Unit 7: Landlord's remedies + termination

Question 1

Who can the landlord sue for breach of covenant of an old lease?

Answer 1

• The rule - 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
• Implication - the landlord can sue:
  1. the current tenant in privity of estate; and
  2. the original tenant in privity of contract; and/or
  3. any intervening tenants in privity of contract (if the landlord required each incoming tenant to give it a direct covenant on the assignment)
• Practice note (for landlord’s side) - require each incoming tenant to give a direct covenant on assignment, so that the landlord is in a strong position if it needs to enforce the tenant’s covenants.

Question 2

New leases?

Answer 2

• The rule - original tenant is released from liability for the covenants in the lease as soon as it assigns the lease to another tenant
• Implications - means that landlords of new leases cannot always sue the original tenant
• Solution - the landlord is allowed to stipulate, in advance in the lease, certain circumstances and conditions which must be met before the landlord will give their consent to an assignment
  o Landlord should require an AGA if they want to keep the option of suing the outgoing tenant (but note the time limit below)
  o e.g., landlord is allowed in certain circumstances to require an AGA (a promise by the outgoing tenant that it will be liable for any breaches of the covenants in the lease by the incoming assignee)
• NB 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 from it
  o Current tenant who wants to assign should then give an AGA to the landlord on assignment if the landlord wants to be able to sue that outgoing current tenant

Question 3

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

Answer 3

Action for debt, CRAR, guarantors, rent deposit or forfeiture.

Question 4

Action in debt remedy?

Answer 4

Non-payment of rent = debt
o If tenant is liable for rent, it can be recovered through the High Court or County Court
o Limitation period = 6 years for an action on recovery of rent

Question 5

What is CRAR?

Answer 5

• CRAR permits landlord to enter the property and seize and sell goods belonging to the current tenant
• Applies only to commercial premises

Question 6

CRAR procedure?

Answer 6

o L must give 7 days’ notice of intention to enter
o L must use an enforcement agency to enter the premises to remove goods

Question 7

What cannot be seized under CRAR?

Answer 7

o L cannot remove certain goods (incl. items or equipment up to the value of £1350 which are necessary for the tenant’s business, e.g., computers, telephones)
o L can only take items belonging to T (any items leased or bought on hire purchase cannot be taken)

Question 8

Under CRAR, can the landlord sell the goods?

Answer 8

o If T does not pay the arrears, L can sell the goods, provided:
 this is done at a public auction and
 the tenant is given at least 7 clear days’ notice of the sale

Question 9

When is CRAR available?

Answer 9

• CRAR is only available in relation to rent paid for possession and use of the premises and at least seven days’ rent must be outstanding.

Question 10

Are arrears of insurance rent recoverable under CRAR?

Answer 10

• Arrears of other payments (such as insurance rent) will not be recoverable using CRAR, even if they are reserved as rent in the lease

Question 11

• When would L have required a guarantor?

Answer 11

o If L had reservations about the proposed tenant’s ability to maintain rental payments without financial difficulties
o e.g. if T was a newly-formed PLC or a private company whose reputation, reliability, and financial standing was unknown in the property market

Question 12

Why require a guarantor?

Answer 12

o The guarantee will oblige the guarantor to:
1. pay the rent and any other sums due under the lease if the tenant does not pay; and
2. remedy, or indemnify the landlord against loss caused by, any breaches of covenant committed by the tenant

Question 13

• Where landlord wants to sue guarantor of a FORMER tenant - rules for an OLD lease?

Answer 13

liability of guarantor is likely to extend through the duration of the lease, regardless of an assignment by the guaranteed tenant

Question 14

o New lease - landlord suing guarantor of former tenant?

Answer 14

guarantor is automatically released from liability on an assignment of the lease by the guaranteed tenant and any attempt by L to require the guarantor directly to guarantee the incoming tenant is likely to be void
 NB L may require the guarantor of the outgoing tenant to guarantee the outgoing tenant’s obligations under the AGA, thereby indirectly guaranteeing the incoming tenant until a further assignment takes place.

Question 15

• Where L intends to pursue a former tenant/their guarantor, whether under a new or old lease: (s17 Landlord and Tenants (Covenants) Act 1995) ?

Answer 15

o L must serve a ‘default notice’ on any former tenants or their guarantors if L intends to recover a fixed charge from them
 Fixed charge = monetary payment such as rent, service charge or other liquidated sum
o Default notice must be served within 6 months of the current tenant’s breach
 Otherwise L will be unable to claim from the former tenant or their guarantor
 L does not have to start proceedings - default notice is just notice of the claim
o s17 applies to all leases whenever granted, not just new leases

Question 16

What can the landlord recover under pursuing a guarantor?

Answer 16

the landlord can only recover sums that fall within six months of the notice being served

Question 17

• If former tenant/their guarantor are served a default notice?

Answer 17

o They may be able to regain some control over the property by:
1. paying the sum claimed under the default notice and
2. then, calling for an ‘overriding lease’
 i.e., a headlease between the landlord and the former tenant/guarantor slotted in between the landlord and the defaulting tenant, making the former tenant/guarantor the immediate landlord of the defaulting tenant

Question 18

What is a rent deposit?

Answer 18

• If L is concerned about proposed T’s ability to maintain rental payments, it can require T to deposit a cash sum as security for payment of the rent and performance of T’s covenants in the lease

Question 19

What does a rent deposit deed lay out?

Answer 19

1. Amount of the deposit (generally 6-12 months’ rent)
2. Circumstances which entitle L to withdraw money from it; and
3. Point at which the deposit is repayable to T (e.g., on an approved assignment)

Question 20

When can the rent deposit remedy be exercised?

Answer 20

• Provided it is not a breach of the terms of the rent deposit deed by the landlord, the landlord can draw upon the money as soon as the tenant is in breach of a relevant covenant in the lease, without taking court action for debt or exercising any other remedy in respect of the breach
  o Deed would normally require T to top the deposit up in such circumstances
  o Would also state that the rent deposit balance is returned to T at the end of the term or an earlier lawful assignment

Question 21

What is forfeiture?

Answer 21

brings the lease to end and enables L to gain vacant possession of the property
* Requirement - to be able to use forfeiture, the lease must contain a forfeiture clause

Question 22

• Procedure for forfeiture where there has been non-payment of rent?

Answer 22

L is allowed to proceed to forfeit if the rent has been outstanding for number of days in forfeiture clause, whether L has made a formal demand or not
o Common law - requires a formal demand to be made but the lease can dispense with this
o Lease can vary how many days the rent must have been outstanding before forfeiture can take place

Question 23

Methods of L forfeiting?

Answer 23

o taking possession through ‘peaceable re-entry’ (i.e., without force), or
o if ^ not possible, by obtaining a court order

Question 24

• T’s options for relief from forfeiture?

Answer 24

o T can apply to court for relief from forfeiture, whereupon the court has discretion to allow the lease to continue
o ^ would normally be subject to a condition that T paid all arrears and costs

Question 25

• Practice note (waiver) for forfeiture?

Answer 25

• L can waive its right to forfeit by carrying out any act demonstrating an intention to continue the relationship of L and T so:
  o must be careful not to demand or accept rent after the breach has arisen

Question 26

What are the remedies available to L for breach of repair covenant?

Answer 26

Specific performance, damages, self-help, forfeiture

Question 27

When is specific performance recommended?

Answer 27

• Specific performance - forces T to comply with the positive covenant
  o BUT - will only be granted where other remedies are not appropriate
• Rainbow Estates v Tokenhold - court granted an order for specific performance because:
  o there was no forfeiture or landlord’s self-help clause in the lease;
  o damages were not appropriate, particularly where the condition of the property was deteriorating;
  o 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
  o in the circumstances, it was appropriate to grant the plaintiff an order for specific performance

Question 28

Damages as a remedy for breach of performance?

Answer 28

• Always available for breach of covenant - action lies for breach of contract (because tenant is in breach of contractual obligations in the lease)

Question 29

s18 LTA damages limitation?

Answer 29

1. s18 LTA 1927 - limits the amount of damages to the amount by which L’s reversion (usually the freehold building) has diminished in value as a result of the disrepair
2. Unattractive because **- the diminution in the capital value of the building attributable to the disrepair may be less than the cost of the repairs

Question 30

2. Leasehold Property (Repairs) Act 1938 and damages?

Answer 30

applies to leases granted for more than 7 years with more than 3 years left to run
1. If it applies and L wants to sue - Procedure:
1. L must serve notice on T
2. T has a right to serve a counter notice within 28 days
3. If T serves counter notice, L cannot proceed any further with the claim without leave of the court

Question 31

Benefits of a self-help clause?

Answer 31

• Most leases provide a contractual ‘self-help’ remedy for the landlord, allowing the landlord to recover the cost of repairs as a debt and not a damages claim
  o Advantage - landlord is able to avoid the statutory limitations on pursuing damages claims imposed by the LTA 1927 and Leasehold Property (Repairs) Act 1938:

Question 32

What does a self-help clause allow?

Answer 32

o landlord can enter the property to check compliance with tenant’s repair covenant
o if there has been a breach, landlord can serve a notice specifying works required to remedy the breach
o if tenant fails to start the work within a specified period after landlord’s notice, or is not proceeding diligently with the works, landlord can enter, carry out the works, and recover the cost from tenant as a DEBT
* Main effect - converts a claim for damages into a claim for debt

Question 33

Forfeiture in the context of a repair covenant?

Answer 33

• Different procedure applies to forfeiture for breaches of other kinds of covenant (as opposed to non-payment of rent)
• Statutory procedure (s146 LPA 1925):
  
  1. L must serve a s146 notice on T, which will:
     
     1. specify the breach
     2. require the breach to be remedied within a reasonable time if it is capable of remedy
     3. require T to pay compensation for the breach
  2. If T does not comply with the notice, L can forfeit by:
     
     1. peaceable re-entry; or
     2. order of the court
  3. T can apply for relief from forfeiture
• Additional requirement - IF lease was originally for 7 years or more and has at least 3 years unexpired:
  
  • Leasehold Property (Repairs) Act 1938 applies and requires:
    
    1. s146 notice must include notification of T’s right to serve a counter notice within 28 days
    2. if T serves a counter notice, then L can only proceed to forfeit with leave of the court

Question 34

When is an injunction permitted?

Answer 34

o Injunction for breach of a negative covenant (e.g., a user covenant) or to prevent an anticipated breach (e.g., assignment in breach of covenant)

Question 35

When is specific performance permitted for other covenants?

Answer 35

 the positive obligation is sufficiently precise
 performance or supervision over a period of time is not required
 damages are not an adequate remedy

Question 36

When is surrender of a lease recommended?

Answer 36

• Not a landlord’s remedy in the technical sense, but might be a practical way for L and T to work out their problems
• The process - T surrenders its lease to L
• Requires - a mutual act by T and L which treats the lease as no longer being in existence
  o Could be done informally by operation of law (e.g., handing the keys back)

Question 37

Surrender of a lease - commercial situations?

Answer 37

usually done formally by deed of surrender:
 deals with issues such as surrender
 might be attractive to T as way of terminating its obligations
 potentially quicker and cheaper than forfeiture for both parties
 depends on both parties being willing to pursue it

Question 38

What is security of tenure?

Answer 38

a type of statutory protection which prevents leases from being terminated other than in prescribed ways, and allows the tenant to renew or extend them

Question 39

Effluxion of time?

Answer 39

Common law
o With a fixed-term lease, when the contractual term ends, the lease automatically determines by what is known as ‘effluxion of time’
o No notice is needed
o Most leases of commercial property are fixed-term leases

Question 40

Notice to quit?

Answer 40

o Periodic tenancies are determined by the appropriate period’s notice to quit given by the landlord or tenant.
 A yearly tenancy is determined by at least half a year’s notice expiring at the end of a completed year of the tenancy.
 Other periodic tenancies are determine by one full period’s notice (i.e., one quarter, month, etc.)
 e.g., if a tenant has a monthly tenancy which starts on the first of each month and the landlord wants to serve a notice to quit on 14 August, the earliest date the landlord can specify for expiry of the notice is 30 September (ie the notice must be at least one month long and must expire at the end of a completed month)

Question 41

• Surrender

Answer 41

o Occurs where the tenant yields up the lease to the landlord who accepts the surrender
o Accordingly, surrender can only be achieved if both the landlord and tenant agree to it.
o Effect - the lease is said to merge in the landlord’s reversion and is extinguished
o Requirement - to be legal, surrender must be by deed (s52 LPA 1925)

Question 42

When does a merger occur?

Answer 42

o Occurs where the tenant acquires the immediate reversion to the lease (i.e., acquires the landlord’s estate in the land)
 Opposite of surrender.
o Can also occur where a third party acquires both the lease and the reversion

o As with surrender, once the lease and reversion are with the tenant or third party, the lease automatically merges with the reversion and is extinguished (unless the tenant/third party expressly preserves the lease in the documentation

Question 43

1954 Act?

Answer 43

• If a tenancy comes within its ambit, the common law methods of termination may not apply
• Tenancies under the 1954 Act may continue until terminated
• Requirements:
  1. a tenancy (not a licence)
  2. of a property which is occupied by the tenant (personally, or through the medium of an agent or manager)
  3. for business purposes

Question 44

• Definition of ‘business’

Answer 44

widely defined and includes ‘a trade, profession or employment and in the case of a body of persons any activity carried on by them’
o The activity need not be a business or commercial activity

Question 45

1954 exclusions

Answer 45

tenancy at will, fixed term lease less than 6 months + ‘contracted out’

Question 46

o Tenancies at will

Answer 46

 Can be terminated at any time by either party

Question 47

o Fixed-term tenancies not exceeding 6 months

Answer 47

HOWEVER:
 if a tenancy does not exceed six months but contains a provision allowing renewal or extension of the term beyond the six months, then the tenancy will be protected by the Act
 if the tenant (or a predecessor in the same business) has already been in occupation for more than 12 months when another lease is granted, that tenant will gain protection of the Act even if the new lease is for six months or less
o Tenancies of agricultural holdings, farm business tenancies, mining leases

Question 48

o Fixed-term tenancies that are ‘contracted out’ of the 1954 Act

Answer 48

 Requires a strict statutory notice procedure to be adhered to before the start of the lease:
 Landlord must give tenant notice in a prescribed form warning the tenant that they are agreeing to a lease without security of tenure
 Tenant must make a declaration in the prescribed form that they have received the notice and agree that the lease should be contracted out
 If the tenant is given notice less than 14 days before grant of the lease, their declaration must be made in the form of a statutory declaration before an independent solicitor
 Reference to the service of the notice and the tenant’s declaration must be contained or endorsed on the lease itself

Question 49

Effect of 1954 Act?

Answer 49

• Tenancy will continue until terminated in accordance with the 1954 Act
• Even then, a tenant has the right to apply to court for a new tenancy which can only be opposed by the landlord on one of the s30 grounds.

Question 50

7 methods of termination under the 1954 Act are?

Answer 50

1. Service of a landlord’s notice under s25
2. Service of a tenant’s request for a new tenancy under s26
3. Forfeiture
4. Surrender
5. In the case of a periodic tenancy, by the tenant giving landlord a notice to quit
6. In the case of a fixed-term lease, by the tenant serving 3 months’ written notice on the landlord under s27 (so long as the notice does not expire before the contractual expiry date)
7. In the case of a fixed-term lease, by the tenant ceasing to be in occupation for business purposes at the end of the lease under s27(1A)

Question 51

s27

Answer 51

o If the tenant wishes the tenancy to come to an end, it can serve a s27 notice (3 months in advance) or just move out at the end
o If it is the landlord wanting to terminate, then only the common law methods available are forfeiture or surrender
o If there are no grounds for forfeiture and the tenant will not agree to surrender, the only way a landlord can terminate a business tenancy protected by the 1954 Act is under s25

Question 52

s25

Answer 52

if L is relying on the s25 procedure to terminate a business tenancy protected by the 1954 Act:

• they must serve a s25 notice specifying the proposed termination date (which cannot be earlier than the date the tenancy could have been terminated under the common law)
• the notice must be served upon the tenant no less than 6 months, but no more than 12 months, before the proposed termination date

Question 53

Application to the court following s25 notice service - if L indicates that it will oppose the grant of a new tenancy?

Answer 53

• If L indicates in the s25 notice that it will oppose the grant of a new tenancy, the tenant must apply to the court before the expiry of the s25 notice or they will lose their rights under the 1954 act.
  o L can pre-empt T’s application to court by applying for an order to terminate the lease on the grounds stated in its s25 notice (but not if an application has already been made by T asking for the lease to be renewed)

Question 54

s25 - if L does not oppose new tenancy grant?

Answer 54

• If L indicates non-opposition to the grant of a new tenancy, parties will still enter negotiations for the grant of a new lease, but T should still apply to court within the time limit to safeguard their position
  o Time limit can be extended by agreement between the parties (e.g., where they are near to agreement on the terms of a new lease and wish to avoid the expense of court proceedings)
• Application usually made to the county court

Question 55

What can a T protected by 1954 act who wants to terminate the lease ON THE CONTRACTUAL EXPIRY DATE do?

Answer 55

can do so by
o ceasing to occupy for business purposes by the end of the lease (s27(1A)) or
o serving a s27 notice giving the landlord 3 months’ prior written notice

Question 56

What options are available to a protected tenant who wants to terminate AFTER the contractual expiry date?

Answer 56

can only
o serve a s27 notice giving the landlord 3 months’ notice, or
o agreeing a voluntary surrender of the lease with the landlord

Question 57

• If a protected tenant wants to remain in the property after the contractual expiry date?

Answer 57

, they could choose to do nothing - the tenancy would continue. A couple of options:
1. T could just wait until L serves a s25 notice; or
2. T could take the initiative and serve a s26 request
* s26 request:
o Effect - serves to bring the current tenancy to an end and constitutes a request for a new tenancy
o Examples - T might choose to serve a s26 request if:
 they believe that rents have fallen and a reduced rent could be achieved for a new lease
 they have plans to assign the lease and believes that the tenancy would be more attractive to a buyer if a new fixed term has been granted

Question 58

s26: Procedural requirements?

Answer 58

 s26 request must:
 state the date on which T wants the new tenancy to begin;
 contain T’s proposals for the new tenancy
 When serving it, T must adhere to the same time limits as L serving a s25 notice
 i.e., T must give L between 6 and 12 months’ notice of the date they want the new tenancy to start, which cannot be earlier than the date the tenancy could have been terminated under the common law

Question 59

Application to the court following service of a s26 request if L wants to oppose the grant of a new tenancy?

Answer 59

o L must serve a counter-notice on T within 2 months of service of the s26 request, stating s30 grounds of opposition
o T must ensure they apply to court for a new lease, otherwise they lose all rights under the 1954 Act
o T’s application must be made prior to the commencement date of the new tenancy specified in T’s s26 request, unless L agrees an extension
o L can pre-empt T’s application to court by applying for an order to terminate the lease on the grounds stated in its counter-notice (but not if T has already applied for renewal of the lease)

Question 60

s26 If L does not oppose the grant of a new tenancy?

Answer 60

o L need not serve a counter-notice
o Parties will negotiate the terms of the new lease
o T should make an application to court before the commencement date of the new tenancy specified in the s26 notice to safeguard their position
 NB parties can agree to extend ^ time limit if negotiations are going well - it is unusual for applications to proceed to a hearing

Question 61

s30 grounds are

Answer 61

a) [D] T’s failure to repair
b) [D] T’s persistent delay in paying rent
c) [D] T’s substantial breach of other obligations
d) [M] L has offered alternative accommodation (which must be suitable to T’s needs and on reasonable terms)
e) [D] Tenancy is an underletting of part and L wants to let the whole (rarely used)
f) [M] L intends to demolish or reconstruct and could not reasonably do so without obtaining possession
g) [M] L intends to occupy the holding for its own business or as a residence

Question 62

What grounds are discretionary?

Answer 62

T’s failure to repair
T’s persistent delay in paying rent
T’s substantial breach of other obligations
T underletting part and L wants to let the whole

Question 63

What does it mean if the ground is discretionary?

Answer 63

court will decide whether or not to allow the tenant a new lease
o Insufficient for L to merely establish the ground - L also has to show that T ought not to be granted a new tenancy in view of the facts giving rise to the ground
o The discretion of the court means that opposed applications are expensive - there will be a court hearing on the ground(s) that L is relying on, with evidence and submissions made by advocates
o If L wins, court will refuse T a new tenancy

Question 64

What grounds are mandatory?

Answer 64

• L has offered alternative accommodation (which must be suitable to T’s needs and on reasonable terms)
• L intends to demolish or reconstruct and could not reasonably do so without obtaining possession
• L intends to occupy the holding for its own business or as a residence

Question 65

Mandatory grounds - procedure?

Answer 65

., L simply has to prove that is has offered alternative accommodation or intends to occupy itself

Question 66

Ground F: demolishing/reconstructing without reasonably being able to do so without permission

Answer 66

, L must show that, on the termination of the tenancy:
1. It has a firm and settled intention to carry out the relevant work; and
 (e.g., obtained necessary planning permission and financial arrangements are in place)
2. It intends to demolish or reconstruct the premises (or a substantial part of them), or to carry out substantial works of construction on the holding or a part of it; and
3. it cannot reasonably carry out the work without obtaining possession
 (i.e., L will not succeed if T agrees to allow L access to carry out the work, which can then be reasonably carried out without obtaining possession and without substantially interfering with T’s use)

Question 67

• Ground g - L intends to occupy the holding for its own business or as a residence

Answer 67

L cannot rely on this ground unless they have owned their interest for at least 5 years before the ending of the current tenancy
o Rationale - prevents L buying the reversion cheaply within 5y of the end of the lease and then acquiring vacant possession on this ground
o Exception - will be available to an L who buys property with vacant possession, lets it, and then seeks possession within 5y of buying it
 NB L must have:
 a firm and settled intention and must demonstrate at the date of the hearing that it has considered and taken practical steps to occupy the property; and
 a reasonable prospect of achieving its intention, although it does not have to show that its business will be a success in that location

Question 68

Terms of the new lease?

Answer 68

• Extent - T is only entitled to a tenancy of the ‘holding’ - i.e., the property comprised in the current tenancy, but excluding any part not occupied by T (i.e., those parts which T has underlet)
  o L has the right to insist that any new tenancy will be a tenancy of the whole originally demised property (incl. underlet parts)

Question 69

For what term?

Answer 69

• Term - will be such as is reasonable in the circumstances, but cannot exceed 15 years
  o Will normally be 5/7 years
  o Will not commence until 3 months after the proceedings are ‘finally disposed of’ (i.e., when the time limit for appeal has elapsed = 4 weeks after order)

Question 70

When will the new lease commence after the order?

Answer 70

New lease will commence 3 months + 4 weeks after the order

Question 71

Rent?

Answer 71

• Rent = open market rent having regard to other terms of the tenancy.
  o In assessing rent, Court must disregard:
  1. the fact that T and their predecessors have been in occupation;
  2. any goodwill attached to the holding;
  3. any effect on rent of any improvements voluntarily carried out by T during the tenancy; and
  4. in the case of licensed premises, any addition in value due to T’s licence
• Rent review - court can insert a rent review clause in the lease, even though there was not one in the previous lease

Question 72

Other terms?

Answer 72

will be fixed by the court if not agreed upon by the parties. Court will have regard to the terms of the current tenancy, and all other relevant circumstances.
o Likely that new terms will be much the same as the old

Question 73

• If L successfully opposes grant of new lease on one or more of the no-fault grounds (5, 6, 7)?

Answer 73

T will not be granted a new lease but will be entitled to compensation

o will be equivalent to the rateable value of the holding
o ^ unless T and their predecessors in the same business have been in occupation for at least 14 years, when it will be twice the rateable value

Question 74

Unacceptable terms?

Answer 74

o Tenant’s relief - if T finds the new lease’s terms unacceptable (usually the rent), they can apply for the order to be revoked
o Landlord’s relief? - L has no right to apply for revocation. The only remedy is to appeal