Termination of Leases and Landlord's Remedies for Tenant Breaches

Question 1

what are the methods of terminating leases? (6)

Answer 1

1. EFFLUXSION OF ITIME (fixed term tenancies)
2. BREAK CLAUSE
3. NOTICE TO QUIT (periodic tenancies)
4. SURRENDER
5. MERGER
6. Forfeiture

Question 2

what is effluxion of time?

Answer 2

• this is a method to end a fixed term tenancy on the contractual expiry date of the lease
• if the tenancy is unprotected, L can require T to vacate the premises and if the tenant refuses L can treat T as a trespasser
• if the tenancy is protected, T can still hold over after contractual end date

Question 3

what may happen if the landlord consents to an unprotected tenant remaining in occupation after the contractual end date?

Answer 3

• this will create a ‘tenancy at will’ - a personal permission to be on land where the tenant has exclusive possession but the landlord or tenant can end it at any time
• HOWEVER = a tenancy at will can convert into a periodic tenancy if the tenant continues paying periodic rent and this can become qualified for security of tenure (which cannot be contracted out of)

Question 4

if a tenancy is ended before the contractual date by either landlord or tenant exercising a break clause, can the tenant remain in occupation?

Answer 4

• if the tenancy is protected by security of tenure, then the tenant can hold over even after a break clause is exercised
• if the tenancy is not protected, then no

Question 5

if a periodic tenancy is ended by a notice to quit, can the tenant remain in occupation?

Answer 5

• if the tenancy is protected by security of tenure, then the tenant can hold over even after a notice to quit - even if the tenant served the notice to quit
• if the tenancy is not protected, then no

Question 6

what is surrender? how can it be effected?

Answer 6

• a surrender is where both the landlord and tenant agree to end the tenancy before the contractual end date
• this must be by deed
• or can be by operation of law (even if tenancy is protected) - if the parties act in a way that is inconsistent with the continuation of the tenancy e.g., landlord accepts keys and understands tenant is leaving premises permanently

Question 7

what is negotiated in a surrender?

Answer 7

the party who has most to gain from ending the lease early pay have to pay a premium to the other party

(premium paid by tenant is called a reverse premium)

Question 8

what is a merger?

Answer 8

a method of ending a tenancy = where T acquires superior interest or third party acquires both interests

Question 9

what are the landlord’s remedies? (6)

Answer 9

1. Damages
2. Action in debt
3. guarantor and rent deposit
4. Commercial Rent Arrears Recovery (CRAR)
5. Equitable remedies
6. Forfeiture

Question 10

what is the option of claiming damages if T breached a covenant? what are the advantages or disadvantages of this?

Answer 10

• L can enforce the tenant’s covenants by bringing a claim of breach of contract against the tenant and claim damages
• measure of damages = put L in the position they would have been in had T not breached the covenant
• aim for breach of repair covenant = damages can only be for loss in value of L’s reversion, not cost of repair
• disadvantages = court proceedings can be costly and protracted, and there is no guarantee for the landlord to succeed or recover costs + even if L wins they will not recover damages if they did not suffer loss
• advantage = preserves the lease and the landlord tenant relationship

Question 11

what is a debt action and how can this be a remedy for L to enforce breach of tenant covenants? what are the advantages or disadvantages of this?

Answer 11

• L can issue proceedings to recover a debt such as unpaid rent, service charge, or insurance rent
• limited to rent due in 6 years before proceedings (or against former tenant under AGA for full amount)
• advantages = simple remedy where debt value is clear, does not bring lease to an end, gives T breathing space to repay and preserve relationship
• disadvantage = court proceedings can be costly and protracted, and there is no guarantee of success

Question 12

how can pursuing guarantors be a remedy for L to enforce breach of tenant covenants?

Answer 12

• at the time of granting / assigning lease, L may have obtained a guarantor if they had concerns over T’s covenant strength
• L can rely on contractual terms of a guarantee to claim from the guarantor
• advantage = usually covers all tenant obligations not only rent + guarantor may have more funds than T
• disadvantage = guarantor may end up taking an overriding lease and becoming the direct tenant of the landlord
• this is also the case under an AGA

Question 13

how can pursuing a rent deposit be a remedy for L to enforce breach of tenant covenants?

Answer 13

• at the time of granting / assigning lease, L may have obtained a rent deposit if they had concerns over T’s covenant strength
• L can draw on a rent deposit if there are any rent arrears and T must top up deposit (only for rent breach)
• advantage = helps maintain relationship if the breach is an isolated occurrence + quick and efficient remedy
• disadvantage = relies on T topping up deposit + only covers non-payment

Question 14

what are the landlord’s equitable remedies for tenant breaches of covenants? what are the advantages or disadvantages of this?

Answer 14

Specific performance = A court order for the tenant to do something (e.g., pay rent, repair damage).

• rarely given especially for breach of repair
• cannot be given for breach of continuing obligations e.g., keep shop premises open each day.

Injunction = A court order for the tenant to refrain from doing something (e.g., tenant is about to assign the lease unlawfully or perform unpermitted uses).

• L is unlikely to get an injunction against an assignment that already took place

Advice = These are discretionary and are not usually granted. Also, court proceedings and costly and time-consuming.

Question 15

what is Commercial Rent Arrears Recovery (CRAR)? what is it used for? what criteria must be satisfied for it to be used? (3)

Answer 15

• self-help remedy to recover principal rent + VAT (not service charge or insurance premium owed)
• criteria for CRAR to be used =

1. premises are purely commercial (not part residential)
2. minimum of 7 days principal rent is owed
3. lease is not forfeited

Question 16

what is the procedure for CRAR?

Answer 16

procedure for CRAR =

1. L appoints qualified enforcement agent or police officer
2. Gives T 7 clear days notice of intention to enter premises - notice must contain details of debt and how to repay, etc.
3. If notice expires without debt paid, enforcement agent can enter premises and take control of T’s goods up to the amount of the debt owed
4. L must serve T another 7 clear days notice if L intends to sell any of the seized goods

Question 17

what are the advantages or disadvantages of CRAR?

Answer 17

advantages =

• quick and efficient and cheaper because no court involvement is necessary

disadvantages =

• can only be used to recover principal rent - not service charge, insurance rent, or breach of other obligations
• care must be taken because T can sue if the correct procedure was not followed

Question 18

what is forfeiture and what is its effect?

Answer 18

• Landlord’s right of L to enter the premises and take them back from T
• Brings lease to an end before the contractual term or during holding over
• this is in response to breaches by the tenant of rent and non-rent covenants

Question 19

When can the landlord exercise forfeiture?

Answer 19

• Forfeiture is not an automatic right and is only permitted insofar as the lease allows it
• commercial lease will usually allow forfeiture after T breaches obligation to make a payment, breaches other non-payment obligations, or there is an insolvency event
• L cannot exercise this right if they waive the right

Question 20

when can L forfeit if T does not pay?

Answer 20

• L can forfeit as soon as lease allows without serving s146 notice (usually after a contractual grace period)
• but L must first make a formal demand for payment on the day the payment is due before they forfeit unless:

1. there is an express exemption clause in the lease = rent is expressed as payable whether formally demanded or not
2. there are more than 6 months of rental arrears

• After L forfeits (re-enters or applies for court order), T can apply for relief and the court will usually grant relief and resotre the lease if T makes the repayment and pays L’s costs

Question 21

when can L forfeit if T breaches a non-rent covenant?

Answer 21

• L must serve a s 146 notice detailing alleged breach and giving T reasonable time to remedy it before L can forfeit
• the s146 notice must contain:

1. details of alleged breach
2. gives T a reasonable opportunity and time to remedy e.g., 3 months (if the breach is capable of remedy)
3. may require T to pay compensation for costs of sending the notice
4. if breach of repair and the lease was granted for at least 7 years with 3 years left to run = state T’s right to serve a counter notice within 28 days

Question 22

how can a landlord exercise forfeiture and what are the risks?

Answer 22

1. peaceably re-entering = bailiff enters, changes locks, and posts notice on a door (only available for purely commercial leases)

• no involvement of court so cheaper and quicker
• but T may challenge lawfulness of forfeiture or sue if items were damaged, lost, or stolen

2. by obtaining a court order (required for residential leases) = costs more and takes longer but tenant is less likely to challenge forfeiture for unlawfulness

Question 23

how can a landlord waive its right to forfeit? (3)

Answer 23

L can impliedly and inadvertently waive its right to forfeit by:

1. doing an act which unequivocally acknowledges the continued existence of the lease - e.g., demanding or accepting rent, serving a notice under the lease
2. with knowledge of the specific breach in question
3. and communicates this act to the tenant

note = the act can be done by an agent of the landlord (solicitor) even if the agent does not know if the breach but the landlord does

Question 24

can the landlord forfeit for a breach he already waived?

Answer 24

type of breach determines waiver =

1. once and for all breach = if L waives right it will never be able to regain it for that breach (e.g, rent, assignment, underletting, insolvency event)
2. continuing breach = each day the breach continues, the landlord regains the right to forfeit (eg., repair, user, alteration, insurance obligation)

Question 25

what can a tenant do if the landlord forfeited the lease?

Answer 25

T can apply to apply to court for relief from forfeiture

• discretionary remedy by the court = prospects of success are uncertain
• aim and effect = to put parties in position had forfeiture not taken place (restores lease)
• if forfeiture is for non-payment of rent, T will normally be able to get relief from forfeiture by settling all rent arrears and L’s costs
• Note = other parties who derive interest from the lease can apply for relief = mortgagee or undertenant but undertendnant can then become direct tenant of landlord so warn landlord of this if undesirable

Question 26

what are the advantages (2) and disadvantages (3) of forfeiture for the landlord?

Answer 26

advantages =

• threat of forfeiture alone is enough to encourage T to comply and remedy because of the embarrassment caused to business especially from peaceable re-entry
• court does not need to be involved for peaceable re-entry so cheaper and quicker (except for breach of repair)

disadvantages =

• if T does not comply, there is a risk the lease will end and L will lose the tenant = undesirable if L wanted to preserve the lease and the relationship with the tenant in a difficult letting market and where the landlord is relying on the rental income (otherwise L must pay the costs of not having a tenant such as insurance and repair)
• forfeiture is undesirable for minor and remediable breaches
• an undertenant of the tenant can apply for relief and become the direct tenant of the landlord which the landlord may not desire

Question 27

if the tenant breaches a repair covenant, what are the landlord’s options for remedy? (4)

Answer 27

The following remedies are harder to enforce and the landlord is less likely to recover because breaches of repair covenants do not tend to be serious and remedying them is reasonable and realistic =

1. claim damages for breach of contract
2. forfeit
3. specific performance
4. exercise Jervis v Harris clause

Question 28

what must L do if it wishes to forfeit due to a breach of repair covenant?

Answer 28

• L must serve a s 146 notice
• IF: the lease is for a term of 7 years or more AND there at at least 3 years left of the term –> THEN: T HAS 28 DAYS TO SERVE A COUNTER NOTICE which requires L to get court permission to forfeit
• and L must advise T of the right to serve a counter notice under the s146 notice
• disadvantage = must involve the court which may take time and cost money + not appropriate for minor breaches that are easily remediable

Question 29

what is the position of claiming damages for breach of repair covenant?

Answer 29

• L can claim damages under breach of contract
• L cannot issue proceedings for damages for a repairing obligation until it has served a section 146 notice, and given T 28 days to serve a counter-notice
• measure of damages = loss in value to L’s reversion NOT cost of putting the premises into full repair
• disadvantages = not appropriate for minor breaches which do not affect the value of the premises and are easily remedied, L cannot recover costs of repairs via damages if it carried them out itself, and involves the court which is protracted, costly, and does not guarantee success

Question 30

how can specific performance be a remedy for breach of repair covenants?

Answer 30

• this is a discretionary and equitable remedy
• it is rarely used for breaches of repaid covenants except for exceptional circumstances where the damage was repeated and of high value, and where there is no jervis v harris clause
• low prospects of success and court process is protracted and costly - not worth it

Question 31

what is a Jervis v Harris clause?

Answer 31

• self-help remedy for breach of repair covenants by tenant
• commercial lease almost always contains
• clause = L as right to enter property and carry out repairs and recover costs from T
• Cost of repairs is treated as a debt to the landlord (not damages) so it can be recovered in full

Question 32

what are the advantages of a jervis v harris clause compared to other remedies for breach of repair covenant? (4)

Answer 32

• L does not need to serve a s 146 notice and wait 28 days for T to serve a counter notice and does not involve the court = faster, cheaper, and more likely to remedy the defect (unlike forfeiture and claiming damages)
• appropriate for minor and remediable breaches
• appropriate where L wants to preserve the lease and the relationship with the tenant (unlike forfeiture)
• L can recover the cost of repairs in full as a debt = unlike damages which are only the loss in value to the landlord’s reversion and do not involve loss in cost of repairs if L carries them out

Question 33

what are the landlord’s remedies for non-payment of rent? (6)

Answer 33

1. Debt action
2. CRAR = limited to principal rent only - no other sums + at least 7 days principal rent was due
3. Forfeiture = no need to serve s146 notice but must make formal demand unless lease allows not to or more than 6 months of rent is unpaid
4. pursue guarantor
5. pursue rent deposit
6. pursue former tenant if old lease or new lease with AGA (assignment)

Question 34

what are the landlord’s remedies for breaches of covenants other than rent? (6)

Answer 34

1. damages
2. forfeiture = s146 notice required - not appropriate for minor breaches
3. specific performance = discretionary
4. injunction = discretionary
5. pursue guarantor
6. pursue former tenant if old lease or new lease with AGA (assignment)