Remedies for Breach of Leasehold Covenants Flashcards
Who is liable for breaches of lease covenants for an ‘old’ lease (granted before 1st January 1996)?
Original tenant remains liable for the full term of the lease, regardless of assignment
- LL can sue original T via privity of contract and current T via privity of estate
LL may also be able to sue intervening Ts (T2 if T1 is original and T3 is current), as LLs often require incoming tenants to give direct covenants on assignment
Who is liable for breaches of lease covenants for an ‘new’ lease (granted after 1st January 1996)?
Original T released from liability on assignment
However, the LL might stipulate that T needs to agree to an AGA before LL consents to assignment
- AGA ensures outgoing T is liable for breaches by the incoming assignee
- AGA only lasts for duration of assignee’s ownership, so when the current T assigns, they will provide an AGA
- This means only T2 (via AGA) and T3 (as current tenant) can be liable
What is the first thing to check before considering any remedies for non-payment of rent?
Important to check there is a covenant to pay rent in the lease and that T has failed to pay rent by the due date
How does an action in debt work as a remedy for non-payment of rent?
Unpaid rent is a debt which can be recovered through High Court or County Court
- Limitation of 6 years on recovery of rent
How does a commercial rent arrears recovery (CRAR) action work as a remedy for non-payment of rent?
CRAR allows the LL to enter the property + seize and sell goods belonging to current tenant
Only applies to commercial premises and they must give 7 days’ notice + use an enforcement agency to enter the premises and remove goods
LL cannot take goods up to £1350 which are necessary for T’s business + only items which belong to T, so not leased goods or those on hire purchase
LL can sell goods at public auction if they give T at least 7 clear days’ notice of the sale
At least 7 day’s rent must be outstanding
- Insurance rent not recoverable via CRAR
How does pursuing a guarantor work as a remedy for non-payment of rent?
- A guarantor may have been required if LL had reservations about T’s ability to maintain rental payments
- The guarantee (in writing) obliges the guarantor to pay the rent and other sums due if the tenant does not pay and to indemnify the LL against loss
- The guarantor of the current tenant can be sued in the same way as the current tenant
- The guarantor of a former tenant under an old lease is likely to extend through the duration of the lease, regardless of assignment
- The guarantor of a former tenant under a new lease will have been released from liability on assignment, unless they guaranteed the outgoing T’s AGA obligations
What is the process to pursue a guarantor for non-payment of the current tenant’s rent?
To pursue a former tenant or guarantor of a former tenant, under either old or new lease, LL must comply with s17 LT (Covenants) Act 1995 (need to know this term/section)
1) LL must serve default notice of intention to recover a fixed charge from them – this means a monetary payment, such as rent etc
- This must be served within 6 months of current tenant’s breach
- They don’t have to start proceedings, it just gives notice of the claim
2) S17 applies to all leases, whenever granted
3) If they pay the sum, they may call for an overriding lease, meaning they become the immediate landlord of the defaulting tenant
How do rent deposits work as a remedy for non-payment of rent?
The amount of any rent deposit, the circumstances when they can withdraw from it and the point it is repayable to the LL, will all be set out in a rent deposit deed
- LL can draw on the money as soon as T is in breach of a relevant covenant, without taking court action
- T would then need to top the deposit up
Rent deposit usually returned to T at end of term or on assignment
How does forfeiture work as a remedy for non-payment of rent?
Brings the lease to an end and allows LL to gain vacant possession of the property
Lease must contain a forfeiture clause for this remedy to be available
- The clause will specify the period of unpaid rent required and whether a formal demand must be served before (required under common law, but lease can say different)
LL can forfeit by taking possession through ‘peaceable re-entry’ or court order
T can apply for forfeiture relief, and the court has discretion to allow lease to continue
LL can waive right to forfeit by carrying out an act demonstrating an intention to continue the LL + T relationship (demanding or accepting rent after breach has arisen)
What factors will be considered to decide on which remedy is most appropriate for non-payment of rent?
If T in breach of rent covenant, LL will need to choose an appropriate remedy
They will consider:
- Relative cost of the procedure
- Time it will take
- Effect of continuing relationship
- Likelihood of problem recurring
What is the first thing to check before considering any remedies for breach of the repair covenant?
Important to first establish a breach of the repair covenant, by checking nature of damage and wording of repair covenant
How does specific performance work as a remedy for breach of the repair covenant?
This forces T to comply with the positive covenant
Will only be granted if other remedies are not appropriate
In Rainbow Estates, specific performance was granted because:
- No forfeiture or LL’s self-help clause
- Damages not adequate, as property condition was deteriorating
- Order wasn’t being sought to put pressure on T
- As such, in circumstances, it was an appropriate order to grant
How do damages work as a remedy for breach of the repair covenant?
1) Always available for breach of covenant
2) However, s18 LTA limits the amount of damages to the amount by which the landlord’s reversion (freehold building) has diminished in value because of the disrepair
- If the capital value has dropped by £5k, but it would cost £10k to repair, this might not be an attractive option
3) Also, the Leasehold Property (Repairs) Act applies to leases granted for 7 or more years with more than 3 years left to run
- In this situation, LL must serve notice on T before suing for damages
- T can serve counter notice within 28 days, meaning LL cannot proceed further without leave of the court
How do self-help/Jervis v Harris clauses work as a remedy for breach of the repair covenant?
LL can recover cost of repairs as a debt rather than by way of damages claim, thus avoiding statutory limitations on pursuing damages
- These self-help clauses were approved in Jervis v Harris
Typical self-help clause allows LL to enter property to check T’s compliance with repair covenant
- If there is a breach, LL can serve notice specifying the works required to remedy it
- If T fails to start the work within a specified period or is not proceeding diligently, LL can enter, carry out the works and recover the cost from T as a debt
As the LL can recover the cost as debt, this means the statutory protections to limit damages to diminution of reversion value or requiring service of notice + potentially getting counter notice, do not apply
How does forfeiture work as a remedy for breach of the repair covenant?
The forfeiture procedure for breach of other covenants is different from that of the procedure for breach of rent covenant
1) LL must serve a s146 notice from the Law of Property Act, which: (need to remember section/term)
- a) Specifies the breach
- b) Requires the breach to be remedied within a reasonable time, if capable of remedy
- c) Requires T to pay compensation for breach
2) If T does not comply, LL can forfeit by peaceable re-entry or court order + T can apply for relief
3) Where the lease is for 7 years or more and has more than 3 years to go, the s146 notice must inform T of their right to serve counter notice within 28 days
- This means LL can only proceed to forfeit with the leave of the court
What is the purpose of the statutory protections in the context of landlord’s remedies?
The statutory protections are there to stop the tenant being adversely affected by minor repair breaches and to prevent them from having the lease forfeited for such a reason
What are the potential remedies for breach of other covenants?
Other breaches, such as changing the use of the property or carrying out alterations without consent, have the following remedies available:
- Forfeiture - there is no need for the s 146 notice to include notification of the tenant’s right to serve a counter notice
- Injunction for breach of a negative covenant such as a user covenant, or to prevent an anticipated breach such as an assignment in breach of covenant.
- Specific performance, but only where the positive obligation is sufficiently precise, performance or supervision over a period of time is not required and damages are not an adequate remedy.
- Damages, recoverable under normal contractual rules.
- Pursuing a former tenant or their guarantor.
- Deduction from a rent deposit deed, provided that the deed provides for deduction from the deposit for costs, losses and expenses suffered by the landlord due to a breach by the tenant of its covenants in the lease
How does surrender of the lease work as a potential remedy for the landlord?
Surrender requires a mutual act by LL and T, which treats the lease as no longer being in existence – both parties must be willing to pursue it
- Usually done with a deed of surrender for commercial leases
