Leasehold covenants & remedies for breach

PP.07 — Leasehold covenants & remedies for breach

Enforceability turns on the lease date.

• "New" leases (granted on/after 1 Jan 1996): governed by the Landlord and Tenant (Covenants) Act 1995. The "touch and concern" privity-of-estate analysis is replaced: on a lawful assignment, the benefit and burden of all covenants pass automatically (s.3), and the outgoing tenant is automatically released (s.5).
• "Old" leases (pre-1996): privity of contract — the original tenant stays liable for the whole term; covenants pass on assignment only if they touch and concern the land (Spencer's Case; P&A Swift v Combined English Stores).

AGAs. Under the 1995 Act the landlord can require an outgoing tenant to give an Authorised Guarantee Agreement (s.16) guaranteeing the immediate assignee only — not subsequent ones. Anti-avoidance: s.25 voids attempts to exclude, modify or frustrate the Act (e.g. to widen an AGA).

Remedies for breach of tenant covenants:

• Rent arrears: debt action; Commercial Rent Arrears Recovery (CRAR) for commercial premises (replaced distress); rent deposit; pursue guarantor/former tenant. To recover a fixed charge (rent/service charge/liquidated sum) from a former tenant or guarantor, serve a s.17 notice within 6 months of the charge falling due.
• Other covenants: damages, specific performance (rare), injunction, self-help/Jervis v Harris clause, or forfeiture.

Forfeiture (the heavy-test area):

• Requires an express forfeiture clause. Landlord must not waive the right (demanding/accepting rent with knowledge of the breach waives it — distinguish once-and-for-all breaches from continuing breaches).
• Rent arrears: usually a formal demand unless the lease/statute dispenses with it. Tenant has relief.
• Non-rent breaches: serve a s.146 LPA 1925 notice — specify the breach, require remedy (if capable) within a reasonable time, and require compensation. Tenant relief under s.146(2).
• Disrepair: the Leasehold Property (Repairs) Act 1938 applies to leases granted for 7+ years with at least 3 years unexpired; the tenant may serve a counter-notice, after which the landlord cannot forfeit or sue for damages without leave of the court.
• Residential dwellings: no forfeiture by re-entry while lawfully occupied except by court order (s.2 PEA 1977); for long residential leases the breach must first be admitted or determined (s.168 CLRA 2002 for non-rent breaches; s.81 Housing Act 1996 for service/administration charges).

Common traps:

• Peaceable re-entry is lawful for commercial premises but unlawful for occupied dwellings.
• s.146 notice is not needed for rent arrears.
• Original tenant of an old lease remains liable for the whole term; under a new lease they are released on lawful assignment (subject to any AGA).