Note: This article examines the remedies available to landlords when a commercial tenant breaches a lease. It does not cover remedies for non-payment of rent, as this is detailed in the article “What to Do If Your Commercial Tenant Is Not Paying Rent”.
When a tenant breaches the terms of its commercial lease, the landlord has several potential remedies available, depending on the nature of the breach, the terms of the lease, and the landlord’s ultimate aims, including:
- Forfeiture
- Self-help for breach of repair covenants
- Court declaration / Specific performance
- Damages
- Injunctions
Forfeiture
Forfeiture, or re-entry, is the landlord’s right to terminate the lease when the tenant breaches any of its covenants in the lease or upon the occurrence of certain events specified in the lease, such as insolvency.
The landlord of a commercial property should consider whether it is in their commercial interests to take the property back. If the landlord believes that a new tenancy could be granted on similar or superior terms, they may wish to repossess the property. However, if the property is likely to remain vacant for some time, or the market no longer supports similar letting terms, the landlord may prefer to keep the existing tenancy in place and pursue alternative remedies that could compensate for the breach and secure future performance of the tenant’s covenants.
There are a number of limitations to the landlord’s right to forfeit and it is important to take legal advice before you take any steps to repossess the property. If you get the forfeiture wrong, it would amount to an unlawful forfeiture and you could face a damages claim from the tenant.
When considering forfeiture of the lease and the right to forfeit has arisen under the terms of the lease, the landlord should ensure that it does not do anything to waive that right.
Waiver of the right to forfeit occurs when the landlord, with knowledge of the tenant’s breach, performs an unequivocal act that recognises the lease as continuing to exist and communicates that act to the tenant.
To protect their right to forfeit, landlords often cease all communications with the tenant and implement a rent stop to avoid any argument that the right to forfeit has been waived. Demanding or accepting rent, for example, would waive this right.
Most modern commercial leases impose covenants on tenants related to the use of premises, insurance, repair, alterations, rent, other sums due, the right to assign or sublet, insolvency, planning, illegal or immoral use, and adherence to licensing laws.
Examples of “once and for all breaches” include failure to pay rent, breaches of a covenant to repair the premises, breaches of alienation provisions, and insolvency events. Examples of continuing breaches include breaches of the covenant to keep the property in repair, breaches of a user covenant, and breaches of a covenant to insure. If the landlord waives the right to forfeit for a ‘once and for all’ breach, they lose the right to forfeit the lease for that breach. If the landlord waives the right to forfeit for a ‘continuing breach,’ the breach arises afresh each day, allowing the landlord to forfeit even after previously waiving the right.
Service of Section 146 Notice
If the tenant breaches a covenant in the lease, except for non-payment of rent, the landlord must determine whether the breach is capable of remedy before serving a notice on the tenant under Section 146 of the Law of Property Act 1925 (Section 146 Notice).
If the breach is remediable, the Section 146 Notice must require the tenant to remedy the breach within a reasonable time. If the tenant is not given a reasonable period to remedy the breach and the landlord takes steps to forfeit the lease, this will likely invalidate the Section 146 notice and could expose the landlord to a claim for unlawful/wrongful forfeiture.
For breaches related to non-payment of rent, there is no requirement to serve a Section 146 Notice prior to forfeiture. For more detail on the commercial landlord’s remedies where the tenant is not paying rent, please refer to our article “What to Do If Your Commercial Tenant Is Not Paying Rent”.
Additional Requirements for Breach of a Covenant to Repair
Section 1 of the Leasehold Property (Repairs) Act 1938 (LPRA 1938) limits the landlord’s ability to forfeit the lease where the LPRA 1938 applies. The LPRA 1938 applies if the lease was granted for a term of at least seven years and has at least three years left to run. The landlord’s Section 146 notice must refer to the tenant’s rights under the LPRA 1938. If the tenant claims the benefit of the LPRA 1938, the landlord cannot take steps to forfeit the lease or claim damages for breach of the repair covenant without the consent of the court.
Where the tenant is in breach of their repair covenants, the landlord can attach a schedule of dilapidations to the Section 146 notice, outlining the breaches.
In some instances, a landlord may decide to serve a Section 146 Notice on a tenant who is in breach of the lease, even if the landlord does not necessarily intend to proceed to forfeit the lease, as the notice may prompt the tenant to remedy the breaches.
Post forfeiture
Where the landlord has forfeited the commercial lease, there are further considerations for the landlord:
Relief from Forfeiture
The tenant or other parties (such as an undertenant or mortgagee) may apply for relief from forfeiture. If the landlord wishes to grant a new lease over the property to a third party, they will want to know as soon as possible if the tenant (or any other party) intends to make such an application. The landlord will want to avoid having a vacant property while awaiting a tenant or other party’s application for relief from forfeiture.
The landlord may decide to notify those who have a right to apply for relief, indicating that a new lease will be granted and requesting that they apply for relief immediately if they intend to do so.
Tenants’ Fixtures and Fittings Left at the Property
Regarding tenant fixtures, the general position is that, in the absence of special provisions in the lease, where the lease is forfeited by peaceable re-entry, the tenant’s right to remove any fixtures is lost.
For chattels, the landlord will likely have to become an involuntary bailee and should give the third party the opportunity to collect them by serving notice on him under the Torts (Interference with Goods) Act 1977.
Removal of Entries on the Land Registry Title
If the lease is registered at the Land Registry, the landlord may need to take steps to close the leasehold title and remove any associated entries relating to the lease from superior titles.
Liability for Business Rates after Forfeiture
Where a landlord forfeits the lease, the landlord will once more become responsible for paying rates (subject to any reliefs that may be available), as the person entitled to possession.
Self-help for Breach of Repair Covenants
There are statutory limitations on the amount of damages a landlord can recover for the breach of the tenant’s repair covenants during the term of a commercial lease. In some instances, landlords may enter the property and carry out the works themselves if the lease provides for this (known as a “Jervis v Harris” clause).
This can be a useful tool for landlords, as they are entitled to recover the cost of the works from the tenant as a debt, not as damages. However, the landlord must carefully consider the extent of the breach and the works it carries out. If the works carried out by the landlord go beyond the specific disrepair related to the breach, the landlord could be liable for trespass, having had no right to enter the property for those works.
Court Declaration / Specific Performance
If there is a dispute over whether the tenant is in breach of the lease, what action is required, or what the landlord can do by way of self-help, the landlord could consider asking the court for a declaration. This could also be combined with a court application for specific performance, requesting that the tenant comply with its covenants, or a damages claim to compensate the landlord for the tenant’s breaches.
Specific performance is an equitable remedy which the court may grant if damages are not an adequate remedy. It will only be available if the obligation to be enforced is sufficiently precise to be capable of specific performance. Generally, specific performance will not be ordered if the contract requires performance or constant supervision over a period of time and the obligations in the contract are not clearly defined.
Damages
Another potential remedy for a landlord where a tenant has breached the lease is to bring a claim for damages. The starting point is that the landlord is entitled to be put back into the position they would have been in if the tenant had complied with its obligations. To get compensation for loss suffered due to the tenant’s breach, the landlord must prove their loss and establish that it was caused by the tenant’s breach. If the link between the breach and the loss is too remote, the claim will likely fail.
Pursuing a damages claim can be expensive and protracted, and depending on the nature of the tenant’s breach and other circumstances, damages alone may not be an adequate remedy.
The landlord may still be able to recover damages from a tenant for breach of covenant, even if the landlord has already waived the right to forfeit for that breach.
Injunctions
An injunction is a court order requiring a party to take (mandatory) or refrain from taking (prohibitory) certain actions. In the case of a breach of covenant, the order may require the tenant to refrain from a specific action (such as ceasing sub-letting) or to take some positive steps to comply with the terms of lease or transfer (such as undertaking repairs). As with specific performance, injunctive relief is grounded in equity and will be granted or refused based on fairness.
In appropriate cases, where an urgent remedy is required, for example to cease unauthorised works, the landlord may apply for an interim injunction in the first instance, to be followed by a final injunction at a later stage.
The first stage is an ‘interim’ injunction, a temporary measure designed to last a defined period, usually until the final hearing. The order is made with limited scrutiny of the paperwork and evidence, given the urgent nature of the application, and the threshold for making the order is lower. The court must consider whether there is a serious issue to be tried, whether damages would be an adequate remedy, and where the balance of convenience lies (e.g., the inconvenience if the injunction is granted compared to the inconvenience if it is not).
Usually, the party applying for an injunction gives a cross-undertaking in damages, by which they agree to pay damages to the other party if the other party suffers loss as a result of the interim injunction being granted, should it transpire at the final hearing that the interim order should not have been made. Final injunctions are then granted following the final hearing and are generally designed to last indefinitely.
Commercial Landlord Solicitors – Contact Us
David Burns, Senior Litigation Partner at Ronald Fletcher Baker LLP, has extensive experience handling issues related to commercial tenants who have breached the terms of their lease. For inquiries on this topic, please contact David Burns via email at D.Burns@rfblegal.co.uk or by phone at 07762318409.
David Burns
Senior Litigation Partner
