Commercial leasehold remedies

Question 1

What is an ‘old lease’?

Answer 1

Any lease granted before 1 January 1996

Question 2

What is a new lease?

Answer 2

Any lease granted after the 1 January 1996

Question 3

How are original tenants liable for tenant covenants in old leases?

Answer 3

The original tenant will be liable for all the tenant covenants under the lease for the entire term by virtue of privity of contract

Question 4

What happens to the liability if a tenant assigns their interest in an old lease?

Answer 4

The original tenant remains liable so they will seek an express indemnity from the assignee on assignment. The indemnity is implied if the transfer is for value or if the lease is registered

Question 5

How are subsequent tenants liable for tenant covenants in old leases?

Answer 5

They will be liable under the rules of privity of estate for tenant covenants that touch and concern the land during their period of ownership.

Question 6

Under an old lease, what does a landlord usually require from subsequent tenants due to their limited liability?

Answer 6

They require them, on assignment, to enter into a direct covenant with the landlord to observe and perform all covenants under the lease for the remainder of the term. This upgrades the privity of estate to privity of contract for the benefit of the landlord

Question 7

How are original landlords liable for covenants in old leases?

Answer 7

The original landlord, by virtue of privity of contract, will be liable for all the landlord covenants under the lease for the full term.

Question 8

How are subsequent landlords liable for covenants in old leases?

Answer 8

They are liable for covenants that touch and concern the land during their period of ownership by virtue of privity of estate

Question 9

What did the 1995 Act do for new leases in relation to liability for covenants?

Answer 9

It abolished the doctrine of privity of contract for new leases so does not distinguish between the original and successive parties

Question 10

How are original and successive tenants liable for covenants under a new lease?

Answer 10

Both will be liable for breaches of all covenants whilst the lease is vested in them. They are automatically released from future liability on lawful assignment. So if the landlord’s consent was required for assignment and not obtained the assignor would still be liable until the next lawful assignment

Question 11

What do new leases allow for the landlord to be compensated for the tenant’s automatic release from liability?

Answer 11

The lease may specify circumstances and conditions for proposed assignment including the tenant entering into an AGA.

Question 12

How are original and successive landlords liable for covenants under a new lease?

Answer 12

The original and successive landlords will be liable under the landlord covenants but will not be automatically released when they transfer their interest. They may apply for release.

Question 13

What is the procedure for a landlord to apply for release of liability under landlord covenants after transferring their interest?

Answer 13

• landlord serves notice on the tenant before or within 4 weeks of the assignment requesting to be released
• the tenant has 4 weeks to respond
• if no response - landlord released
• if tenant objects - landlord can apply to the County Court

Question 14

Can a landlord avoid having to go through the procedure of applying for release of liability?

Answer 14

Yes, they can include a clause within the lease that the landlord’s liability is limited to the time when the reversion is vested in them. This is known as the Avonridge clause.

Question 15

What are the main remedies for non-payment of rent(s)?

Answer 15

• debt action
• forfeiture
• commercial rent arrears recovery
• the pursuit of former tenants or guarantors
• recourse to a rent deposit

Question 16

What is the limitation period for a debt action and where can it be brought?

Answer 16

6 years and the County Court or High Court

Question 17

What does forfeiture provide?

Answer 17

Forfeiture provides the landlord with the power to re-enter the premises, take possessions of them and bring the lease to a premature end

Question 18

To be able to rely on the remedy of forfeiture, what must there be?

Answer 18

There must be an express power/clause/proviso within the lease dealing with the specific circumstances - it not, the remedy is unavailable to the landlord

Question 19

When does the landlord need to make a formal demand for rent(s)in relation to forfeiture?

Answer 19

If the words ‘whether formally demanded or not’ are not within the clause (unless at least half a year’s rent is outstanding and there are insufficient goods available on the premises for recovery)

Question 20

What methods can the landlord use for forfeiture?

Answer 20

The landlord may forfeit by way of a court order or through peaceful re-entry

Question 21

How can a landlord wavier their right to forfeit?

Answer 21

By doing anything which acknowledges the landlord and tenant relationship to be continuing i.e. accepting or rent, dealing with tenant applications or pursuing CRAR

Question 22

How could waiving the right in circumstances of non-payment of rent be fatal to the landlord’s claim in respect of past arrears?

Answer 22

Non-payment of rent is a once and for all breach which means it arises once on an individual breach and will not rise again if the landlord waives their right to forfeit

Question 23

What is commercial rent arrears recovery?

Answer 23

A process by which the landlord may enter commercial premises where there is a written tenancy in order to seize goods belonging to the tenant, sell them and use the proceeds to settle to rent arrears

Question 24

What can CRAR only be used to recover?

Answer 24

Annual rent including VAT but not other sums reserved as rent ie insurance rent or service charge

Question 25

What is the procedure for CRAR?

Answer 25

• there must be at least 7 days rent outstanding when the notice is served and when the goods are taken
• the tenant must be given at least 7 days notice of entry
• an authorised enforcement agent must be used
• the agent can only take property belonging to the tenant
• the agent cannot take goods up to the value of £1350 that are necessary for the tenant’s business
• good must be sold at public auction with the tenant aware of the sale

Question 26

What is a s17 notice?

Answer 26

It is a default notice for recovery of a ‘fixed charge’ from a former tenant or former guarantor and it must be served within 6 months of the sum falling due. It applies to both old and new leases and failure to serve the notice means the landlord cannot pursue that party.

Question 27

What are the main remedies for breach of other covenants?

Answer 27

• specific performance
• damages
• self-help under a Jervis v Harris clause
• forfeiture
• pursuit of former tenants
• sometimes injunction

Question 28

What is specific performance?

Answer 28

An equitable remedy requiring the tenant to take action to remedy the breach. It is only granted where other remedies are unavailable or inappropriate

Question 29

When may a landlord not be able to recover the full amount of damages?

Answer 29

In the event of a breach of repairing covenant because:
s18 LTA 1927
- limits the damages to the value the reversion is diminished which could be less than the cost of repairs
- no damages following termination of lease if landlord plans to demolish or make structural alterations
LP(R) Act 1938
- for leases longer than 7 years with at least 3 left to run notice of intention to sue must be served. The tenant then has 28 days to serve a counter notice claiming protection. If counter notice served the landlord will need leave from the court to proceed

Question 30

What is a self-help clause?

Answer 30

Known also as a Jervis v Harris clause, usually provides for the following:
- a right of entry for the landlord to check compliance with the tenant’s repairing covenant
- a right to serve a notice for any breach on the tenant with details of the works required
- an obligation on the tenant to proceed diligently and expeditiously with the work
- a right for the landlord to enter and carry out the works if the tenant does not comply with its obligations
- the right to recover the costs of executing such repairs from the tenant as a debt

Question 31

To forfeit a lease for breach of covenants other than to pay rent(s) what does the landlord need to serve?

Answer 31

A s146 notice which:
- specifies the breach
- requires remedy of the breach within a reasonable period
- requires the tenant to pay compensation for the breach