Q&As

Is it reasonable for a long lease to permit the landlord to forfeit the lease in the event that the tenant becomes insolvent if the lease was not granted at a premium and the rent payable is not full market value?

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Produced in partnership with Alexander Campbell of Field Court Chambers
Published on LexisPSL on 28/11/2018

The following Property Q&A produced in partnership with Alexander Campbell of Field Court Chambers provides comprehensive and up to date legal information covering:

  • Is it reasonable for a long lease to permit the landlord to forfeit the lease in the event that the tenant becomes insolvent if the lease was not granted at a premium and the rent payable is not full market value?
  • Express provision permitting forfeiture for tenant insolvency
  • Formalities of forfeiture
  • Position if the lease is not varied to remove the express provision permitting the landlord to forfeit for tenant insolvency
  • Would the tenant be entitled to relief?

Is it reasonable for a long lease to permit the landlord to forfeit the lease in the event that the tenant becomes insolvent if the lease was not granted at a premium and the rent payable is not full market value?

It is assumed that the insolvency provisions referred to are an express provision in the lease permitting the landlord to forfeit the lease on the grounds of tenant insolvency.

Express provision permitting forfeiture for tenant insolvency

A lease may contain an express proviso for the landlord to forfeit the lease in certain specified circumstances such as a failure by the tenant to pay the rent due or a failure by the tenant to observe any other covenant in the lease. One circumstance in which a lease may entitle the landlord to forfeit is the insolvency of the tenant, see Cadogan Estates Ltd v McMahon. If there is not an express term permitting forfeiture for tenant insolvency, then one will not usually be implied (see Commentary: Insolvency as a ground for forfeiture: Property Insolvency [3.6]).

Property Insolvency states that:

‘It should be noted that if there is a proviso for re-entry in these terms (ie including insolvency as a ground for re-entry), the tenant cannot usually borrow money on the sole security of the lease as the lease is no real security for a lender as it is liable

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