Remedies for breach of leasehold covenants Flashcards
Liability on covenants in a lease - Who is liable?
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
Liability on covenants in a lease - Who is liable? - Old lease
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. Landlord can sue both current tenant and original tenant
Liability on covenants in a lease - Who is liable? - New lease
The original tenant is released from liability for the covenants in the lease as soon as it assigns the lease to another tenant. So the landlord can only sue the current tenant. However 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
What remedies apply?
The remedies available depend on what type of breach has occurred.
Breach of covenant to pay rent - Commercial rent arrears recovery
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 - Current tenant
Landlord must think about who they can sue. If the landlord had reservations about the proposed tenant’s ability to maintain rental payments then they would have required a guarantor. The guarantee will oblige the guarantor to pay the rent and any other sums due under the lease if the tenant does not pay and to remedy or indemnify the landlord against loss caused by any breaches of covenant committed by the tenant. Guarantor can then be sued in the same way as the 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
With a 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
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 ope ton landlord are not available.
Breach of the covenant to repair - Damages
Can be used for any breach of a covenant. However in the case of a breach of the covenant to repair there are 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. A typical self-help clause 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
Procedure is different for covenant for non-payment of rent. 1st the 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.
Surrender of the lease
Could potentially be a remedy. 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
