Breach and Termination of Lease

Question 1

What remedies are available to a tenant on a breach of landlord covenant?

Answer 1

• Injunction: to prevent a breach of covenant from happening in the first place.
• Specific performance: to force L to comply with their repairing covenant
• Damages: compensation for breach. For a breach of repair, T can also claim for any reduction in value of the lease and for any distress, inconvenience and losses cause by having to live elsewhere
• Repudiation: T can claim repudiatory breach, terminate the contract and claim damages.
• Set off: If L breaches repair covenant T can do the repair themselves and set it off against rent. but this can be expressly excluded in the lease and T must give L notice of their default.

Question 2

How can the landlord forfeit the lease for non-payment of rent?

Answer 2

• There must be an express right of forfeiture in the lease.
• Forfeiture allows L to enter the property and terminate the lease.
• No notice is required
• L must make a formal demand for payment UNLESS there is an exemption in the lease or T is more than 6 months in arrears
• L can forfeit by physical re-entry or possession proceedings in the County Court
• T can get relief by paying into court all outstanding arrears and costs.

Question 3

How can the landlord forfeit the lease for breach of any covenant other than non-payment of rent?

Answer 3

Right of forfeiture must be in the lease

L must serve a s146 notice which:
- Specifies the breach
- If capable of remedy, requires it to be remedied; if not, L has to wait 14 days to forfeit

Requires T to pay any compensation

Special rules for repair covenants (if lease was granted for more than 7 years and it has at least 3 years left)

If T doesn’t remedy the breach, L must apply to court to forfeit. T can apply to court for relief.

Question 4

How can the landlord forfeit the lease for breach of a repair covenant other than non-payment of rent?

Answer 4

For repair covenants (if lease was granted for more than 7 years and it has at least 3 years left), a special s146 notice

Requirements of a regular s146 notice + a statement of T’s rights to serve a counter-notice within 28 days. If T does, L must apply to court for forfeit. If T doesn’t, no need to apply to court.

Question 5

What other remedies are available to the landlord for a tenant’s breach of covenant?

Answer 5

• Action for Debt
• Commercial Rent Arrears Recovery (CRAR)
• Damages for breach of repair
• Self-help: Jervis v Harris
• Specific performance
• Pursue guarantors
• Take the rent deposit
• Bankruptcy and winding up

Question 6

Commercial Rent Arrears Recovery (CRAR)

Answer 6

Commercial leases only.

Used to recover rent, VAT and interest. Debt must exceed 7 days rent.

L must give T 7 clear days’ notice and exercise right within 12 months of notice.

A certified enforcement agent can seize T’s goods and sell them, provided 7 clear days’ notice has been given to T of sale.

Question 6

Action for Debt

Answer 6

L can sue T to recover debt due within past 6 years

Question 6

Damages for breach of repair

Answer 6

L can sue for any reduction in value of L’s reversion

Question 7

Self-help: Jervis v Harris

Answer 7

Lease must contain a clause with this right. If T has breached a repair covenant, L can enter the property and carry out the repairs himself, then sue to recover cost of repairs

Question 8

What proceedings are needed to take the rent deposit?

Answer 8

No proceedings necessary.

Question 9

Bankruptcy and winding up

Answer 9

If rent arrears are greater than £5k for an individual or £750 for a company.

Question 10

What are the ways a lease can come to an end?

Answer 10

Expiration: the terms of the lease expires

Break clause: allows either party after a certain period of time to serve a notice to terminate

Surrender: T voluntarily terminates the lease with L’s consent

Merger: T acquires the freehold

Frustration: eg destruction of the leasehold property

Repudiation: T claims repudiatory breach for L’s breach of covenant

Forfeiture: L can forfeit and terminate the lease if T has breached a covenant

Insolvency/bankruptcy: liquidator or trustee in bankruptcy disclaims onerous lease

Question 11

How does a landlord recover expenses for self-help repairs when tenant is in breach of repairing covenant?

Answer 11

The landlord should be able to recover the full costs of the repair in a debt action.

Question 12

What are old leases?

Answer 12

Leases created before 1 January 1996.

Liability of the original landlord and the original tenant continues for the full duration of the lease term.

Means the original tenant and original landlord of an old lease remain liable for the covenants they entered under the lease long after the leasehold/reversionary interests have been sold or given away to others.

Question 13

Privity of contract and estate: old leases

Answer 13

Privity of contract: means the original landlord and tenant are liable for breaches of covenant by their successors for the entire lease duration. The impact of this is greatest for tenants.

Privity of estate allows the tenant covenants that touch and concern the land in an old lease to be enforceable by and against successor landlord and tenants.

Question 14

What are new leases?

Answer 14

Granted after 1 January 1996.

Mean that the tenant is automatically released from its obligations.

There is an automatic transmission of the benefit and the burden of all landlord covenants to the new owner of the reversion and of the benefit and the burden of all tenant covenants to the assignee.

Tenant assigns lease = assignee acquires the benefit and burden of all the covenants in the lease

Landlord assigns lease = income landlord acquires the benefit and burden of the covenants

Parties remain liable for breaches which occur during their period of occupation

Question 15

What is an excluded assignment?

Answer 15

ie assigned in breach of alienation assignment

even if automatic release, a party remains liable for breaches of covenant occurring before the release

Question 16

AGA

Answer 16

A way to get around the automatic release because the landlord can sue the former tenant who is guaranteeing the obligations of their immediate successor.

It can be required by the landlord as a condition of giving its consent to an assignment of a new lease.

Question 17

What is the remedy for suing under an AGA?

Answer 17

Just damages.

Assignor may protect themselves with an indemnity from the assignee so they can sue the assignee for breach of the indemnity covenant and recoup the damages paid to the landlord. (limited though because if they were worth suing the landlord would have sued them in the first place).

Question 18

What covenants are enforceable in subleases?

Answer 18

No direct relationship: can only sue against restrictive covenants, not positive covenants.

Usually there will be a provision in the sublease saying the subtenant covenants to observe and perform the covenants contained in the head lease.

Landlord will also usually insist on the subtenant of the property entering into direct covenants with it.

Question 19

What is a fixed charge?

Answer 19

Includes arrears of rent, service charge or insurance premiums

Question 20

s17 Default tenant notice

Answer 20

Applies to old and new leases.

Where a landlord wishes to pursue a former tenant who remains liable under the terms of the lease for a fixed charge - the landlord must service notice on such tenants within six months of the charge becoming due.

Won’t be able to claim if not.

Question 21

s18 liability for variations

Answer 21

Former tenants and guarantors are not liable to pay any additional amounts owing in respect of variations which have been made to the lease subsequent to assignment which they could not have anticipated at the time when the lease was entered into.

(eg will be liable for rent after rent review clause as that is anticipated)

Question 22

s19 overriding lease

Answer 22

If a former tenant is called upon by the landlord to pay rent or other fixed charges due from an assignee under s17, that former tenant is entitled to request from the landlord an overriding lease, becoming the immediate landlord of the defaulting party.

Will be granted for a term equal to the remaining term of the lease in question plus 3 days.

Obliged to grant it within a reasonable time.

Question 23

What remedies are available to a landlord for a breach of a rent covenant?

Answer 23

Action for debt: The tenant can be sued on its covenant to pay rent. A landlord can only recover six years arrears. However, if a tenant is unable to pay the rent, it is unlikely to be able to pay damages awarded by the court.

Forfeiture: This involves bringing the lease to a premature end because of the tenant’s breach.

Distress and Commercial Rent Arrears Recover: Distress was an ancient common law self-help remedy, entitling a landlord to enter the premises as soon as the rent was due and unpaid and to take possession of goods to the value of the rent owed. Replaced with CRAR.

Question 24

When can you use CRAR?

Answer 24

May be used where:

• The premises are purely commercial (it cannot be used where the premises comprise a shop and residential flat)
• A minimum of seven days’ principal rent is owed (it cannot be used to recover service charge or any other sum reserved as ‘rent’ but does include VAT and interest)
• the lease has not been forfeited

Question 25

What are the remedies for breach of a non-rent covenant?

Answer 25

• Injunction e.g. prevent an unauthorised sublease or assignment
• Forfeiture - involves bringing the lease to a premature end because of the tenant’s breach
• Specific performance - this is very rarely ordered in respect of a repairing covenant: damages will usually be adequate
• Damages: The ordinary contractual rules as to the measure of damages will generally apply (in respect of a breach of a repair covenant, the measure of damages is the loss to the reversion which may be negligible)

Question 26

What are the ways a lease can end?

Answer 26

• Notice to quit
• Merger
• Forfeiture
• Break clause
• Surrender
• Effluxion of time

Question 27

How does a fixed term lease usually come to an end?

Answer 27

By the effluxion of time. No notice is needed to end a fixed term.

(Note: the tenant may have security of tenure)

Question 28

What is Security of tenure?

Answer 28

The right for a tenant to remain in the premises at the end of the lease term and to request the grant of a new lease. Since the introduction of assured shorthold tenancies (ASTs) it is not very rare for a residential tenant to have security of tenure but a commercial tenant may have security of tenure under the Landlord and Tenant Act 1954.

Question 29

What is the effluxion of time?

Answer 29

The usual common law way in which a lease for a fixed term comes to an end. No notice is needed to end a fixed term.

Note: at the end of the lease the tenant may have security of tenure.

Question 30

What is notice to quit?

Answer 30

This is the method for determining a periodic tenancy.

For a yearly tenancy, either side must give at least half a year’s notice to quit to determine the tenancy.

Other periodic tenancies must be determined by a full period’s notice to expire at the end of a complete period.

Question 31

What is a break clause?

Answer 31

A lease for a fixed term may contain a provision allowing either (or just one) party to serve notice during its currency to bring it to a premature end.

Question 32

What is surrender?

Answer 32

A surrender is the handing back of the lease by the tenant to the landlord with the landlord’s consent. This results in premature termination of the lease.

A deed of surrender is ofter entered into in practice to document the agreement. Sometimes a surrender premium will be paid by the tenant to the landlord too.

Question 33

What is forfeiture?

Answer 33

This is the right for the landlord to terminate the lease prematurely for breach of covenant by the tenant.

Question 34

What is a merger?

Answer 34

This is the converse of surrender; the tenant acquires the landlord’s interest, thus becoming its own landlord, and the lease is absorbed by the reversion and destroyed.

Question 35

When will the landlord have to power to forfeit a legal lease?

Answer 35

There must be an express clause in the lease allowing the landlord to forfeit the lease in the event of breach of covenant (or insolvency) by the tenant.

A well drafted lease should include it as the right to forfeit is never implied into a legal lease.

A forfeiture clause clause creates a legal right of re-entry - also known as a re-entry clause.

Question 36

When will the landlord have to power to forfeit an equitable lease?

Answer 36

There does not need to be an express forfeiture clause, because a right to forfeit for non-payment of rent is implied into equitable leases as one of the implied usual covenants.

Note: a right to forfeit for breach of a non-rent covenant will not be implied into an equitable lease

Question 37

How a landlord exercise the right of forfeiture?

Answer 37

1. peaceably re-entering the property (only for pure business premises)

or

2. by obtaining a court order

Note: where the premises are residential the landlord cannot forfeit without a court order - this includes where the premises are mixed residential and commercial.

Question 38

What are the questions to ask when considering forfeiture?

Answer 38

1: Has there been a breach?

2: Is there a forfeiture clause?

3: Has there been a waiver?

Question 39

When will a landlord waive the right to forfeiture?

Answer 39

If the landlord wishes to forfeit, he must not have waived his right to forfeit.

The landlord may have waived the right to forfeit if:

1. he is aware of the acts or omissions giving rise to the right to forfeit; and
2. he does some unequivocal act recognising the continued existence of the lease.

Waiver can take place inadvertently e.g. an agent sending out a rent demand where the landlord is aware of the breach.

Examples: demanding, accepting or suing for rent after the breach; or distraining for rent due, despite knowing about the breach.

Question 40

Waiver: continuing breach vs non-continuing breach

Answer 40

Where there is a continuing breach (eg failure to repair), waiver only lasts until the next day the breach continues at which point the landlord can choose to reject the rent and forfeit the lease.

If the breach is non-continuing such as sub-letting without consent, waiver is permanent, ie once rent is accepted the landlord can never again forfeit for that lease.
Non-payment of rent is classified as a non-continuing breach, meaning each individual non-payment of rent is deemed to be a separate breach.

Note: landlord retains other remedies.

Question 41

What are examples of continuing breaches of covenants?

Answer 41

• Failing to insure the property in breach of the covenant to insure
• Using the property for an illegal use in breach of the covenant against immoral or illegal use
• Failing to fix the roof of the property in breach of the repair covenant
• Using the property to run a business instead of as a residence in breach of the user covenant

Question 42

What are examples of non-continuing breaches of covenants?

Answer 42

• Subletting the property without the landlord’s consent
• Non-payment of rent

Question 43

What is included in ‘rent’ for forfeiture?

Answer 43

If other payments due to the landlord are expressed in the lease to be paid as additional rent, eg service charge, the landlord can forfeit for non-payment in the same way as for rent.

Question 44

What are the steps for forfeiture for non-payment of rent?

Answer 44

1) Has there been a breach?
2) Is there a forfeiture clause?
3) Has there been a waiver?
4) Formal demand
5) Exercise the right
6) Relief

Question 45

Forfeiture for non-payment of rent: formal demand

Answer 45

The landlord must have made a formal demand for the exact amount of rent due on the day when it becomes payable, upon the premises, between the hours of sunrise and sunset unless:
- the lease expressly waives this requirement
- at least six months rent is in arrears and there are insufficient distrainable (ie seizable) goods on the premises to satisfy all the arrears due.

Note: a lease will usually waive the requirement that the rent be formally demanded by including in the forfeiture or rent payment clause words such as “whether formally demanded or not”

The landlord can then exercise its right.

Question 46

What is relief from forfeiture?

Answer 46

The tenant may then apply for relief from forfeiture. ‘Relief’ means the court’s discretion to allow the lease to continue and thereby end the forfeiture process.

Question 47

When will relief from forfeiture be granted when there is a court order?

Answer 47

Before the court order: If on the landlord’s suing for possession the tenant pays into court all arrears and costs before the trial, all further proceedings are stayed.

At or after the court order: The court has a discretion to grant relief to allow the lease to continue on condition that the arrears are paid. When the landlord has re-entered under a court order, the application for relief must be made within six months of re-entry. Relief is usually given unless the circumstances are exceptional.

Examples of exceptional circumstances where it was not allowed:
- property has been lawfully let to a new tenant after forfeiture
- where the non-payment of rent is exceptionally bad (had not been paid for 22 years)

Question 48

When will relief from forfeiture be granted after peaceable re-entry?

Answer 48

If the landlord forfeits a non-residential lease without a court order (or if less than six months’ rent is in arrears) the court has an inherent equitable jurisdiction to grant relief if:
1. the rent and landlord’s costs are paid
2. it is just and equitable to grant relief

The court has an inherent equitable jurisdiction to grant relief where forfeiture has been exercised by peaceable re-entry, even if it has been 6 months of longer

Question 49

What happens to a sub-tenant if the head lease is forfeited?

Answer 49

Any sub-lease will also be destroyed.

A sub-tenant in the premises has the right to apply for relief from forfeiture. This is the case even where the head-tenant cannot get relief itself.

The court has the power to vest the head-lease in the sub-tenant on such terms as it sees fit, including rent. BUT cannot grant the sub-tenant a lease for any longer than the term of the original sub-lease.

Question 50

What must a landlord serve for forfeiture for breach of covenants (other than non-payment)

Answer 50

Before the landlord can serve they must first serve notice upon the tenant under LPA 1925, s145.

A section 146 notice must:
- Specify the breach complained of
- If capable of remedy, require it to be remedied within a reasonable time
- Require the lessee to make compensation in money for the breach if the landlord requires such compensation

Question 51

What happens after the s146 notice?

Answer 51

Once the landlord has served a s126 notice the landlord can proceed to forfeit by court order or peaceable re-entry.

The tenant may then apply for relief from forfeiture. Relief means the court’s discretion to allow the lease to continue and thereby end the forfeiture process.

Question 52

What information must be contained in a s146 notice?

Answer 52

• Specify the breach complained of
• If capable of remedy, require it to be remedied within a reasonable time
• Compensation

Note: the landlord does not have to request compensation if it does not want it

Question 53

What breaches are capable of being remedied and what happens if they are not?

Answer 53

Breaches which are capable of being remedied include continuing breaches, e.g. failure to repair or unauthorised use.

If capable of remedy and the tenant does not remedy the breach within a reasonable time, the landlord may proceed to forfeit either by peaceable re-entry or by obtaining a court order.

If the breach is not capable of remedy, the landlord must merely give the tenant enough time to consider its position (eg 14 days) before proceeding to forfeit.

Question 54

What is a reasonable time for remedying a breach?

Answer 54

This depends on the nature of the breach - some textbooks suggest 3 months as a rule of thumb.

Question 55

Incapable/capable of being remedied examples?

Answer 55

Capable:
- unauthorised alterations
- unauthorised use
- failure to repair

Incapable
- breach not to assign or sublet
MAYBE: depends on the facts of the case
- immoral use (kind of conduct the great majority of people in this country would condemn)
- illegal use (unlawful gaming, spying

held where lessee did not know of the illegal or immoral use by a subtenant, as long as lessee takes immediate steps to stop the use, including forfeiting the sublease within a reasonable time

Question 56

What is the test for assessing whether a breach of covenant is capable or incapable of remedy?

Answer 56

Question: whether the harm suffered by the landlord could be effectively remedied by the tenant complying with a s146 notice and making proper compensation?

Question 57

What is the additional protection for tenants in breach of repair covenants for forfeiture?

Answer 57

Applies where the lease is granted for at least seven years and there are at least three years still to run and in breach of a covenant to repair.

Landlord must also inform the tenant of their right to serve a counter notice within 28 days.

If the tenant serves a counter-notice the landlord cannot proceed to claim forfeiture or damages without first obtaining the leave of the court.

Note: where notice relates to internal decorative repairs, the tenant may apply to the court and be wholly or partially relieved of liability to the extent that the court thinks the notice unreasonable.

Question 58

What breaches are capable of remedy?

Answer 58

Most breaches are now technically capable of remedy provided the mischief can be put right by making full recompense to the landlord, leaving the landlord with no lasting damage.

Probably the case that breach of a covenant against assignment or sub-letting and possibly immoral or illegal use is technically not capable of remedy.

Question 59

When will the tenant be granted relief for breach of a non-rent covenant?

Answer 59

Must apply to the court for relief.

At courts discretion, will have regard to:
- how wilful and blatant the breach was
- the gravity of the breach
- the landlord’s motives for wanting forfeiture
- the damage to the premises
- whether the breach can be put right

Usually given on the condition that the breach is remedied and that the tenant undertakes not to breach the covenant again.

Must apply for relief before a court order is made, if or once the court makes an executed order for possession in favour of the landlord, no further relief application is available.

If landlord has exercised by peaceable re-entry relief can still be given.

Question 60

Can a tenant be granted relief from forfeiture for breach of other covenants after the right to forfeiture has been exercised?

Answer 60

If the landlord has exercised its right by applying for a court order: no.

If the landlord has exercised its right by peaceable re-entry: yes, at the courts discretion.

Question 61

What is the subtenant’s right to relief for non-rent breaches?

Answer 61

Subtenant is allowed to apply to the court for relief against forfeiture for breach of other covenants. It is a matter of the courts discretion. Must apply within a reasonable time after peaceable re-entry.

Question 62

Breach of other covenants: What are the options for a landlord of residential premises who wishes to exercise its right to forfeit?

Answer 62

The landlord must exercise its right by applying for a court order only.

Question 63

Breach of other covenants: What are the options for a landlord of commercial premises who wishes to exercise its right to forfeit?

Answer 63

The landlord can exercise its right by applying for a court order or peaceable re-entry.

Question 64

Breach of other covenants: What are the options for a tenant where the landlord exercises its right to forfeit by applying for a court order for possession?

Answer 64

The tenant must apply for relief from forfeiture under s 146(2) before the court order is made.

Question 65

Breach of other covenants: What are the options for a tenant where the landlord exercises its right to forfeit by peaceable re-entry?

Answer 65

The tenant can apply for relief from forfeiture under s 146 (2) after the landlord has exercised its right, but it must make its application for relief within a reasonable time.

Question 66

When is a s 146 notice required to be served on the tenant by the landlord?

Answer 66

Whenever there has been a breach of a covenant other than the covenant to pay rent, the landlord must serve a s 146 notice on the tenant if it wishes to forfeit the lease.

This applies regardless of whether the breach is capable of remedy or not.

Note: there is additional protection if the breach is of a repair covenant and the lease is for at least 7 years and there are at least 3 years left on the lease. The landlord (in addition to serving the s 146 notice) must also inform the tenant of its rights (under the Leasehold Property (Repairs) Act 1938) to serve a counter notice within 28 days. If the tenant serves a counter notice, the landlord cannot proceed to claim forfeiture or damages without first obtaining the lease of the court.