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FLK2 - Property Practice > Remedies for Breach of Covenant > Flashcards

Remedies for Breach of Covenant Flashcards

1
Q

explain liability in relation to an old lease

A

LL can sue original T (privity of contract) and current T (privity of estate). They will only be able to sue intervening T’s if they gave a direct covenant on underlease/assignment (privity of contract)

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2
Q

explain liability in relation to an new lease

A

LL can sue the current T. They will only be able to sue the previous T if they can an AGA on underlease/assignment. Any AGA given by the previous T expires when the current T assigns/underleases

This is because LTA 1995 replaced the rules on privity of contract & estate. Now, a former T is automatically released from liability on assignment/underlease, unless they get an AGA.

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3
Q

what are the considerations when deciding who to sue?

A

what type of remedy they want i.e. if someone is being sue on the basis they provided an AGA, they couldn’t complete an order for specific performance

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4
Q

who can the LL sue?

A
  1. Current T
  2. Current T’s guarantor
  3. Former T (NB: dependent on whether it is an old lease or new lease)
  4. Former T’s guarantor
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5
Q

explain the liability of a former T’s guarantor to an old lease and why they can be sued

A

G’s liability continues for the duration of the lease (even if the original T assigns the lease to someone else)

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6
Q

explain suing the current T’s guarantor

A

The guarantee must be in writing

The guarantee will usually provide that G must pay rent/other sums T has failed to and remedy/indemnify LL for loss caused by breach of covenant

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7
Q

explain the liability of a former T’s guarantor to an new lease and why they can be sued

A

G (and T) is automatically released from liability on assignment unless T is required to enter into an AGA on assignment. Then their G would indirectly guarantee the incoming T until they assign

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8
Q

what must be done before LL can sue a former T/their G?

A

LL must comply with s17 LTA 1995:

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9
Q

explain the s17 LTA procedure

A

o LL must serve a default notice on the former T/G.
o This applies to claims for ‘fixed charges’ only i.e. rent, service charges, any amount payable under a covenant for a liquidated sum (NB: if the sum is not a ‘fixed charge’, LL does not need to follow s17.
o Notice must be served within 6m of the breach, otherwise LL will not be able to recover the money from former T/G (in other words, if T is in 1yr of arrears, LL would only be able to recover the last 6m)
 NB: LL need not start proceedings in this time, but must serve notice
o This applies to old and new leases.

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10
Q

what does the s17 procedure apply to?

A

o This applies to claims for ‘fixed charges’ only i.e. rent, service charges, any amount payable under a covenant for a liquidated sum
 NB: if the sum is not a ‘fixed charge’, LL does not need to follow s17.

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11
Q

what is the time limit for service of the s17 notice? explain the effect

A

o Notice must be served within 6m of the breach, otherwise LL will not be able to recover the money from former T/G (in other words, if T is in 1yr of arrears, LL would only be able to recover the last 6m)

 NB: LL need not start proceedings in this time, but must serve notice

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12
Q

what can former T/G do if a s17 notice is served?

A

the former T/G can call for an overriding lease. This is a concurrent lease and makes them the immediate LL of the defaulting T. They could then terminate the lease or exercise remedies available to a LL.

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13
Q

what are the remedies for breach of covenant to pay?

A
  • debt action
  • commercial rent arrears recovery
  • rent deposit
  • forfeiture
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14
Q

re: remedies for breach of covenant to pay

what must always be checked before pursing a remedy?

A
  • Must check there is such covenant and that the payment date has passed
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15
Q

re: remedies for breach of covenant to pay

can LL use more than 1 remedy?

A

yes

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16
Q

re: remedies for breach of covenant to pay

explain a debt action

A
  • 6 year limitation period applies.
  • Can be brought against any of the above.

NB: if pursuing former T/G, LL need not bring the claim within 6m, they just need to serve notice of money owed.

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17
Q

re: remedies for breach of covenant to pay

what does commercial rent arrears recovery allow?

A

CRAR allows the LL to enter the commercial property and seize and sell goods belonging to the current T if they do not pay the arrears

18
Q

re: remedies for breach of covenant to pay

what are the commercial rent arrears recovery rules?

A

o Applies to rent only (i.e. arrears for other payments such as insurance rent cannot be recovered, even if they are reserved as rent in the lease)
o Must be at least 7 days of rent outstanding
o LL must give 7 days’ notice before entering the property
o Must use an enforcement agency
o They cannot seize certain goods i.e. items with a value up to £1350 which are necessary for T’s business (i.e. computers)
o The items must belong to T i.e. leased or hired items cannot be taken
o The goods must be sold at public auction
o T must be given 7 days’ notice of the sale

19
Q

re: remedies for breach of covenant to pay

explain rent deposit

A

i.e. money paid to LL (usually 6-12m rent) at the start of the lease. The terms and conditions will be set out in a rent deposit deed, but generally:
o LL can use the money as soon as T breaches a covenant (provided LL has not breached a covenant)
o T is required to top up the deposit if the LL has drawn down on it
o It will be returned to T at the end of the term or on assignment

20
Q

re: remedies for breach of covenant to pay

what is the advantage of rent deposit?

A
  • Advantage  LL does not need to take court action etc.
21
Q

re: remedies for breach of covenant to pay

what is the effect of forfeiture?

A
  • Only remedy that will end the lease and give the LL vacant possession
22
Q

re: remedies for breach of covenant to pay

when can forfeiture be used?

A
  • Can only be used if the lease contains a forfeiture clause (may be called a forfeiture clause, provisos or re-entry)
23
Q

re: remedies for breach of covenant to pay (forfeiture)

what does common law provide?

A
  • Common law requires a formal demand to be made before forfeiture, but they can be dispensed with in the lease.
24
Q

re: remedies for breach of covenant to pay (forfeiture)

when can action be taken?

A
  • The lease can specify the no. days rent must have been outstanding
25
Q

re: remedies for breach of covenant to pay (forfeiture)

how can LL forfeit?

A
  • LL can forfeit by taking possession through peaceable re-entry (i.e. without force). A court order is needed if this isn’t possible.
26
Q

re: remedies for breach of covenant to pay (forfeiture)

what can T do?

A
  • T can apply for relief from forfeiture. Court has discretion whether to allow the lease to continue, subject to the condition T has paid all arrears and costs
27
Q

re: remedies for breach of covenant to pay (forfeiture)

why must LL be careful?

A
  • LL will waive their right to forfeit if they demonstrate an intention to continue with the lease i.e. demanding or accepting rent after the breach
28
Q

re: remedies for breach of covenant to repair

what is the first step?

A
  • Must check wording of covenant to determine if there has been a breach
29
Q

re: remedies for breach of covenant to repair

what are the remedies?

A
  • specific performance
  • damages
  • self-help/ Jervis v Harris clause
30
Q

re: remedies for breach of covenant to repair

explain specific performance

A
  • Would force T to comply with a positive covenant
  • Only available where another remedy isn’t appropriate & at court’s discretion
31
Q

re: remedies for breach of covenant to repair

when are damages available?

A

Always available as breach of covenant is a breach of contract

32
Q

re: remedies for breach of covenant to repair

what are the limitations to damages?

A
  1. s18 LTA limits damages
  2. LL must follow a procedure where the lease is ore than 7 years old with 3 years left to run
32
Q

re: remedies for breach of covenant to repair

explain s18 LTA 1927 regarding damages

A

damages are limited to the amount the breach has reduced the value of the LL’s reversion (usually the FH). Therefore, if the diminution is less than the repairs, the LL will not recover the full cost of the repair

33
Q

re: remedies for breach of covenant to repair

what procedure must be followed to recover damages in certain circumstances? explain those circumstances.

A

If the lease is more than 7 years with more than 3 years left to run, LL must follow this procedure to claim damages:
1. LL must serve notice on T;
2. T can serve a counter-notice within 28 days
3. If they do, LL cannot proceed with claim without leave from the court

34
Q

re: remedies for breach of covenant to repair

what is the self-help clause?

A
  • This is a clause which allows the LL enter the property and check compliance with the covenant to repair. If there has been a breach, LL can serve a notice.
35
Q

re: remedies for breach of covenant to repair (self-help)

what does the notice set out?

A
  • The notice will specify the action to remedy the breach & time for compliance
36
Q

re: remedies for breach of covenant to repair (self-help)

what happens if T fails to comply with the notice?

A
  • If T fails to comply, LL can carry out the work themselves and recover this as a debt action (rather than a damages claim which is good because it avoids the above limitations)
37
Q

re: remedies for breach of covenant to repair and other covenants (forfeiture)

when can this be used?

A
  • The lease must contain a forfeiture clause
38
Q

re: remedies for breach of covenant to repair and other covenants (forfeiture)

what is important to note about this process?

A

this is different to breach of covenant to pay rent. This is the s146 LPA 1925 procedure and applies to all other breaches of covenant

39
Q

re: remedies for breach of covenant to repair and other covenants (forfeiture)

explain the s146 procedure

A
  1. LL must serve a s146 notice which: specifies the breach; provide a reasonable time for it to be remedied (if capable of remedy); and require T to pay compensation for the breach (if required)
    o If the lease is for 7 years or more with at least 3 years unexpired, the notice must also state T has a right to serve a counter-notice. If they do, the claim can only proceed with leave of the court.
  2. If T does not comply, they can forfeit but peaceable re-entry or court order
  3. T can apply from relief from forfeiture
40
Q

re: remedies for breach of covenant to repair and other covenants (forfeiture)

what is the additional requirement if the lease is for more than 7 years with at least 3 years unexpired?

A

o If the lease is for 7 years or more with at least 3 years unexpired, the notice must also state T has a right to serve a counter-notice. If they do, the claim can only proceed with leave of the court.

41
Q

re: remedies for breach of other covenants

what remedies are available?

A
  • i.e. changing property type without consent

Remedies:
o Forfeiture (s146 applies but no need to inc. counter notice, if applicable)
o Injunction (for breach of negative covenant)
o Specific performance (for breach of positive covenant)
o Damages (normal contractual rules apply)
o Pursue former T/G
o Deduction from rent deposit (subject to terms of rent deposit deed)

FLK2 - Property Practice (16 decks)

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