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LPC Law Notes Property Law and Practice Notes

Remedies For Breach Of Lease Covenants Notes

Updated Remedies For Breach Of Lease Covenants Notes

Property Law and Practice Notes

Property Law and Practice

Approximately 490 pages

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REMEDIES FOR BREACH OF COVENANTS

Commercial Leases

Dealing with Tenant’s Non-Payment of Rent
Option Procedure Advantages & Disadvantages
Take T3 to Court for the debt
  • Take T3 to Court

  • Submit claim form and particulars of claim

  • Same as CIVLIT procedure

Pros
  • Shows T that L means business, won’t let things slide and may be successful in obtaining outstanding rent

Cons
  • Litigation is costly/stressful

  • Even if successful, L won’t recover all legal costs

  • Only viable if current T is solvent

Threaten to commence insolvency proceedings – force T3 into insolvency
  • 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

Pros
  • Threat may scare T into paying up

Cons
  • 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

Commercial Rent Arrears Recovery [CRAR]

(set procedure)

  • 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
  • Good as an immediate solution if T has valuable goods that will cover cost of rent owed

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

Pursue T2 under AGA

[New Lease]

Pursue T3’s Guarantor or Original T (T1)

[Old Lease]

  • Under a new Lease, T2 is likely to have entered into an AGA with L upon assigning to T3 – need to check with L (client) that it did actually get an AGA from T2. 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.

  • As L is seeking a ‘fixed charge’ (i.e. a quantifiable sum) from T2:

    • S.17 L&T(C)A 1995

    • L must serve ‘Default Notice’ of the debt on T2 within 6 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

Pros
  • As long as L serves notice in time, L is likely to be able to recover so long as T2 is still trading & solvent

Cons
  • If T2 is no longer trading or is insolvent - it will not be worth pursuing to satisfy the payment

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.

Surrender
  • Only available if T agrees to early termination

Pros
  • Can end lease in a cost-effective & 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

Cons
  • 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

Threat of Forfeiture as T3 is in breach of covenant (but don’t follow through)
  • CHECK FOR FORFEITURE CLAUSE IN LEASE (express re-entry provision)**

  • L has right to forfeit if T3 has breached lease obligations

  • S.210 Common Law Procedure Act 1852: if less than 6 months rent outstanding, L must serve ‘formal demand’ UNLESS lease states otherwise – check lease!

  • “whether formally demanded or not”

  • L must not have waived breach (e.g. accepting late payment of rent) – check with client whether this has occurred

  • L has 2 options:

    • Peaceable re-entry – L can go in & change locks at night when premises are unoccupied [to avoid criminal liability]*

    • Issue and serve court proceedings on T3 for Court Order for Possession

  • T3 has right to apply to court for relief

  • Must pay outstanding rent + L’s legal costs

Pros
  • Threat of forfeiture often means T will pay up if it wishes to retain the premises (otherwise T won’t obtain relief from the Court)

  • If T doesn’t pay up, L will be successful in obtaining a Court Order for possession and can then get a new tenant into the premises

Cons
  • Even if T can pay this time (to obtain relief), if its financial troubles continue, will it be able to pay next time rent is due? Will L have to go through the whole process all over again?

  • Dangerous strategy in a poor property market – time-consuming, going to court is expensive, no guarantee T will pay up

  • If T doesn’t pay up and L obtains court order to evict T, there may not be anyone to re-let premises to – no income

* Peaceable (physical) re-entry [PR]

  • Problematic – only used by ‘bullish’ landlords [cannot be used for residential premises]

  • S.6 Criminal Law Act 1977: criminal offence to use or threaten force to gain re-entry while person on premises is opposed to re-entry

  • Potential breach of Human Rights Act 1998 [Protocol 1 Article 1 - right to peaceful enjoyment of one’s possessions]

  • Consequently, PR only used in unoccupied commercial premises – L will enter and change locks at night

  • L may be unsuccessful - T can apply to Court for ‘relief’ from forfeiture by PR,

    • i.e. Court can set aside re-entry (Billson v Residential Apartments (1992) – generally available where T pays outstanding rent & L’s legal costs

** Forfeiture Clause

‘The Landlord may in any of...

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