Leasehold real estate law and practice - Remedies for breach...

Learning Outcomes

This article covers remedies for breach of leasehold covenants in landlord and tenant practice, including:

• The full range of landlord and tenant remedies: debt action, forfeiture, relief from forfeiture, damages, injunction, specific performance, set-off, and commercial rent arrears recovery (CRAR)
• How privity of contract and privity of estate affect liability and enforcement, and the mechanics and consequences of assignment (including AGAs and s.17 notices)
• The role and requirements of statutory notices and procedural steps, such as s.146 LPA 1925 and the Leasehold Property (Repairs) Act 1938, and how waiver can extinguish the right to forfeit
• Selecting appropriate remedies and procedural routes across residential and commercial contexts, with attention to time limits, service and evidential requirements
• Common pitfalls and risk management, including waiver by rent acceptance, improper notice, and the interaction between equitable and legal relief
• Differences between old (pre-1996) and new (post-1996) leases under the Landlord and Tenant (Covenants) Act 1995, and how ongoing liability is altered

SQE2 Syllabus

For SQE2, you are required to understand remedies for breach of leasehold covenants from both the landlord’s and tenant’s viewpoints, with a focus on the following syllabus points:

• The full range of remedies for breach of leasehold covenants, including debt action, forfeiture, injunction, specific performance, set-off, damages, and commercial rent arrears recovery (CRAR).
• The legal and procedural requirements for exercising each remedy, including time limits, service requirements, and procedural constraints.
• The operation of privity of contract and privity of estate in determining ongoing liability and entitlement to enforce, including direct covenants, indemnities, and assignment mechanics.
• The effect and requirements of waiver, as well as the procedure and discretionary nature of relief from forfeiture.
• The impact of statutory conditions, such as the Leasehold Property (Repairs) Act 1938, s.146 Law of Property Act 1925, Landlord and Tenant Act 1988, and s.17 Landlord and Tenant (Covenants) Act 1995.
• How enforcement options and termination rights differ between old (pre-1996) and new (post-1996) leases, including the use of Authorised Guarantee Agreements (AGAs) and statutory release mechanisms.

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. Which key legal limitation applies to a landlord’s action to recover rent arrears from a defaulting tenant?
2. When is a landlord prohibited from exercising forfeiture after accepting rent following a breach?
3. What must a tenant typically do before using set-off as a remedy for a landlord’s failure to repair?
4. Can a subtenant obtain relief from forfeiture if the head lease is forfeit—if so, on what conditions?

Introduction

This article outlines the primary remedies available when a party breaches a leasehold covenant. Whether acting for a landlord or tenant, it is important to identify and justify the correct remedy in any given situation, considering legal rules, time limits, notice requirements, and practical factors. Commonly tested areas include the choice and procedural requirements of debt actions, forfeiture and relief, statutory notices, waiver, privity, set-off, and the differences in remedies under old and new leases.

Remedies for Breach of Leasehold Covenant

Debt Action

Unpaid rent or other liquidated (ascertainable) monetary obligations arising under the lease are generally recoverable by straightforward debt action.

Key Term: debt action
An action to recover a specific, unpaid sum (such as rent, service charge, or insurance payment) due under the lease, brought by a landlord or sometimes a tenant.

The current tenant is always directly liable to the landlord for rent and other stated sums reserved under the lease. A debt claim can be brought in the County Court or High Court, with a 6-year limitation period applying from the date the rent or other liquidated sum fell due (Limitation Act 1980). Before commencing such an action, it is prudent to verify the tenant’s ability to pay, as judgment does not guarantee recovery, especially if the tenant or any previous tenants are insolvent or have limited assets.

Where the lease has been assigned, previous tenants may also remain liable for arrears if the lease is an "old lease" (granted before 1 January 1996) and privity of contract remains, or in the case of a "new lease" (post-1996) if the outgoing tenant has provided an Authorised Guarantee Agreement (AGA) under the Landlord and Tenant (Covenants) Act 1995.

Key Term: authorised guarantee agreement (AGA)
A contract required under certain new leases when a tenant assigns the lease, whereby the outgoing tenant guarantees the immediate assignee’s performance of the tenant covenants until another lawful assignment occurs.

To recover rent from a former tenant or guarantor, a landlord must first serve a s.17 notice under the 1995 Act within six months of the arrear falling due. Failure to do so bars the claim against the former tenant for that sum.

Key Term: section 17 notice
A statutory notice required to claim a fixed charge (such as rent or service charge) from a former tenant or guarantor under a new lease, to be served within six months of the arrear becoming due.

Debt actions are also available to tenants if the landlord fails to pay sums due under the lease, for example, a contribution to service charges in mutual arrangements.

Forfeiture

Forfeiture (the right of re-entry) is a powerful landlord remedy allowing the landlord to terminate the lease prematurely due to a serious tenant breach.

Key Term: forfeiture
The landlord’s express or implied power to end the lease and recover possession following tenant default, upon compliance with strict legal and procedural steps.

The right to forfeit only arises if there is an express clause in the lease authorising re-entry or forfeiture on breach of specified covenants. The clause must be interpreted strictly and its conditions fulfilled.

Forfeiture for non-payment of rent typically allows immediate re-entry after a short grace period, often 14 or 21 days, without the need to serve a formal notice (unless a formal demand is required by the lease, which is now rare). For other breaches, the landlord must serve a s.146 Law of Property Act 1925 notice, specifying the breach, requiring it to be remedied if possible, and payment of compensation. Compliance with all notice and procedural requirements is mandatory or the forfeiture may fail in court.

Key Term: section 146 notice
The formal notice a landlord must serve on a tenant for breach of covenant (other than non-payment of rent) before commencing forfeiture proceedings, specifying the nature of the breach, requiring remedy if remediable, and compensation.

Where the breach is of a repairing covenant in a lease for more than 7 years with more than 3 years left to run, the Leasehold Property (Repairs) Act 1938 applies, affording additional protection to tenants. Here, the landlord must serve a notice giving the tenant the right to serve a counter-notice within 28 days. If the tenant so serves, the landlord must obtain court permission to pursue forfeiture or damages—granted only if prompt action is needed to prevent substantial diminution in the reversion’s value or to comply with law.

Methods of forfeiture include:

• Peaceable re-entry: re-entering the premises, typically when vacant, and changing the locks (unlawful use or threat of violence is a criminal offence under the Criminal Law Act 1977).
• Court proceedings: obtaining possession via a court order, generally preferred to avoid criminal or civil liability.

Key Term: waiver
When a landlord, with knowledge of a tenant’s breach, acts in a way that affirms the continuation of the lease (such as accepting rent), permanently losing the right to forfeit for that breach.

Acceptance of rent after knowing of the breach, serving a rent demand, or other acts acknowledging the tenancy—after the breach occurs and before action is commenced—will generally constitute waiver, barring forfeiture for that breach, though not for new breaches. Waiver rules are to be interpreted strictly: knowledge of the breach and an unequivocal act are both required.

Worked Example 1.1

A commercial tenant is two months in arrears. The lease permits forfeiture if rent is more than 21 days overdue. The landlord, aware of the first month's arrears, accepts the next rent payment.

Answer:
No. By accepting rent for a period after knowing of the breach, the landlord has waived the right to forfeit for that episode of breach.

Subtenants and Relief

Forfeiture by the head landlord ends all subleases deriving from the forfeited lease. However, under s.146(4) Law of Property Act 1925, a subtenant may apply for relief, and if granted, the court may order the grant of a new lease on substantially similar terms for the remainder of the term, subject to any conditions the court thinks fit.

Relief may also be available to mortgagees, depending on the circumstances.

Relief from Forfeiture

Relief from forfeiture is an equitable and statutory remedy enabling tenants (and sometimes subtenants) to recover their lease following forfeiture, provided strict conditions are met.

Key Term: relief from forfeiture
The court’s discretionary power to restore a forfeit lease to the tenant, typically on payment of arrears, compliance with conditions, or rectification of breach, where justice justifies reinstatement.

For non-payment of rent, relief is generally granted as of right (even late in proceedings) if the tenant pays all arrears, costs, and interest before judgment or re-entry, unless the lease has been surrendered or a third party’s intervening rights prevent relief. For breaches of other covenants, the tenant must show the breach has been remedied and appropriate compensation paid. In some instances—such as illegal subletting—the court may refuse relief if the breach is not remediable.

Relief applications must be made promptly. In some cases, the lease may have already been let to a third party, precluding relief.

Damages

A landlord or tenant may claim damages for financial loss arising from the other’s breach of covenant, subject to statutory limits in repair cases.

For breach of repairing covenants, damages are restricted by statute:

• Section 18 Landlord and Tenant Act 1927: Damages are capped at the reduction in value of the landlord’s reversion caused by the breach, not exceeding the cost of works. No damages are available if the landlord planned to demolish or otherwise nullify the effect of required repairs.

• Leasehold Property (Repairs) Act 1938: Restricts the landlord’s right to claim damages or forfeit for repairs where the lease was for more than 7 years, and 3 or more years remain. In these cases, the landlord must serve a special notice and, if countered, apply to the court for leave to continue.

Special rules may also apply where insurance proceeds ought to have covered the loss or where the tenant is responsible for acts that vitiate insurance (such as arson by the tenant).

A key distinction for repairs is that a claim as a "debt" (for sums expended by the landlord after a ‘Jervis v Harris’ clause) is not subject to these statutory limits, whereas a traditional damages claim is.

Key Term: Jervis v Harris clause
A lease provision allowing a landlord to enter and carry out required repairs after giving notice, and to recover the cost from the tenant as a debt, thereby avoiding statutory restrictions on damages.

Injunction

A court may order an injunction to restrain further breach of negative covenants, prevent ongoing or threatened actions (such as unauthorised subletting, user, or alterations), or mandate compliance, such as ceasing a nuisance or trespass.

Key Term: injunction
A court order, usually granted as a discretionary remedy, directing a party to do, or refrain from doing, specific acts to secure compliance with the lease.

Tenants may also seek an injunction against landlords for actions breaching covenants for quiet enjoyment or unlawful re-entry.

Specific Performance

Specific performance is an order compelling the party in breach to perform a positive contractual obligation. It is rarely granted against tenants except in rare cases where damages are inadequate. In claims for repairs, English courts are reluctant to force tenants to perform, preferring damages or forfeiture. However, specific performance is a realistic option for tenants seeking to enforce positive covenants (such as repair or provision of services) against a landlord, particularly where the loss of amenity cannot be remedied in damages.

Key Term: specific performance
A discretionary remedy whereby the court orders a party to perform a contractual obligation, used where damages would not provide adequate relief.

Recent case law has confirmed the court's willingness to grant specific performance against landlords for repair obligations, overriding earlier judicial reluctance, especially where the failure to repair is serious and monetary compensation insufficient.

Commercial Rent Arrears Recovery (CRAR)

Key Term: commercial rent arrears recovery (CRAR)
A statutory regime entitling commercial landlords to recover principal rent arrears by taking control of, and selling, the tenant’s goods, subject to procedural safeguards.

CRAR, introduced by the Tribunals, Courts and Enforcement Act 2007 and in force since April 2014, is a self-help remedy replacing distress. It is available only for arrears of principal rent (not service charge or insurance, even if reserved as rent), and only against tenants in occupation of commercial premises. Recovery is limited to outstanding principal rent not less than seven days' worth, and the procedure includes:

• Seven clear days’ written notice must be served on the tenant before enforcement.
• Enforcement agents must be certified and can only enter at prescribed times.
• Exempt goods include items necessary for the tenant’s trade or business to a set value.
• Goods must usually be sold at public auction, following a further seven-day notice of sale.

CRAR is not available for residential premises or for premises where any part is let/rented as living accommodation. The remedy is further limited during statutory moratoria such as those under the Coronavirus Act 2020.

Where there is a subtenant, the landlord may also serve notice to require the subtenant to pay their rent direct to the superior landlord to set off against the tenant’s arrears.

Pursuit of Guarantors and Rent Deposit

A landlord may be able to recover arrears from any guarantor of the tenant or use monies held as a rent deposit under a rent deposit deed:

Key Term: rent deposit
Security sum paid by the tenant and held by the landlord to cover arrears, losses, or damages, subject to the terms of the rent deposit deed.

A guarantor may be liable for the tenant’s breaches up to the guaranteed sum, and may also be required to guarantee performance of an AGA entered into by an outgoing tenant. Enforcement against a former tenant or guarantor of a former tenant depends on correct service of s.17 notice as above.

Self-Help, Set-off, and Abatement

Key Term: set-off
The limited right of a tenant, typically where the landlord fails to perform repair covenants despite proper notice, to carry out the necessary repairs and deduct the cost from rent, provided procedures are followed.

Under common law, tenants owing rent cannot usually set-off against rent a claim for damages or breach by the landlord unless the lease so permits. However, where a landlord’s breach is continuing and has been notified, and statutory or contractual rights are satisfied, the tenant may, in limited circumstances, carry out required repairs and deduct reasonable costs from the rent. The lease may prohibit set-off, in which case the tenant risks forfeiture or debt action if rent is underpaid.

Abatement (reduction of rent where the premises become unusable due to landlord breach) is rarely available without express provision.

Worked Example 1.2

A tenant repeatedly asks the landlord to replace a dangerously leaking boiler. The landlord does nothing. The tenant repairs the boiler at personal expense and deducts the cost from future rent.

Answer:
The tenant must give proper notice and opportunity to repair; set-off must not be prohibited by the lease; and only reasonable, evidenced costs may be deducted. Exam Warning Landlords may treat unauthorised set-off as non-payment of rent, creating a ground for forfeiture or debt action if the lease does not expressly permit set-off and procedures are not followed. Always check the lease terms and statutory requirements.

Privity, Assignment, and Liability

Liability and enforcement for breach of lease covenants depend significantly on the distinction between privity of contract (original parties remain liable throughout the lease term) and privity of estate (liability attaches to the party for the duration of their ownership).

For leases granted before 1 January 1996 ("old leases"):

• Original tenants remain liable on all covenants throughout the lease, even if they have lawfully assigned, unless and until released by the landlord.
• Assignees (new tenants) become liable for covenants that "touch and concern" the land for the period they hold the lease.
• If permitted in the lease, assignment may require the new tenant’s express covenant to perform, creating direct liability.

For leases granted on or after 1 January 1996 ("new leases") under the Landlord and Tenant (Covenants) Act 1995:

• The outgoing tenant is automatically released from most liability on lawful assignment, but the landlord may require an AGA (see above) so the immediate assignor guarantees only the next tenant’s covenants while the assignee has the lease.
• Any direct covenants should be limited in time and content to reflect the statutory scheme.
• The former landlord similarly may apply for release under sections 6–8 of the 1995 Act, subject to tenant agreement or court approval.
• Guarantors are only liable so long as the relevant tenant holds the lease, unless an AGA is in place.

For subtenants, liability and right to enforce will depend on the existence of privity and whether a direct covenant exists, as subleases do not create privity with the superior landlord unless by express agreement.

Remedies Available to the Tenant

Tenants may use several remedies against landlords who breach leasehold covenants:

• Damages for financial loss (subject to usual contractual principles).
• Injunctions to restrain unlawful behavior, e.g., breach of quiet enjoyment or other negative covenants.
• Set-off/self-help in limited circumstances (see above), provided the lease allows and statutory and notice requirements are followed.
• Specific performance to enforce positive obligations of the landlord, notably for repair of essential services or for serious and unremedied defects.
• Repudiation (rare and exceptional), where the landlord’s breach fundamentally deprives the tenant of the benefit of the lease.

Worked Example 1.3

A tenant in an office lease experiences continual interference from the landlord, who enters the premises repeatedly, disrupting business. The lease covenants for quiet enjoyment.

Answer:
The tenant may seek an injunction to restrain further interference and claim damages for losses; repudiation would only be considered if the breach is so serious as to go to the root of the contract.

Key Point Checklist

This article has covered the following key knowledge points:

• Remedies for breach of leasehold covenant include debt action, forfeiture, injunctive relief, specific performance, set-off, damages, and CRAR.
• Forfeiture for non-payment of rent typically requires no notice, but acceptance of rent after breach amounts to waiver of the right to forfeit for that breach.
• For other breaches, a valid s.146 notice must precede forfeiture and often damages claims for repairs; and the Leasehold Property (Repairs) Act 1938 may further protect tenants in long leases.
• The right to forfeit can be lost by waiver and is subject to relief, available to tenants and subtenants.
• CRAR is a commercial landlord’s remedy for rent but has limitations and statutory notice requirements.
• Set-off/self-help for tenants requires proper notice, opportunity for the landlord to repair, and compliance with lease/statute; improper set-off risks the tenant’s own default.
• Both landlords and tenants may seek damages; limitations apply to repair claims and the measure of loss.
• The persons liable and entitled to sue depend on privity of contract and estate and, for post-1996 leases, on AGAs and statutory release provisions, altering ongoing liability for old and new leases.

Key Terms and Concepts

• debt action
• forfeiture
• waiver
• relief from forfeiture
• injunction
• specific performance
• set-off
• authorised guarantee agreement (AGA)
• section 146 notice
• commercial rent arrears recovery (CRAR)
• rent deposit
• Jervis v Harris clause
• section 17 notice