Landlord and tenant law - Remedies for breach of leasehold covenants (including forfeiture)

Learning Outcomes

This article outlines the primary remedies available to landlords and tenants when leasehold covenants are breached. It covers remedies for non-payment of rent, such as debt action, Commercial Rent Arrears Recovery (CRAR), and forfeiture, as well as remedies for breaches of other covenants, including damages, injunctions, specific performance, and forfeiture procedures under section 146 of the Law of Property Act 1925. Tenant remedies are also summarised. Understanding these remedies will enable you to identify and apply the relevant legal principles to SQE1 assessment questions concerning breaches of lease agreements.

SQE1 Syllabus

For SQE1, you are required to understand the practical application of remedies for breaches of leasehold covenants. Assessment questions may require you to identify the appropriate remedy in a given scenario, understand the procedural requirements for remedies like forfeiture, or advise on the consequences of a breach for both landlord and tenant.

Your revision should focus on:

  • The distinction between remedies for non-payment of rent and breaches of other covenants.
  • The procedures and requirements for forfeiture, including the service of relevant notices (e.g., s.146 LPA 1925).
  • The concept of waiver and relief from forfeiture.
  • The availability and limitations of remedies such as damages, injunctions, specific performance, and CRAR.
  • The basic remedies available to a tenant for a landlord's breach.

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

  1. A landlord discovers their commercial tenant breached a repair covenant three months ago. The lease contains a forfeiture clause. What is the first step the landlord must take before potentially forfeiting the lease?
    1. Apply to the court for an order for possession.
    2. Serve a notice under section 146 of the Law of Property Act 1925.
    3. Exercise the right of peaceable re-entry immediately.
    4. Send a formal demand for damages.
  2. A tenant under a commercial lease is two months in arrears with rent. The lease does not reserve service charges as rent. Which remedy allows the landlord to potentially seize the tenant's goods?
    1. Forfeiture
    2. Debt Action
    3. Commercial Rent Arrears Recovery (CRAR)
    4. Specific Performance
  3. Under which circumstances can a landlord not exercise the remedy of forfeiture, even if a breach has occurred?
    1. The lease does not contain an express forfeiture clause.
    2. The landlord has accepted rent after becoming aware of the breach.
    3. The tenant remedies the breach within the time specified in a s.146 notice.
    4. All of the above.

Introduction

Leasehold covenants are promises contained within a lease agreement, setting out the obligations of the landlord and tenant. A breach occurs when either party fails to comply with these promises. Landlord and tenant law provides various remedies to address such breaches, aiming to compensate the injured party, compel compliance, or, in serious cases, terminate the lease. The appropriate remedy often depends on the nature of the covenant breached (e.g., payment of rent versus repair obligations) and the specific circumstances. Understanding these remedies, including their procedures and limitations, is essential for advising clients effectively.

Landlord's Remedies for Non-Payment of Rent

Failure by the tenant to pay rent is a common breach. The landlord has several remedies available, though some may preclude the use of others (e.g., pursuing a debt action may waive the right to forfeit for that specific arrear).

Debt Action

The landlord can sue the tenant to recover the unpaid rent as a debt. This is a straightforward claim based on the tenant's contractual obligation (express or implied) to pay rent. The Limitation Act 1980 prevents claims for rent arrears more than six years old. A debt action acknowledges the lease continues, potentially waiving the right to forfeit for the specific arrears being claimed. If the landlord has assigned the reversion, the right to sue for past arrears passes to the new landlord unless specifically reserved.

Commercial Rent Arrears Recovery (CRAR)

Key Term: Commercial Rent Arrears Recovery (CRAR) A statutory procedure allowing landlords of purely commercial premises to recover rent arrears by instructing certified enforcement agents to take control of the tenant's goods located on the premises and sell them.

CRAR replaced the old remedy of distress and is governed by the Tribunals, Courts and Enforcement Act 2007. Key points include:

  • It applies only to leases of purely commercial premises.
  • It can only be used to recover principal rent, interest, and VAT – not service charges or insurance premiums unless explicitly defined as rent in the lease.
  • There must be a minimum of seven days' rent outstanding.
  • The landlord must give the tenant at least seven clear days' notice via an enforcement agent before seizing goods.
  • Only certified enforcement agents can seize goods.
  • Exercising CRAR may waive the right to forfeit for the rent arrears being pursued.

Forfeiture

Key Term: Forfeiture The landlord's right to terminate the lease prematurely due to the tenant's breach of covenant. Also known as the right of re-entry.

Forfeiture is a powerful remedy allowing the landlord to end the lease. For non-payment of rent:

  • The lease must contain an express forfeiture clause (a right of re-entry).
  • The landlord usually must make a formal demand for the rent on the due date at the property between sunrise and sunset. However, most modern leases expressly waive this requirement. Formal demand is also unnecessary if rent is at least six months in arrears (s.210 Common Law Procedure Act 1852).
  • Forfeiture can be effected by peaceable re-entry (only permissible for commercial premises, and without using force – s.6 Criminal Law Act 1977) or, more commonly, by obtaining a court order for possession.
  • Waiver: The landlord may lose the right to forfeit for a specific breach if they do an act recognising the continuation of the lease after becoming aware of the breach (e.g., demanding or accepting subsequent rent).
  • Relief: The tenant can apply to the court for relief from forfeiture. For rent arrears, relief is usually granted if the tenant pays all arrears and the landlord's costs, often automatically if paid before trial or within a period specified by the court.

Landlord's Remedies for Breach of Other Covenants

Remedies for breaches of covenants other than rent (e.g., repair, use, alterations, alienation) differ, particularly concerning forfeiture procedure.

Damages

The landlord can claim damages for losses resulting from the tenant's breach. The aim is compensation based on contractual principles. For breaches of a tenant's repairing covenant, damages are capped by statute (s.18 Landlord and Tenant Act 1927) at the amount by which the value of the landlord's reversion has diminished due to the disrepair. No damages are recoverable if the premises are to be demolished or structurally altered in a way that would render the repairs valueless. Additionally, if the lease was granted for seven years or more and has at least three years left to run, the landlord must first serve a notice under s.146 LPA 1925 (see below) before claiming damages for disrepair, and the tenant has the right to serve a counter-notice under the Leasehold Property (Repairs) Act 1938, requiring the landlord to obtain court leave before proceeding.

Specific Performance and Injunctions

An injunction is a court order restraining the tenant from breaching (or continuing to breach) a restrictive covenant. Specific performance compels the tenant to comply with a positive covenant. Specific performance is rarely granted against a tenant for breach of a repairing covenant, as damages are usually considered adequate and supervision is difficult. Injunctions are more common for breaches of negative covenants (e.g., prohibiting a certain use).

Forfeiture for Other Breaches

The procedure for forfeiture for breaches other than non-payment of rent requires the landlord to serve a notice under section 146 of the Law of Property Act 1925 before proceeding.

Key Term: Section 146 Notice A formal statutory notice that a landlord must serve on a tenant before forfeiting a lease for breach of a covenant other than non-payment of rent.

The s.146 notice must:

  • Specify the particular breach complained of.

  • Require the tenant to remedy the breach, if it is capable of remedy, within a reasonable time.

  • Require the tenant to pay monetary compensation for the breach, if the landlord desires it.

  • Remediable vs Irremediable Breaches: If the breach is capable of remedy (e.g., failure to repair), the landlord must allow a reasonable time for the tenant to remedy it. If the tenant remedies the breach within that time, the landlord cannot forfeit. If the breach is incapable of remedy (e.g., unlawful subletting, immoral use), the landlord must still serve the notice but can proceed to forfeit after a reasonable period (often considered 14 days) has elapsed to allow the tenant to consider their position. Most breaches are now considered capable of remedy.

  • Relief: The tenant (or a sub-tenant or mortgagee) can apply to the court for relief from forfeiture under s.146(2) LPA 1925 (or s.146(4) for sub-tenants/mortgagees). Relief is discretionary and depends on factors like the seriousness of the breach, the tenant's conduct, and whether the landlord can be adequately compensated. Relief reinstates the lease as if forfeiture never happened. A sub-tenant granted relief may have the head lease vested in them.

  • Dwelling Houses: Forfeiture of an occupied dwelling house always requires a court order (Protection from Eviction Act 1977). For long residential leases, additional restrictions under the Commonhold and Leasehold Reform Act 2002 apply before a s.146 notice can even be served.

Self-Help Remedy for Repairs (Jervis v Harris Clause)

If the lease includes a specific clause (often called a Jervis v Harris clause), the landlord may have the right to:

  1. Enter the premises to inspect the state of repair.
  2. Serve notice on the tenant detailing necessary repairs and requiring them to be done within a specified period.
  3. If the tenant fails to comply, enter the premises, carry out the repairs, and recover the cost from the tenant.

The significant advantage for the landlord is that the cost is recoverable as a debt, not as damages, thus avoiding the limitations of s.18 LTA 1927 and the Leasehold Property (Repairs) Act 1938.

Tenant's Remedies for Breach of Landlord Covenant

Tenants also have remedies if the landlord breaches their covenants (e.g., covenant for quiet enjoyment, repair obligations).

Tenant's Damages

The tenant can sue the landlord for damages for losses caused by the breach, following normal contractual principles. For disrepair, this might include compensation for inconvenience, loss of comfort, or damage to belongings.

Specific Performance/Injunction

A tenant can seek specific performance to compel the landlord to comply with a positive covenant (e.g., to repair) or an injunction to restrain the landlord from breaching a restrictive covenant (e.g., interfering with quiet enjoyment). Courts may grant specific performance of a landlord's repairing covenant (s.17 Landlord and Tenant Act 1985).

Self-Help (Set-Off for Repairs)

If the landlord breaches a repairing covenant, the tenant may, after giving the landlord notice of the defect and a reasonable time to fix it, carry out the repairs themselves and deduct the reasonable cost from future rent payments (common law right of set-off). The tenant must act carefully to avoid being in rent arrears themselves.

Worked Example 1.1

Leila holds a 10-year commercial lease granted in 2018, containing a covenant not to make structural alterations without landlord consent and a forfeiture clause. Leila installs a new internal wall without seeking consent. The landlord, Ken, discovers this two months later. Ken wants to terminate the lease.

What must Ken do first?

Answer: Ken must first serve a notice on Leila under s.146 of the Law of Property Act 1925. The notice must specify the breach (installing the wall without consent), require it to be remedied if possible (e.g., by removing the wall and reinstating the original layout) within a reasonable time, and may request compensation. Only if Leila fails to remedy the breach (if remediable) within the reasonable time can Ken proceed with forfeiture proceedings.

Worked Example 1.2

Ahmed rents a commercial shop under a lease granted in 2020. The rent is £1,000 per month. He has not paid rent for three months. The lease contains a forfeiture clause. The landlord, Chloe, wants to recover the unpaid rent and potentially regain possession.

What remedies are available to Chloe, and can she use them concurrently?

Answer: Chloe has several options:

  1. Debt Action: Sue Ahmed for the £3,000 arrears.
  2. CRAR: Use the Commercial Rent Arrears Recovery procedure to seize Ahmed's goods (subject to notice requirements).
  3. Forfeiture: Terminate the lease for non-payment of rent (subject to formal demand waiver or 6+ months arrears, and Ahmed's right to seek relief).

Chloe must be careful about waiver. Starting a debt action or using CRAR for the specific £3,000 arrears would likely waive her right to forfeit the lease for those specific arrears. She could potentially forfeit for future non-payment, or pursue debt action/CRAR alongside initiating forfeiture proceedings if carefully managed (e.g., ensuring court proceedings for possession commence before actions that might imply waiver).

Exam Warning

Distinguish carefully between the procedures for forfeiture for non-payment of rent and forfeiture for breach of other covenants. Section 146 notices are NOT required for non-payment of rent but ARE required for other breaches. Also, be aware of the specific protections for tenants of residential properties and long leases.

Key Point Checklist

This article has covered the following key knowledge points:

  • Landlord remedies for rent arrears include debt action, CRAR (commercial only), and forfeiture.
  • Landlord remedies for other covenant breaches include damages (subject to limitations for repair), injunction, specific performance (rare against tenants), and forfeiture (requiring a s.146 notice).
  • Forfeiture requires an express clause in the lease. Peaceable re-entry is heavily restricted, especially for residential properties.
  • Waiver occurs if the landlord acts inconsistently with forfeiture after knowing of the breach (e.g., accepts rent).
  • Tenants can apply for relief from forfeiture, which is often granted for rent arrears if paid, and discretionary for other breaches.
  • A s.146 notice must specify the breach, require remedy if possible within a reasonable time, and may claim compensation.
  • Tenant remedies include damages, specific performance/injunction against the landlord, and the right of set-off for repairs (after notice).

Key Terms and Concepts

  • Commercial Rent Arrears Recovery (CRAR)
  • Forfeiture
  • Section 146 Notice
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