Экзамен зачет учебный год 2023 / Dixon, Modern Land Law

Modern Land Law

lessees/assignees) unless expressed to be personal (and excluding the landlord’s covenant allowing the tenant to renew). There is no need to worry about ‘touching or concerning’, privity of estate, or sections 141(1) and 142(1) of the LPA 1925. The same is true of the benefit of such covenants.

2An original tenant is released from liability throughout the term of the lease, but an original landlord must serve a notice requesting such release unless they have the benefit of an Avonridge clause.

3A landlord can require the original tenant to guarantee the next immediate assignee’s performance of covenants by means of an AGA (but only the next immediate assignee), and can enforce this liability subject to the problem notice/overriding lease procedure. It is possible to ensure that all assigning tenants come under an obligation to enter an AGA if they assign, thus always giving the landlord a guarantor.

4Restrictive covenants will continue to bind subtenants, subject to registration requirements under the Tulk v. Moxhay rules (section 3(5) and (6) of the LTCA 1995).

6.7The landlord’s remedies for breach of covenant

After having established that a particular landlord has the right to sue on a covenant and that the particular defendant tenant is subject to the burden of it, the next matter is to consider the nature of the remedies available to the landlord. These will be considered in turn, although there is no doubt that the remedy of forfeiture is the most important for our purposes.

6.7.1 Commercial rent arrears recovery

Until recently, landlords were able to use the old remedy of distress. The remedy of distress allowed a landlord to enter the land of his tenant (any tenant) and seize goods found there in order to sell them for the purpose of paying any arrears of rent. It was a feudal remedy, grounded in self-help, and was available only to a landlord proper, and not a licensor (Ward v. Day (1864)). It required no court proceedings but was subject to many restrictions, both under common law and imposed by statute. The Law Commission had proposed the abolition of this remedy.109 By virtue of Part 3 of the Tribunals, Courts and Enforcement Act 2007, the remedy of distress has been abolished. However, in respect of leases of commercial premises only,

109 Law Commission Report No. 194 (1991).

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the 2007 Act introduces a statutory scheme for recovering rent arrears without resort to the courts. This is the Commercial Rent Arrears Recovery scheme (CRAR).110 As noted, it applies only to leases of commercial premises (and never to oral leases of any type of premises) and is, in effect, distress in all but name. The procedure is laid down in some detail in Schedule 12 of the 2007 Act and depends on notice being given in accordance with the procedure. As with the old remedy of distress, it will provide an effective remedy for landlords faced with defaulting tenants,111 especially where the tenants’ bankruptcy is anticipated. Like distress, the result is that the landlord (effectively a bailiff acting as his agent) will be able to enter premises, seize certain goods112 and sell them in order to satisfy arrears of rent.

6.7.2 Action for arrears of rent

The landlord can enforce the covenant to pay rent by bringing an action to recover arrears of rent either in the High Court or County court, depending on the amount owed. By virtue of section 19 of the Limitation Act 1980, a maximum of six years’ rent may be recovered in this way. The limitation also applies to guarantors of the tenant’s promise to pay rent (Romain v. Scuba (1996). It often happens that one reason why a tenant has not paid rent is a real (or perceived) failure by the landlord to perform his covenants, often the landlord’s covenant to repair. Usually, leasehold covenants are not interdependent, so that non-performance by the landlord of his obligations is not an excuse for non-performance by the tenant. For example, the landlord’s failure to honour his promise to repair is not usually a lawful reason to withhold rent, and the tenant can be vulnerable to landlord’s remedies for non-payment of rent unless the tenant can show that the withheld rent was actually used to pay for repairs for which the landlord was liable, and which fell due after the disrepair occurred. Note however, if the landlord does bring in an action for recovery of rent, a tenant may claim to ‘set off’ a sum representing damages for breach of covenant, unless such right is expressly excluded (LeeParker v. Izzet (1971)). Thus, although the tenant has broken his covenant (and importantly opened himself to other remedies), the result can take account of the context of the claim.113

110In July 2008, CRAR was not yet in force and distress proper was still permitted. However, the entry into force of CRAR and the abolition of distress was expected imminently.

111It remains to be seen whether tenants on whom the notice is served remove their goods before the bailiffs arrive.

112The goods may be physically removed or be secured on the premises itself.

113See also Smith v. Muscat (2003), where set-off against rent for breach of a repairing obligation was permitted when the landlord had assigned his right to sue for the rent to the current claimant.

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6.7.3 Action for damages

The landlord may sue for damages for breach of every covenant other than the covenant to pay rent. Except in the case of covenants to repair, the measure of damages will be that necessary to put the landlord in the same position as if the covenant had not been broken. By virtue of the Landlord and Tenant Act 1927, damages for a tenant’s breach of a covenant to repair are limited to the amount by which the landlord’s interest (the reversion) has diminished in value through the lack of repair, and although this may be the amount necessary to carry out proper repairs (Jones v. Herxheimer (1950)) there is a very real likelihood that the amount will be less than this, due to uncertainties about how much the reversion really has declined in value (Crewe Services and Investment Corp v. Silk (1997)). Note, also, that for leases of seven years or more (with at least three years left to run), the procedure relating to ‘notices’ set down in the Leasehold Property (Repairs) Act 1938 must be followed before a claim in damages can be made.114

6.7.4 Injunction and specific performance

At the discretion of the court, a landlord may obtain an injunction to prevent the breach of a restrictive covenant by the tenant, as where the landlord secures an injunction against the keeping of animals on the land contrary to a leasehold covenant. However, the orthodox view is that a landlord cannot obtain specific performance of the majority of tenants’ covenant (an exception is a covenant to build), as this would generate problems about how the court could supervise the tenant in execution of the covenant, as well as raising general issues of equity and fairness. So, in Co-op Insurance Society v. Argyll Stores (1997), the House of Lords refused to order specific performance of a tenant’s covenant to keep open retail premises for a specified time. Likewise, Hill v. Barclay (1811) was thought to be clear authority that a landlord could not obtain specific performance of a tenant’s repairing obligation, even though in fact this point was not critical to the decision in the case. Yet, in a novel judgment, Lawrence Collins QC (sitting then as a deputy judge of the High Court) held in Rainbow Estates v. Tokenhold (1998) that a landlord could obtain specific performance of a tenant’s repairing obligation in special and exceptional circumstances, particularly where the landlord had no other remedy and the court’s order could be defined with precision and, hence, was capable of supervision. It now appears that this has become the new orthodoxy (in the sense that it has not been judicially disapproved), but we might wonder why a landlord who has failed to include a right of re-entry in the lease, or a right to enter and repair and recover the costs from the tenant,

114 This is relevant in cases of forfeiture.

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should be sent the lifeboat of an order for specific performance. It might be thought that these ‘exceptional’ circumstances were all the landlord’s own making.

6.7.5 Forfeiture

By far the most powerful weapon in the armoury of the landlord in the event of a breach of covenant is the remedy of forfeiture. In principle, this remedy is available for breaches of all covenants, including the covenant to pay rent, and the effect of a successful forfeiture of the lease is to bring the lease to an end. It is a remedy that can result in the tenant’s estate in the land being terminated, even if the loss to the landlord because of the breach is small, and even if the ejection of the tenant will give the landlord a windfall gain (by reacquiring the unencumbered freehold) out of all proportion to that loss. The drastic consequences of a successful forfeiture have always attracted the attention of the courts, and it is not surprising that both the opportunity to forfeit and the effect it has on the tenant are now strictly controlled by statute. In fact, the Law Commission has proposed wholesale reform of the law of forfeiture in its numerous reports on termination of tenancies,115 and other changes in procedure have occurred as a result of the entry into force of the Commonhold and Leasehold Reform Act 2002.

6.7.5.1 General considerations

In general terms, in order for forfeiture to be available at all, the lease must contain a right of re-entry. This is a stipulation that the landlord is entitled to re-enter the premises should the tenant fail to observe his covenants. All professionally drafted leases will contain such a right, and one will be implied in all equitable leases (Shiloh Spinners v. Harding (1973)). By section 4 of the LTCA 1995, the benefit of the landlord’s right of re-entry will pass automatically to assignees of the reversion for a legal or equitable lease. Subject to what will be said below about statutory safeguards, which are particularly strong in the context of long residential leases, the existence of a right of re-entry gives the landlord two potential paths to a successful forfeiture. First, the landlord may physically re-enter the property by obtaining actual possession of it; a typical example being the changing of locks, providing this demonstrates an unequivocal intention to take possession. So, in Charville

115See, for example, Report No. 142 (1985), Report No. 221 (1994), Report No. 254 (1998), Consultation Paper No. 174 (2004) and the most recent Report No. 303 (2006), Termination of Tenancies for Tenant Default. The latest report contains a draft bill establishing a new scheme for termination of a lease on the grounds of tenant default instead of forfeiture (a ‘termination order scheme’) and this has a reasonable chance of reaching the statute book in due course.

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Estates Ltd v. Unipart (1997), the landlord’s entry to carry out works which the tenant had covenanted (but failed) to undertake was not a physical re-entry, and the lease remained alive, permitting the landlord to continue to claim rent and, in Cromwell v. Godfrey (1998), there was neither evidence of a manifest intention to forfeit, nor the retaking of possession. Second, and more frequently, a landlord may seek to exercise his right of re-entry through an action for possession brought against the tenant in the courts. At one time, a landlord had a free choice about which path to take, but this is now modified by statute, mainly to protect the tenant from an overzealous landlord.

1The enforcement of a right of re-entry in a residential lease ‘while any person is lawfully residing in the premises’ must take place through court action (section 2 of the Protection From Eviction Act 1977). Any attempt physically to re-enter such premises without a court order is without legal effect and will result in criminal liability.

2Even if the lease is non-residential (or otherwise outside the scope of section 2 above), it is only peaceful physical re-entry that is permitted and effective, and the landlord must avoid committing offences under the Criminal Law Act 1977. The use or threat of violence for the purpose of gaining entry, when there is someone on the premises opposed to the entry, may be a criminal offence and render the forfeiture ineffective.

3After the decision in Billson v. Residential Apartments (1992), even a lawful physical re-entry may be set aside some time later if the tenant applies for ‘relief’ from forfeiture.116

The net result of these provisions is that physical re-entry is possible only when the tenant is holding the premises under a business lease and those premises are unoccupied. Further, it may not be desirable even then, due to the court’s willingness to grant relief from forfeiture after such physical re-entry has occurred.

6.7.5.2 Forfeiture for non-payment of rent

Forfeiture of the lease for the tenant’s non-payment of rent stands apart from forfeiture for breaches of other covenants, although both physical re-entry and an action for possession are available (where lawful). In all cases, there must be a right of re-entry (forfeiture clause) in the lease, and the landlord must make a formal demand for rent unless the forfeiture clause dispenses with the need for such a demand (most do), or the rent is six months or more in arrears. In addition, however, as a result of the Commonhold and Leasehold Reform Act 2002 (CLRA 2002), certain additional safeguards exist

116 See section 6.7.5.2.

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for tenants under long leases of a dwelling.117 In such cases, not only is a tenant not liable to make a payment of rent (and so is not in arrears so as to trigger forfeiture) unless the landlord has given him a notice concerning payment and the date on which it is to be made,118 section 167 of the CLRA 2002 provides that the landlord may not forfeit at all unless the amount owed exceeds a statutory prescribed sum (currently £350) or has been unpaid for more than a prescribed period (currently three years).119 Of course, in most cases, these are not burdensome conditions and the new provisions of the CLRA 2002 in relation to long leases of dwellings are a much overdue measure of tenant protection that will prevent unexpected forfeiture or forfeiture for trivial debts.

Having surmounted these hurdles, the landlord then may proceed to forfeit the lease either by physical re-entry or a possession action in the County court. In either case, however, the general rule applies that the ‘law leans against forfeiture’. Thus, in suitable circumstances, a tenant will be granted ‘relief from forfeiture’ if he pays all the rent due plus all costs within the appropriate time.120 In the County court, a tenant has a right to stop the possession proceedings on the payment of arrears and costs at any time up to five days before the trial (section 138(2) of the County Courts Act 1984). Further, the County court will postpone execution of a possession order for four weeks (or more if warranted), during which time a tenant has an automatic right to relief on payment of outstanding amounts (section 138(3) of the County Courts Act 1984). Obviously, because the tenant in these circumstances has a right to have the proceedings stayed, it is important to know what sums must be paid to secure relief. Clearly, these include all the landlord’s costs and it is now clear, following Maryland Estates v. Joseph (1998), that the amount of arrears is calculated up to the date for possession specified in the court order and not the earlier date on which the tenant was served with the summons for possession. This is perfectly consistent with the concept that a lease remains in existence up until such time as it is actually forfeited, being when the landlord has taken possession and all hopes of relief from forfeiture are gone.121 In the normal course of events, failure to pay by the date specified

117Being a lease of over 21 years (section 76 of the Commonhold and Leasehold Reform Act 2002).

118Section 166 of the CLRA 2002.

119These provisions also apply to attempts to forfeit for non-payment of a service charge, a much more likely event in these long leases. Moreover, a landlord may not forfeit for non-payment of a disputed service charge until a Leasehold Valuation Tribunal has determined the amount if the charge – section 81 Housing Act 1996 as amended by the CLRA 2002.

120The application for relief will be either in the landlord’s possession action or by direct application to the court by the tenant.

121For example, see Ivory Gate Ltd v. Spetale (1998).

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in the order will bar the tenant from further relief, and the landlord’s possession order becomes enforceable, save only that a tenant may apply for discretionary relief within six months of the landlord taking possession under the court order (section 138(9A) of the County Courts Act 1984).

If the landlord lawfully re-enters physically (i.e. without a court order), the High Court122 has a discretionary power to grant relief under its inherent equitable jurisdiction (Howard v. Fanshawe (1895)) although only in favour of someone entitled to claim possession of the land by virtue of a legal or equitable proprietary right.123 The County court also has a discretionary jurisdiction to grant relief in the event of physical re-entry although it is founded on statute. It exists only if the application for relief is made within six months of the re-entry occurring (section 139(2) of the County Courts Act 1984).

6.7.5.3 Principles for granting discretionary relief for non-payment of rent

It will be apparent from the above that there are circumstances in which the tenant may claim relief from forfeiture as of right. Where these circumstances exist, relief must be ordered because, in essence, they cover those cases where the tenant pays all necessary sums before the landlord recovers possession. However, in those cases where the right to relief does not arise, there remains the court’s discretionary jurisdiction to grant relief which it will seek to exercise in the tenant’s favour, even in some cases where the landlord has relet the premises.124 The underlying rationale for this generosity is the simple point that the purpose of forfeiture in ‘rent cases’ is to secure the sum owed, and once this has been achieved, forfeiture is no longer appropriate and relief should be granted (Gill v. Lewis (1956)). This means that it will be rare for a tenant offering full payment within the period in which relief can be claimed to be denied that relief, even if they are a persistently late or bad payer, even if the breach was wilful, and even if prospects for payment of future rent

122Forfeiture proceedings for on-payment of rent generally start and finish in the County court. In the event that a matter is transferred to the High Court, a tenant has a statutory right under section 212 of the Common Law Procedure Act 1852 to have the possession proceedings stopped if he pays all the rent due plus costs before the date of the judgment against him, although this right is available only if at least six months’ rent is in arrears. Even if the landlord has obtained and executed a possession order, the tenant may apply for relief if he then pays all arrears and costs, providing that the application is made within six months of the possession order being executed (section 210 of the Common Law Procedure Act 1852) and the premises have not been let to a third party. In those cases where this statutory relief is not available, the tenant may fall back on the High Court’s general equitable jurisdiction to grant relief from forfeiture if the tenant pays all outstanding amounts (Howard v. Fanshawe (1895)) and this may be useful where the tenant seeks relief more than six months after the landlord has regained possession (Thatcher v. CH Pearce (1968)).

123Bland v. Ingram’s Estate (2001).

124For example, Bank of Ireland Home Mortgages v. South Lodge (1996).

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appear bleak. However, relief will be granted only if the rent is paid or will be paid, so a claim that related legal action will secure enough funds to pay the rent is not sufficient to trigger relief (Inntrepreneur Pub Co. v. Langton (1999)). On the other hand, it is now clear that this generosity should extend to all covenants aimed at securing a liquidated sum from the tenant. So, in Khar v. Delbounty (1996), the landlord claimed to forfeit for non-payment of quantified service charges, and although this was a ‘section 146 case’,125 the court held that the same principles of generosity should apply as would in rent cases and the tenants were granted discretionary relief.

6.7.5.4 Forfeiture for breach of covenants other than to pay rent

In all cases where the landlord is seeking to forfeit the lease because of breach of covenant, other than a breach of the covenant to pay rent (and ‘rent’ includes a covenant to pay a service charge if the lease declares that the charge is to be treated as rent, as was not the case in Delbounty), the procedure specified in section 146 of the LPA 1925 must be strictly followed, together with additional procedural safeguards introduced in the case of long leases of dwellings by section 168 of the CLRA 2002. Also, of course, the lease must contain a right of re-entry.

In general terms, a landlord may serve ‘a section 146 notice’ when he believes a breach of covenant has occurred and there is no doubt that this can concentrate the mind of a tenant on observing the obligations of a lease. Less commendable is the occasional practice of serving section 146 notices to threaten or cajole tenants when there is no real evidence of a breach or merely a trivial or technical breach. One response to this is the provision in section 168 of the CLRA 2002 that a landlord of a long lease of a dwelling126 may not serve a section 146 notice for breach of covenant unless the tenant has admitted the breach or a period of 14 days has passed since a Leasehold Valuation Tribunal has decided that a breach has occurred. The aim is once again to prevent unexpected or unjustified forfeitures. Assuming then that a section 146 notice is capable of being served lawfully, the notice must:

1specify the breach of covenant of which complaint is made;

2request compensation for breach of covenant if desired and also advise the tenant of their rights under the Leasehold Property (Repairs) Act 1938 if appropriate;127

125See section 6.7.5.4.

126As before, a lease over 21 years.

127If three or more years of the lease are unexpired, the section 146 notice must alert the tenant to the protection available under this Act. This is to serve a counter-notice on the landlord claiming the benefit of the Act and so ensuring that no forfeiture may proceed without a court order.

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3request that the breach of covenant be remedied, if that is possible; and

4if the forfeiture is in respect of a service charge (not being a charge to be treated as rent), the landlord must inform the tenant of the safeguards established by section 81 of the Housing Act 1996 and now enhanced by the CLRA 2002.128

This procedure is designed to give the tenant every opportunity to remedy the alleged breach of covenant and to avoid the serious consequences of forfeiture. Indeed, any attempt to forfeit the lease in violation of these provisions is void (Billson v. Residential Apartments (1992)). After the service of a valid section 146 notice, the landlord may be able to proceed to forfeit the lease, either by a court action for possession, or by physical re-entry (if that is available). However, whether the landlord can, in fact, proceed to forfeit, and how long they must wait before doing so after the service of the notice, depends on whether the specified breach of covenant is ‘capable of remedy’.

The section 146 notice must request that the breach of covenant be remedied if that is possible. If the covenant is capable of remedy (i.e. it is ‘remediable’), then the landlord must give the tenant ‘a reasonable time’ (e.g. three months) to effect such remedy, and will not be allowed to forfeit during this period. Of course, if the tenant then remedies the breach of covenant, the question of forfeiture no longer arises, although there may be claims for damages for past breaches. If, however, the covenant is not capable of remedy, then the landlord may proceed to forfeit relatively quickly, normally after 14 days again by action or physical re-entry.129

Necessarily, it is vital to know whether the covenant is ‘capable of remedy’, as this will dictate both the contents of the section 146 notice and the speed with which the landlord may proceed to forfeit, if at all. The basic test of remediability was put forward in Expert Clothing Service and Sales Ltd v. Hillgate House Ltd (1986), which in essence recognised that a covenant was ‘capable of remedy’ if the damage the breach had caused could be rectified. Thus, breaches of most positive covenants can be remedied (Expert Clothing) because the tenant can do that which they have not done, for example, by carrying out repairs. Conversely, it is commonly thought that breaches of negative covenants are more likely to be incapable of remedy, thus permitting early forfeiture. This may well be true in cases where the breach is ‘once and for all’, such that doing the prohibited action is irrecoverable (an example

128As above, that no forfeiture may occur unless the arrears of a disputed service charge have been established by a Leasehold Valuation Tribunal and that they exceed the statutory minimum or have been in arrears longer than the statutory period.

129Scala House and District Property Co Ltd v. Forbes (1974). Courtney Lodge v. Andrew Blake

(2004) decided that four working days is not sufficient time to respond to a section 146 notice.

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is breach of a covenant against subletting130) and likewise with a breach that taints the land so that no amount of effort on the part of the tenant can remedy the stigma.131 Yet it is not simply the case that breaches of all restrictive covenants should be regarded as incapable of remedy, for if the breach is ‘ongoing and continuous’, the tenant can effect a remedy by ceasing the prohibited activity (Cooper v. Henderson (1982)) as where the tenant remedies breach of a covenant against keeping pets, by no longer keeping them. Moreover, in Savva and Savva v. Hussein (1996), the Court of Appeal held that there was nothing in logic to differentiate between positive and negative covenants in this regard because the Expert Clothing test required that each breach of covenant be taken on its own merits. So, in that case, breach of a covenant against alterations was not, in principle, incapable of remedy.

Having surmounted the hurdle of remediability, the landlord may proceed to forfeit by an action for possession or by physical re-entry. However, the tenant still has the ability to apply for relief from forfeiture, as stipulated in section 146 of the LPA 1925, either in an action for possession by the landlord, or by an independent application to the court. Indeed, one purpose of the section 146 notice procedure is to alert the tenant to the possibility of forfeiture and the opportunity to apply for relief. Relief from forfeiture will be granted if the tenant has performed the covenants, or if the court considers that it would be just and reasonable to allow the lease to survive despite the breaches of covenant (Shiloh Spinners v. Harding (1973)). Several matters will be relevant in determining whether relief should be given; for example, the drastic effect that a successful forfeiture has per se; the value of the lease when compared with the damage caused by the breach; the seriousness or triviality of the breach; whether the landlord has re-let the premises to an innocent third party;132 whether the breach was wilful, negligent or innocent; and the past performance of the tenant in performing the covenants. Importantly, relief will not be refused just because the tenant breached a negative covenant, or because the breach was itself irremediable as in Mount Cook Land v.

Hartley (2000) and Amana Holdings Ltd v. Fakhir Shatub al-Darraji (2003) where tenants were given relief after breaking a covenant against subletting. However, a court is entitled to refuse relief because of the conduct of the tenant or those standing behind it. So, in Shirayama Shokusan v. Danovo Ltd (2005), the tenant (D) was refused relief after breaking covenants concerning use of the premises because of its own inequitable conduct and those standing

130But see the doubts about such breaches in Bass Holdings v. Morton Music Ltd (1988).

131As where, in breach, a tenant opens a sex shop (Dunraven Securities v. Holloway (1982)) or keeps a brothel (Kelly v. Purvis (1983)).

132There is a tendency to deny relief in such cases, but see Delbounty and Bank of Ireland Home Mortgages v. South Lodge (1996), where relief was granted with special provision for the innocent third party now in possession.

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