Unit 7

Question 1

What are the remedies for breach of covenant to pay rent?

Answer 1

1) Action in debt
2) Commercial rent arrears recover (CRAR)
3) Pursue guarantors and/or pay rent deposit
4) Forfeiture

Question 2

Rent 1) Action in debt

Answer 2

• Non-payment of rent is a debt.
• If any tenant is liable for the rent, it can be recovered through the High Court or County Court.
• Limitation Act 1980 puts a limitation of 6 years on recovery of rent.
• Obligation to pay must have arisen (i.e., due date has passed).

Question 3

Rent 2) Commercial rent arrears recover (CRAR)

Answer 3

• Permits the landlord to enter property and seize and sell goods belonging to the current tenant.
• Applies only to commercial properties.
• CRAR is only available in relation to rent paid for possession and use of the premises and at least 7 days’ rent must be outstanding.
• Arrears of other rent (e.g., insurance rent) will not be recoverable using CRAR, even if they are reserved as rent in the lease.

Question 4

Formalities for CRAR

Answer 4

1) Landlord must give 7 days’ notice of its intention to enter the premises

2) Landlord must use an enforcement agency to enter the premises and remove goods

3) Landlord must not remove goods up to the value of £1350 which are necessary for the tenant’s business (e.g., computers / phones)

4) Landlord can only take goods/belongings of the tenant (i.e., not goods which are leased or bought on hire).

5) If tenant does not pay arrears, the landlord may sell the goods, as long as it is done in a public auction and that the tenant is given at least 7 clear days notice of the sale.

Question 5

Rent 3) Pursue guarantors and/or rent deposit

Answer 5

Guarantor of current tenant = Can be sued in the same way as the current tenant.

Guarantor of former tenant:

a) Old lease = liability of the guarantor extends through the duration of the lease, regardless of assignment by guaranteed tenant.

b) New lease = Guarantor is automatically released from liability on an assignment of the lease by the guaranteed tenant.

Question 6

Section 17 Landlord and Tenant (Covenants) Act 1995

Answer 6

• Where landlord intends to pursue a former tenant (i.e., one who has entered an AGA) or the guarantor of a former tenant (whether under a new or an old lease) the landlord must serve a s 17 notice:

– Landlord must serve a default notice on any former tenants or their guarantors if the landlord intends to recover a ‘fixed charge’ from them (fixed charge = monetary payments, like rent, service charge or other liquidated sum).

– Default notice must be served within 6 months of the current tenant’s breach, otherwise the landlord will be unable to claim from the former tenant or their guarantor.

Note – Landlord does not have to start proceedings: the default notice is simply giving notice of the claim.

– S 17 applies to all leases, whenever granted (i.e., old, and new).

Question 7

Rent deposit

Answer 7

– Provided there are no breach of terms of rent deposit deed by landlord, the landlord can draw upon money as soon as the tenant is in breach of a relevant covenant in the lease.

– Landlord can do this without taking court action for debt or exercising any other remedy in respect of the breach.

Question 8

4) Forfeiture

Answer 8

Forfeiture brings the lease to and end and enables the landlord to gain vacant possession of the property (unlike the other remedies).

• To be able to use forfeiture, the lease must contain a forfeiture clause.

Question 9

Forfeiture: procedure (non-payment of rent)

Answer 9

1) Common law requirement of a formal demand to be made (this can be dispensed with in the lease).

Re-entry can be made by 1) peaceable re-entry or 2) court order

Question 10

Waiving right to forfeiture

Answer 10

• Landlord can waive their right to forfeit by carrying out any act demonstrating an intention to continue the relationship of landlord and tenant.

– i.e., landlord must not demand or accept rent after the breach has arisen if they wish to rely on forfeiture.

Question 11

Remedies for breach of covenant to repair

Answer 11

1) Specific performance
2) Damages
3) Self-help / Jervis v Harris clause
4) Forfeiture

Question 12

Repair covenant 1) Specific performance

Answer 12

• Specific performance will only be granted where other remedies are not appropriate. I.e., option of last resort. Will only be available for unusual cases.

Court will grant an order for specific performance because:

 There was no forfeiture or landlord’s self-help clause in the lease;
 Damages were not an adequate remedy, particularly where the condition of the property was deteriorating;
 The court was sure that the order was not being sought by the landlord simply to harass or otherwise put pressure on the tenant; and
 In the circumstances, it was appropriate to grant the plaintiff an order for specific performance.

Question 13

Repair covenant 2) Damages

Answer 13

• Always available for breach of covenant.
• Tenant is in breach of its contractual obligations in the lease giving rise to a breach of contract.
• If the tenant is solvent and can pay the claim, the lease continues.

Question 14

Statutory provisions limiting the landlord’s ability to recover the full cost of repairs …

Answer 14

1) S 18 Landlord and Tenant Act =limits the amount of damages to the amount by which the landlord’s reversion has diminished in value as a result of the disrepair. Landlord may not recover the full cost of reinstating the property.

– The diminution in the capital value of the building attributable to the disrepair may be less than the cost of the repairs (makes this course of action less attractive to landlord).

1) Leasehold Property (Repars) Act 1938 = applies to leases granted for more than seven years with more than three years left to run.

– Procedure = Notice must be served on the tenant. The tenant has a right to serve a counter notice within 28 days and if the tenant does so, the landlord cannot proceed any further with the claim without leave of the court.

Question 15

Repair Covenant 3) Self-help / Jervis v harris clause

Answer 15

Self-help / Jervis clause = a contractual ‘self-help’ remedy for the landlord, allowing the landlord to recover the cost of repairs as a debt and not as a damages claim.

• Benefit = the landlord is able to avoid the statutory limitations on pursuing damages claims imposed by the 1927 and 1938 Acts.
• Typical Jervis clause allows landlord to enter 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 T fails to start the work within a specified period after service of the landlord’s notice, or is not proceeding diligently with the works, the landlord may enter, carry out the works and recover the cost from T as a debt.

 I.e., a claim for damages is converted into a claim for debt avoiding restrictions on recoverability.

Question 16

Repair Covenant 4) Forfeiture

Answer 16

S 146, LPA:

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 T does not comply with the notice, the landlord can forfeit either by peaceable re-entry or by court order. T can apply for relief from forfeiture.

Question 17

Rent covenant 4) forfeiture – disrepair where the lease was originally for 7 years or more and has at least 3 years left unexpired..

Answer 17

• Leasehold Property (Repairs) Act 1938 applies and requires the s 146 notice to include a notification of the tenant’s right to serve a counter notice within 28 days.
• If T serves a counter notice, then the landlord can only proceed to forfeit with the leave of the court.
• Commonhold and Leasehold Reform Act 2002, s. 168 prevents a landlord from serving a s 146 notice in respect of any breach by a tenant under a long lease of a covenant or condition unless either:
• The tenant has admitted the breach or;
• Tt has been finally determined that the breach has occurred by the appropriate tribunal or a court.

Question 18

Section 81 Tribunals Courts and Enforcement Act 2007 –

Answer 18

Section 81 of the Tribunals Courts and Enforcement Act 2007 allows head landlords to serve notice on subtenants asking them after 14 clear days have expired to divert future rent under the sublease direct to the head landlord until the arrears are paid off.