Landlord and tenant law - Remedies for breach of leasehold c...

Learning Outcomes

This article outlines the primary remedies available to landlords and tenants when leasehold covenants are breached, including:

• Remedies for non-payment of rent: debt action, Commercial Rent Arrears Recovery (CRAR), and forfeiture
• Remedies for breaches of other covenants: damages, injunctions, specific performance, and forfeiture procedures under section 146 of the Law of Property Act 1925
• Distinctions between remedies for rent arrears and other covenant breaches, including the application of section 146 LPA 1925
• Waiver requirements, including knowledge of breach and unequivocal recognition of the lease’s continuation, and their effect on the right to forfeit
• Relief from forfeiture for rent and for other breaches, including relief after peaceable re-entry and relief available to sub-tenants and mortgagees
• Statutory limits on damages for disrepair (s.18 Landlord and Tenant Act 1927) and the Leasehold Property (Repairs) Act 1938 procedure
• The CRAR process, its limitations, and circumstances in which it may be preferable to forfeiture or a debt action
• Jervis v Harris clause as a self-help remedy and recovery of costs as a debt
• Additional constraints on forfeiture of long residential leases, including prior determination of breach and minimum arrears thresholds
• Tenant remedies for landlord breaches: damages, injunctions, specific performance, and set-off for repairs

SQE1 Syllabus

For SQE1, you are required to understand the practical application of remedies for breaches of leasehold covenants. Assessment questions may require you to identify the appropriate remedy in a given scenario, understand the procedural requirements for remedies like forfeiture, or advise on the consequences of a breach for both landlord and tenant, with a focus on the following syllabus points:

• The distinction between remedies for non-payment of rent and breaches of other covenants.
• The procedures and requirements for forfeiture, including the service of relevant notices (e.g., s.146 LPA 1925).
• The concept of waiver and relief from forfeiture.
• The availability and limitations of remedies such as damages, injunctions, specific performance, and CRAR.
• The basic remedies available to a tenant for a landlord's breach.
• Statutory caps on damages for disrepair (s.18 LTA 1927) and the Leasehold Property (Repairs) Act 1938 counter-notice procedure.
• Additional statutory protections for long residential leases (e.g., prior determination of breach and arrears thresholds before forfeiture).

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. A landlord discovers their commercial tenant breached a repair covenant three months ago. The lease contains a forfeiture clause. What is the first step the landlord must take before potentially forfeiting the lease?
   1. Apply to the court for an order for possession.
   2. Serve a notice under section 146 of the Law of Property Act 1925.
   3. Exercise the right of peaceable re-entry immediately.
   4. Send a formal demand for damages.
2. A tenant under a commercial lease is two months in arrears with rent. The lease does not reserve service charges as rent. Which remedy allows the landlord to potentially seize the tenant's goods?
   1. Forfeiture
   2. Debt Action
   3. Commercial Rent Arrears Recovery (CRAR)
   4. Specific Performance
3. Under which circumstances can a landlord not exercise the remedy of forfeiture, even if a breach has occurred?
   1. The lease does not contain an express forfeiture clause.
   2. The landlord has accepted rent after becoming aware of the breach.
   3. The tenant remedies the breach within the time specified in a s.146 notice.
   4. All of the above.

Introduction

Leasehold covenants are promises contained within a lease agreement, setting out the obligations of the landlord and tenant. A breach occurs when either party fails to comply with these promises. Landlord and tenant law provides various remedies to address such breaches, aiming to compensate the injured party, compel compliance, or, in serious cases, terminate the lease. The appropriate remedy often depends on the nature of the covenant breached (e.g., payment of rent versus repair obligations) and the specific circumstances. Understanding these remedies, including their procedures and limitations, is essential for advising clients effectively.

Key Term: Commercial Rent Arrears Recovery (CRAR)
A statutory procedure allowing landlords of purely commercial premises to recover rent arrears by instructing certified enforcement agents to take control of the tenant's goods located on the premises and sell them.

Key Term: Forfeiture
The landlord's right to terminate the lease prematurely due to the tenant's breach of covenant. Also known as the right of re-entry.

Key Term: Section 146 Notice
A formal statutory notice that a landlord must serve on a tenant before forfeiting a lease for breach of a covenant other than non-payment of rent.

Key Term: Waiver
The loss of the right to forfeit for a particular breach where, with knowledge of that breach, the landlord does an unequivocal act recognising the continuance of the lease (e.g., demanding or accepting rent).

Key Term: Relief from forfeiture
Discretionary court relief restoring the lease as if forfeiture had not occurred, usually on terms (e.g., payment of arrears and costs), available to tenants and, in some cases, sub-tenants and mortgagees.

Key Term: Jervis v Harris clause
A lease clause enabling a landlord to enter, inspect and carry out repairs if the tenant fails to do so after notice, with costs recoverable as a debt rather than damages.

Key Term: Leasehold Property (Repairs) Act 1938
A statute that, for certain long leases, allows a tenant served with a s.146 notice for disrepair to serve a counter-notice, requiring the landlord to obtain the court’s permission before proceeding.

Key Term: Default notice (s.17 LT(C)A 1995)
A statutory notice a landlord must serve within six months of the “fixed charge” falling due before claiming arrears from a former tenant or guarantor under a pre- or post-1996 lease.

Key Term: Authorised Guarantee Agreement (AGA)
An agreement under s.16 LT(C)A 1995 by which an outgoing tenant guarantees the immediate assignee’s performance of lease covenants, often relevant to recovering arrears from former tenants.

Landlord's Remedies for Non-Payment of Rent

Failure by the tenant to pay rent is a common breach. The landlord has several remedies available, though some may preclude the use of others (e.g., pursuing a debt action may waive the right to forfeit for that specific arrear).

Debt Action

The landlord can sue the tenant to recover the unpaid rent as a debt. This is a straightforward claim based on the tenant's contractual obligation (express or implied) to pay rent. The Limitation Act 1980 prevents claims for rent arrears more than six years old. A debt action acknowledges the lease continues, potentially waiving the right to forfeit for the specific arrears being claimed. If the landlord has assigned the reversion, the right to sue for past arrears passes to the new landlord unless specifically reserved.

Where the current tenant is insolvent or judgment-proof, a landlord may pursue a former tenant or guarantor. For leases granted on or after 1 January 1996, this typically depends on an AGA. For both pre- and post-1996 leases, before recovering arrears as a “fixed charge” (e.g., rent) from a former tenant or AGA guarantor, the landlord must serve a default notice under s.17 of the Landlord and Tenant (Covenants) Act 1995 within six calendar months of the charge falling due. Failure to serve the notice in time bars recovery of that instalment from the former tenant/guarantor. Payment in full following such a notice may entitle the payor to an overriding lease under s.19 LT(C)A 1995, placing them temporarily into the landlord-tenant chain and enabling them to take steps (including forfeiture or recovery) against the defaulting assignee.

Commercial Rent Arrears Recovery (CRAR)

CRAR replaced the old remedy of distress and is governed by the Tribunals, Courts and Enforcement Act 2007. Key points include:

• It applies only to leases of purely commercial premises.
• It can only be used to recover principal rent, interest, and VAT – not service charges or insurance premiums (even if reserved as “rent” in the lease), nor damages, costs, or other sums.
• There must be a minimum of seven days' rent outstanding.
• The landlord must give the tenant at least seven clear days' notice via an enforcement agent before seizing goods; at the moment of notice, the tenant’s goods on the premises become “bound”.
• Only certified enforcement agents can seize goods, following statutory restrictions and exemptions.
• In some cases involving sublettings, the landlord may serve notice on the sub-tenant requiring payment of rent directly to the landlord in satisfaction of the superior tenant’s arrears.
• Exercising CRAR acknowledges the lease’s continuation and may waive the right to forfeit for the arrears being pursued, so strategic sequencing matters.

CRAR is generally quicker than court proceedings and may be attractive where the tenant holds valuable stock on site, but it is limited in scope and cannot be used for mixed-use premises (e.g., shop with a residential flat).

Forfeiture

Forfeiture is a powerful remedy allowing the landlord to end the lease. For non-payment of rent:

• The lease must contain an express forfeiture clause (a right of re-entry).
• Historically, the landlord had to make a formal demand for the rent on the due date at the property between sunrise and sunset. However, most modern leases expressly waive this requirement. Formal demand is also unnecessary if rent is at least six months in arrears (Common Law Procedure Act 1852, s.210).
• Forfeiture can be effected by peaceable re-entry (only permissible for commercial premises, and without using force – s.6 Criminal Law Act 1977) or, more commonly, by obtaining a court order for possession.
• The Protection from Eviction Act 1977 requires a court order for re-entry to an occupied dwelling house; peaceable re-entry for residential premises is not permissible.
• Additional protections apply to long residential leases:
  • Ground rent for long leases becomes payable only after service of a statutory notice (s.166 Commonhold and Leasehold Reform Act 2002).
  • For non-payment of service charges or other sums not reserved as “rent”, forfeiture is restricted unless the arrears exceed a prescribed sum or have been unpaid for a prescribed period (currently a total of £350 or more, or unpaid for more than three years: s.167 CLRA 2002).
  • Before serving a s.146 notice for breach (other than non-payment of rent), the breach must be admitted or determined by a tribunal or court (s.168 CLRA 2002).
• Waiver: The landlord may lose the right to forfeit for a specific breach if they do an act recognising the continuation of the lease after becoming aware of the breach (e.g., demanding or accepting subsequent rent).
• Relief: The tenant can apply to the court for relief from forfeiture. For rent arrears, relief is usually granted if the tenant pays all arrears and the landlord's costs, often automatically if paid before trial or within a period specified by the court. Relief may also be granted after peaceable re-entry in appropriate cases.

Key Term: Waiver
Waiver occurs where the landlord, with knowledge of the breach, does an unequivocal act affirming the lease (e.g., acceptance of rent) and thereby loses the right to forfeit for that breach. Waiver relates to the particular breach and, for “once-and-for-all” breaches (e.g., unlawful subletting), may not necessarily waive rights in respect of future distinct breaches.

Key Term: Relief from forfeiture
Relief restores the lease as if forfeiture had not occurred, typically on terms such as payment of arrears and costs. Relief is usually available for rent arrears and is discretionary for other breaches. Relief may also be available to sub-tenants and mortgagees and, after peaceable re-entry, in appropriate circumstances.

Landlord's Remedies for Breach of Other Covenants

Remedies for breaches of covenants other than rent (e.g., repair, use, alterations, alienation) differ, particularly concerning forfeiture procedure.

Damages

The landlord can claim damages for losses resulting from the tenant's breach. The aim is compensation based on contractual principles. For general covenant breaches (e.g., unauthorized alterations or use), damages reflect the landlord’s loss flowing from the breach.

For breaches of a tenant's repairing covenant, damages are capped by statute (s.18 Landlord and Tenant Act 1927) at the amount by which the value of the landlord's reversion has diminished due to the disrepair. No damages are recoverable if the premises are to be demolished or structurally altered in a way that would render the repairs valueless.

Additionally, if the lease was granted for seven years or more and has at least three years left to run, the landlord must first serve a notice under s.146 LPA 1925 (see below) before claiming damages for disrepair, and the tenant has the right to serve a counter-notice under the Leasehold Property (Repairs) Act 1938, requiring the landlord to obtain court leave before proceeding. Court permission is generally needed unless statutory grounds are satisfied (for example, the works are urgently needed or the tenant has caused the disrepair).

Specific Performance and Injunctions

An injunction is a court order restraining the tenant from breaching (or continuing to breach) a restrictive covenant. Specific performance compels the tenant to comply with a positive covenant. Specific performance is rarely granted against a tenant for breach of a repairing covenant, as damages are usually considered adequate and supervision is difficult. However, exceptional cases exist where specific performance has been ordered with clearly defined works. Injunctions are more common for breaches of negative covenants (e.g., prohibiting a certain use).

Where a restrictive covenant has been breached, the court may grant an injunction or, in appropriate cases, award damages in lieu. While the classic Shelfer guidelines set out when damages may replace an injunction (small injury, quantifiable in money, compensable by money, oppressive to grant an injunction), modern authority emphasises broader discretion; the court assesses the overall justice of granting damages instead.

Forfeiture for Other Breaches

The procedure for forfeiture for breaches other than non-payment of rent requires the landlord to serve a notice under section 146 of the Law of Property Act 1925 before proceeding.

The s.146 notice must:

• Specify the particular breach complained of.
• Require the tenant to remedy the breach, if it is capable of remedy, within a reasonable time.
• Require the tenant to pay monetary compensation for the breach, if the landlord desires it.

Key Term: Section 146 Notice
A formal statutory notice that a landlord must serve on a tenant before forfeiting a lease for breach of a covenant other than non-payment of rent.

• Remediable vs Irremediable Breaches: If the breach is capable of remedy (e.g., failure to repair or some alterations), the landlord must allow a reasonable time for the tenant to remedy it. If the tenant remedies the breach within that time, the landlord cannot forfeit. If the breach is incapable of remedy (e.g., some “stigma” uses such as immoral purposes), the landlord must still serve the notice but can proceed to forfeit after a reasonable period (often considered 14 days) to allow the tenant to consider their position. The courts generally treat many breaches (including some once viewed as “once-and-for-all”) as remediable if the damage caused by the breach can be rectified; context and facts matter.
• Relief: The tenant (or a sub-tenant or mortgagee) can apply to the court for relief from forfeiture under s.146(2) LPA 1925 (or s.146(4) for sub-tenants/mortgagees). Relief is discretionary and depends on factors like the seriousness of the breach, the tenant's conduct, and whether the landlord can be adequately compensated. Relief reinstates the lease as if forfeiture never happened. A sub-tenant granted relief may have the head lease vested in them.
• Dwelling Houses: Forfeiture of an occupied dwelling house always requires a court order (Protection from Eviction Act 1977). For long residential leases, additional restrictions under the Commonhold and Leasehold Reform Act 2002 apply before a s.146 notice can even be served, including a prior determination or admission of breach (s.168 CLRA 2002).

Key Term: Leasehold Property (Repairs) Act 1938
Where a long lease (original term of 7+ years) has at least three years to run, a tenant served with a s.146 notice for disrepair may serve a counter-notice, requiring the landlord to seek court leave to proceed. The court considers statutory grounds (e.g., urgency, tenant’s fault) before allowing the claim.

Key Term: Relief from forfeiture
Discretionary relief restoring the lease post-forfeiture, available to tenants, sub-tenants, and mortgagees. Typically granted if the breach has been remedied and the landlord compensated.

Self-Help Remedy for Repairs (Jervis v Harris Clause)

If the lease includes a specific clause (often called a Jervis v Harris clause), the landlord may have the right to:

1. Enter the premises to inspect the state of repair.
2. Serve notice on the tenant detailing necessary repairs and requiring them to be done within a specified period.
3. If the tenant fails to comply, enter the premises, carry out the repairs, and recover the cost from the tenant.

The significant advantage for the landlord is that the cost is recoverable as a debt, not as damages, thus avoiding the limitations of s.18 LTA 1927 and the Leasehold Property (Repairs) Act 1938.

Key Term: Jervis v Harris clause
A clause allowing a landlord to enter, carry out repairs after notice, and recover the costs as a debt. This bypasses the s.18 LTA 1927 damages cap and the 1938 Act leave requirement.

Tenant's Remedies for Breach of Landlord Covenant

Tenants also have remedies if the landlord breaches their covenants (e.g., covenant for quiet enjoyment, repair obligations).

Tenant's Damages

The tenant can sue the landlord for damages for losses caused by the breach, following normal contractual principles. For disrepair, this might include compensation for inconvenience, loss of comfort, or diminution in the value of the tenancy.

Specific Performance/Injunction

A tenant can seek specific performance to compel the landlord to comply with a positive covenant (e.g., to repair) or an injunction to restrain the landlord from breaching a restrictive covenant (e.g., interfering with quiet enjoyment). Courts may grant specific performance of a landlord's repairing covenant (e.g., under s.17 Landlord and Tenant Act 1985, in relation to dwellings) where the works are sufficiently clear and supervision is practical.

Self-Help (Set-Off for Repairs)

If the landlord breaches a repairing covenant, the tenant may, after giving the landlord notice of the defect and a reasonable time to fix it, carry out the repairs themselves and deduct the reasonable cost from future rent payments (common law right of set-off). The tenant must act carefully to avoid being in rent arrears themselves and should comply with any notice requirements in the lease. Some leases expressly exclude set-off, limiting this remedy.

Worked Example 1.1

Leila holds a 10-year commercial lease granted in 2018, containing a covenant not to make structural alterations without landlord consent and a forfeiture clause. Leila installs a new internal wall without seeking consent. The landlord, Ken, discovers this two months later. Ken wants to terminate the lease.

What must Ken do first?

Answer:
Ken must first serve a notice on Leila under s.146 of the Law of Property Act 1925. The notice must specify the breach (installing the wall without consent), require it to be remedied if possible (e.g., by removing the wall and reinstating the original layout) within a reasonable time, and may request compensation. Only if Leila fails to remedy the breach (if remediable) within the reasonable time can Ken proceed with forfeiture proceedings.

Worked Example 1.2

Ahmed rents a commercial shop under a lease granted in 2020. The rent is £1,000 per month. He has not paid rent for three months. The lease contains a forfeiture clause. The landlord, Chloe, wants to recover the unpaid rent and potentially regain possession.

What remedies are available to Chloe, and can she use them concurrently?

Answer:
Chloe has several options:

• Debt Action: Sue Ahmed for the £3,000 arrears.
• CRAR: Use the Commercial Rent Arrears Recovery procedure to seize Ahmed's goods (subject to notice requirements).
• Forfeiture: Terminate the lease for non-payment of rent (subject to formal demand waiver or 6+ months arrears, and Ahmed's right to seek relief).

Chloe must be careful about waiver. Starting a debt action or using CRAR for the specific £3,000 arrears would likely waive her right to forfeit the lease for those specific arrears. She could potentially forfeit for future non-payment, or pursue debt action/CRAR alongside initiating forfeiture proceedings if carefully managed (e.g., ensuring court proceedings for possession commence before actions that might imply waiver). If the lease were a long residential lease, further statutory constraints would apply before forfeiture.

Worked Example 1.3

Sofia holds a long residential lease of a flat. She has failed to pay service charges totalling £280 for a year. Her landlord is considering forfeiture for non-payment.

What constraints apply before forfeiture can proceed?

Answer:
For long residential leases, the landlord cannot forfeit unless either the arrears exceed the prescribed sum (currently £350 in total) or have been outstanding for more than three years (s.167 CLRA 2002). In addition, for breaches other than non-payment of rent, the landlord must ensure the breach is admitted or determined by a court/tribunal before serving a s.146 notice (s.168 CLRA 2002). For ground rent, statutory demand requirements (s.166 CLRA 2002) also apply. The Protection from Eviction Act 1977 requires a court order to recover possession of an occupied dwelling.

Worked Example 1.4

A commercial lease includes a clause allowing the landlord to enter, inspect, and require the tenant to undertake repairs within 30 days. If the tenant fails, the landlord may carry out the works and recover the cost “as a debt.” The premises have fallen into disrepair.

How can the landlord use this clause, and what are the advantages?

Answer:
The landlord should first inspect, serve a detailed schedule of works, and allow the tenant the specified period to remedy. If the tenant fails, the landlord can lawfully enter, carry out the works, and recover the costs as a debt. The key advantage is that recovery “as a debt” avoids the s.18 LTA 1927 cap limiting damages for disrepair to the diminution in the value of the reversion and bypasses the Leasehold Property (Repairs) Act 1938 requirement to obtain leave of the court. The landlord should ensure the works fall within “repair” and not constitute improvements, and follow any procedural requirements in the lease.

Worked Example 1.5

A landlord discovers a commercial tenant has sublet part of the premises contrary to an absolute covenant against subletting. The landlord’s agent demanded and accepted rent the following month while investigating. The landlord now wishes to forfeit.

Has the landlord waived the right to forfeit?

Answer:
Likely yes. Waiver requires knowledge of the breach and an unequivocal act affirming the lease’s continuance (e.g., demanding/accepting rent). Once the landlord (or their agent) knew of the breach and then accepted rent, the right to forfeit for that specific breach is normally waived. Waiver typically relates to the particular breach; future distinct breaches are not necessarily waived. The landlord may still seek damages or an injunction, but forfeiture for that breach would be barred.

Worked Example 1.6

Following peaceable re-entry for non-payment of rent at a vacant commercial unit, the tenant immediately pays all arrears and asks the court to reinstate the lease.

Can the tenant obtain relief?

Answer:
Relief from forfeiture is commonly available for rent arrears, even after peaceable re-entry, provided arrears and the landlord’s costs are paid promptly. The court’s discretion focuses on restoring the status quo where the landlord’s purpose (securing payment) is achieved. Relief is typically refused only where payment and compliance are not forthcoming or where the landlord would suffer undue prejudice.

Exam Warning

Distinguish carefully between the procedures for forfeiture for non-payment of rent and forfeiture for breach of other covenants. Section 146 notices are NOT required for non-payment of rent but ARE required for other breaches. Also, be aware of the specific protections for tenants of residential properties and long leases.

Key Point Checklist

This article has covered the following key knowledge points:

• Landlord remedies for rent arrears include debt action, CRAR (commercial only), and forfeiture.
• Before pursuing former tenants or guarantors for arrears, a s.17 LT(C)A 1995 default notice must be served within six months; payment may enable an overriding lease.
• Landlord remedies for other covenant breaches include damages (subject to limitations for repair), injunction, specific performance (rare against tenants), and forfeiture (requiring a s.146 notice).
• Forfeiture requires an express clause in the lease. Peaceable re-entry is heavily restricted, especially for residential properties. Relief from forfeiture is widely available for rent arrears on payment.
• Waiver occurs if the landlord acts inconsistently with forfeiture after knowing of the breach (e.g., accepts rent), and it is breach-specific.
• A s.146 notice must specify the breach, require remedy if possible within a reasonable time, and may claim compensation; relief from forfeiture may be granted to tenants, sub-tenants, and mortgagees.
• For disrepair, damages are capped by s.18 LTA 1927, and the Leasehold Property (Repairs) Act 1938 counter-notice procedure may require court leave to proceed.
• A Jervis v Harris clause enables self-help repairs with costs recoverable as a debt, avoiding statutory limits on damages and the 1938 Act restrictions.
• Additional constraints on forfeiture of long residential leases include prior determination of breach (s.168 CLRA 2002), ground rent demands (s.166 CLRA 2002), and minimum arrears thresholds (s.167 CLRA 2002).
• Tenant remedies include damages, specific performance/injunction against the landlord, and the right of set-off for repairs (after notice and within lease terms).

Key Terms and Concepts

• Commercial Rent Arrears Recovery (CRAR)
• Forfeiture
• Section 146 Notice
• Waiver
• Relief from forfeiture
• Jervis v Harris clause
• Leasehold Property (Repairs) Act 1938
• Default notice (s.17 LT(C)A 1995)
• Authorised Guarantee Agreement (AGA)