Landlords' Remedies and Ending a Lease Flashcards
Breach of a rent covenant
The landlord has the following remedies available to it in the event of a breach of the rent
covenant by the tenant:
1.1.1 Forfeiture
This involves bringing the lease to a premature end because of the tenant’s breach.
1.1.2 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 any damages
awarded by the court. This remedy may not, therefore, be the most practical for a landlord to
pursue.
1.1.3 Distress and Commercial Rent Arrears Recovery (CRAR)
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. If the tenant did not then pay within five days, the goods could be sold.
From 6 April 2014, a landlord’s right to levy distress for rent arrears was abolished and replaced
with a new regime known as Commercial Rent Arrears Recovery (CRAR). This requires a landlord
to serve an enforcement notice on the tenant giving seven clear days’ notice that it will seize
goods.
Once notice has been served, the tenant can apply for it to be set aside or for its execution to be
delayed. There must be a minimum of seven days’ rent arrears in order to use this procedure, and
the remedy is not available in respect of mixed use or residential premises.
The notice requirements clearly reduce the effectiveness of the remedy from a landlord’s
perspective because tenants have the opportunity to remove goods from the premises and put
them out of the landlord’s reach
Breach of a non-rent covenant
By their nature, breaches of other types of covenant than rent (eg repair covenant) require a
wider range of remedies, as follows:
Landlord’s remedies and 10 ending a lease
1.2.1 Injunction
The landlord could ask the court for an order to stop the tenant breaching the lease. For example,
to stop a breach of the user provisions, or to prevent an unauthorised sublease or assignment.
1.2.2 Forfeiture
This involves bringing the lease to a premature end because of the tenant’s breach.
1.2.3 Specific performance
The landlord could ask the court for this equitable remedy, to force the tenant to do something eg
repair the premises. However, is very rarely ordered by the court in these circumstances; damages
will usually be considered adequate.
1.2.4 Damages
A lease is a contract and if a tenant is in breach of a covenant, it is in breach of contract and the
landlord can sue for damages. The ordinary contractual rules as to the measure of damages will
generally apply.
Forfeiture
Most people would assume that leases only come to an end when the term of the lease expires.
This is certainly one of the primary ways in which a lease can end, but it is by no means the only
method.
One way in which a lease can end early is if a landlord exercises a legal right of re-entry, which is
more commonly called a forfeiture right. This is a right for the landlord to terminate the lease
prematurely for breach of covenant by the tenant. This is a very powerful right.
Legal right of entry: In a legal lease, the forfeiture clause creates a legal right of re-entry (one
of the five legal interests listed in LPA 1925, s 1(2)).
A forfeiture clause is therefore also known as a re-entry clause.
2.1.1 Legal leases
There must be an express forfeiture clause in the lease allowing the landlord to forfeit the lease in
the event of breach of covenant (or insolvency) by the tenant. Every well-drawn lease should
contain a forfeiture clause as the right to forfeit is never implied into a legal lease.
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2.1.2 Equitable leases
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.
Exercising the right
Forfeiture is exercised by the landlord by either:
(a) Peaceably re-entering the property; or
(b) By obtaining a court order.
There are then different rules, depending on whether the landlord is forfeiting for non-payment of
rent or for breach of covenant other than non-payment of rent. However, the methods of forfeiture
(court order or peaceable re-entry) apply to both types of breach.
In the case of pure business premises, the landlord may forfeit by peaceable re-entry ie by
physically entering, changing the locks and putting up an unequivocal notice that it is forfeiting
the lease.
Where the premises are residential, the landlord cannot forfeit without a court order (Protection
from Eviction Act 1977, s 2). This includes where the premises are mixed residential and
commercial (Patel v Pirabakaran [2006] 1 WLR 3112).
Waiver
If the landlord wishes to forfeit, it must not have waived its right to forfeit.
The landlord may waive the right to forfeit if:
(a) It is aware of the acts or omissions giving rise to the right to forfeit; and
(b) It does some unequivocal act recognising the continued existence of the lease.
Waiver operates only on the landlord’s right to forfeit. The landlord retains other remedies.
Example of waiver
Demanding, accepting or suing for rent due after the breach; or distraining for rent due, despite
knowing about the breach.
Assessment focus point
The rules relating to waiver apply to breach of rent covenants and breach of other types of
covenant.
Waiver can take place inadvertently. For example, if the landlord’s agent sends out a rent
demand where the landlord (though not the agent) is aware of the breach (Central Estates
(Belgravia) Ltd v Woolgar [1972] 1 WLR 1048).
2.3.1 Impact of waiver - continuing breaches
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 then choose to reject the rent and forfeit the
lease. The impact of waiver of a continuing breach can therefore be minimal.
2.3.2 Impact of waiver - non-continuing breaches
If the breach is non-continuing (‘once and for all’), such as sub-letting without consent, waiver is
permanent, ie once rent is accepted the landlord can never again forfeit for that specific breach.
Waiver can operate in relation to a breach of covenant to pay the rent; the landlord could for
example waive the right to forfeit for failure to pay the previous month’s rent, by demanding the
next month’s rent.
10: Landlord’s remedies and ending a lease 177
Non-payment of rent is classified as a non-continuing breach (London and County (A&D) Ltd v
Wilfred Sportsman Ltd [1971] Ch 764). This means that each individual non-payment of rent (ie
each missed payment) is deemed to be a separate breach, creating a separate right to forfeit.
So, even if the landlord permanently waives its right to forfeit for one incidence of non-payment of
rent, this does not preclude the possibility that the landlord could forfeit for another non-payment
of rent in the future (which is a likely possibility in such circumstances).
Forfeiture for non-payment of rent
Before the landlord can exercise its right to forfeit for non-payment of rent, it 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; or
* 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.
Assessment focus point
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’.
Therefore, providing the tenant is in arrears of rent and assuming the landlord has not waived
its right, the landlord can proceed to exercise its right by court order or peaceable re-entry.
The tenant may then apply for relief from forfeiture. This discretion to grant relief is an ancient
equitable jurisdiction, but is now enshrined in various statutes.
Relief: ‘Relief’ means the court’s discretion to allow the lease to continue and thereby end the
forfeiture process.
2.4.1 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.
2.4.2 At or after the court order
The court has a discretion to grant relief ie 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.
After peaceable re-entry
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:
(a) The rent and landlord’s costs are paid; and
(b) It is just and equitable to grant relief.
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For example, in Thatcher v Pearce [1968] 1 WLR 748 a lease of a scrap yard was determined by
peaceable re-entry by the landlord while the tenant was in prison. The tenant applied more than
six months after forfeiture for relief and was successful.
The court usually allows the lease to continue on the condition that the tenant pays off the
arrears.
Forfeiture for breach of other covenants
In cases other than non-payment of rent, before the landlord can forfeit they must first serve
notice upon the tenant under LPA 1925, s 146.
There is no prescribed form of notice, but it must contain the following information:
* 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
Note. The landlord does not have to request compensation if it does not want it (Rugby School
(Governors) v Tannahill [1935] 1 KB 87).
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 (this is
compulsory in a residential case).
What then is a reasonable time? This depends upon the nature of the breach. Some textbooks
suggest three months as a rule of thumb.
If the breach is not capable of remedy, the landlord must merely give the tenant enough time to
consider its position, for example 14 days, before proceeding to forfeit (Scala House and District
Property Co Ltd v Forbes).
What breaches are capable of remedy?
Breaches which are capable of remedy include continuing breaches, for example failure to repair
or unauthorised use
Unauthorised alterations may be capable of remedy.
Scala House and District
Property Co Ltd v Forbes
[1974] QB 575
A breach of a covenant not to assign or sublet was held
to be incapable of remedy.
Rugby School (Governors) v
Tannahill [1935] 1 KB 87
Immoral use was held to be incapable of remedy
because of the stigma attached to the premises.
London Scottish Properties v
Mehmet 1970 214 EG 837
The court construed a covenant against immoral use as
one prohibiting the kind of conduct that the great
majority of people in this country would condemn as
being immoral.
Hoffman v Fineberg [1949] 1
CH 245
Illegal use (unlawful gaming) was held to be incapable
of remedy.
Van Haarlam v Kasner [1992]
64 P & CR 214
Illegal use (spying) was held to be incapable of remedy
but in that case it was held that the landlord had
actually waived the right to forfeit.
Illegal/immoral use – is it capable of remedy?
Although in Rugby School (Governors) v Tannahill [1935] 1 KB 87 it was held that the breach of an
illegal or immoral use covenant was incapable of remedy in the 1930s, more recent case law has
been more flexible in its approach, and it now seems that it depends on the facts of the case as to whether an illegal or immoral use covenant is capable of remedy, as per Harman J in Van
Haarlam v Kasner (1992) 64 P & CR 214. The judge also said, obiter, that he would have given
relief from forfeiture if there had not been waiver, because forfeiture of the lease was out of
proportion to the offence.
It was also held in Glass v Kencakes [1966] 1 QB 611 that such breaches are capable of remedy if
the lessee did not know of the illegal or immoral use by a subtenant, as long as the lessee takes
immediate steps to stop the use, including forfeiting the sublease within a reasonable time.
Key case: Expert Clothing (Services and Sales) Ltd v Hillgate House Ltd [1986]
Ch 340
The House of Lords established the test for assessing whether a breach of covenant is capable or
incapable of remedy.
Facts: The claimant’s solicitor served a s 146 notice on the defendant. The s 146 notice specified
that the defendant was (amongst other breaches) in breach of the covenant to carry out the
alterations by a necessary date and stated that the breach of the alterations covenant was
incapable of remedy.
The judge at first instance held that the breach of the alterations covenant was incapable of
remedy, and he granted an order for possession in favour of the claimant. The defendant
appealed to the Court of Appeal, arguing that the breaches were capable of remedy and that the
s 146 notice was therefore invalid.
Held: The breach was capable of remedy, the ultimate question being whether the harm suffered
by the landlord could be effectively remedied by the tenant complying with a s 146 notice and
making proper compensation.
Conclusion: is a breach capable of remedy?
Following Expert Clothing, 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.
However, it is still 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. This was all confirmed in
an obiter discussion by Neuberger LJ in Akici v LR Butlin [2006] 1 WLR 201.
Relief
LPA 1925, s 146(2) provides that the tenant may in the landlord’s action, or in any action brought
by itself, apply to the court for relief.
The court may grant or refuse relief as the court, having regard to all the circumstances, thinks fit.
Therefore, in cases of breach of covenants other than rent, the tenant applies for relief under LPA
1925, s 146(2).
It generally depends on how wilful and blatant the breach was, the gravity of the breach, the
landlord’s motives for wanting forfeiture, the damage to the premises and whether the breach
can be put right. Relief is usually given on condition that the breach is remedied and that the
tenant undertakes not to breach the covenant again.
2.5.5 Relief: if the landlord has exercised its right by applying for a court order
The tenant must apply for relief before the 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 then available.
2.5.6 Relief: if the landlord has exercised its right by peaceable re-entry
Where a landlord exercises its right to forfeit by peaceable re-entry, relief can still be given under
s 146(2). This was confirmed by the House of Lords in Billson v Residential Apartments Ltd [1992]
2 AC 494 though, in the exercise of the court’s discretion, regard will be had to all the
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circumstances, including the speed with which the tenant applies for relief. The tenant must
therefore apply for relief within a reasonable time after peaceable re-entry
The House of Lords granted relief despite the tenant
failing to comply with the repair and alterations
covenants, because the tenant gave a deposit of money
to ensure the premises were restored to their original
condition at the end of the lease.
St Marylebone Property Co v
Tesco Stores Ltd [1988] 2 EGLR
40
The court refused to grant relief to a head-tenant or
sub-tenant in the case of a blatant breach of the user
covenant by an unlawful sub-tenant.
Ropemaker Properties Ltd v
Noonhaven Ltd [1989] 2 EGLR
50
Relief was granted, despite the use of a nightclub for
immoral purposes, because the immoral use had
ceased, there was no more stigma attaching to the
premises, the tenant was excellent in all other respects,
the tenant had offered to sell the lease, and the
managing director of the tenant was ill.
Leasehold Property (Repairs) Act 1938
This Act applies to a covenant to repair in any lease (except an agricultural holding) when the
lease is granted for at least seven years and there are at least three years still to run.
In addition to the usual requirements (ie the s 146 notice), the landlord must inform the tenant of
its right under the 1938 Act 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.
The effect of the Act is to limit severely the landlord’s ability to enforce a repairing obligation until
the last three years of the lease.
Further, where the landlord serves notice under LPA 1925, s 146 and the 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 (LPA 1925, s 147).
Sub-tenants
If a head-lease is forfeited, 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.
2.7.1 Sub-tenant’s right to relief for non-rent breaches
LPA 1925, s 146(4) allows a subtenant to apply to the court for relief against forfeiture for breach
of other covenants. It is a matter of discretion whether a subtenant will be granted relief.
The House of Lords’ interpretation of s 146(2) in Billson must surely apply equally to s 146(4), so
that a subtenant must apply for relief within a reasonable time after peaceable re-entry.
Ending a lease
The most common way is by effluxion of time; the lease term expires. Some tenants have
security of tenure though.
* Leases can also end by:
- Merger, if the tenant becomes the owner of the freehold reversion.
- Surrender, if the landlord and tenant agree to end the lease.
- A landlord exercising a right of forfeiture in the event of tenant breach.
- Either party exercising a break clause.
- Either party serving a notice to quit if the lease is a periodic tenancy.
