Nuts and Bolts II. Possession actions against commercial tenants

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1 Nuts and Bolts II Possession actions against commercial tenants Overview This paper is designed to set out the key points that should be borne in mind when bringing a possession action against a commercial tenant either by section 25 notice under the Landlord and Tenant Act 1954 ( the LTA ) or by forfeiture. In individual cases complex issues may arise in relation to any stage of the procedure. It is not my intention to deal with all the possible pitfalls or issues that may arise but simply to indicate some of the common problems that occur. (I) Landlord and Tenant Act 1954 (a) Who is a commercial tenant? Part II of the LTA 1954 applies to: any tenancy where the property comprised in the tenancy is or includes premises which are occupied by the tenant and are so occupied for the purposes of a business carried on by him or for those and other purposes. 1 Business includes any trade, profession or employment, and includes any activity carried on by a body of persons, whether corporate or unincorporated. 2 The wide definition of business means that a variety of tenants who might not be referred to colloquially as commercial will fall within Part II of the LTA This includes, for example, clubs 3, hospitals 4, schools and government offices 5. The LTA does not apply when any business use is in breach of prohibition in the terms of the tenancy. (b) What tenancies are included? Section 69(1) provides: tenancy means a tenancy created either immediately or derivatively out of the freehold, whether by a lease or underlease, by an agreement for a lease or underlease or by a tenancy 1 Section 23(1) LTA 2 Section 23(2) LTA 3 Addiscombe Garden Estates Ltd v Crabbe [1958] 1 QB Hills (Patents) Ltd v University College Hospital Board of Governors [1956] 1 QB 90 5 Town Investments Ltd v Department of the Environment [1978] AC 359 1

2 agreement or in pursuant of any enactment (including this Act), but does not include a mortgage term or any interest arising in favour of a mortgagor by his attorning tenant to his mortgagee, and references to the granting of a tenancy and to demised property shall be construed accordingly This therefore includes tenancies created by tenancy agreements and tenancies by estoppel 6. It should be noted, however, that it is widely accepted that Part II of the LTA does not apply to tenancies at will 7. Nor are licences included. Further certain tenancies are expressly excluded from Part II of the LTA. These are set out in section 43 and include: a tenancy of an agricultural holding or a farm business tenancy mining leases a service tenancy (i.e. a tenancy granted by reason of the tenant holding an office, appointment or employment, and ending or terminable with it) 8 a short tenancy (i.e. a tenancy granted for a term certain not exceeding six months, unless the tenancy contains provision for renewing the term or extending it beyond six months from its beginning, or the tenant has been in occupation for a period which, together with any period during which any predecessor in the carrying on of the business carried on by the tenant was in occupation, exceeds twelve months 9 ) Although short tenancies (as defined) are excluded the LTA does apply to all periodic tenancies, including weekly periodic tenancies. (c) How does the LTA affect obtaining possession? The key provision which affects obtaining possession is section 24 which provides as follows: (1) A tenancy to which this Part of this Act applies shall not come to an end unless terminated in accordance with the provisions of this Part of this Act; and, subject to the following provisions of this Act either the tenant or the landlord under such a tenancy may apply to the court for an order for the grant of a new tenancy (a) if the landlord has given notice under section 25 of this Act to terminate the tenancy, or (b) if the tenant has made a request for a new tenancy in accordance with section 26 of this Act. 6 Bell v General Accident Fire & Life Assurance Corporation Ltd [1998] 1 EGLR 69 7 Wheeler v Mercer [1957] AC 416; Hagee (London) Ltd v A.B. Erikson and Larsen [1976] QB 290; Javad v Aqil [1991] 1 WLR Any service tenancy granted after the commencement of the LTA will not be a service tenancy unless the tenancy was granted by an instrument in writing which expressed the purpose for which the tenancy was granted: sub-section 46(2) LTA 9 Sub-section 46(3) LTA 2

3 (2) The last foregoing subsection shall not prevent the coming to an end of a tenancy by notice to quit given by the tenant, by surrender or forfeiture, or by the forfeiture of a superior tenancy, unless (a) in the case of a notice to quit, the notice was given before the tenant had been in occupation in right of the tenancy for one month The result of section 24 is that a business tenancy for a fixed term will not determine by effluxion of time but will continue indefinitely provided the tenant remains in occupation until terminated by any of the methods set out in section 24. The continuation of the tenancy is subject to the same rents, terms, conditions and incidents as before. The consequence of Part II of the LTA is that a business tenancy can only be determined in one of the following ways: by the landlord giving a notice under section 25 which is not opposed by the tenant, or, if opposed, is followed by an application for termination under section 29(2); by the tenant making a request for a new tenancy under section 26 which is refused and the court does not make an order for a new tenancy; by the tenant serving a notice under section 27 renouncing the protection of the LTA; by the tenant giving notice to quit; by surrender (although bear in mind sections 38, 38A(2) and 38A(4)); by forfeiture The main methods by which landlords will seek to recover possession of commercial premises will therefore be (i) by notice under section 25 or (ii) by forfeiture. (d) Occupation by the tenant For section 24 to operate the tenant must be in occupation on the contractual termination date. 10 Where there is a chain of tenancies it is likely to be the person with the lowest interest in the chain who will be in actual occupation of the premises and thus entitled to the protection of the LTA. There are two situations which should be noted: Occupation by a company which the tenant controls will also suffice for the purposes of the LTA, as will occupation by an individual who controls the company: section 23(1A). A tenant who sub-lets the property may still be considered to occupy the premises, provided he still has a degree of control over the premises: Bagettes Ltd v G.P. Estates Ltd [1956] Ch 290; Graysim Holdings Ltd v P&O Property Holdings Ltd [1996] AC 329. Note also that there are special rules dealing with situations where the occupying business is not carried on by the tenant. These are set out in the following sections of the LTA: Section 41A a partnership of which the tenant is a member; 10 Section 27(1A) LTA 3

4 Section 23 and 46 a limited company where the tenant has a controlling interest in the company carrying on a business from the premises Section 42 a member of a group of companies Section 41 a trust relationship exists between the persons carrying on the business and the tenant Section 56 government departments (e) Competent landlord As the LTA operates to give protection to the lowest subtenant in a chain of tenancies it is also important to check that your client is the competent landlord. The rules for determining this are in section 44 and the Sixth Schedule of the LTA. The competent landlord will be the person who is an owner of an interest nearest to the relevant tenancy which is: An interest in reversion expectant (whether immediately or not) on the termination of the relevant tenancy, and Either it is the fee simple, or It is a tenancy which will not come to an end within 14 months by effluxion of time and If it is such a tenancy, no notice has been given by virtue of which it will come to an end within 14 months (or any further time by which it may be continued under the interim continuation provisions in the Act) (f) Contracting out The fundamental rule set out in section 38 of the LTA is that any agreement is void in so far as it purports to preclude the tenant from applying to the court for or making a request for a new tenancy, or provides for the termination or surrender of his tenancy, or for the imposition on him of any penalty if he makes such a request. However, this is subject to a significant exception. Post 1 June 2004 the parties are able to agree to contract out of the security of tenure provisions in sections of the LTA provided they comply with the relevant procedural requirements. (Prior to 2004 such agreements had to be sanctioned by the Court before they were entered into.) Section 38A(1) permits contracting out provided (i) the tenancy is for a term of years certain and (ii) the exclusion agreement is made between the persons who will be the landlord and tenant in relation to such a tenancy. Section 38A(3) provides that an agreement under section 38A(1) will be void unless the appropriate notices are served. The forms of the notices and relevant requirements are set out in Schedules 1 and 2 of the Regulatory Reform (Business Tenancies)(England and Wales) Order

5 If the tenancy falls outside Part II as a consequence of such an agreement the common law rules in relation to termination of a tenancy will apply. This should therefore be checked before possession proceedings are issued. (II) Section 25 notices Section 25 provides as follows: (1) The landlord may terminate a tenancy to which this Part of this Act applies by a notice given to the tenant in the prescribed form specifying the date at which the tenancy is to come to an end (hereinafter referred to as the date of termination ): Provided that this subsection has effect subject to the provisions of section 29B(4) of this Act and the provisions of Part IV of this Act as to the interim continuation of tenancies pending the disposal of applications to the court. (2) Subject to the provisions of the next following subsection, a notice under this section shall not have effect unless it is given not more than twelve nor less than six months before the date of termination specified therein. (3) In the case of a tenancy which apart from this Act could have been brought to an end by notice to quit given by the landlord (a) the date of termination specified in a notice under this section shall not be earlier than the earliest date on which apart from this Part of this Act the tenancy could have been brought to an end by notice to quit given by the landlord on the date of the giving of the notice under this section; and (b) where apart from this Part of this Act more than six months' notice to quit would have been required to bring the tenancy to an end, the last foregoing subsection shall have effect with the substitution for twelve months of a period six months longer than the length of notice to quit which would have been required as aforesaid. (4) In the case of any other tenancy, a notice under this section shall not specify a date of termination earlier than the date on which apart from this Part of this Act the tenancy would have come to an end by effluxion of time. (6) A notice under this section shall not have effect unless it states whether the landlord is opposed to the grant of a new tenancy to the tenant. (7) A notice under this section which states that the landlord is opposed to the grant of a new tenancy to the tenant shall not have effect unless it also specifies one or more of the grounds specified in section 30(1) of this Act as the ground or grounds for his opposition. (8) A notice under this section which states that the landlord is not opposed to the grant of a new tenancy to the tenant shall not have effect unless it sets out the landlord's proposals as to (a) the property to be comprised in the new tenancy (being either the whole or part of the property comprised in the current tenancy); (b) the rent to be payable under the new tenancy; and 5

6 (c) the other terms of the new tenancy. (Emphasis added) There are three points to note in relation to a section 25 notice (i) the form of the notice (ii) the timing of the notice (iii) the landlord s position in relation to a new tenancy. Once a landlord has served a valid notice under section 25 he is not entitled to withdraw it and serve a fresh notice. (a) The form of the section 25 notice The prescribed form for a section 25 notice is set out in the Landlord and Tenant Act 1954, Part 2 (Notices) Regulations. 11 Schedule 1 of the Regulations sets out that Form 1 is to be used in circumstances where the landlord is not opposed to the grant of a new tenancy and Form 2 is to be used where the landlord is opposed to the grant of a new tenancy. (Copies of the notices are annexed to this paper.) (b) Timing The section 25 notice must specify a date of termination. In all cases the notice must be given to the tenant not more than twelve nor less than six months before that date. In relation to a fixed term tenancy the notice under section 25 should not specify a date sooner than the date that the tenancy would have ended by effluxion of time. It should be noted that this does not prevent the landlord from specifying a later date if there are practical or other reasons for wishing to do so. In relation to a periodic tenancy or a tenancy terminable by notice to quit the termination date must fall after the date on which the tenancy could have been brought to end by a notice to quit by the landlord. (Note that section 25(3)(b) provides for an extension of the time limits by six months where under the tenancy more than six months notice to quit is required.) Unlike with comparative notices in the case of residential tenancies there is no requirement that a notice under section 25 state a termination date which coincides with what would have been the last day of the tenancy under common law. The notice must simply state a termination date which is not earlier than the date that the tenancy would have come to an end save for the effect of Part II of the LTA. (c) Landlord s position in relation to a new tenancy In order for the section 25 notice to be valid it must state the landlord s position in relation to a new tenancy. This requires the landlord to set out the grounds under section 30 on which he would 11 SI 2004/1005 6

7 intend to rely if there was an application to the court (see below), or to set out the terms of any new tenancy. If the landlord intends to oppose the grant of a new tenancy it is important that proper consideration is given to the grounds on which he intends to rely. At court the landlord may only rely on such grounds as are stated in a notice to determine the tenancy. The grounds under section 30 are considered in greater detail below. (d) Interrelation with a tenant s request under section 26 If a landlord has decided that he wishes to obtain possession of premises demised to a commercial tenant then he will often take the first step to initiate those proceedings (either by service of a section 25 notice or by seeking to forfeit the lease as set out below). A further potential scenario that can arise is where the tenant takes the initiative and seeks to obtain a new tenancy under section 26 of the LTA. A section 26 notice cannot be served if the landlord has served a section 25 notice, or if the tenant has already given notice to quit or notice to terminate a fixed term tenancy pursuant to section 27. The relevant prescribed form for such a notice is Form 3 in Schedule 1 of the Landlord and Tenant Act 1954, Part 2 (Notices) Regulations. (A copy of the notice is annexed to this paper.) A tenant holding under an ordinary periodic tenancy cannot make a request for a new tenancy. Section 26 only applies to tenants who hold for a term certain that exceeds a year, or who hold under a tenancy for a term certain and thereafter from year to year. However, note that an ordinary periodic tenant can claim a new tenancy if the landlord initiates the process by serving a section 25 notice. A section 26 notice must specify a date for the commencement of the new tenancy not more than twelve and not less than sixth months after the date the request for a new tenancy is made. The date must also not be earlier that the date that the current tenancy would have come to an end by effluxion of time (but for the Act) or could be brought to an end by a tenant s notice to quit. If the landlord opposes the new tenancy he may serve a notice on the tenant under section 26(6) stating that he will oppose an application to the Court for a grant of a new tenancy. Such a notice should state the grounds under section 30 on which such an application will be opposed. The giving of such a notice under section 26(6) is a prerequisite to a landlord seeking an order for the termination of the tenancy under section 29(2)(b) (see below) and therefore should be served within two months of the tenant s request under section 26. The landlord will only be able to rely at court on the grounds of opposition set out in his notice. There is no prescribed form for a notice under this sub-section. 7

8 (e) Applications to Court The procedures to be used in relation to applications to Court under the LTA are set out CPR Part 56. Once court proceedings have been commenced the continuation tenancy continues until those proceedings have been disposed of. 12 All claims under Part 56 must be started in the County Court for the district in which the land is situated. Unless an enactment provides otherwise a claim may only be started in the High Court if: (i) there are complex disputes of fact or (ii) there are points of law of general importance. 13 If the claimant starts the claim in the High Court and the court decides that it should have been started in the County Court, the court will either strike out the claim or transfer it to the County Court on its own initiative. The court will normally disallow the costs of starting the claim in the High Court and the costs of transfer. 14 In all cases the claim form must contain details of 15 : the property to which the claim relates the particulars of the current tenancy (including date, parties and duration), the current rent (if not the original rent) and the date and method of termination every notice or request given or made under sections 25 or 26 the expiry date of (a) the statutory period under section 29A(2) or (b) any agreed extended period made under section 29B(1) or s29b(2) Time limits Applications to court are governed by a strict timetable. The court has no jurisdiction to extend time, although the parties may waive time limits either expressly or by implication. Where the current tenancy has been terminated by a landlord s section 25 notice the application must be commenced not later than the date specified in the notice. 16 Where a tenant has made a request under section 26 the application must be made at any time immediately before the date specified in the request, but also not earlier than two months after the request was made, save where the landlord has given notice under section 26(6). 17 The time limits under section 29A can be extended by an agreement pursuant to section 29B. However, such an agreement must be entered into either before the date specified in a section 25 notice or the day before the date specified in a section 26 request. 12 Section 64 LTA 13 Civil Procedure Rules r 56.2 and PD 56 para CPR PR 56 para CPR PD 55 para Section 29A(2)(a) LTA 17 Sub-sections 29A(3)(b) and (3) LTA 8

9 Landlord s application After serving a section 25 notice (stating that he is opposed to the grant of a new tenancy) a landlord may apply for an order terminating the tenancy under section 29(2). Similarly where a tenant serves a section 26 notice the landlord may give notice to the tenant within two months of the section 26 notice that the landlord will oppose an application to the court for the grant of a new tenancy (section 26(6)), and may then proceed to make an application under section 29(2). All claims for termination under section 29(2) are treated as opposed claims 18 and therefore the landlord must use the Part 7 procedure. 19 Where the landlord is making a claim for the termination of a tenancy under section 29(2) the claim form must contain (in addition to the particulars already mentioned) 20 : the claimant landlord s grounds of opposition full details of those grounds of opposition; and the terms of a new tenancy that the claimant proposes in the event that his claim fails The defendant tenant s acknowledgement of service should be in form N9. 21 In the defence the defendant must state with particulars 22 : whether the defendant relies on section 23(1A), 41 or 42 and, if so, the basis on which he does so; whether the defendant relies on section 31A and, if so, the basis on which he does so; and the terms of the new tenancy that the defendant would propose in the event that the claimant s claim to terminate the current tenancy fails. Tenant s application When a landlord serves a notice under section 25 this may be met by a response from the tenant wishing to obtain a new tenancy. The tenant is not required to serve a counter-notice on the landlord (as was the case prior to 1 June 2004) but may make an application to court for a new tenancy before the end of the period specified in the landlord s notice. The tenant makes the application for a new tenancy under section 24(1) CPR r 56.3(2)(c)(ii) 19 CPR r 56.3(4) 20 CPR PD 56 para CPR PD 56 para 3.13(1) 22 CPR PD 56 para 3.13(2) 23 Note that a landlord can also make an application for a new tenancy under section 24(1). However, as this paper is focused on obtaining possession I am presuming that the landlord in our hypothetical situation would not wish for a new tenancy to arise. 9

10 If the landlord has indicated in the section 25 notice that he will raise a ground of objection under section 30 then the application is opposed. If the landlord has indicated that he would not oppose a new tenancy the application is treated as an unopposed claim. Where the claim is opposed the tenant must use the Part 7 procedure 24 Where the claim is unopposed the tenant must use the Part 8 procedure 25 In addition to the general particulars the tenant s claim form must contain details of 26 : the nature of the business carried on at the property whether the claimant relies on section 23(1A), 41 or 42 and, if so, the basis on which he does so whether the claimant relies on section 31A and, if so, the basis on which he does so whether any, and if so what part, of the property comprised in the tenancy is occupied neither by the claimant nor by a person employed by the claimant for the purpose of the claimant s business the claimant s proposed terms of the new tenancy the names and address of (a) anyone known to the claimant who has an interest in the reversion in the property (whether immediate or in not more than 15 years) on the termination of the claimant s current tenancy and who is likely to be affected by the grant of a new tenancy; or (b) if the claimant does not known of anyone specified by (a), anyone who has a freehold interest in the property In response to the tenant s claim the landlord should file and serve an acknowledgment of service as set out in CPR PD 56 para 3.10 (unopposed claim) or 3.12 (opposed claim). Where the claim is opposed (which is the presumption for the purposes of this paper) the landlord should file and serve an acknowledgment of service in form N9 (standard acknowledgment for Part 7 claims) and a defence. In the defence the landlord must state 27 with particulars: the landlord s grounds of opposition; full details of those grounds of opposition; whether, if a new tenancy is granted, the defendant objects to any of the terms proposed by the claimant tenant and if so (i) the terms to which he objects and (ii) the terms that he proposes in so far as they differ from those proposed by the claimant; whether the defendant landlord is a tenant under a lease having less than 15 years unexpired at the date of termination of the claimant s current tenancy and, if so, the name and address of any person who, to the knowledge of the defendant, has an interest in the reversion in the property expectant (whether immediately or in not more than 15 years from that date) on the termination of the defendant s tenancy; 24 CPR r 56.3(4) 25 CPR r 56.3(3) 26 CPR PD 56 para CPR PD 56 para

11 the name and address of any person having an interest in the property who is likely to be affected by the grant of the new tenancy; and if the claimant s current tenancy is one to which section 32(2) applies, whether the defendant requires that any new tenancy shall be a tenancy of the whole of the property comprised in the claimant s current tenancy Where the claim is an opposed claim the court will give directions as to the filing of evidence, and the landlord will be required to file his evidence first. 28 Grounds of opposition Section 29 requires that the court shall make an order for the grant of a new tenancy unless the landlord is able to establish, to the satisfaction of the court, any of the grounds in section 30. The seven grounds under section 30 are: (a) (b) (c) (d) (e) (f) (g) disrepair; persistent delay in paying rent; other substantial breaches of obligation; the landlord will provide suitable alternative accommodation for the tenant on reasonable terms; where the current tenancy was created by sub-letting of part and the premises would be more valuable as a whole; the landlord intends to demolish or reconstruct the premises and requires possession to do so; the landlord intends to occupy the holding for his own purposes. In relation to ground (g) it should be noted that the landlord cannot rely on this ground if his interest was purchased or created less than five years before the termination of the current tenancy. Grounds (f) and (g) both depend on the landlord proving an intention. Proof of intention is required at the date of the hearing 29 and the landlord is required to show a genuine, firm and settled intention. The landlord also needs to show that there are no insuperable impediments; therefore where planning permission is required the landlord must be able to establish that there is a reasonable prospect that planning permission will be granted. It is important that if a landlord is seeking to rely on grounds (f) and (g) there is a clear body of evidence to support his position. A ground of opposition will usually be tried as a preliminary issue, unless in the circumstances of the case it is unreasonable to do so CPR PD 56 para Betty s Cafes Ltd v Phillips Furnishing Stores Ltd [1959] AC CPR PD 56 para

12 (f) Compensation following eviction If a landlord relies on grounds (e), (f) or (g) and either the court therefore refuses to grant a new tenancy or the tenant does not apply for a new tenancy, the tenant may claim compensation. Compensation is calculated in accordance with section 37(1) of the LTA. It should also be noted that a tenant can claim compensation if the termination of a tenancy, or the refusal to grant a new tenancy, is obtained or induced by misrepresentation or the concealment of material facts: section 37A. (III) Forfeiture Forfeiture is, in itself, a very broad topic. I therefore summarise below the principle issues that can arise in relation to commercial tenants. (a) The right to forfeit Most modern leases will have an express clause stating that the landlord has a right to re-enter the premises in the event of any breach of the tenant s covenants by the tenant or the tenant s insolvency. The lease will continue unless and until the landlord exercises the right to re-enter. 31 The law leans against forfeiture and therefore a landlord will be put to strict proof of his right to forfeit if proceedings are commenced. The law in relation to forfeiture broadly divides in two: (i) forfeiture as a result of non-payment of rent and (ii) forfeiture for other breaches of covenant requiring section 146 notices. Rent arrears In order to forfeit a lease on the grounds of rent arrears the landlord must either have made a formal demand for rent or else be exempted from making such a demand. Most re-entry clauses provide that the landlord can exercise his right to re-enter for non-payment of rent whether formally demanded or not. Where there is no such provision in the lease then a formal demand is unnecessary provided section 210 of the Common Law Procedure Act 1852 (High Court) or section 139(1) of the County Courts Act 1984 (County Court) apply. Three conditions have to be satisfied: (i) one half-year s rent is in arrears, (ii) the lessor has a right to re-enter, and (iii) no sufficient distress is to be found on the premises. If the conditions are not satisfied then a formal demand will need to be made. This is an archaic procedure. A formal demand must be made on the land and, if relevant, at the front door. It should be made to the tenant, or in his absence the occupier, or to no-one if the premises are unoccupied. 31 Arnsby v Woodward (1827) 6 B&C 519; Davenport v R (1877) 3 AppCas 115 at 128; Quesnel Forks Gold Mining Co Ltd v Ward [1920] AC

13 The demand must be for no more than the sum due for rent for the last period for payment. The demand must be made before sunset on the last day of payment, and be sustained until after sunset. There is no need to serve a section 146 notice in relation to rent arrears. 32 Other breaches section 146 notices Before the landlord takes any steps to forfeit either by court proceedings or by peaceable re-entry he must serve a statutory notice under section 146 of the Law of Property Act The failure to serve such a notice will render the forfeiture void. 33 The notice must 34 : specify the breach complained of; require the breach to be remedied, if this is possible; and require the tenant to make compensation in money for the breach if the landlord requires such compensation. There is no prescribed form for a section 146 notice. A landlord must therefore simply ensure that such a notice includes all the relevant information required by section 146(1). It has been held that although section 146(1)(c) states that in any case a landlord should include a requirement for compensation, a landlord is not required to ask for compensation if he does not want it. 35 If there is more than one tenant the section 146 notice must be served on all of them. A sub-lessee or mortgagee need not be served. A section 146 notice may be served under the general provisions governing service in the LPA It should be noted that if the covenant that has been breached is a repairing covenant then under section 18(2) of the Landlord and Tenant Act 1927 the landlord is required to prove that the tenant had knowledge of the service of the notice. Although section 18(2) also provides that the tenant will be deemed to have knowledge of service if the notice is sent by registered post unless the contrary is proved. If following the service of a section 146 notice the tenant fails, within a reasonable time thereafter, to remedy the breach and to make compensation for the breach then the landlord can proceed to forfeit. A reasonable time depends on the facts of the case. 32 Section 146(11) LPA Re Riggs [1901] 2 KB Section 146(1) LPA 35 Lock v Pearce [1893] 2 Ch

14 Additional requirements if the Leasehold Property (Repairs) Act 1938 applies If the breach complained of is a breach of a repairing obligation and the lease was granted for a term of seven years or more and there are three years unexpired then there can be no action for forfeiture if the tenant claims the benefit of the Leasehold Property (Repairs) Act 1938 by serving a counter-notice. If such a counter-notice is served the landlord must seek leave from the court to proceed with the forfeiture. Where the tenant has such a right the section 146 notice must inform the tenant of the right to serve a counter-notice under the 1938 Act and how to do so. 36 Exceptions By way of completeness sections 146(9)-(10) should be noted in relation to forfeiture on the basis of insolvency. Section 146 notices are only required where the lease does not fall within the classes in section 146(9) and if the tenant s interest is sold within one year from the bankruptcy or taking in execution. If the tenant s interest is not sold before the expiration of that year, the section only applies to forfeiture during that first year. (b) Waiver Waiver can be a particular issue with commercial tenants, especially where the landlord is minded to take practical steps to try and preserve the status quo rather than being forced to issue possession proceedings. If the landlord waives a breach of covenant then he is unable to proceed to forfeit the lease. Waiver can be express or implied. For waiver to be implied (i) the landlord must be aware of the acts or omissions of the tenant which make the lease liable to be forfeited and (ii) the landlord must do some unequivocal act which, objectively considered, recognises the continued existence of the lease. The most common way in which waiver occurs is by a landlord demanding or accepting rent falling due after the breach of covenant relied on. Frequently landlords will attempt to accept rent but to state that it was without prejudice to the right to forfeit. However, it is settled law that this is not sufficient in and of itself to avoid there being a waiver of the right to forfeit. 37 It is a question of fact whether money has been tendered and accepted as rent, but once proved this will in law amount to a waiver regardless of the intention with which it was demanded or received. 36 Section 1(4) of the Leasehold Property (Repairs) Act Davenport v R (1877) 3 AppCas 115; Segal Securities v Thoseby [1963] 1 QB 887; Windmill Investments (London) v Milano Restaurant [1962] QB 373; Central Estates (Belgravia) Ltd v Woolgar (No. 2) [1972] 1 WLR

15 By contrast if the landlord has accepted rent after proceedings for possession have been commenced this will not constitute a waiver of the breach, as the issue of proceedings is deemed to be a clear and unequivocal election by the landlord to determine the tenancy. 38 A waiver of a covenant will only extend to the particular breach in question, and will not amount to a general waiver in relation to all future breaches. If the breach is a continuing breach (for example the breach of a repairing obligation) breaches that continue after the date of waiver will usually give rise to a fresh right to forfeit. Further, a waiver of the right to forfeit does not equate to a waiver of the right to sue for damages in relation to the breach of covenant. 39 (c) Peaceable re-entry If a landlord is entitled to re-enter the premises then he can enforce his right by making peaceable re-entry or by commencing proceedings. To constitute peaceable re-entry there must be some unequivocal act by the landlord. The usual course of action is to change the locks. 40 If there is a sub-tenant in the premises then the landlord will only effect a peaceable re-entry if he enters into a new tenancy with that sub-tenant. Allowing the sub-tenant to continue to remain in possession under the existing tenancy will not amount to peaceable re-entry. 41 In Billson v Residential Apartments Ltd [1992] 1 AC 494 at 536 Lord Templeman noted that peaceable re-entry was a dubious and dangerous method of determining a lease. The reason why peaceable re-entry can be dubious and dangerous is principally because of the criminal sanctions that can be incurred under the Criminal Law Act Under section 6 of the CLA 1977 it is a criminal offence to use or threaten violence to secure entry into premise if: (a) there is someone physically on the premises at the time who is opposed to the entry in respect of which violence is threatened or used; and (b) the person using or threatening violence knows this to be the case. It is therefore usual for peaceable re-entry to take place outside of office hours. In addition if commercial premises are also used as residential premises (for example a shop let with first floor residential accommodation above) then a landlord cannot forfeit by peaceable re-entry. Section 3 of the Protection from Eviction 1977 provides that it is not lawful for a landlord to recover possession of premises in which a person is lawfully residing otherwise than by proceedings in court. In Pirabakaran v Patel 42 it was held that this applied to mixed leases. In my view the better way to seek to forfeit a lease is therefore to commence possession proceedings. There are three reasons for this: 38 Civil Service Co-operative Society Ltd v McGrigor s Trustee [1923] 2 Ch Stephens v Junior Army and Navy Stores Ltd [1914] 2 Ch 516; Norman v Simpson [1946] KB 158 at See eg Billson v Residential Apartments Ltd [1992] 1 AC Ashton v Sobelman [1987] 1 WLR [2006] EWCA Civ

16 it avoids difficulties that may result under the criminal law; it has the advantage that the landlord initiates any proceedings that are commenced; it avoids litigation that may ultimately be more costly. (d) Court proceedings Where the landlord takes possession by court proceedings the procedure is that set out in CPR Part 55. There is no prescribed form for possession proceedings in relation to commercial premises (which can be compared to the position with residential possession proceedings or possession actions against trespassers). However, there are certain features of CPR Part 55 which it is important to bear in mind. A claim for possession must be started in the County Court for the district in which the land is situated. 43 The only circumstances in which claims can be started in the High Court are if there are exceptional circumstances such as: 44 complicated disputes of fact, or points of law of general importance. The claim form must be in form N5. The particulars of claim must be filed and served with the claim form. 45 The particulars of claim must 46 : comply with CPR Part 16 (i.e. they must contain a concise statement of facts and, if interest is sought, give details) identify the land to which the claim relates state whether or not it is residential property state the ground on which possession is claimed give full details of the tenancy (also attach a copy of the tenancy) give details of every person who, to the best of the claimant s knowledge, is in possession of the property It is also good practice in my view, by comparison with the provisions relating to residential premises, to give the name of any person known to be entitled to apply for relief from forfeiture. An additional copy of the particulars of claim should be filed for service on such a person. This is not a requirement under the current CPR and therefore is a tactical decision which will depend on the circumstances of the case. However, it avoids subsequent applications being made by sub-tenants which can interfere with disposals to third parties. 43 Civil Procedure Rules r 55.3(1) 44 CPR PD 55 para CPR r CPR PD 55 para

17 The court will fix a hearing date when it issues the claim form. In forfeiture claims this will be not less than 28 days from the date of issue, and the defendant must be served with the claim form and particulars of claim not less than 21 days before the hearing date. 47 The defendant tenant is not required to file an acknowledgment of service. Further a defendant does not need to file a defence within the usual time limits in CPR r 15.4 and may take part in a hearing. However, the court may take into account a failure to file a defence when making a costs order. 48 Default judgment (CPR Part 12) does not apply in a possession claim brought under CPR Part At a hearing the judge can either decide the claim or give case management directions. These hearings are short (often no more than 5-10 minutes). If the claim for possession is clear then the judge will make an order then and there. If the claim is genuinely disputed on grounds which appear to be substantial then case management directions will be given. To ensure that the Court will be in a position to dispose of the claim witness evidence should be prepared evidencing the tenancy agreement, the breach relied upon, any notices that have been served, and confirming that the breach has not been remedied. CPR r 55.8 provides that written evidence can be relied upon but that all witness statements must be filed and served at least 2 days before the hearing. In my experience while CPR Part 55 does permit written evidence to be sufficient it is also beneficial to have the person who made the witness statement present to give live evidence if necessary. This has three advantages: some district judges prefer to have evidence which is up-to-date at the time of the hearing. A witness statement produced 2 days earlier will always be historic. if the defendant tenant does attend and raises spurious points these can be more easily dealt with if there is a witness present. If the defendant tenant seeks relief (discussed below) the presence of a witness can assist in negotiating terms. (e) Relief from forfeiture A landlord seeking possession of premises should always be aware that a tenant may apply for relief from forfeiture. The issue of relief again broadly divides into two. Rent arrears The right to forfeit for non-payment of rent arrears is seen as security for the rent that is payable. It therefore follows that in circumstances where a tenant pays all the rent owing and the costs of bringing proceedings the Court will grant relief from forfeiture. 47 CPR r CPR r 55.7(1) and (3) 49 CPR r 55.7(4) 17

18 This right to relief has been made automatic by statute in certain cases. This has two important consequences: (i) if the tenant pays all the outstanding rent arrears and costs at any time before a trial in the High Court (if at least half a year s rent is in arrear) 50 or not less than five clear days before trial in the County Court 51 (regardless of the amount of arrears) then the tenant has an automatic statutory right to have the action discontinued and the lease will continue; (ii) even when the landlord obtains an order for possession there will still be a right for the tenant to apply for relief from forfeiture and to have the lease reinstated. In the County Court this takes effect by the judge only being able to grant an order in form N27 which gives the tenant a further four weeks to pay all of the outstanding rent and costs before the landlord can recover possession. 52 An application for relief can either be made during proceedings by way of defence and counterclaim, or after an order for possession has been made. Even if the tenant is unable to pay all the arrears, he may still be able to avoid forfeiture by putting forward a realistic time frame during which the rent will be paid. To satisfy the Court that relief should be granted the tenant will have to show that he is able to pay the sums outstanding, and that those sums will be paid within a reasonable time frame. The period of time over which those sums should be paid is at the discretion of the judge. Relief will be granted in such circumstances even if the tenant is insolvent or has a history of non-payment. Where proceedings are in the High Court (in circumstances where the requirement for a formal demand for rent has been dispensed with) an application for relief must be made within six months of execution of the judgment. 53 In all other cases the High Court has an equitable jurisdiction to grant relief at any time, but is likely to adopt a similar time limit. 54 In the County Court relief can be granted at any time within six months of the date on which the landlord recovers possession. 55 A tenant who fails to apply within six months is barred from relief in either the High Court or the County Court. Other breaches Relief must be sought while the landlord is proceeding by action or otherwise to forfeit the lease (save for what is said below in relation to peaceable re-entry). A landlord is proceeding at any time 50 Section 212 CLPA Section 138(2) CCA Section 138(3) CCA Sections CLPA Howard v Fanshawe [1895] 2 Ch Section 138(9A) CCA

19 from after he has served a section 146 notice until he has actually entered the premises pursuant to a judgment of the Court. 56 The Court can grant relief on such terms as it thinks fit. If relief is granted then the effect is to treat the tenancy as if it had never been forfeited. If the breach has been remedied then the Court will nearly always grant relief. However, the Court s discretion is wide and there are no rigid rules for its exercise. Sub-tenants and mortgagees right to relief Where a lease is forfeited any derivative interests, such as sub-leases and mortgages, will also come to an end. Where the landlord has begun proceedings against a tenant for non-payment of rent arrears a subtenant or mortgagee can pay the arrears and costs in order to obtain relief. 57 This has the consequence that the lease will become retrospectively reinstated and will vest in the sub-tenant or mortgagee instead of the tenant. 58 Similarly in relation to other breaches sections 146(2) and (4) provide that a sub-tenant or mortgagee can make an application for relief. This can either be an application for the term of the tenancy (or a lesser term) to be vested in them, or for the grant of a wholly new lease on such terms as the courts thinks fit. The Court has a discretion as to which form of relief to grant and the terms on which to grant such relief. (f) Tenant s application for an injunction in cases of peaceable re-entry Where a landlord has peaceably re-entered for non-payment of rent, the tenant should apply to the County Court which can grant relief to the tenant if he applies at any time within six months of the date of re-entry. 59 An underlessee or mortgagee has a similar right. 60 If the landlord effects peaceable re-entry for breaches of other covenants then the tenant can in principle apply for relief without limitation as to time. 61 Again an underlessee or mortgagee has a similar right. 62 In practice if the tenant delays unreasonably in making his application the court is unlikely to exercise its discretion in his favour. If a tenant makes such an application following peaceable re-entry by the landlord the normal form is for a claim for relief to be made, and an application for an interim injunction to be made at the 56 Pakwood Transport Ltd v 15, Beauchamp Place Ltd (1977) 36 P&CR 112; Quilter v Mapleson (1882) 9 QBD 672; Rogers v Rice [1892] 2 Ch 170; Billson v Residential Apartments Ltd 57 Section 212 CLPA 1852; section 38(2) Supreme Court Act 1981; sections 138(5) and 140 CCA Section 38(2) SCA1981; section 138(5) CCA 1984; Escalus Properties Ltd v Robinson [1996] QC Sections 139(2) and (3) CCA Sections 138(9C) and 139(3) CCA Billson v Residential Apartments Ltd 62 Section 146(4) LPA

20 same time to allow the tenant back into the premises pending the outcome of their application for relief. Louisa Nye Landmark Chambers September 2011 This seminar paper is made available for educational purposes only. The views expressed in it are those of the author. The contents of this paper do not constitute legal advice and should not be relied on as such advice. The author and Landmark Chambers accept no responsibility for the continuing accuracy of the contents. 20

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