Remedies for Breach of Leasehold Covenants

Who can the LL enforce a covenant against if the lease was created before 1 January 1996?

Nicknamed ‘old leases’.

• Original tenant (even if assigned lease)

• Current tenant (privity of estate)

• Intervening tenants (privity of contract) via direct covenant

LL in strong position.

Who can the LL enforce a covenant against if the lease was created on or after 1 January 1996?

[LLTA (Covenants) Act 1995]

Nicknamed ‘new leases’

• Original tenant released from liability upon assigning lease.

• LL can stipulate conditions to consent to assignment overcome loss of control.

• Give ‘authorised guarantee agreement’ (AGA).

LL in worse position than before 1 Jan 1996.

What is a ‘authorised guarantee agreement’ (AGA)?

Outgoing tenant agrees liability for breaches by incoming assignee.

BUT - Only lasts for duration of assignee’s ownership of lease.

LL will need to obtain another.

What are the main remedies for breach of the covenant to pay rent?

• Action in debt

• Commercial Rent Arrears Recovery

• Pursue guarantors and / or deposit

What is an action in debt remedy for rent arrears?

Non-payment of rent = debt

Recover via HC or CC.

Limitation Act of 6 years for recovery.

What is a the remedy of ‘Commercial Rent Arrears Recovery’ (CRAR)?

LL enter property seize + sell items.

Limited application:

• 7-days notice. Enforcement Agency only.

• Applies only to tenants’ items. Not leased or hire purchase objects.

• Cannot seize goods necessary for business up to value £1350 (i.e. PCs, phones).

• Insurance rent not recoverable this way.

Can a LL make a guarantor under an ‘new lease’ liable for a newly assigned lease?

Yes in an indirect way.

General rule - Guarantor released from liability once lease assigned under a new lease.

BUT - LL can request guarantor to g’tee AGA provided by ‘outgoing tenant’.

For ‘old leases’ above is irrelevant. Guarantor is liable throughout entire lease.

How may a LL pursue a former tenant or their guarantor for payment of rent?

[S. 17, Landlord & Tenants (Covenants) act 1995]

• LL serve ‘default notice’ to recover fixed charge (i.e. rent, service charge).

• Serve within 6-months breach. Don’t need to start proceedings.

• S. 17 applies to both new and old leases.

• Can only recover rent falling within 6-months of notice being served.

Under a rent deposit deed, does the LL need to take a court action for debt to draw on the rent deposit?

No.

Provided adhere to terms in rent deposit deed.

Can withdraw at any point.

What is a forfeiture clause?

Brings lease to an end. LL gain vacant possession.

Typically sets time period (i.e. non-payment of rent 21 days). Forfeits automatically.

CL requires ‘formal demand’. Lease can override this.

Can a tenant oppose a forfeiture of the lease?

Yes.

Can apply to court for relief.

May be granted, but pay arrears and costs.

What are the remedies available for breach of the covenant to repair?

• Specific performance

• Damages

• Self-help / Jervis v Harris clause

When will specific performance be an appropriate remedy for breach of the covenant to repair?

[Rainbow Estates v Tokenhold]

Equitable remedy. Wholly at discretion of court.

When other remedies are not appropriate.

• No forfeiture or LL’s self-help clause

• Damages not adequate remedy

• Order not sought by LL to harass tenant.

How is the right to damages for breach of the covenant to repair limited by S. 18, LLTA 1927?

• May not recover full repair costs. Why?

• Damages are limited to diminished capital value of building.

How is the right to damages for breach of the covenant to repair limited by The Leasehold Property (Repairs) Act 1938?

• Applies to leases >7 years and more than 3-years left.

• Notice must be served on tenant.

• Tenant can serve counter-notice within 28 days.

• LL cannot proceed further without court approval.

How does a ‘self-help’ or Jervis v Harris clause work?

LL enter and inspect property.

Identify disrepair. Serve notice on tenant to repair within specified period.

Fail to do so? LL enter and repair itself.

Recover costs from tenant as debt not damages.

Important because avoid statutory limitations on damages (as above).

Is forfeiture for breach of other covenants distinct from forfeiture for non-payment of rent?

[S. 146, LPA 1925]

Yes. Different process.

Follow s. 146, LPA 1925. LL serves notice:

• Specify breach

• Require breach to be remedied within reasonable time

• Require tenant pay compensation

What if the tenant refuses to comply with a s. 146 notice?

LL forfeit via peaceable re-entry or court order.

Tenant can apply to court for relief.

Is a s. 146 notice altered by the fact that the lease is of 7-years or more, has 3-years left to run and the covenant is in a state of disrepair?

Yes.

Leasehold Property (Repairs) Act 1938 applies.

Include within s. 146 notice of tenant’s right to serve counter notice within 28-days.

If counter notice served; LL only proceed with court permission.

How might a ‘surrender of lease’ resolve a breach of covenants?

How does it operate?

Mutual act by LL and tenant to end lease.

Sign formal ‘deed of surrender’.

Deal with arrears issues, settlement etc.