Commercial Landlords and Tenants breaching terms of lease

 

There are a number of remedies available to commercial landlords where the tenant breaches the terms of their lease,

 

Enables a landlord to secure the payment of rent or the performance of certain obligations due to him by seizing the goods and chattels found upon the relevant premises. Thereafter, if necessary, removal of the goods and subsequent sale is possible. The contents seized must belong to the tenant. Certificated bailiffs should be used. In cases involving insolvency it can be available before a winding up petition is presented and both during and after voluntary liquidation but seek specific advice applicable to the circumstances. 

 

Note:   The right to distrain was due to be replaced by a scheme known as Commercial Rent Arrears Recovery (“CRAR”). This is likely arguably to be a less effective remedy for landlords, if it is brought into force, since CRAR requires the preliminary service of formal notice thus removing an element of surprise. For the moment however the scheme is on hold and it is doubtful whether it will be implemented at all.   

 

 

A right to forfeit will only arise if the lease contains express provision. Such clauses are commonplace but nevertheless a pre-requisite.

It is important for the landlord or the landlord’s agent to be clear that the act of physical re-entry is by way of forfeiture and not for some other purpose.

 

 

Being perfectly clear to the tenant, acting swiftly, and doing nothing inconsistent with the exercise of the right of forfeit is paramount to avoid any argument by the tenant that the landlord has “waived” its right, or is “estopped” from doing so. 

 

Particular care should be taken where the premises are let partly for residential and partly for commercial use. Much depends on the circumstances of the individual case and the layout of the premises.

 

The forfeiture of the lease also destroys the rights of subtenants; and a breach of covenant as to part of the premises, if followed by forfeiture, can destroy a sublease of another part. A subtenant may however obtain what is called a vesting order which is similar in effect to relief from forfeiture.

Applications by tenants for relief from forfeiture come at a cost. Each case turns on its own facts but generally speaking save in exceptional circumstances provided that the landlord can be put in the same position but for the breach of covenant within a reasonable time, the tenant is entitled to be relieved against the forfeiture upon payment of the rent and any costs or expenses which the landlord has incurred as a result. Upon payment the lease will continue as if it had never been forfeit. 

 

 

To issue a statutory demand against an individual or corporate entity there should be an unsecured debt of £750.00 or more. 

There are detailed requirements as to service and generally they should be personally served but substituted service is possible where for example service is being evaded. The judge will however want to be satisfied that the documentation has been brought to the debtors attention.

It is not always necessary in the case of a corporate entity; all that is required is an inability to pay the debt as and when they fall due. If however a valid statutory demand is for example personally served on a director of a company at its registered office and the company does not secure of compound it to the creditors reasonable satisfaction within 18 days of service then the company is deemed to be unable to pay its debts and a winding up petition may be presented.

Similarly after 18 days of service on an individual, if no application to set aside the statutory demand is made, a bankruptcy petition may be presented.

The grounds for setting aside a statutory demand in the case of individuals are;

a)                 if the debtor appears to have a counterclaim, set off, or cross demand equalling or exceeding the amounts specified in the demand;

b)                 the debt is disputed on grounds which the Court considers substantial;

c)                  the creditor holds security which equals or exceeds the value of the debt or which has not been disclosed in accordance with the rules;

d)                 the Court is satisfied on other grounds (basically in circumstances where it would be unjust for the creditor to present a petition).

 

For companies the route is an injunction to prevent the presentation of a petition.

 

 

Section 6 of the Law of Distress (Amendment) Act 1908 (due to be repealed by section 81 of the Tribunals, Courts and Enforcement Act 2007 but not yet in force) enables a landlord to recover rent from a sub-tenant of a defaulting tenant. A specific notice is served on the sub-tenant in summary saying that a) the tenant has failed to pay its rent and the amount of the arrears and b) that the subtenant is to pay all its rent to the landlord direct until the arrears have been cleared.

 

 

Consideration should be given to the above if available.

 

 

Particularly where the tenant is already insolvent seek specific advice. Much depends upon the type of insolvency.