TERMINATION OF TENANCIES FOR TENANT DEFAULT RESULTS OF FORFEITURE OF LEASES QUESTIONNAIRE

Transcription

1 TERMINATION OF TENANCIES FOR TENANT DEFAULT RESULTS OF FORFEITURE OF LEASES QUESTIONNAIRE Overview In January 2004 the Law Cmmissin undertk a cnsultatin n the pssible refrm f a landlrd s means f terminating a fixed term cmmercial r residential tenancy where the tenant is in default. As part f that cnsultatin PLA members were invited t cmplete a survey entitled Terminatin f Tenancies Frfeiture f Leases, t which there were 66 respnses. The Law Cmmissin cncluded that there was a strng case fr refrm and published a reprt n 31 Octber 2006 setting ut their recmmendatins. These included the intrductin f (i) a new cncept f tenant default (ii) a written tenant default ntice and terminatin claim prcess in the event f nn-cmpliance (iii) a new summary terminatin ntice prcedure, fr use in cases where the tenant wuld have n realistic prspect f resisting a terminatin claim, r where premises have been abandned. If implemented, the recmmendatins wuld put an end t a landlrd s right t terminate a lease by peaceable re-entry and require the Curt t determine the matter. The Law Cmmissin is lking again at the recmmendatins put frward in 2006 and has asked the PLA t repeat the survey undertaken as part f the riginal cnsultatin. In light f the recmmendatins made in 2006 the PLA was als interested t hear members views n the recmmendatins. Therefre as agreed, the PLA added additinal questins at Part 2 f the survey. A ttal f 53 respnses were received. We set ut belw a summary f thse Part 2 respnses. Of the 53 respnses received, 81% mainly advised landlrds, 15% mainly advised tenants and 4% mainly advised third parties (e.g. guarantrs) Legal01# v1[PAB1]

2 Prprtin f respndents wh act fr landlrd/ tenant/ third parties Average % Landlrd Average % Tenant Average % Third Party Views n existing remedy f peaceable re-entry 94% f respndents cnsidered peaceable re-entry t be an effective remedy fr landlrds, 2% cnsidered that it was nt an effective remedy and 4% did nt knw % Is Peaceable re-entry an effective remedy fr landlrds? 1.89% 3.77% % Yes % N % Dn t Knw Respndents' cmments included that peaceable re-entry: Results in immediate respnse frm tenants r recvery f pssessin, allwing premises t be re-let immediately. Only used in extreme cases given empty rates liability and difficulty re-letting. Quick and easy and gets t the right answer quickly. Well advised and respnsible landlrds will nly use it where the premises have effectively been abandned and there is an inslvency situatin. In either case there can't be a justificatin fr requiring the landlrd t make a curt applicatin and increasing its lsses further.

3 Reasnably satisfactry, particularly if n applicatin fr relief. Quick, cheap and can be decisive. Shuld nt be changed. Often much cheaper than starting a claim and is effective against tenants wh have little interest in ccupying premises accrding t their cvenants but wh d nt want t surrender. Quick, cheap and cnvenient. Quick, easy and helpful. Defaulting tenant pses issues fr landlrd. Expensive curt prceedings are nt helpful. Can be very useful in the right circumstances. Quick and cheap. Effective nly in purely cmmercial cases. Quick, cst effective actin in cases f serial tenant default. Especially effective where the tenant is inslvent/has abscnded and a surrender cannt be agreed. A cst effective means f recvering pssessin f premises, particularly in cases where it is unlikely the tenant will bject. Quick, cheap and straightfrward usually. Effective fr landlrds, unfairly s Easy, swift, cheap especially fr cmmercial landlrds. Efficient and inexpensive and simple t rganise. Very effective, cheap remedy. Very swift and straightfrward. Fair and very quick and cheap. 90% f respndents did nt cnsider that peaceable re-entry shuld be ablished entirely, 6% thught that it shuld and 4% did nt knw. Shuld peaceable re-entry be ablished entirely? % Yes % N % Dn t Knw On the questin f ablitin, respndents' cmments included: Ablitin is unnecessary and wuld create unnecessary burdens. It shuld be ablished as it will remve a cnfusing ptin. It shuld be kept fr cmmercial leases. It shuld nt be ablished in any way. Certainly nt fr rent arrears. Where else culd ne purchase a prduce and expect t have it delivered even if nt paid fr? It shuld abslutely nt be ablished. Frfeiture is nt a decisin taken lightly by landlrds, given the risk f empty rates liability. When a tenant has defaulted in payment f rent, frfeiture presents a neat and cst effective prcess t bring the matter t a head at minimal cst.

4 Delay thrugh the curt system is unacceptable where a landlrd is nt receiving incme frm the prperty. In many cases (i.e. arrears being the mst cmmn) the landlrd will nt recver thse lsses. A lt f cmmercial landlrds rely n it when stuck with a tenant unable t pay rent. Landlrds shuld be able t get their prperty back quickly and cheaply if the tenant has defaulted. Keep fr cmmercial prperties. The curts are t busy already. Anther slew f cases wn't help. Cmments n changes t the right f peaceable re-entry 60% f respndents did nt cnsider that there shuld be any limitatins n a landlrd's right t frfeit by peaceable re-entry, 34% thught that there shuld be limitatins and 6% did nt knw. Shuld there be limitatins n LL's right t frfeit by peaceable re-entry? % Yes % N % Dn t Knw As t the types f limitatins identified by thse answering "Yes", cmments included: Minimum threshld f damage whether rent, r quantificatin f disrepairs r ther breach. As a secndary step t ablitin. Sums reserved as rent Limit t rent arrears cases Breach f cvenants where there might be an argument abut whether there is a breach r nt generally result in curt actin anyway. Limit t rent and sums reserved as rent. Limit t rent/sums reserved as rent. Mst cmmercial landlrds nly use this remedy in extreme circumstances anyway, s any restrictin may nt impact detrimentally. Limit t fixed csts such as rent, service charges, insurance and VAT. Exclude unliquidated sums such as landlrd's csts reserved as rent. Als exclude breaches where the tenant has genuinely disputed the claim r where an applicatin fr relief has already been made. Shuld nt be permitted in instances f tenant default relating t repair r service charge. As there is n defence t nn-payment f rent, landlrds shuld keep the right t frfeit. Rent and all sums reserved as rent. Ntice/right t prevent thrugh curts. Limit it t rent arrears nly. Leave as is fr cmmercial premises, but nt t be used fr residential premises unless the tenant has abandned. The cmments f thse against limitatins included:

5 In cases ther than rent, the landlrd has t serve a s146 ntice giving the tenant ntice f the breach and a reasnable time t remedy it, s why the need fr change? Smetimes it is the landlrd's nly real remedy and the ultimate sanctin. Reserving frfeiture t cases where rent is unpaid (r sums reserved as rent) culd be a cmprmise wrth making. It is an effective tl the nly upside wuld be that lawyers culd charge mre fr a frfeiture curt claim! N reasn why ther breaches shuld nt be subject t the same remedy. Blatant breach by tenant f ther cvenants deserves fast enfrcement remedy fr landlrd (after service f s146 ntice). In respect f residential prperty there is a greater reasn t limit the landlrd's right t frfeit, but there are arguably enugh hps t jump thrugh and prtectins available. The tenant always has the ability t seek relief. Sectin 146 prvides an imprtant mechanism fr cases that d nt relate t nnpayment f rent and therefre gives the tenant amp warning. This tends t happen anyway, as it's t risky t frfeit by peaceable re-entry in nnarrears cases. CRAR has already limited a landlrd's ptins. Tenants knw they haven't paid their rent. S146 ntices cver ther breaches. The law isn t brken, s dn't fix it. 83% f respndents were against limiting peaceable re-entry t circumstances where ntice had first been served n the tenant, 11% were in favur f prir ntice and 6% did nt knw. Shuld peaceable re-entry be limited t cases where ntice has first been served n the tenant? % Yes % N % Dn t Knw Of thse in favur f prir ntice, cmments included: Als change the law s there is n deemed waiver f the right t frfeit by giving such ntice. Clients are ften surprised that ntice need nt be given. Clients seek t use frfeiture fr enfrcing lease cmpliance shuld be able t serve a warning ntice t avid the need fr further actin the threat alne shuld be enugh. At present, the risk f waiving the right t frfeit precludes giving warning. It seems a sensible apprach and cmprmise in a cmmercial setting. Only if residential element. Of thse against giving prir ntice, cmments included:

6 If a tenant is prperly advised it will be aware f this remedy when it has failed t pay rent n time. In ther cases tenants will receive ntice f the breach thrugh service f a s146 ntice; Why shuld it? Under s146 ntice wuld have t be served in cases ther than rent. If the tenant has nt paid the rent they knw full well the privilege f cntinued ccupatin is likely t be withdrawn. The tenant has a grace perid, knws it is in arrears and in this market it is nt a landlrd's first chice anyway. The tenant knws that the rent is due. Giving ntice gives the tenant an pprtunity t ensure 24 hur presence at the premises, which wuld frustrate peaceable re-entry. Peaceable re-entry f cmmercial premises usually ccurs when the tenant is aware f the breaches and has been able t decide whether t remedy these. If a tenant is put n ntice and wants lnger t decide what t d, it can ccupy the premises and make access impssible. There is little pint in retaining peaceable re-entry, except when a building has been empty fr a lengthy perid, if ntices are required first. Since ntice is the way things have been ging, it is prbably inevitable. The tenant shuld be aware f its bligatins under the lease. Where the sum is a fixed sum due under the lease, the tenant is as able as the landlrd t calculate what is due. Where the sum is reserved as rent, thught in practice is unliquidated, then the landlrd shuld serve a prir ntice in cmmercial leases the prvisins f sectin 146 f the LPA 1925 d nt apply. Where there are ther breaches the landlrd must generally serve a s146 Ntice anyway. This way tenants will always wait fr service f a ntice befre cmplying. In additin, there is already an bligatin t serve a s146 Ntice (with the exceptin f rent arrears), s dubling f ntices needed. As CRAR shall ensure, it permits a well-infrmed tenant t evade the remedy, in this instance by remaining in ccupatin f the premises at the time frfeiture is t be effected. Ablitin f the ld distress regime is already curtailing landlrd's rights. Any such limitatin wuld be a further fetter n landlrds. Only increases csts. Warning ntice is nly nt served with arrears cases but the tenant knws when they have nt paid the rent and they will invariably have had chasing letters requesting payment. Pintless t fllw CRAR system here prir ntice is an unnecessary layer f administratin and is pintless. Landlrds are ften t afraid f waiver t serve ntice. Lses the effectiveness f it and renders it tthless (like CRAR). Tenants knw if they are in breach. They signed up t bligatins and they shuld cmply therwise they shuld face the risk f peaceable re-entry. N this wuld mean the tenants put security in place s the landlrd cannt effect frfeiture. Summary f findings It is clear frm the results f the survey that the ablitin f frfeiture by peaceable re-entry is nt supprted. The verwhelming majrity (90%) were against the cmplete ablitin f peaceable reentry, with nly 6% in favur. Of thse respndents wh advised tenants in ver 30% f cases, 100% were against the ablitin f peaceable re-entry. Peaceable re-entry is clearly seen as an effective remedy fr landlrds, with 94% agreeing, cmpared t nly 2% f respndents cnsidering that it was nt effective. The remedy is perceived as being quick, cst effective and straightfrward. T remve this landlrd s right, particularly fllwing the changes t the law f distress, wuld leave landlrds in a psitin where they n lnger had cst efficient way f dealing with tenant default. If the right f re-entry were replaced with a new ntice prcedure and curt actin t terminate a lease this wuld nt strike a balance between the interests f landlrd and tenant and a landlrd wuld be at a significant disadvantage. A landlrd wuld be required t incur significant legal csts in seeking t terminate a lease and wuld take time due t the Curt timetable. As sme f the respndents nted this wuld allw a tenant t remain in ccupatin whilst they cntinued t be in default with the landlrd pwerless t deal with it.

7 The results f the survey shw that the decisin t frfeit a lease is nt taken lightly and is seen as a last resrt, as a landlrd will be faced with a business rates liability if there is n tenant. The view is that it is nt a curse f actin that is abused. A cmprmise between the ablitin f the right f re-entry culd be placing limitatins n the exercise f the right. That said, the majrity (60%) were against placing any limitatins at all n a landlrd's right t frfeit by peaceable re-entry. Lking just at the respndents wh advise tenants 70% were against any limitatins. Of thse wh were in favur f limitatins (34%) the emerging theme frm the cmments received was that such limitatins shuld nly be t restrict peaceable reentry t rent (and sums reserved as rent). As t the Law Cmmissin's suggestin f a summary terminatin prcedure (i.e. giving ne mnth's ntice with a tenant r qualifying interest hlder being able t apply t curt t discharge the ntice, suspending terminatin until the matter has been decided) the survey's findings indicate that a cnsiderable majrity (83%) were against prir ntice being required. The summary terminatin prcedure will delay landlrds recvering their premises withut cmpensatin fr that delay, and effectively give tenants a further perid f ccupatin withut paying rent, which is unfair. The suggestin f increased curt invlvement will place an even greater burden n an already strained curt system, and lead t tenants making tactical applicatins t suspend the peratin f ntices and create deliberate delays, whilst increasing csts unnecessarily. In light f the respnses received frm practitiners wh act fr bth landlrd and tenant, the PLA Law Refrm Cmmittee cannt supprt the ablitin f the right f re-entry. We wuld welcme an pprtunity t cme and meet with yu t discuss the prpsals and the respnses received. Paul Barker Danielle Drummnd-Brassingtn Keith Cnway fr and n behalf f the PLA Law Refrm Cmmittee