Unit 7 Landlords Remedies and Lease Termination

Question 1

Liability on covenants in leases - who is liable?

Answer 1

Depends on whether the lease is an old lease granted before 1st Jan 1996 or a new lease granted on or after that date

Question 2

Liability on covenants in leases - who is liable? old lease

Answer 2

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. Landlord can sue both current tenant and original tenant.

Question 3

Liability on covenants in a lease - Who is liable? - New lease

Answer 3

The original tenant is released from liability for the covenants in the lease as soon as it assigns the lease to another tenant. So the landlord can only sue the current tenant. However the landlord can make them sign an AGA which is a promise by the outgoing tenant that they will be liable for any breaches of the covenants in the lease by the incoming assignee. The 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.

Question 4

Remedies for breach of the covenant to pay rent - action in debt

Answer 4

Rent can be recovered through the High Court or County Court as a debt. The Limitation Act 1980 puts a limitation of six years on recovery of rent.

Question 5

Remedies for breach of the covenant to pay rent - Commercial Rent Arrears Recovery (‘CRAR’)

Answer 5

Permits the landlord to enter the property and seize and sell goods belonging to the current tenant.
Only to commercial premises and there are strict procedural rules.
Must give 7 days’ notice of its intention to enter the premises and must use an enforcement agency to enter the premises to remove goods.

They are not allowed to remove certain goods - items or equipment up to the value of £1350 which are necessary for the tenant’s business, such as computers or telephones, any items which are leased or bought on hire purchase cannot be taken.

Goods must be sold at a public auction and that the tenant is given at least 7 clear days’ notice of the sale.

Question 6

Remedies for breach of the covenant to pay rent - Pursue guarantors

Answer 6

Where the landlord intends to pursue a former tenant or the guarantor of a former tenant, landlord must comply with s 17:
* The landlord must serve a ‘default notice’ on any former tenants or their guarantors if the landlord intends to recover a ‘fixed charge’ from them.
* Notice must be served within 6 months of the current tenant’s breach.

Former tenant or its guarantor may be able to regain some control over the property by paying the sum claimed under the default notice and then calling for an ‘overriding lease’, 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 7

Remedies for breach of the covenant to pay rent - Forfeiture

Answer 7

Brings the lease to and end and enable the landlord to gain vacant possession of the property.

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

Common law requires a formal demand to be made but the lease can dispense with this.

Can get in by court order or peaceable re entry.

Question 8

Remedies for breach of the covenant to repair - specific performance

Answer 8

Equitable remedy of specific performance is available to force the tenant to comply with the positive covenant. However the courts will grant this relief only where other remedies are not appropriate.

Question 9

Remedies for breach of the covenant to repair - damages

Answer 9

= breach of contract.

But cannot recover the full cost of the repairs:
(i) Section 18 of the Landlord and Tenant Act 1927 limits the amount of damages to the amount by which the landlord’s reversion (usually the freehold building) has diminished in value as a result of the disrepair.
(ii) The Leasehold Property (Repairs) Act 1938 applies to leases granted for seven years or more with more than three years left to run. 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 10

Remedies for breach of the covenant to repair - Self- help/ Jervis v Harris clause

Answer 10

A typical self- help clause allows the landlord to enter the 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 the tenant fails to start the work within a specified period after service of the landlord’s notice, or is not proceeding diligently with those works, the landlord may enter, carry out the works and recover the cost from the tenant as a debt.

Question 11

Remedies for breach of the covenant to repair - Forfeiture

Answer 11

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

Where the lease was originally for seven years or more and has at least three years left unexpired, the Leasehold Property (Repairs) Act 1938 applies and requires the s 146 notice to include notification of the tenant’s right to serve a counter notice within 28 days. If the tenant serves a counter notice, then the landlord can only proceed to forfeit with the leave of the court.

Question 12

Surrender

Answer 12

The tenant surrenders its lease to the landlord.

Surrender requires a mutual act by the tenant and landlord which treats the lease as no longer being in existence.

Although this could be done informally by operation of law (eg by handing the keys back), with commercial leases it would probably be done formally by a deed of surrender.

Question 13

Termination of leases at common law - Effluxion of time

Answer 13

When the contractual terms ends in a fixed term lease.

Question 14

Termination of leases at common law - Notice to quit

Answer 14

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 a half year’s notice. Other periodic tenancies are determined by one full period’s notice e.g one month/quarter.

Question 15

Termination of leases at common law - Surrender

Answer 15

Where the tenant yields up the lease to the landlord who accepts the surrender.
Can only be achieved if both the landlord and the tenant agree to it. On surrender, the lease is said to merge in the landlord’s reversion and is extinguished.
To be legal, surrender must be by deed.

Question 16

Termination of leases at common law - Merger

Answer 16

Where the tenant acquires the immediate reversion to the lease (ie acquires the landlord’s estate in land). It is the opposite of surrender.

It can also occur where a third party acquires both the lease and the reversion.

The lease automatically merges with the reversion and is extinguished (unless the tenant/ third party expressly preserves the lease in the documentation).

Question 17

1954 Act - requirements

Answer 17

There must be a tenancy of a property which is occupied by the tenant for business purposes. Business = trade, profession or employment and in the case of a body of persons any activity carried on by them.

Not all types of business tenancy are protected by the Act:
* Tenancies at will, which can be terminated at any time by either party
* Fixed- term tenancies not exceeding six months.
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. Also, 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.
* Tenancies of agricultural holdings, farm business tenancies and mining leases.
* Fixed- term tenancies that are ‘contracted out’.
Landlord and tenant to agree act won’t apply.
The landlord must give the tenant notice in a prescribed form warning the tenant that they are agreeing to a lease without security of tenure and advising them to obtain professional advice. The tenant must then make a declaration in a prescribed form that they have received the notice and agree that the lease should be contracted out. If the tenant is given the notice less than 14 days before the grant of the lease, the tenant’s declaration must be made in the form of a statutory declaration before an independent solicitor. A reference to the service of the notice and the tenant’s declaration must be contained or endorsed on the lease itself.

Question 18

1954 Act - 7 methods of termination

Answer 18

1) by the service of a landlord’s notice under s 25
2) by the service of a tenant’s request for a new tenancy under s 26
3) forfeiture
4) surrender
5) in the case of a periodic tenancy, by the tenant giving the landlord a notice to quit
6) in the case of a fixed- term lease, by the tenant serving three months’ written notice on the landlord under s 27, 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 s 27(1A).

Question 19

1954 Act - Termination by the landlord – s 25 notice

Answer 19

The landlord must indicate its proposals as to the terms of the new lease in the s 25 notice.

If the landlord opposes the renewal of the tenancy, the s 25 notice must state the s 30 grounds.

Must state the date upon which the landlord wants the tenancy to end. This date cannot be earlier than the date the tenancy could have been terminated under the common law. E.g. expiry of fixed term. But it does not have to coincide with the exact date when a fixed term lease expires.

If the landlord has not served the s 25 notice in time to terminate the tenancy on the contractual expiry date and the six months would end, for example, a month after the lease expires, the tenancy continues in that extra month. Continuation tenancies are very common in practice.

The s 25 notice has to be served no less than six months and no more than twelve months before the termination date specified in the notice.

Question 20

1954 act - Termination by the landlord - S. 25 notice - Application to the court following service of a S. 25 notice

Answer 20

If the landlord indicates in the s 25 notice that it will oppose the grant of a new tenancy, the tenant must apply to the court before the expiry of the s 25 notice, or they will lose their rights under the 1954 Act.

The landlord can pre- empt the tenant’s application to court by applying for an order to terminate the lease on the grounds stated in its s 25 notice (but not if an application has already been made by the tenant asking for the lease to be renewed).

If doesn’t object, tenant can still apply to court to protect themselves during negotiation.

Question 21

1954 Act - Tenant ending lease after contractual expiry

Answer 21

Serve a s 27 notice giving the landlord three months’ prior written notice.

Question 22

1954 Act - Renewal lease by the tenant – s 26 request

Answer 22

s 26 request serves to bring the current tenancy to an end and constitutes a request for a new tenancy.

Must state the date on which the tenant wants the new tenancy to begin and contain the tenant’s proposals for the new tenancy.

Same time limits as the landlord serving a s 25 notice.

Question 23

1954 act - Renewal lease by the tenant - S. 26 request - Landlord response

Answer 23

If landlord objects to new tenancy, it must serve a counter- notice on the tenant within 2 months of the service of the tenant’s s 26 request stating the s 30 ground(s) of opposition.

The tenant must then ensure that they apply to court for a new lease or they will lose their rights under the 1954 Act. The application must be made prior to the commencement date of the new tenancy specified, unless the landlord agrees an extension of this time limit.

The landlord can pre- empt the tenant’s application to court by applying for an order (but not if an application has already been made by the tenant asking for the lease to be renewed).

If the landlord does not oppose the grant of a new tenancy, parties will negotiate the terms of the new lease. However, the tenant should make an application to court for safety.

Question 24

1954 Act - Landlord’s grounds of opposition – s 30 grounds

Answer 24

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

Grounds (a), (b), (c) and (e) are all discretionary.

Grounds (d), (f) and (g) are mandatory.

Ground (f) is the most frequently used ground. The landlord must show that, on the termination of the tenancy:
i) it has a firm and settled intention to carry out the relevant work (eg that it has obtained the necessary planning permission and the financial arrangements are in place); and
ii) 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
iii) it cannot reasonably carry out the work without obtaining possession (ie the landlord will not succeed if the tenant agrees to allow the landlord access to carry out the work, which can then be reasonably carried out without obtaining possession and without substantially interfering with the tenant’s use).

Cannot rely on ground (g), unless landlord has owned their interest for at least five years before the ending of the current tenancy.

Question 25

Terms of new lease

Answer 25

Entitled to lease of same land.

Term of the new lease will be such as is reasonable in the circumstances, but cannot exceed 15 years.
The term will not commence until three months after the proceedings are ‘finally disposed of’ (ie when the time limit for appeal has elapsed, so four weeks after the order).

The rent is the open market rent having regard to the other terms of the tenancy. In assessing this, the court must disregard:
(a) the fact that the tenant and their predecessors have been in occupation;
(b) any goodwill attached to the holding;
(c) any effect on rent of any improvements voluntarily carried out by the tenant during the tenancy; and
(d) in the case of licensed premises, any addition in value due to the tenant’s licence.
The court can insert a rent review clause in the lease, even though there was not one in the previous lease.

In the absence of agreement court decide terms.

Tenant can apply to get new lease revoked if they don’t like terms.