Remedies for breach of leasehold covenants Flashcards
Who is liable?
Landlord will be able to look to the current tenant and any guarantor for a remedy but they may also be able to look to former tenants and guarantors but this will depend on whether the lease is an old lease granted before 1st Jan 1996 or a new lease granted on or after that date
Who is liable? - Old lease - Original tenant
The original tenant remains liable for the covenants under the lease for the full term of the lease regardless of the fact that they may have assigned it to another tenant.
Who is liable? - Old lease - Current tenant
They can sue the current tenant in privity of estate and privity of contract if they gave a direct covenant to the landlord
Who is liable? - Old lease - Intervening tenants
They may be able to sue any intervening tenants in privity of contract if they required each incoming tenant to give them a direct covenant on assignment
Who is liable? - New lease - Original tenant
The original tenant is released from liability for the covenants in the lease as soon as it assigns the lease to another tenant. The landlord can make them sign an AGA which is a promise by the outgoing tenant that they will be liable for any breaches of the covenants in the lease by the incoming assignee. The AGA only lasts for the duration of that assignee’s ownership of the lease and so when the assignee assigns the lease on the tenant who gave the AGA will be released
Who is liable? - New lease - Current tenant
Can be sued through privity of contract
What remedies apply?
The remedies available depend on what type of breach has occurred - rent or other breaches
Breach of covenant to pay rent - Action in debt
Rent recovered through the High Court or County Court. Can pursue current or former tenants but when pursuing former tenants the landlord can only recover sums that fall within 6 months of the notice being served.
Breach of covenant to pay rent - Commercial rent arrears recovery
If rent is late by 7 days. Permits the landlord to enter the property and seize and sell goods. This applies only to commercial premises. Must give 7 days notice of intention to enter premises and must use an enforcement agency to enter the premises to remove the goods. They are not allowed to remove certain goods which include items or equipment up to the value of £1350 which are necessary for tenant’s business. Any items which are leased cannot be taken. Must sale goods at a public auction giving 7 days notice of the sale.
Breach of covenant to pay rent - Pursue guarantor and/or rent deposit
Landlord must think about who they can sue. The current tenant who committed the breach can be sued. If the current tenant has a guarantor they can be sued. Or there may be former tenants and their guarantors who remain liable.
Breach of covenant to pay rent - Pursue guarantor and/or rent deposit - Guarantor of the current tenant
A guarantor of the current tenant may be sued in the same way as the current tenant
Breach of covenant to pay rent - Pursue guarantor and/or rent deposit - Guarantor of former tenant - Old lease
The liability of a guarantor under an old lease is likely to extend through the duration of the lease regardless of an assignment by the guaranteed tenant
Breach of covenant to pay rent - Pursue guarantor and/or rent deposit - Guarantor of former tenant - New lease
The guarantor is automatically released from liability on an assignment of the lease by the guaranteed tenant and any attempt by the landlord to require the guarantor directly to guarantee the incoming tenant is likely to be void. However if the landlord requires the guarantor to sign an AGA then they will be liable
Breach of covenant to pay rent - Pursue guarantor and/or rent deposit - Conditions to pursue former tenant or the guarantor of former tenant
1) The landlord must serve a default notice on any former tenants or their guarantors if the landlord intends to recover a fixed charge
2) This notice must be served within 6 months of the current tenant’s breach
3) This applies to all leases not just new ones
Breach of covenant to pay rent - Forfeiture
This will bring the lease to an end and enable the landlord to gain vacant possession of the property. The lease must contain a forfeiture clause. The landlord could forfeit either by taking possession through peaceable re-entry or if that is not possible by obtaining a court order. The landlord must not have waived their right (e.g accepting or demanding rent after the breach)
Breach of the covenant to repair - Specific performance
Forces the tenant to comply with the positive covenant. Need court application. It will only be granted in unusual cases such as where the other remedies are not available.
Breach of the covenant to repair - Damages
Can be used for any breach of a covenant. However in the case of repair 2 provisions which could mean that they cannot recover the full cost of the repars:
1) S. 18 limits the amount of damages to the amount by which the landlord’s reversion has diminished in value as a result of the disrepair
2) If the lease was granted for 7 years and still has 3 left to run then a special procedure must be followed. Notice must be served on the tenant. The tenant can serve a counter notice within 28 days and if they do the landlord cannot proceed any further with the claim
Breach of the covenant to repair - Self-help/Jervis v Harris clause
Allows the landlord to recover the cost of repairs as a debt and not a damages claim. The benefit of this is that the landlord is able to avoid the statutory limitations on pursuing damages. Allows the landlord to enter the property to check compliance with the tenant’s repair covenant. If there has been a breach the landlord can serve a notice specifying the works required to remedy the breach. If the tenant fails to start the work within a specified period after service of the landlord’s notice, or is not proceeding diligently with those works, the landlord may enter, carry out the works and recover the cost from the tenant as a debt.
Breach of the covenant to repair - Forfeiture
Landlord must serve a S. 146 notice on the tenant which will:
- Specify the breach
- Require the breach to be remedied within a reasonable time if it is capable of remedy
- Require the tenant to pay compensation for the breach
If the tenant does not comply with the notice then the landlord can forfeit either by peaceable re-entry or by court order. If the lease was created for 7 years or more and has at least 3 years left then the S. 146 must include tenant’s right to serve a counter-notice within 28 days.
Remedies for breach of other covenants
1) Forfeiture
2) Injunction for breach of negative covenant
3) Specific performance
4) Damages
5) Pursuing former tenant or their guarantor
6) Deduction from a rent deposit deed
Surrender of the lease
The tenant surrenders its lease to the landlord. Surrender requires a mutual act by the tenant and landlord which treats the lease as no longer being in existence. The deed of surrender could deal with issues such as arrears and might be attractive to the tenant as a way of terminating its obligations. It is potentially quicker and cheaper than forfeiture for both parties. It does, however, depend on both parties being willing to pursue it.
