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Summary Remedies, Breach, Break Clauses, Termination and Surrender of Lease - Advanced Commercial Property

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LPC - Legal Practice Course

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LPC - Legal Practice Course

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Uploaded on May 12, 2023
Number of pages 19
Written in 2022/2023
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surrender
termination
security of tenure
break clauses
acp
lpc
law
remedies
bpp
advanced commercial property

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9. BREACHES & TERMINATION

TENANT REMEDIES

BREACH OF LL REPAIRING COVENANT

 T draws up schedule of dilapidations and serves on LL – if LL fails to carry out work…

1. Action for damages
 S.18 LTA 1927 does not apply – T can recover consequential losses

2. Self Help
 Common law right – Lee-Parker v Izzet 1688
 If no set-off provision in lease i.e. no clause requiring T to ‘pay rents without deduction or
set-off’, T may be able to carry out LL repairs itself, pay for them and have that payment
treated as a direct payment of rent.

3. Specific Performance
 Discretionary – not available if damages are adequate

4. Appointment of a receiver
 s.37 Supreme Court Act 1981 – court has power to appoint a receiver to collect the rent
and manage the property where LL has abandoned it/failed to carry out repairs
 Daiches v Bluelake Investments 1985

BREACH OF IMPLIED COVENANT

 Most leases contain express LL covenant for quiet enjoyment – in absence it is implied for
interruption/interference with T’s use and enjoyment of the property
 Remedy usually damages compensating T for losses result from breach – E.g.
o Erecting scaffolding blocking access to T’s shop (Owen v Gadd [1956])

o Flooding of property due to LL failing to repair culvert (Booth v Thomas [1926])

o LL building works causing prolonged noise, dire and deterioration of common parts
(Mira v Aylmer Square Investments [1990])

o LL Not taking reasonable steps to minimise disturbance when carrying out rebuilding
works to floors above T’s shop (Timothy Taylor v Mayfair House Corp [1997])

 Non-derogation from grant – overlaps with quiet enjoyment – extends to LL failing to step
in where one T’s actions adversely affect another e.g. in common parts of shopping centre
o (Chartered Trust Plc v Davies [1997])

TENANT’S LIABILITY

,OLD LEASE (granted before 1st January 1996)

ORIGINAL TENANT
 T contracted for whole term and even if T assigns lease, it will be liable for the whole term
o Unless the lease provides otherwise (privity of contract)

ASSIGNEES
 Whilst A is the T it is liable to LL for all covenants which touch and concern the land (privity
of estate)
 NOT liable for breaches committed by its predecessors under lease unless they are
continuing breaches
 As a condition of giving consent to assign, LL will have insisted that A gives a direct
covenant to observe and perform the terms of the lease = privity of contract between LL
and A because it will be found in the licence to assign
 Because T remains liable for breaches after assignment it will ask A to indemnify it for any
breaches - Found in licence to assign or in a deed of assignment i.e. a TR1 form

 NB – A may remain liable for breaches of any subsequent assignees if licence drafted
widely – A should seek indemnity from person they are assigning to

SURITIES AND GUARANTORS
 Guarantee T’s obligations to pay rent and perform all T’s obligations – liability can extend to
breaches committed by assignees of T
 Regard to be had to the obligations of the guarantor/surety to original T in the lease – they
remain liable under privity of contract for the whole term unless lease provides otherwise

ORIGINAL LANDLORD & ASSIGNEES OF REVERSION
 Privity of contract (licence) and privity of estate (by virtue of LL & T relationship) apply to LL
liability
 Original LL is liable to original T under privity of contract even when it has sold the
reversionary interest
 Assignees of the reversion are subject to the doctrine of privity of estate

NEW LEASE (granted on or after 1st January 1996)

Landlord and Tenant (Covenants) Act 1995 (‘LT(C)A 1995’)
 Existing T and any guarantor are automatically released from T and Guarantor’s covenants
in the lease on assignment of that lease
 On assignment, LL can require existing T to act as guarantor for new T by way of
Authorised Guarantee Agreement (AGA)
 NO automatic release for LL of the LL covenants on assignment or sale of FH – must apply
to T or the court for release
 Personal covenants made by either party are not automatically released – e.g. personal
covenants to carry out works contained in Agreement for Lease
o BHP Petroleum v Chesterfield Properties [2002]
LANDLORD REMEDIES FOR BREACH OF COVENANT

, RENT ARREARS/NON-PAYMENT

 Action for debt (HC / CC) – time consuming + costly
o LL unlikely to pursue in the first instance

 Bankruptcy/winding up (if sum owed > £750 (co.) or > £5000 (individual))
o Statutory demand = written demand for payment of debt served on defaulting T
o If payment not made within 21 days LL can issue winding up petition (co.) or
bankruptcy petition (individual)
o Often used as shock tactic - can make T pay promptly
 Does not cost much (£500) but informed T can drag out making it more ££

 Commercial Rent Arrears Recovery CRAR - Only applies to commercial premises (strict
interpretation) but does not apply if part of premises used as dwelling (care if mixed use)
o may seize T’s goods not in use to the value of pure rent (no service charge /
insurance) + VAT + interest owed
o LL must serve 7 days clear notice on T – following which LL appoints enforcement
agent to enter premises (so long as it does not breach peace)
 If LL intends to sell seized items it must serve 7 more days notice on T
o Limited to 6 years arrears
o If T has granted underlease = s.81(2) TCEA 2007  LL can serve notice on UT
requiring them to pay rent due under underlease direct to head LL not T

 Forfeiture see below (although not automatic  must be an express clause identify
clause), but without the need to serve a s.146 notice (s 146(11) LPA 1925)
o LL unlikely to want to do this in a poor property market in a poor location – struggle
to re-let premises + do not want to be responsible for business rates
 Write off bad debt in business accounts instead

 Claiming from former tenants (s.17 LT(C)A 1995)
o LL can claim sums from former T if they either remain bound by covenant (old lease)
or have provided an AGA on assignment (new lease) – chain of indemnity
 LL must serve notice on former T within 6 months of current T’s default
 Former T can then call for an overriding lease to be granted within 12 months
of receiving the s.17 notice if they have paid for defaulting A
 Gives T control over property and allows them to forfeit the lease to the
defaulting A – allows them to re-let premises to more reliable T or take
back possession
 LL should consider if it wants former T back before serving s.17 notice

 Claim from guarantors – if performance of T’s obligations guaranteed, LL may be able to
rely on terms of the guarantee to claim back losses from the guarantor

 Rent deposit – LL could draw on this to cover rent arrears (but will be limited to deposit T
gave e.g. 6 mos)

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