Week 10 Flashcards
(31 cards)
What does hold over mean?
- To stay in the property after the lease has expired - whether or not you can do this will depend on the type of lease (effluxion and notice to quit)
- Can only happen if they don’t have security of tenure as a clause in their lease
- Can be either residential or commercial tenants
What is security of tenure?
- Security of tenure under the Landlord and Tenant Act 1954, gives commercial tenants the automatic right to keep possession of a business premises after the lease term has ended.
- Most residential tenants will not have security of tenure.
Risks of holding over?
- Either a tenancy at will is started, or a periodic tenancy begins.
Methods of termination of leases
Effluxion of time
Effluxion of time means that the lease ends at the end of the contractual term (a protected tenant will be able to hold over after the end of the contractual term).
A break clause generally requires positive action by a party to end the lease.
Notice to quit
Notice to quit for a periodic tenancy means either the landlord or tenant giving notice that they intend the tenancy to end (or a protected tenancy, a landlord’s notice to quit will end the periodic tenancy, but the tenant can hold over).
Surrender
Surrender means that the tenant gives up its leasehold interest to the landlord (with the landlord’s agreement) (this is possible with a protected tenancy).
Merger
Merger means either that the tenant acquires the landlord’s interest, or a third party acquires both interest. Either way, the freehold (or superior interest) and the leasehold are merged and come to an end (this would happen whether the tenancy is protected or not).
Effluxion of time
A fixed term tenancy which does not have security of tenure will expire at the end of the contractual term. The landlord can require the tenant to vacate the premises, and if the tenant refuses, the landlord can treat the tenant as a trespasser.
If the landlord consents to an unprotected tenant remaining in occupation, the tenant is not holding over, but would be treated as a ‘tenant at will’.
If the landlord accepts rent, then the tenancy at will may be converted to a periodic tenancy. A landlord needs, therefore, to exercise care.
Break clause
A fixed term tenancy may contain a break clause, which allows the lease to be ended before the end of the contractual term.
If the tenant exercises a break, then it is effective with a protected tenancy.
However, if the landlord exercises a break (either a landlord only or mutual break clause), it only operates to bring the contractual term to an end. The tenant may still hold over. Therefore if a landlord’s break clause is to be effective, a lease that would otherwise be protected must be contracted out.
Notice to quit
A periodic tenancy cannot be contracted out, but of course not every periodic tenancy will qualify as a protected tenancy (eg, a non-commercial tenancy or a service tenancy).
Unless there is a tenancy agreement that specifies otherwise, the notice period required depends on the period of tenancy:
Weekly – four weeks (residential) or one week (other tenancies)
Monthly – one month
Quarterly – one quarter
Yearly – six months
Notice to quit and security of tenure
If the periodic tenancy is a protected tenancy, then the landlord may still serve notice to quit, but it will only end the periodic tenancy itself. The tenant will be entitled to hold over.
The tenant may also serve notice to quit if it wishes to leave the premises. This is effective whether the tenancy protected or not.
Therefore a landlord wishing to recover possession from a protected tenant under a periodic tenancy will need to serve a hostile section 25 notice supported by one or more of the statutory grounds.
This must follow the notice requirements of s25 (ie, 6 to 12 months’ notice of the termination date) but may double as a notice to quit provided it also, for example, ends on the first or last day of the period. Alternatively a separate notice to quit may be served.
Note that although the tenant of a protected periodic tenancy can hold over, it cannot serve a section 26 notice.
Surrender
A fixed term tenancy may be brought to an end earlier than the end of the contractual term provided both landlord and tenant agree.
The tenant gives up its leasehold interest to the landlord. An express surrender must be made by deed.
The tenant may want to surrender if it no longer needs the premises for the purposes of its business. The landlord may want the tenant to surrender if it needs the premises back to redevelop or for other purposes.
A premium may be payable for the surrender, but the direction will likely depend who has most to gain. A premium paid by the tenant to give up its interest is known as a reverse premium.
The tenant will likely pay the landlord a reverse premium in this situation.
A surrender by operation of law arises when the landlord and tenant act in way that is inconsistent with the continuation of the tenancy. For example, the landlord accepts the keys from the tenant with an understanding that the tenant is leaving the premises permanently.
Either an express surrender by deed or a surrender by operation of law are effective even if the tenancy is protected.
If, as sometimes happens, there is an agreement to surrender a protected tenancy in advance of the deed, however, there is a procedure similar to contracting out which must be followed.
Merger
A merger happens when either the tenant acquires the landlord’s superior interest (the opposite to a surrender), or a third party acquires both.
Landlord’s remedies - damages
A tenant’s covenants are enforceable as a matter of contract between the parties, and the landlord can bring proceedings in the court to claim for damages.
The measure of damages is to put the landlord back into the position they would have been were it not for the breach of covenant.
Court proceedings can be costly and protracted, and the landlord may not be able to recover its costs.
There are particular issues relating to damages for breach of the repairing covenant.
Landlord’s remedies - action in debt
A landlord can issue court proceedings to recover a debt, such as unpaid rent, service charge or insurance rent.
An action for debt is limited to rent due in the six years before the issue of proceedings. Any earlier outstanding rent is irrecoverable.
This is unlikely to be significant with a commercial rack rent lease (where the landlord is unlikely to allow six years of rent arrears to build up), but is relevant to long leases, where low ground rents often go unpaid.
Again, the disadvantage is that court claims may be costly and time consuming.
However an advantage is that the time taken to pursue the debt gives the tenant breathing space, and strangely may therefore help preserve the landlord/tenant relationship.
If the current tenant is an assignee, another possibility is to pursue the former tenant, if it is an old lease or the former tenant gave an authorised guarantee agreement (see element on assignment). In certain instances, a former tenant who is paying the current tenant’s debts may apply to the landlord to be granted a lease.
Landlord’s remedies - Guarantor and rent deposit
If the landlord had concerns about the covenant strength of a tenant or assignee at the time of the grant or assignment, the landlord may have obtained a guarantor or rent deposit from the tenant.
The landlord can rely on the contractual terms of a guarantee to claim its losses from the guarantor.
A guarantee will typically cover all the tenant’s obligations, so that the landlord is not limited to pursuing unpaid rent, but also any breach of the tenant’s covenants.
The landlord can draw on a rent deposit (usually limited, say to six months’ rent) if there are any arrears.
The tenant will be required to top up the deposit after a withdrawal. If the breach is an isolated occurrence, this can provide a useful cushion while preserving the landlord/tenant relationship.
Commercial rent arrears recovery (CRAR)
Commercial rent arrears recovery (CRAR) is a self-help remedy (similar to the old common law remedy of distress which it replaced on 6 April 2014).
Self-help remedies have the advantage of being generally cheaper and quicker than court proceedings.
CRAR may be used where:
* the premises are purely commercial (it cannot be used, for example, where the premises comprise a shop and residential flat)
* a minimum of 7 days’ principal rent is owed (it can’t be used to recover service charge or any other sum reserved as ‘rent’ but does include VAT and interest)
* the lease has not been forfeited
CRAR requirements
As it is a self-help remedy, there are strict requirements to the way in which CRAR must be conducted:
* the landlord must appoint an enforcement agent who either has the required certificate from the court or is exempt from the requirement (eg, a police officer)
* Seven clear days’ notice must be given of the intention to enter the tenant’s premises (clear days exclude Sundays and bank holidays)
* The notice must include certain details, such as the amount of the debt and how to repay it, details of the power being used to enforce the debt, and contact details for the enforcement agent
* If the notice expires without repayment of the debt, the enforcement agent can enter the premises and take control of goods belonging to the tenant up to the value of the debt owed.
* The landlord must serve a further seven clear days’ notice if it intends to sell any of the seized goods.
Equitable remedies
Both injunctions and specific performance are equitable remedies. Aside from the cost issue of court proceedings, equitable remedies are discretionary. Their use as a remedy against tenant breaches is limited.
specific performance and injunction
Specific performance
Specific performance is an order to the tenant to do something that it has not done.
Specific performance has been granted for a tenant to put premises in repair, but this was an exceptional case (the lease did not provide other alternatives).
Otherwise, specific performance will rarely be available to a tenant, particularly for a breach of repair.
Injunction
An injunction is an order to the tenant not to do something.
The landlord may be able to get an injunction, for example, if aware that the tenant intends to assign the lease unlawfully.
However, the landlord is unlikely to get an injunction against an assignment that has already taken place.
Forfeiture as a landlord’s remedy
Forfeiture is the right of the landlord to re-enter the premises and take them back from the tenant. It brings the lease to an end before the contractual term (or during any period of holding over).
The threat of forfeiture may spur a tenant into compliance with its obligations, but in a difficult rental market, a tenant who breaches some of its obligations may be better than no tenant at all!
The terms forfeiture and re-entry are often used interchangeably.
the right to forfeiture
Forfeiture is not an automatic right, and is only permitted insofar as the lease provides for it - HAS TO BE WRITTEN IN CONTRACT
A commercial lease will typically allow the landlord to forfeit the lease if the tenant fails to pay the rent (usually after a period of grace), breaches its obligations under the lease, or there is an ‘insolvency event’.
For non-payment of rent, the landlord is entitled to forfeit as soon as the lease allows. For any other breach of the tenant’s obligations, the landlord must serve a section 146 notice (Law of Property Act 1925). This notice details the alleged breach and gives the tenant a reasonable opportunity the opportunity to remedy it, failing which the landlord will be entitled to forfeit.
An ‘insolvency event’ usually covers a range of events that indicate financial difficulties, such as the appointment of an administrative receiver, or with an individual tenant, a voluntary arrangement or bankruptcy.
Why can forfeiture be an effective remedy?
Forfeiture can cause embarrassment to a tenant’s business. Typically the landlord will arrange for a bailiff to attend the premises in the early morning and change the locks, and put a notice on the door.
Forfeiture can be achieved by peaceable re-entry, ie, by simply instructing the bailiff as above. There is a risk that the tenant may legally challenge this if it has not been carried out lawfully or if the tenant’s stock, equipment or belongings are lost, damaged or stolen.
Alternatively, the landlord can apply to the court for an order for forfeiture. This costs more and takes longer than peaceable re-entry. However, it makes it more difficult for the tenant to challenge the forfeiture on the grounds of lawfulness.
Waiver of the right of forfeiture
If the landlord acts in a way that acknowledges the continuing existence of the lease, the landlord risks losing the right of forfeiture.
An implied waiver of the right of forfeiture can arise if:
* the landlord does some unequivocal act recognising the continuing existence of the lease;
* with knowledge of the breach in question; and
* communicates that act to the tenant.
The intention of the landlord is irrelevant.
Type of breach
Once and for all breach
If a breach is a ‘once and for all breach’, once the landlord waives the right of forfeiture, it will never be able to regain it for that breach.
Examples include:
* non-payment of rent
* an unlawful assignment or underletting
* an insolvency event
Continuing breaches
Other breaches are ‘continuing breaches’ meaning that each day that the breach continues, the landlord regains the right of forfeiture.
Examples:
* failure to keep the premises in repair
* breach of the user covenant
* failure to comply with an insurance obligation
Relief from forfeiture
As soon as the landlord serves a section 146 notice or starts the process of forfeiture, whether by peaceable re-entry or issuing proceedings, the tenant is entitled to apply for relief from forfeiture.
Relief from forfeiture is a discretionary remedy. If the court award the tenant relief from forfeiture, then the lease is restored as if forfeiture had never taken place.
The aim of the court is to put the parties back into the position in which they would have been had forfeiture not taken place.
If forfeiture is for non-payment of rent, then the tenant will normally be able to get relief from forfeiture by settling all rent arrears and landlord’s costs.
Other parties who derive an interest from the tenant’s lease, such as a mortgagee or undertenant are also able to seek relief from forfeiture. In the case of an undertenant, this may result in the undertenant becoming a direct tenant of the landlord.
Breach of repair covenant
Neither forfeiture nor proceedings for damages are as straightforward as they are for other breaches.
The rationale for this is that almost all tenants will be in breach of their repairing obligation in some way. Repairing breaches are, by their nature, capable of being put right (ie, being repaired).
The law therefore is more generous to tenants in this than other breaches.
