rent without seeking a court order. In such a case, the law may allow him to enter the property and change the locks, often with a bailiff's assistance. This differs from spaces that are rented out and used as residences. Many jurisdictions have a different set of laws for dealing with non-payment of rent when a property is used as a residence instead of a business.

Sometimes the breach of a commercial lease has nothing to do with the non-payment of rent. In such case, there may be different procedures for handling a lease forfeiture. For example, a landlord may be required to give the tenant notice of the lease agreement breach and ask him to fix the issue. Landlords are typically required to give tenants a significant amount of time in which to fix the issue as well. If the tenant fails to fix the breach within the allotted time, however, the landlord usually has the right to move on with lease forfeiture procedures.

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BigManCar
Post 9

@StarJo - That's a good deal for the landlord, as long as he can get it. He was smart to buy in a desirable location, otherwise people probably wouldn't go for it.

The only problem with prepaid rent is that there are sometimes cases where you have a legitimate reason to get part of your rent back, and some landlords may try to stall or simply not pay at all. They may also have spent it and are unable to pay you because they just don't have it.

I have read that there are times that it can make it hard to evict a problem tenant if they have already prepaid. Being stuck with trouble for extra months can be a real headache, even if you do have their money.

Nepal2016
Post 8

@Oceana - Unexpected changes in your situation can be hard to deal with if you are caught up in a lease. Some states have rules that if something significant changes your landlord has to let you out of your contract if you fulfill certain obligations. Others, not so much.

I have seen some places that will let you rent month to month if you want. They usually charge a bit more for this convenience, since they don't have the certainty of knowing how long a tenant will be there.

Veruca10
Post 7

@Julies - Dealing with tenants is always tricky. It seems that some people are masters at playing the system when it comes to a lease agreement. Evicting that kind of tenant can be no fun at all, they seem to hang on forever.

When the economy gets hard, a lot of good people are getto the point where they can't pay their rent, no matter how much they want to pay it. Businesses, too. My town has seen some shops close that have been here for a lot of years.

A large management company, like your son's employer, at least has other properties to fall back on if someone isn't paying. The guy who really gets it is the small landlord with only a property or two. If they lose a tenant, that can be a really big part of their income gone if they can't replace them quickly.

lighth0se33
Post 6

My brother owned several commercial properties, and he made sure that his tenants kept them clean and attractive. He even had a clause in the lease about a messy property being reason enough for forfeiture.

Usually, his tenants had no problems keeping their places neat. After all, they were running businesses out of them.

However, one tenant did not meet his standards. Her shop windows became dirty and cluttered with flyers. The doormat was caked with mud, and the floors looked like they had never been vacuumed when he paid her a surprise visit.

He gave her a chance to clean up the place, but when she still hadn’t complied two weeks later, he told her to get out. She thought he was overreacting, but I guess she just didn’t pay attention to that clause when signing the lease.

Oceana
Post 5

I hate signing leases, because I don’t like to be stuck in one place. Most landlords want you to sign on for at least a year, and many require two. This is just too much commitment for me.

I once signed a one-year lease because I couldn’t find anywhere else to live. About four months into my lease, I got a great job offer an hour away.

I talked to my landlord, hoping that he would let me out of the lease. He refused, and I didn’t want to turn that job down. So, I ended up staying with a friend who lived near the job and paying rent on an apartment that I didn’t even live in until the time was up.

orangey03
Post 4

Some landlords are very understanding of their tenants’ financial struggles. When my boyfriend lost his job and couldn’t find another one for three months, the landlord let him pay as much rent as he could afford, which was less than half his regular rent.

Once he got back on his feet, he paid the man back all the money he owed for those months. He truly appreciated this man’s generosity, as he was well within his rights to evict my boyfriend. His one-year lease could legally have been forfeited.

I’m sure most landlords would not be this understanding. This man owned several apartment complexes around town, so he wasn’t hurting for money. He could easily have been greedy, but he chose the high road.

StarJo
Post 3

I know a man who owns a commercial building in a highly desirable location. He has been forced to go through with lease forfeitures several times because of non-payment, so now, he requires that the full amount be paid at signing.

Some people would say that sounds extreme, but to him, it is the only way to do business. He offers six-month leases, so some people are able to get loans to pay that amount. If he offered two-year leases, then it would seem outrageous. Once, he even allowed a guy to sign a three-month lease, because that was all that he could afford.

Even businesses that seemed to be doing well have failed to pay their rent to him in the past. He will likely always require payment up-front, and if people disagree with his methods, then they can rent elsewhere.

bagley79
Post 2

Even though many commercial leases have a forfeiture clause in the lease, I am always amazed by how many people sign a lease and don't understand what they are signing.

I have been on both sides of this - commercial and residential, and have seen it often. You also have those who understand what they are signing, but for some reason don't think they really need to comply.

When someone signs a property lease agreement they are stating that they understand the terms and agree to abide by them. My job would be much easier if this were really the case, but far too often it is not.

julies
Post 1

My son works in the property management division of a commercial real estate company. He has had several situations where he has had to deal with a forfeiture of lease.

Every situation is different, but the majority of them have been because they have not been able to pay their rent on the building. Many businesses are struggling to make it, and this shows up when it comes time to pay their rent.

There have also been situations when the renter has not fixed issues that they have agreed to in the lease. Sometimes these can be a bit more complicated, but proper procedures still need to be followed to make sure there is compliance.

He works for a pretty large company and always has some interesting stories to share when it comes to renters and leases.

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