Property (Leasehold) - Remedies Against Breach (3) Flashcards
Which parties may be liable against covenant breach in an old lease?
Old Lease Liability: Several parties may be liable for breach under an old lease (pre-1996).
(1) Tenant: The current tenant (privity of estate).
(2) Original Tenant: The original tenant (privity of contract).
(3) Interim Tenants: Any other previous tenants (if they entered a direct covenant with the landlord when the lease was assigned to them).
(4) Guarantor: Guarantor of a liable party. They tend to remain liable as long as the relevant tenant.
Which parties may be liable against covenant breach in an new lease?
New Lease Liability: Several parties may be liable for breach under a new lease (since-1996).
(1) Tenant: The current tenant (s3 LTCA).
(2) Immediate Predecessor: Immediate predecessor (if they entered an AGA on assignment).
(3) Guarantor: Guarantor of current tenant. Potential guarantor of predecessor if they agreed to guarantee AGA.
What extent of liability can be imposed on various parties?
Extent of Liability: The extent to which remedies can be brought against a liable party differs.
(1) Current Tenant: All enforcement powers under the lease can be brought against a current tenant.
(2) Other: Liable former tenants and all guarantors can only be pursued for monetary claims.
Debt: Service of default notice, up to 6 months debt recoverable (below).
Damage: Up to 6 months of breach recoverable in damages but default notice not required (below).
(3) Overriding Lease: A liable former tenant or guarantor can call for an overriding lease.
>New lease is imposed between landlord and current tenant, and liable party becomes head tenant.
What remedies for failure to pay rent?
Debt Action
Debt Action: Straightforward debt actions can be brought against current tenants within 6 years of rent falling due.
>A default notice must be served on liable third parties, setting out sums due, up to a maximum of 6 months arrears. This is known as a ‘Section 17 default notice’ (s17 LTCA 1995).
Subtenant Rents
Subtenant Rents: Landlords can redirect the rents of a subtenant following non-payment by a head tenant until the debt is paid off. The subtenant must be provided 14 clear days notice (s81 TCEA).
Rent Deposit
Rent Deposit: Missed rent may be withdrawn from a rent deposit entered into by the tenant.
(1) Terms: Withdrawals must comply with the terms of the rent deposit deed entered into. Once withdrawn, tenants are typically required to ‘top up’ the deposit to full value.
(2) Deed: Rent deposit deeds are a common means to avoid court action. The tenant is typically required to deposit 6-12 months rent to the landlord for the duration of their interest in the lease.
Commercial Rent Arrears Recovery
Commercial Rent Arrears Recovery: ‘CRAR’ is the process of seizing and selling a commercial tenant’s goods to satisfy rent.
(1) Rent Debt: At least 7 days worth of debt must be in arrears.
(2) Notice to Seize: The landlord must then give a further 7 clear days notice of intention to exercise CRAR.
Seizure: Enforcement agents can then seize assets, provided they are: a) wholly owned by the tenant; and b) not items used for the purposes of trade (up to £1,350).
(3) Notice to Sell: The landlord must then give a further 7 clear days notice of intention to sell the assets.
Sale: Goods can be sold at public auction, unless debt is cleared in the meantime.
Surrender
Surrender: Landlord and tenant can mutually agree to terminate, known as surrender. Commercial leases typically require a deed of surrender. This is time and cost-effective for tenants who cannot afford rent.
Forfeiture
Forfeiture: The lease may permit forfeiture for non-payment of rent if it contains a forfeiture clause. By law, landlords must ‘formally demand’ rent prior to forfeiture, but clauses invariably contract out of this.
(1) Clause: The clause must expressly state that non-payment of rent triggers forfeiture.
>I.e. ‘The Landlord can forfeit the lease if 21 days rent goes unpaid’.
(2) Waiver: If the landlord accepts late payment, delayed payment, future payment, or foregoes full payment, the right to forfeit is waived (until breached again).
(3) Method: Forfeiture is exercisable by two methods.
Re-Entry: Landlords can forfeit by ‘peaceably’ re-entering. This requires lack of force or threat, and is risky. It is generally prohibited for dwellings.
Court Order: Courts can order forfeiture, but tenants can seek relief within 6 months.
(4) Threat: The threat of forfeiture is often enough to persuade a tenant into paying arrears, so can be a helpful negotiation tactic.
What remedies are there for failure to repair?
Damages Claim
Damages Claim: Landlords can bring a claim for damages for losses caused by failure to repair. This is often impractical.
(1) Calculation: Damages are calculated as the loss in value to the freehold reversion. This is often less than the cost of repair (s18 LTA).
(2) Long-Lease Notice: Leases exceeding 7 years with at least 3 years remaining require the landlord to serve notice of intention to seek damages on the tenant, and inform the tenant of a right to serve counter-notice.
Counter-Notice: Leave of court is required to continue the claim if the tenant serves counter-notice within 28 days (Leasehold Property (Repairs) Act 1938).
Self-Help
Self-Help: The lease may contain a ‘self-help’ clause, permitting the landlord to conduct repairs themself (Jervis v Harris).
(1) Clause: The clause will reserve the right for the landlord to: a) inspect disrepair by notice; b) serve notice requiring the tenant to repair within a given period; and then c) effect the repair personally once this period expires.
(2) Debt Action: The costs of repair can be recovered by debt action (mitigating the limitations of a damages claim and any corresponding long-lease notice - but the tenant may not be able to afford it).
Specific Performance
Specific Performance: Specific performance is a court ordered equitable remedy.
(1) Effect: Court orders the tenant to make the repairs as obliged under the lease.
(2) Constraint: Order is only made if other remedies are inadequate. This means that damages would not be adequate, and the lease contains no forfeiture or self-help clause (Rainbow v Tokenhold).
Forfeiture
Forfeiture: The forfeiture clause may permit termination for non-repair. This has additional notice requirements to above.
(1) S146 Notice: Landlords must serve a notice that : a) specifies breach; b) requires remedy within a reasonable time (if possible); and c) demands reasonable compensation for the breach (s146 LPA).
>Forfeiture can only be exercised if the tenant fails to adhere to the notice.
(2) Long-Lease Notice: Long-lease notice applies as in damages claim, informing the tenant of the intent to forfeit and right to service counter-notice in the s146 notice (LPRA 1938). This is known as a special s146 notice.
Counter-Notice: If served within 28 days, leave of court required to continue.
Surrender
Surrender: Landlord and tenant can mutually agree to terminate, known as surrender. Commercial leases typically require a deed of surrender. This is time and cost-effective for tenants who cannot afford to repair and wish to leave.
What remedies are there for other breaches?
Damages
Damages: Court may award damages under Hadley v Baxendale principles (long-lease notice is not required).
Equitable Remedies
Equitable Remedies: Court may order injunctions or specific performance where damages are inadequate.
Rent Deposit
Rent Deposit: The terms of the rent deposit may provide for deductions for other breaches.
Forfeiture
Forfeiture: The terms of the forfeiture clause may permit forfeiture (long-lease notice is not required). It does include S146 Notice.
Surrender
Surrender: Landlord and tenant can mutually agree to terminate, known as surrender. Commercial leases typically require a deed of surrender. This is time and cost-effective for tenants who wish to leave amicably.
