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Remedies For Breach Of Lease Covenants Notes

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REMEDIES FOR BREACH OF COVENANTS
Commercial Leases

Option

Take T3 to Court for the debt

Dealing with Tenant's Non-Payment of Rent
Procedure
Advantages & Disadvantages
 Take T3 to Court
 Shows T that L means
 Submit claim form and particulars of business, won't let things claim
Pros slide and may be successful
 Same as CIVLIT procedure in obtaining outstanding rent
 Litigation is costly/stressful
 Even if successful, L won't recover all legal costs
Cons  Only viable if current T is solvent

Threaten to commence insolvency proceedings -
force T3 into insolvency




Commercial Rent
Arrears Recovery
[CRAR]

(set procedure)

If T is a company, it must owe more than £750
If T is an individual, they must owe more than £5,000
Then, L can serve a Statutory
Demand on T
T has 21 days to pay up - if T fails to pay, Court will declare T
insolvent/bankrupt
Tribunals, Courts and Enforcement
Act 2007 [Part 3]
Must be 7+ days' worth of rent outstanding
L must give T 7 days' notice of its intention to seize goods to value of rent owed
L can then send in enforcement agents to seize T's goods and sell them to repay rent monies owed
L must hold on to the goods for 7 days before putting them up for sale at auction at a public auction &
must notify T of the time and place of auction

Pros

Cons

Threat may scare T into paying up

T may call L's bluff and allow the business to become insolvent
L will be an unsecured creditor - will be at the back of queue for any money owing
Good as an immediate solution if T has valuable goods that will cover cost of rent owed


Pros

Cons

Many goods are exempt and cannot be seized, so there may not be sufficient goods at the premises to satisfy the outstanding rent payment e.g. property that is leased;
equipment necessary for
T's business up to £1,350 Under a new Lease, T2 is likely to
 As long as L serves notice have entered into an AGA with L
in time, L is likely to be able upon assigning to T3 - need to to recover so long as T2 is check with L (client) that it did still trading & solvent actually get an AGA from T2.
Pros
Therefore, L can pursue T2 for the outstanding rent.
 Under an old lease, L could pursue
T3's guarantor.
 Alternatively, L could also pursue T1 as its liability would still be ongoing.
 If T2 is no longer trading or
 As L is seeking a 'fixed charge' (i.e. a is insolvent - it will not be quantifiable sum) from T2:
worth pursuing to satisfy

S.17 L&T(C)A 1995 the payment

L must serve 'Default Notice'
of the debt on T2 within 6
Cons months of default by T3

If time limit missed, L cannot pursue for that specific debt
BUT can pursue for next quarter's rent if unpaid by T3
If T3 breaches a leasehold covenant & L has served a s.17 notice on former
T/guarantor (to recover a fixed sum), they can serve a s.19 notice on L for an overriding lease. This basically makes former T/guarantor the 'intermediate' L
between head L and current T. This means they can seek to forfeit the lease rather than get hit continually for each outstanding quarter's rent by head L.

Pursue T2 under
AGA
[New Lease]

Pursue T3's
Guarantor or
Original T (T1)
[Old Lease]

Only available if T agrees to early termination



Pros

Surrender

Cons

Can end lease in a costeffective & timely way
Could be good if L has another tenant lined up to take over - if so, L could offer T3 an 'incentive' to move out early
May have to offer T3 an
'incentive' to move out
If market is weak and a new tenant is unlikely, it may be better to keep a tenant who pays sporadically than to leave the premises unoccupied
L would lose ability to sue
T2 under AGA if T3 agrees to surrender

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