Leasehold covenants and issues - Termination of a lease

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Overview

Leasehold covenants and lease termination are vital parts of property law, deeply affecting landlord-tenant interactions. For those studying for the SQE1 FLK2 exam, understanding these topics is key. This article delves into leasehold covenants, their legal effects, remedies for breaches, and lease termination procedures. A solid command of these subjects prepares candidates for complex property law challenges and exam success.

Leasehold Covenants: Types and Legal Effects

Leasehold covenants are terms in a lease that outline the rights and responsibilities of landlords and tenants, impacting property management and dispute handling.

Categories of Leasehold Covenants

  1. Absolute Covenants
    Strictly prohibit specific tenant actions without negotiation, e.g., "The tenant shall not sublet the premises under any circumstances."

  2. Qualified Covenants
    Permit certain activities with landlord consent, often stating, "subject to the landlord's consent, which shall not be unreasonably withheld."

  3. Fully Qualified Covenants
    Clearly state that consent cannot be unreasonably withheld, e.g., "The tenant may sublet the premises with the landlord's prior written consent, not to be unreasonably withheld or delayed."

Legal Effects and Case Law

Determining "reasonableness" in these covenants is a legal challenge. In Ashworth Frazer Ltd v Gloucester City Council [2001] UKHL 59, the House of Lords provided guiding principles:

  1. The burden of proof lies with the party claiming unreasonableness.
  2. A landlord can consider their own interests.
  3. Decisions must have valid grounds and evidence.

Remedies for Breach of Covenant

When a tenant violates a covenant, landlords have several options:

1. Forfeiture

Allows the landlord to end the lease and repossess the property. Considerations include:

  • Serving a Section 146 notice for non-rent breaches
  • Tenant's right to seek relief from forfeiture

Case Study: In Freifeld v West Kensington Court Ltd [2015] EWCA Civ 806, relief was granted despite serious breaches, highlighting judicial discretion.

2. Damages

Landlords can claim compensation for losses due to tenant breaches, focusing on:

  • Duty to mitigate losses
  • Actual loss quantification

3. Specific Performance

Courts may require tenants to honor their obligations if damages are insufficient.

4. Injunctions

Prevent ongoing or anticipated violations:

  • Prohibitory injunctions prevent actions.
  • Mandatory injunctions require remedial actions.

5. Self-Help Remedies

Some leases permit landlords to rectify breaches directly and bill tenants.

Lease Termination Processes

Familiarity with termination methods is crucial for property lawyers:

1. Surrender

Mutual agreement to end the lease, either through:

  • Formal deed
  • Implied conduct

2. Notice to Quit

In periodic tenancies, either party may serve notice, following specific procedures.

3. Break Clauses

Allows termination at set times in commercial leases. The case of Marks and Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Ltd [2015] UKSC 72 emphasizes clear drafting.

4. Frustration

A lease may end if an unforeseen event makes its performance impossible or radically different.

The Landlord and Tenant Act 1954

This Act greatly influences commercial lease termination:

  1. Security of Tenure: Business tenants can remain and renew leases after expiration.

  2. Termination Procedure: Requires formal notices (Section 25 for landlords, Section 26 for tenants) to begin renewal or termination.

  3. Contracting Out: Parties may exclude the Act's protection through a specific process.

Conclusion

A thorough grasp of leasehold covenants and lease termination processes is vital for SQE1 FLK2 exam success. Key takeaways include:

  • Understanding absolute, qualified, and fully qualified covenants
  • Various remedies for covenant breaches
  • Correct procedures for lease termination
  • The impact of the Landlord and Tenant Act 1954 on commercial leases

Proficiency in these areas equips candidates to tackle property law challenges in exams and future practice.