Remedies for Breach of Covenant

Question 1

explain liability in relation to an old lease

Answer 1

LL can sue original T (privity of contract) and current T (privity of estate). They will only be able to sue intervening T’s if they gave a direct covenant on underlease/assignment (privity of contract)

Question 2

explain liability in relation to an new lease

Answer 2

LL can sue the current T. They will only be able to sue the previous T if they can an AGA on underlease/assignment. Any AGA given by the previous T expires when the current T assigns/underleases

This is because LTA 1995 replaced the rules on privity of contract & estate. Now, a former T is automatically released from liability on assignment/underlease, unless they get an AGA.

Question 3

what are the considerations when deciding who to sue?

Answer 3

what type of remedy they want i.e. if someone is being sue on the basis they provided an AGA, they couldn’t complete an order for specific performance

Question 4

who can the LL sue?

Answer 4

1. Current T
2. Current T’s guarantor
3. Former T (NB: dependent on whether it is an old lease or new lease)
4. Former T’s guarantor

Question 5

explain the liability of a former T’s guarantor to an old lease and why they can be sued

Answer 5

G’s liability continues for the duration of the lease (even if the original T assigns the lease to someone else)

Question 6

explain suing the current T’s guarantor

Answer 6

The guarantee must be in writing

The guarantee will usually provide that G must pay rent/other sums T has failed to and remedy/indemnify LL for loss caused by breach of covenant

Question 7

explain the liability of a former T’s guarantor to an new lease and why they can be sued

Answer 7

G (and T) is automatically released from liability on assignment unless T is required to enter into an AGA on assignment. Then their G would indirectly guarantee the incoming T until they assign

Question 8

what must be done before LL can sue a former T/their G?

Answer 8

LL must comply with s17 LTA 1995:

Question 9

explain the s17 LTA procedure

Answer 9

o LL must serve a default notice on the former T/G.
o This applies to claims for ‘fixed charges’ only i.e. rent, service charges, any amount payable under a covenant for a liquidated sum (NB: if the sum is not a ‘fixed charge’, LL does not need to follow s17.
o Notice must be served within 6m of the breach, otherwise LL will not be able to recover the money from former T/G (in other words, if T is in 1yr of arrears, LL would only be able to recover the last 6m)
 NB: LL need not start proceedings in this time, but must serve notice
o This applies to old and new leases.

Question 10

what does the s17 procedure apply to?

Answer 10

o This applies to claims for ‘fixed charges’ only i.e. rent, service charges, any amount payable under a covenant for a liquidated sum
 NB: if the sum is not a ‘fixed charge’, LL does not need to follow s17.

Question 11

what is the time limit for service of the s17 notice? explain the effect

Answer 11

o Notice must be served within 6m of the breach, otherwise LL will not be able to recover the money from former T/G (in other words, if T is in 1yr of arrears, LL would only be able to recover the last 6m)

 NB: LL need not start proceedings in this time, but must serve notice

Question 12

what can former T/G do if a s17 notice is served?

Answer 12

the former T/G can call for an overriding lease. This is a concurrent lease and makes them the immediate LL of the defaulting T. They could then terminate the lease or exercise remedies available to a LL.

Question 13

what are the remedies for breach of covenant to pay?

Answer 13

• debt action
• commercial rent arrears recovery
• rent deposit
• forfeiture

Question 14

re: remedies for breach of covenant to pay

what must always be checked before pursing a remedy?

Answer 14

• Must check there is such covenant and that the payment date has passed

Question 15

re: remedies for breach of covenant to pay

can LL use more than 1 remedy?

Answer 15

yes

Question 16

re: remedies for breach of covenant to pay

explain a debt action

Answer 16

• 6 year limitation period applies.
• Can be brought against any of the above.

NB: if pursuing former T/G, LL need not bring the claim within 6m, they just need to serve notice of money owed.

Question 17

re: remedies for breach of covenant to pay

what does commercial rent arrears recovery allow?

Answer 17

CRAR allows the LL to enter the commercial property and seize and sell goods belonging to the current T if they do not pay the arrears

Question 18

re: remedies for breach of covenant to pay

what are the commercial rent arrears recovery rules?

Answer 18

o Applies to rent only (i.e. arrears for other payments such as insurance rent cannot be recovered, even if they are reserved as rent in the lease)
o Must be at least 7 days of rent outstanding
o LL must give 7 days’ notice before entering the property
o Must use an enforcement agency
o They cannot seize certain goods i.e. items with a value up to £1350 which are necessary for T’s business (i.e. computers)
o The items must belong to T i.e. leased or hired items cannot be taken
o The goods must be sold at public auction
o T must be given 7 days’ notice of the sale

Question 19

re: remedies for breach of covenant to pay

explain rent deposit

Answer 19

i.e. money paid to LL (usually 6-12m rent) at the start of the lease. The terms and conditions will be set out in a rent deposit deed, but generally:
o LL can use the money as soon as T breaches a covenant (provided LL has not breached a covenant)
o T is required to top up the deposit if the LL has drawn down on it
o It will be returned to T at the end of the term or on assignment

Question 20

re: remedies for breach of covenant to pay

what is the advantage of rent deposit?

Answer 20

• Advantage  LL does not need to take court action etc.

Question 21

re: remedies for breach of covenant to pay

what is the effect of forfeiture?

Answer 21

• Only remedy that will end the lease and give the LL vacant possession

Question 22

re: remedies for breach of covenant to pay

when can forfeiture be used?

Answer 22

• Can only be used if the lease contains a forfeiture clause (may be called a forfeiture clause, provisos or re-entry)

Question 23

re: remedies for breach of covenant to pay (forfeiture)

what does common law provide?

Answer 23

• Common law requires a formal demand to be made before forfeiture, but they can be dispensed with in the lease.

Question 24

re: remedies for breach of covenant to pay (forfeiture)

when can action be taken?

Answer 24

• The lease can specify the no. days rent must have been outstanding

Question 25

re: remedies for breach of covenant to pay (forfeiture) how can LL forfeit?

Answer 25

* LL can forfeit by taking possession through peaceable re-entry (i.e. without force). A court order is needed if this isn’t possible.

Question 26

re: remedies for breach of covenant to pay (forfeiture) what can T do?

Answer 26

* T can apply for relief from forfeiture. Court has discretion whether to allow the lease to continue, subject to the condition T has paid all arrears and costs

Question 27

re: remedies for breach of covenant to pay (forfeiture) why must LL be careful?

Answer 27

* LL will waive their right to forfeit if they demonstrate an intention to continue with the lease i.e. demanding or accepting rent after the breach

Question 28

re: remedies for breach of covenant to repair what is the first step?

Answer 28

* Must check wording of covenant to determine if there has been a breach

Question 29

re: remedies for breach of covenant to repair what are the remedies?

Answer 29

- specific performance - damages - self-help/ Jervis v Harris clause

Question 30

re: remedies for breach of covenant to repair explain specific performance

Answer 30

* Would force T to comply with a positive covenant * Only available where another remedy isn’t appropriate & at court’s discretion

Question 31

re: remedies for breach of covenant to repair when are damages available?

Answer 31

Always available as breach of covenant is a breach of contract

Question 32

re: remedies for breach of covenant to repair what are the limitations to damages?

Answer 32

1. s18 LTA limits damages 2. LL must follow a procedure where the lease is ore than 7 years old with 3 years left to run

Question 32

re: remedies for breach of covenant to repair explain s18 LTA 1927 regarding damages

Answer 32

damages are limited to the amount the breach has reduced the value of the LL’s reversion (usually the FH). Therefore, if the diminution is less than the repairs, the LL will not recover the full cost of the repair

Question 33

re: remedies for breach of covenant to repair what procedure must be followed to recover damages in certain circumstances? explain those circumstances.

Answer 33

If the lease is more than 7 years with more than 3 years left to run, LL must follow this procedure to claim damages: 1. LL must serve notice on T; 2. T can serve a counter-notice within 28 days 3. If they do, LL cannot proceed with claim without leave from the court

Question 34

re: remedies for breach of covenant to repair what is the self-help clause?

Answer 34

* This is a clause which allows the LL enter the property and check compliance with the covenant to repair. If there has been a breach, LL can serve a notice.

Question 35

re: remedies for breach of covenant to repair (self-help) what does the notice set out?

Answer 35

* The notice will specify the action to remedy the breach & time for compliance

Question 36

re: remedies for breach of covenant to repair (self-help) what happens if T fails to comply with the notice?

Answer 36

* If T fails to comply, LL can carry out the work themselves and recover this as a debt action (rather than a damages claim which is good because it avoids the above limitations)

Question 37

re: remedies for breach of covenant to repair and other covenants (forfeiture) when can this be used?

Answer 37

* The lease must contain a forfeiture clause

Question 38

re: remedies for breach of covenant to repair and other covenants (forfeiture) what is important to note about this process?

Answer 38

this is different to breach of covenant to pay rent. This is the s146 LPA 1925 procedure and applies to all other breaches of covenant

Question 39

re: remedies for breach of covenant to repair and other covenants (forfeiture) explain the s146 procedure

Answer 39

1. LL must serve a s146 notice which: specifies the breach; provide a reasonable time for it to be remedied (if capable of remedy); and require T to pay compensation for the breach (if required) o If the lease is for 7 years or more with at least 3 years unexpired, the notice must also state T has a right to serve a counter-notice. If they do, the claim can only proceed with leave of the court. 2. If T does not comply, they can forfeit but peaceable re-entry or court order 3. T can apply from relief from forfeiture

Question 40

re: remedies for breach of covenant to repair and other covenants (forfeiture) what is the additional requirement if the lease is for more than 7 years with at least 3 years unexpired?

Answer 40

o If the lease is for 7 years or more with at least 3 years unexpired, the notice must also state T has a right to serve a counter-notice. If they do, the claim can only proceed with leave of the court.

Question 41

re: remedies for breach of other covenants what remedies are available?

Answer 41

* i.e. changing property type without consent Remedies: o Forfeiture (s146 applies but no need to inc. counter notice, if applicable) o Injunction (for breach of negative covenant) o Specific performance (for breach of positive covenant) o Damages (normal contractual rules apply) o Pursue former T/G o Deduction from rent deposit (subject to terms of rent deposit deed)