Lease Termination

Question 1

What are the methods of terminating a lease?

Answer 1

1. Effluxion of time
2. Break clause
3. Notice to quit
4. Surrender
5. Merger

Question 2

What is a effluxion of time?

Answer 2

This means that the lease ends at the end of the contractual term. A fixed term tenancy which does not have security of tenure will expire at the end of the contractual term. The landlord can require the tenant to vacate the premises, and if the tenant refuses, the landlord can treat the tenant as a trespasser.

Note: a protected tenant will be able to hold over after the end of the contractual term.

A break clause generally requires positive action by a party to end the lease.

Question 3

What is a notice to quit?

Answer 3

Notice to quit for a periodic tenancy means either the landlord or tenant giving notice that they intend the tenancy to end.

For a protected tenancy, a landlord’s notice to quit will end the periodic tenancy, but the tenant can hold over.

A notice to quit gives the other party a specific date on which to vacate, which must expire on the first day or the last day of the tenancy period.

Question 4

What is surrender?

Answer 4

A fixed term tenancy may be brought to an end earlier than the end of the contractual term provided both landlord and tenant agree. The tenant gives up its leasehold interest to the landlord. An express surrender must be by deed.

A premium may be payable for the surrender, but the direction will likely depend who has the most to gain. A premium paid by the tenant to give up its interest is known as a reverse premium.

Question 5

What is a merger?

Answer 5

Merger means either that the tenant acquires that landlord’s interest, or a third party acquires both interests. Either way, the freehold (or superior interest) and the leasehold are merged and come to an end.

This would happen whether the tenancy is protected or not.

Question 6

What happens if a landlord consents to an unprotected tenant remaining in occupation after the end of the contractual term?

Answer 6

The tenant is not holding over, but will be treated as a ‘tenant at will’.

If landlord accepts rent, then the tenancy at will may be converted to a periodic tenancy (and may acquire security of tenure).

Question 7

What are the effects of a break clause on the termination of a lease?

Answer 7

A fixed term tenancy may contain a break clause, which allows the lease to be ended before the end of the contractual term.

If the tenant exercises a break, then it is effective with a protected tenancy.

However, if landlord exercises break, it only operates to bring the contractual term to an end. The tenant may still hold over. Therefore, if a landlord’s break clause is to be effective, a lease that would otherwise be protected must be contracted out.

Question 8

Can a periodic tenancy be contracted out?

Answer 8

No.

Question 9

What is the notice period required for a weekly tenancy?

Answer 9

Residential: 4 weeks
Other: 1 week

Question 10

What is the notice period required for a monthly tenancy?

Answer 10

1 month

Question 11

What is the notice period required for a quarterly tenancy?

Answer 11

1 quarter

Question 12

What is the notice period required for a yearly tenancy?

Answer 12

6 months.

Question 13

What is a surrender by operation of law?

Answer 13

Arises when the landlord and tenant act in a way that inconsistent with the continuation of the tenancy. e..g landlord accepts keys from tenant with an understanding that the tenant is leaving the premises permanently.

Question 14

Can you surrender a protected tenancy?

Answer 14

Yes, both an express surrender by deed or by operation of law will be effective even if the tenancy is protected.

Question 15

Can a landlord exercise a break clause if the lease is not contracted out?

Answer 15

Yes, but the tenant can hold over.

Question 16

What remedies does a landlord have against a tenant?

Answer 16

• Damages
• Action in Debt
• Guarantor and rent deposit
• Commercial rent arrears recovery (CRAR)
• equitable remedies

Question 17

When can a landlord claim damages against a tenant?

Answer 17

As a tenant’s covenants are enforceable as a matter of contract between the parties, the landlord can bring proceedings in the court to claim for damages.

There are particular issues relating to damages for breach of the repairing covenant?

Question 18

What is the goal of awarding damages to a landlord against a tenant?

Answer 18

The measure of damages is to put the landlord back into the position they would have been were it not for the breach of covenant.

Question 19

When can a landlord pursue an action in debt against a tenant?

Answer 19

A landlord can issue proceedings to recover a definable debt, such as unpaid rent, service charge or insurance rent.

Limited to rent due in the six years before the issue of proceedings. Any earlier outstanding rent is irrecoverable. (May be relevant to long leases where low ground rents often go unpaid.)

Question 20

When can a landlord claim from a guarantor?

Answer 20

Can rely on the contractual terms of a guarantee to claim its losses form the guarantor.

Will typically cover all the tenants obligations so that the landlord is not limited to pursuing unpaid rent but any breach of the tenant’s covenants.

Question 21

When can a landlord draw on the rent deposit?

Answer 21

Can draw if there are any arrears.

Tenant will be required to top up the deposit after a withdrawal. If the breach is an isolated occurrence, this can provide a useful cushion while preserving the landlord/tenant relationship.

Question 22

When can you use commercial rent arrears recovery (CRAR)?

Answer 22

A self-help remedy (replaced common law remedy of distress on 6 April 2014).

Generally cheaper and quicker than court proceedings.

May be used where:
- the premises are purely commercial
- minimum of seven days principal rent is owed (can’t be used to recover service charge)
- the lease has not been forfeited

Question 23

What are the CRAR requirements?

Answer 23

Strict requirements to the way in which CRAR must be conducted:

• landlord must appoint an enforcement agent who either has the required certificate from the court or is exempt from the requirement
• seven clear days’ notice must be given of the intention to enter the tenant’s premises
• notice must include certain details, such as the amount of the debt and how to repay it, details of the power being used to enforce the debt and, and contact details for the enforcement agent
• if the notice expires without repayment of the debt, the enforcement agent can enter the premises and take control of goods belonging to the tenant up to the value of the debt owed
• the landlord must serve a further seven clear days’ notice if it intends to sell any of the seized goods

Question 24

What equitable remedies can a landlord use against a tenant?

Answer 24

Specific performance: an order to the tenant to do something that it has not done. Rarely available.

Injunction: order to the tenant not to do something. Landlord may be able to get an injunction if aware that the tenant intends to assign the lease unlawfully. However, unlikely to get one against an assignment that has already taken place.

Question 25

What is forfeiture (as a landlord’s remedy)?

Answer 25

The right of the landlord to re-enter the premises and take them back from the tenant. It brings the lease to an end before the contractual term (or during any period of holding over).

The threat of forfeiture may spur a tenant into compliance with its obligations, but in a difficult rental market, a tenant who breaches some of its obligations may be better than no tenant at all.

Question 26

When does a landlord have the right to forfeiture?

Answer 26

Not an automatic right, only permitted insofar as the lease provides for it.

A commercial lease will typically allow the landlord to forfeit the lease if the tenant fails to pay the rent (usually after a period of grace), breaches its obligations under the lease, or there is an ‘insolvency event’.

For non-payment of rent, the landlord is entitled to forfeit as soon as the lease allows.

For any other breach of the tenant’s obligations, the landlord must serve a section 146 notice. Notice details the alleged breach and gives the tenant a reasonable opportunity to remedy it, failing which the landlord will be entitled to forfeit.

Question 27

How is forfeiture achieved?

Answer 27

By peaceable re-entry. Usually instructing a bailiff to attend the premises in the early morning and change the locks and put a notice on the door. There is a risk the tenant may legally challenge this if it has not been carries out lawfully or if the tenant’s stock, equipment or belongings are lost, damaged or stolen.

Alternatively, the landlord can apply to the court for an order for forfeiture. This costs more and taken longer than peaceable re-entry. However, it makes it more difficult for the tenant to challenge the forfeiture on the grounds of lawfulness.

Question 28

When can an implied waiver of the right of forfeiture arise?

Answer 28

If:
- the landlord does some unequivocal act recognising the continuing existence of the lease;
- with knowledge of the breach in question; and
- communicates that act to the tenant.

The intention of the landlord is irrelevant.

Question 29

What are ‘once and for all breaches’ (forfeiture)?

Answer 29

Once the landlord waives the right of forfeiture, it will never be able to regain it for that breach.

Examples:
- non-payment of rent
- an unlawful assignment or underletting
- an insolvency event

Question 30

What are ‘continuing breaches’ (forfeiture)?

Answer 30

Each day that the breach continues, the landlord regains the right of forfeiture.

Examples:
- failure to keep the premises in repair
- breach of the user covenant
- failure to comply with an insurance obligation

Question 31

What is relief from forfeiture?

Answer 31

Relief from forfeiture is a discretionary remedy. If the court award the tenant relief from forfeiture, then the lease is restored as if forfeiture has never taken place.

Aim of the court is to put the parties back into the position in which they would have been had forfeiture not taken place.

If forfeiture is for non-payment of rent, then the tenant will normally be able to get relief from forfeiture by settling all rent arrears and landlord’s costs.

Question 32

When can a tenant apply for relief from forfeiture?

Answer 32

As soon as the landlord serves a section 146 notice or starts the process of forfeiture whether by peaceable re-entry or issuing proceedings, the tenant is entitles to apply for relief from forfeiture.

A mortgage lender can also apply.

Question 33

Can a landlord forfeit an unwritten tenancy?

Answer 33

No. If the tenancy is unwritten, there is no express right of forfeiture which the landlord must have to exercise forfeiture.

Question 34

Can a landlord forfeit for breach of repairing obligation?

Answer 34

Landlord must serve a section 146 notice of its intention to forfeit, detailing the remedy and giving the tenant reasonable time to remedy the breach.

Question 35

Are there any extra protections to certain leases when forfeiting for breach of repairing obligation?

Answer 35

If the lease is:
- for a term of seven years or more AND
- there are at least three years of the term left to run

The tenant has 28 days to serve counter-notice to a s146 notice. This means that the landlord must get leave from the court before proceeding.

The landlord must advise the tenant of these rights in the section 146 notice.

Question 36

When can a landlord issue proceedings for damages for breach of a repairing obligation?

Answer 36

Cannot issue proceedings until it has served a section 146 notice and where the lease qualifies (lease of a term of 7 years or more with 3 years or more left to run) give the tenant 28 days to serve a counter-notice.

Question 37

What is the measure for damages for breach of a repairing obligation?

Answer 37

The loss of value to the landlord’s reversion, not the cost of putting the premises into full repair.

Question 38

What is a Jervis v Harris clause?

Answer 38

A self-help clause. Almost always contained in commercial leases.

Gives landlord right to:
- enter the property
- carry out any repairs
- recover the cost of doing so from the tenant

No need for the landlord to serve a section 146 notice. Cost of carrying out the repairs it treated as debt, not damages, so can recover costs in full.

It provides a relatively quick and efficient way to deal with breaches of the repairing obligation, and if the tenant does not remedy the breach, allows the landlord to carry out the work and recover the whole cost of remedying the breach as a debt.

Question 39

What are the remedies available to the landlord for non-payment of rent?

Answer 39

1. Debt action

Advantages: reasonably simple - debt is clear if rent has not been paid. Can separate debt from landlord/tenant relationship
Disadvantages: Court action - potentially costly and time consuming
Use/limitations: any sum owed under the lease, whether principal rent or e.g. service charge

2. Commercial Rent Arrears Recovery (CRAR)

Advantages: Quick and efficient - no need to involve the court
Disadvantages: Care must be taken to observe correct procedure. Limited to principal rent only.
Use/limitations: Limited to principal rent, not to other sums treated as rent.

3. Forfeiture (for non-payment of rent)

Advantages: Quick and efficient - no need to involve court. Threat of forfeiture might be sufficient.
Disadvantages: Risk that tenant will not comply and may lose tenant (market dependant).
Use/limitations: Depending on the lease, may extend to other sums treated as rent.

Question 40

What are the remedies available to the landlord for repairing breaches?

Answer 40

1. Damages

Advantages: not many
Disadvantages: Section 146 notice required, if lease qualifies, tenant may be able to serve counter-notice. Damages limited to reduction in value of landlord’s reversion
Use/limitations: If tenant serves counter-notice, the court will only give leave to continue in exception grounds (e.g. repair is needed urgently).

2. Forfeiture

Advantages: not many
Disadvantages: Section 146 notice required, if lease qualifies, tenant may be able to serve counter-notice. Damages limited to reduction in value of landlord’s reversion
Use/limitations: If tenant serves counter-notice, the court will only give leave to continue in exception grounds (e.g. repair is needed urgently).

3. Self-help (Jervis v Harris) clause

Advantages: quick and efficient - no need to involve the court. Landlord recovers fill cost of repairs.
Disadvantage: Landlord must take care not exceed powers (e.g. carrying out repairs that go beyond the repairing obligation).
Use/limitations: Must be provided by the lease.

4. Specific performance

Advantages: May be only option.
Disadvantages: Rarely granted unless exceptional circumstances (such as lease without forfeiture or self-help clause).
Use/limitations: Discretionary remedy - last resort

Question 41

What remedies are available to a landlord involving security arrangements?

Answer 41

1. Guarantor

Adv: Guarantor may have better means to comply with obligations.
Disadv: May end up in certain instances with guarantor taking overriding lease and becoming tenant.
Use/limitations: must be a guarantor

2. Former tenant

Adv: Former tenant may be in better position to comply with obligations.
Disadv: As above
Use/limitations: Must be a former tenant with old lease or new lease and AGA.

Rent deposit deed:

Adv: Quick and efficient. Can help ride over tenant cash flow problems
Disadv: limited to certain number of months rent. Relies on tenant topping up rent deposit once used.
Use/limitations: Rent only.

Question 41

What are the remedies available to the landlord for breach (not non-payment or repair)

Answer 41

1. Damages

Adv: may be helpful in separating issue while preserving landlord/tenant relationship
Disadv: may be protracted and costly, no guarantee of recovering costs.
Use/limitations: Any breach that can be contemplated in financial terms.

2. Forfeiture

Adv: May be effective in persuading tenant to comply with obligations.
Disadv: Section 146 notice required. Risk of losing tenant.
Use/limitations: Probably not appropriate for minor breaches.

3. Specific Performance

Adv: Not limited to financial, i.e. oblige tenant to comply with obligation
Disadv: Discretionary remedy - difficult to persuade court to grant it
Use/limitations: Cannot be used for continuing obligations

4. Injunction

Adv: Not limited to financial, i.e. may stop tenant from proposed breach
Disadv: Discretionary remedy - difficult to persuade court to grant it.
Use/limitations: Might be used for an intended breach of user clause, or an intended assignment or underletting.