Leasehold covenants and issues - Termination of a lease

Learning Outcomes

After reading this article, you will be able to identify and explain the main types of leasehold covenants, the legal consequences of breach, and the principal methods by which a lease can be terminated in law and practice. You will also be able to apply the correct remedies for breach of covenant and distinguish between contractual and statutory lease termination routes, as required for SQE1.

SQE1 Syllabus

For SQE1, you are required to understand leasehold covenants and the legal processes for terminating a lease. In your revision, focus on:

  • The main types of leasehold covenants (absolute, qualified, fully qualified)
  • The legal remedies available for breach of covenant (forfeiture, damages, specific performance, injunction, self-help)
  • The statutory and contractual methods for terminating a lease (surrender, notice to quit, break clauses, forfeiture, frustration)
  • The requirements and procedures under the Landlord and Tenant Act 1954 for terminating business leases
  • The effect of leasehold covenants on termination and renewal rights

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. What is the difference between an absolute covenant and a fully qualified covenant in a lease?
  2. What must a landlord do before forfeiting a lease for breach of covenant (other than non-payment of rent)?
  3. Name two statutory routes for terminating a business lease protected by the Landlord and Tenant Act 1954.
  4. True or false? A break clause in a lease can be exercised by either party at any time, regardless of the lease terms.

Introduction

Leasehold covenants are contractual promises in a lease that set out the obligations and rights of both landlord and tenant. The termination of a lease brings the contractual relationship to an end, either by agreement, by operation of law, or by statutory procedure. For SQE1, you must be able to identify the main types of leasehold covenants, understand the remedies for breach, and apply the correct legal process for lease termination in a given scenario.

Types of Leasehold Covenants

Leasehold covenants regulate the conduct of the parties during the lease term. They may restrict or permit certain actions by the tenant or landlord.

Key Term: absolute covenant
An absolute covenant is a lease provision that completely prohibits a specified action, with no exceptions or possibility of landlord consent.

Key Term: qualified covenant
A qualified covenant prohibits a specified action unless the landlord gives consent. The landlord has discretion to grant or refuse consent.

Key Term: fully qualified covenant
A fully qualified covenant prohibits a specified action unless the landlord gives consent, but the lease expressly states that consent must not be unreasonably withheld or delayed.

Most commercial leases contain a mix of these covenants. Statute may imply a requirement of reasonableness into qualified covenants relating to assignment, underletting, or improvements.

Worked Example 1.1

A lease states: "The tenant shall not assign the lease without the landlord's prior written consent, such consent not to be unreasonably withheld." What type of covenant is this?

Answer: This is a fully qualified covenant, as it requires landlord consent and expressly states that consent cannot be unreasonably withheld.

Remedies for Breach of Covenant

When a tenant breaches a leasehold covenant, the landlord may have several remedies, depending on the nature of the breach and the lease terms.

Forfeiture (Remedy)

Forfeiture is the landlord's right to terminate the lease early due to tenant default.

Key Term: forfeiture
The landlord's right to end the lease and recover possession following a tenant's breach of covenant, subject to statutory procedure.

To forfeit for breach (other than non-payment of rent), the landlord must serve a section 146 notice under the Law of Property Act 1925, specifying the breach and, if capable of remedy, requiring the tenant to remedy it. The tenant may apply for relief from forfeiture, and the court has discretion to grant relief.

Damages

Damages compensate the landlord for loss caused by the breach. The landlord must prove actual loss and mitigate that loss.

Specific Performance

Specific performance is an equitable remedy compelling the tenant to comply with a positive covenant. It is only available where damages are inadequate and the obligation is sufficiently clear.

Injunction

An injunction may restrain the tenant from breaching a negative covenant or require the tenant to take specific action.

Self-Help

Some leases include a self-help clause (often called a Jervis v Harris clause) allowing the landlord to enter the premises, remedy the breach, and recover the cost as a debt.

Key Term: Jervis v Harris clause
A lease provision allowing the landlord to enter, carry out repairs if the tenant fails to do so, and recover the cost as a debt, avoiding statutory limits on damages.

Worked Example 1.2

A tenant fails to repair the roof as required by the lease. The lease contains a Jervis v Harris clause. What can the landlord do?

Answer: The landlord can serve notice, enter the premises to carry out the repairs, and recover the cost as a debt from the tenant.

Exam Warning

Forfeiture for breach of covenant (other than non-payment of rent) requires strict compliance with section 146 LPA 1925. Failure to serve a valid notice may invalidate the forfeiture.

Termination of a Lease

A lease may be terminated in several ways, either by agreement, by operation of law, or by statutory procedure.

Surrender

Surrender is the mutual agreement between landlord and tenant to end the lease before its expiry.

Key Term: surrender
The consensual termination of a lease before its contractual end, usually by deed.

Surrender may be express (by deed) or implied (by conduct, such as the tenant vacating and the landlord accepting possession).

Notice to Quit

A periodic tenancy may be terminated by either party serving a valid notice to quit, complying with statutory notice periods.

Break Clause

A break clause allows either party to terminate the lease early, but only in accordance with the lease terms (e.g., notice period, conditions precedent).

Frustration

Frustration is rare in leases. It may apply if an unforeseen event makes performance impossible, but courts are reluctant to find frustration in leasehold cases.

Forfeiture

As above, forfeiture is a landlord remedy for tenant breach.

Statutory Termination – Landlord and Tenant Act 1954

For business leases protected by the Landlord and Tenant Act 1954, termination is governed by statute.

Key Term: Landlord and Tenant Act 1954
Legislation granting business tenants security of tenure and setting out procedures for termination and renewal of business leases.

A protected business tenancy does not end at expiry but continues until terminated by one of the statutory methods:

  • Landlord's section 25 notice (specifying termination date and, if opposed, grounds for refusal)
  • Tenant's section 26 request (requesting a new tenancy)
  • Surrender or forfeiture
  • Tenant's notice to quit (periodic tenancy)
  • Tenant ceasing occupation at expiry

The landlord may oppose renewal only on specific statutory grounds (e.g., tenant's breach, landlord's intention to occupy or redevelop).

Worked Example 1.3

A business lease protected by the Landlord and Tenant Act 1954 expires. The landlord serves a section 25 notice opposing renewal on the ground of redevelopment. What must the landlord show?

Answer: The landlord must prove a genuine intention and ability to redevelop the premises, and that possession is reasonably required to carry out the works.

Revision Tip

Always check whether a business lease is contracted out of the 1954 Act. If so, the tenant has no statutory right to renewal or compensation.

Summary Table: Lease Termination Methods

MethodWho Can Use?Requirements/Notes
SurrenderBoth partiesUsually by deed; mutual agreement
Notice to QuitEither partyPeriodic tenancies; statutory notice periods apply
Break ClauseAs specifiedStrict compliance with lease terms required
ForfeitureLandlordBreach of covenant; statutory procedure
FrustrationEither partyRare; unforeseen event makes lease impossible
LTA 1954 ProcedureLandlord/TenantBusiness leases; statutory notices and grounds

Key Point Checklist

This article has covered the following key knowledge points:

  • Leasehold covenants may be absolute, qualified, or fully qualified.
  • Remedies for breach include forfeiture, damages, specific performance, injunction, and self-help.
  • Forfeiture for breach (other than non-payment of rent) requires a valid section 146 notice.
  • Leases may be terminated by surrender, notice to quit, break clause, forfeiture, frustration, or statutory procedure.
  • The Landlord and Tenant Act 1954 governs termination and renewal of business leases, with security of tenure for tenants unless contracted out.

Key Terms and Concepts

  • absolute covenant
  • qualified covenant
  • fully qualified covenant
  • forfeiture
  • Jervis v Harris clause
  • surrender
  • Landlord and Tenant Act 1954
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