Lease Termination Options and issues

28 May 2014

Contents

1. Introduction ................................................................................................................................................ 1

2. 1954 Act protected tenancies .................................................................................................................... 1

2.1 What protection does the Act give? .................................................................................................. 1

2.1.1 Which tenancies does the Act apply to? 1

2.1.2 If protection is automatic, how do you terminate? 2

2.2 Termination of the lease .................................................................................................................... 2

2.2.1 Termination initiated by the tenant (s27) 3

2.2.2 Termination initiated by the landlord (s25) 3

2.2.3 Renewal initiated by the tenant (s26) 4

2.2.4 Opposition by the landlord – statutory grounds 4

2.2.5 Compensation 5

3. End of a fixed term contracted out tenancy ............................................................................................. 6

3.1 When the tenant vacates – requirement for delivery of possession .................................................. 6

3.1.1 Implied position 6

3.1.2 Express terms 6

3.2 When the tenant stays – consequences of remaining in occupation ................................................. 7

3.2.1 On what basis? 7

3.2.2 Avoiding the problem 8

3.2.3 What should you do if a former tenant is in occupation? 9

4. Ending a periodic tenancy ......................................................................................................................... 9

4.1 What notice is required? ................................................................................................................... 9

4.2 What is the effect of a notice to quit? ................................................................................................ 9

5. Break clauses ........................................................................................................................................... 10

5.1 Nature of break clause .................................................................................................................... 10

5.1.1 1954 Act protected tenancies 10

5.1.2 Subleases 10

5.2 Who may exercise the break? ......................................................................................................... 10

5.3 When the break may be exercised .................................................................................................. 10

5.3.1 Fixed date 10

5.3.2 Rolling date 11

5.4 Serving the notice ........................................................................................................................... 11

5.4.1 Period of notice 11

5.4.2 Form of notice 11

5.4.3 Party authorised to sign the notice 11

5.4.4 Method of service 12

5.4.5 Conditions 12

5.4.6 Problems with service 12

5.5 Break conditions ............................................................................................................................. 12

5.5.1 Types of break condition 12

5.5.2 Relevant time for compliance 13

5.5.3 Examples of break conditions 13

5.5.4 Waiving compliance with conditions 14

5.6 Practical issues for a tenant exercising a break .............................................................................. 14

5.6.1 Before service of the notice 14

5.6.2 Service of the notice 15

5.6.3 Compliance with conditions 15

6. Surrender of the lease ............................................................................................................................. 15

6.1 What is a surrender? ....................................................................................................................... 15

6.2 Types of surrender .......................................................................................................................... 15

6.2.1 Express surrender 15

6.2.2 Surrender by operation of law 16

6.2.3 Surrender and re-grant 16

6.3 Agreement to surrender .................................................................................................................. 16

6.4 Offer-back clauses .......................................................................................................................... 17

6.5 Surrenders of part ........................................................................................................................... 17

6.6 Effect of surrender .......................................................................................................................... 17

6.6.1 Between landlord and tenant 17

6.6.2 Subtenants 18

6.7 Practical issues for the parties ........................................................................................................ 18

6.7.1 Landlord 18

6.7.2 Tenant 18

7. Forfeiture – the right of re-entry .............................................................................................................. 18

7.1 Nature of the forfeiture right ............................................................................................................ 18

7.2 Reason for forfeiture ....................................................................................................................... 19

7.2.1 Forfeiture for non-payment of rent 19

7.2.2 Forfeiture for other breaches of covenant 19

7.3 Waiver ............................................................................................................................................. 21

7.3.1 What acts amount to waiver? 21

7.3.2 Once and for all or continuing breach 21

7.4 The “act” of forfeiture - court proceedings or peaceable re-entry? .................................................. 22

7.4.1 Peaceable re-entry 22

7.4.2 Court proceedings 23

7.5 Relief from forfeiture........................................................................................................................ 23

8. Disclaimer ................................................................................................................................................. 23

8.1 How to disclaim ............................................................................................................................... 23

8.2 Landlord’s notice to elect ................................................................................................................ 24

8.3 Practical effect of a disclaimer: former tenants and guarantors ...................................................... 24

8.4 The position of subtenants .............................................................................................................. 24

8.5 Vesting orders ................................................................................................................................. 25

9. Landlord’s rights at the end of the term ................................................................................................. 25

9.1 Recovery of possession at the end of the term ............................................................................... 25

9.1.1 Changing the locks 25

9.1.2 Possession proceedings in court 25

9.2 Damages for continued occupation ................................................................................................. 26

9.2.1 Mesne Profits 26

9.2.2 Action for double value (after landlord's notice) 26

9.2.3 Action for double rent (after tenant's notice) 27

9.3 Property left on the premises .......................................................................................................... 27

9.3.1 Fixtures or chattels 28

9.3.2 Landlord as involuntary bailee 28

9.4 Terminal dilapidations ..................................................................................................................... 29

9.4.1 What are “dilapidations”? 29

9.4.2 Disrepair 29

9.4.3 Reinstatement 30

9.4.4 Pre-action Dilapidations Protocol 31

Annex 1 Forfeiture in an insolvency situation .................................................................................................. 32

Annex 2 Effect of termination on subleases ..................................................................................................... 33

-1-

1. Introduction

There are a number of different ways in which a lease can come to an end. The appropriate method of termination depends various factors including whether or not the lease has the protection of the Landlord and Tenant Act 1954 (the “1954 Act”), which party wants to bring the lease to an end, whether the lease is coming to a natural end or either the landlord or the tenant wants to get out of it early, and whether or not the tenant is in breach of any of the lease terms.

These notes look at some of the key considerations when a lease is being brought to an end in each of the following situations:

The lease is a 1954 Act protected business tenancy and the tenant will not be renewing the lease at expiry (either because he wants to go or because the landlord wants him to go).

The lease is not protected and the tenant will not be taking a new lease at expiry (including the position if the tenant remains in occupation).

The tenant fails to comply with the lease terms and the landlord wishes to bring the lease to an early end (forfeiture).

Either the landlord or the tenant has a break clause written into the lease which he wishes to exercise in order to bring the lease to an early end.

The tenant wants to surrender the lease (or the landlord wants to take a surrender) in order to bring the lease to an early end.

The tenant is insolvent and the insolvency practitioners wish to disclaim the lease.

The notes also look briefly at recovery of possession where the tenant remains in occupation as a trespasser and at terminal dilapidations and reinstatement requirements which may be relevant regardless of the way in which the lease is terminated.

Each of these topics could be a whole paper in its own right, so the purpose of this note is simply to provide an understanding of the principal ways in which a lease may come to an end and to give an overview of the key issues.

2. 1954 Act protected tenancies

Part II of the 1954 Act offers statutory protection to business tenants.

It is possible for the landlord and tenant to agree that this protection will not apply to a particular lease by following the specified “contracting out” procedures.

2.1 What protection does the Act give?

There are two parts to the protection offered by the Act1:

At the end of the fixed term, a protected tenancy will not come to an end. Instead, it will automatically continue on the same terms until it is terminated in accordance with the Act. This is known as a “continuation tenancy”.

When the tenancy is terminated in accordance with the Act, the tenant has a right to a new tenancy at a market rent (a “renewal lease”). The landlord can object to this but only on one of a number of specified grounds, and he has to prove these grounds.

2.1.1 Which tenancies does the Act apply to?

The Act 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 for those or other purposes”2.

This sounds quite straightforward but has a number of elements to it:

a) What is a “tenancy”?

A “tenancy” includes a lease (including a periodic tenancy), an agreement for lease and a sublease (even an unauthorised one)3. It does not include a

1 Section 24(1), 1954 Act 2 Section 23, 1954 Act 3 Section 69(1), 1954 Act

-2-

licence; however, there is a fine line between what amounts to a lease and what is merely a licence, so a landlord should not rely on this distinction!

There are a number of types of tenancy which are specifically excluded, the most significant being tenancies at will4, agricultural, farm and mining leases, and fixed term tenancies of six months or less (provided there is no right to renew beyond six months and the tenant is not in occupation for more than 12 months in total)5.

b) What is a “business” purpose?

“Business” is widely defined to include a “trade, profession or employment”. It includes “any activity carried on by a body of persons, whether corporate or unincorporate”. This catches not only traditional business uses but also many recreational uses, such as sporting clubs and youth groups6.

Where the premises are mixed use they will have the protection of the Act if the business activity is a significant purpose of the occupation7 (so a property consisting of a flat over a shop is likely to be caught while a house with one room used as an occasional home office will almost certainly not be).

A business use which is in breach of a lease covenant will still count where the lease permits some other business use. However, where the lease prohibits all business use the tenant will not gain protection unless the landlord has consented to, or acquiesced in, the breach8.

c) What is occupation?

Occupation requires control and use together with some kind of physical occupation. However, the physical occupation need not be continuous provided that the right to occupy continues9.

For a tenant to be in “occupation” he does not have to personally be in occupation. Instead he may occupy through a manager or agent10.

There is also a great deal of flexibility with regards to occupation by group companies: where the tenant is an individual, occupation may be by a company that he controls and vice versa11. In addition, occupation may be by any company in the same group as the tenant, including a company which is controlled by the same individual as controls the tenant12.

2.1.2 If protection is automatic, how do you terminate?

Whilst the continuation of the tenancy at the end of the fixed term is automatic, termination is possible provided you follow specific procedures and can, in the landlord’s case, make out certain grounds to terminate. There are specified forms which have to be used and time limits which must be complied with. If these procedures are not followed correctly there are significant consequences – the tenant may lose his right to renew or the landlord may lose his right to terminate.

2.2 Termination of the lease

Termination of the lease may be initiated by either party. Note that the protection of the Act exists for the benefit of the tenant: a tenant can object to a landlord’s refusal to grant a renewal lease and can require that a new lease is granted unless the landlord proves certain grounds. However, the landlord cannot object to a tenant’s decision to terminate the lease and cannot require that the tenant takes a new lease if he does not want one.

4 Wheeler v Mercer [1957] AC 416, Manfield & Sons v Botchin [1970] 2 QB 5 Section 43(3), 1954 Act 6 Section 23(2), 1954 Act 7 Cheryl Investments v Saldanha [1978] 1 WLR 1329 8 Section 23(4), 1954 Act 9 Hancock & Willis v GMS Syndicate [1983] 1 EGLR 70 10 Parkes v Westminster Roman Catholic Diocese Trustee [1978] 36 P & CR 22 11 Section 23(1A), 1954 Act 12 Section 42, 1954 Act

-3-

2.2.1 Termination initiated by the tenant (s27)

a) Tenant does not want the lease to continue beyond the original fixed term

If a tenant does not want the lease to continue beyond the contractual termination date, he has two options:

The tenant can simply vacate by the contractual expiry date of the original lease. The original lease will come to an end and the tenant will not have any further liability in respect of it13.

Alternatively the tenant can serve a section 27(1) notice on the landlord, giving at least three months’ notice and expiring at lease end, that he is intending to vacate14. If the tenant serves a section 27(1) notice but then remains in occupation the tenancy will come to an end and the tenant will become a trespasser. There is no prescribed form for this notice, though it must be in writing.

The use of either of these options is possible even if the landlord has already served a section 25 notice giving a termination date which is later than the contractual termination date. However, note that in these circumstances the tenant has no obligation to tell the landlord that he intends to vacate – he is not required to serve a section 27(1) notice. If a landlord wishes to prompt a recalcitrant tenant into telling him whether he plans to stay, his only option is to serve a section 25 notice and issue proceedings.

b) Tenant wants to terminate a lease once it is continuing (s27(2))

If a tenant wishes to vacate once he is holding over following the expiry of the contractual term, he must serve a section 27(2) notice on the landlord (no prescribed form, though it must be in writing). This notice must give at least three months’ notice of termination15.

Note that the old rules which required the notice to expire on a quarter day no longer apply. The notice can end on any day and there are statutory rules for apportioning any rent which has been paid in advance.

Where a section 25 notice has been served by the landlord and the tenant wishes to vacate earlier than the specified termination date, he is still able to serve a s27 notice, bringing the tenancy to an end at an earlier date (though not at a later date).

2.2.2 Termination initiated by the landlord (s25)

If the landlord wishes to terminate the tenancy he must serve a section 25 notice (in the prescribed form16) on the tenant17. As there are different section 25 notices for use in different situations it is important that the correct one is used.

The section 25 notice must comply with the following requirements:

It must state the date upon which the landlord wants the existing lease to end. This date cannot be any earlier than the contractual expiry date of the lease. For a periodic tenancy, this is the date on which the landlord would have been able to terminate by notice if the tenancy were not protected. Where the lease contains a break clause and the landlord wants to break the lease, he can specify the break date as the termination date.

It must be served not more than 12 months nor less than 6 months before the termination date given in the notice18.

It must specify which of the grounds for termination the landlord is relying on. He cannot later amend these grounds so careful consideration must be

13 Section 27(1A), 1954 Act 14 Section 27(1), 1954 Act 15 Section 27(2), 1954 Act 16 Form 2, Schedule 2, Landlord and Tenant Act 1954, Part 2 (Notices) Regulations 2004 17 Section 25(1), 1954 Act 18 Section 25(2), 1954 Act

-4-

given to them, particularly bearing in mind the tenant’s right to compensation where the lease is terminated only on “no-fault” grounds (see paragraph 2.2.4 below).

It must be given by, or on behalf of, the landlord. If there are joint landlords then all of their names must be given.

The tenant is not required to give any kind of a response to this notice. He may be willing to give up possession, but the landlord will not know this until he moves out on the specified termination date. If the tenant does not want to give up possession he will need to make an application to the court, but he has until the specified termination date to make this application. Due to this lack of certainty a landlord may decide to make an application to the court for termination of the lease.

2.2.3 Renewal initiated by the tenant (s26)

Where the tenant wishes to request a new tenancy he must serve a section 26 notice (in the prescribed form and complying with the strict time limits) on the landlord. If the landlord is happy to grant a new tenancy he does not need to do anything to terminate the lease and the renewal process will follow.

However, if he opposes renewal on one of the statutory grounds he must serve a counter notice within two months of the section 26 notice19. This counter notice must specify which of the grounds for termination the landlord is relying on (paragraph 2.2.4 below). There is no prescribed form for the counter notice, but it must be in writing, and the exact wording must be used for the relevant grounds for termination.

2.2.4 Opposition by the landlord – statutory grounds

The landlord is only able to oppose renewal on one (or more) of the following statutory grounds20:

(a) The Tenant has failed to maintain or repair the premises – the landlord will have to show that the tenant was under an obligation to maintain or repair and that he is in breach of this obligation. The landlord is only likely to succeed on this ground if the breach is serious and unremedied21. The court will also take into account the tenant’s willingness to accept an obligation in the new lease to put the property into repair22.

(b) The Tenant has persistently delayed in paying rent – the tenant must have fallen into arrears on several occasions, but the arrears need not have been substantial or long lasting23 and there need not be any arrears at the date of the hearing.

(c) There are substantial breaches of the obligations under the tenancy or objections to the manner in which the Tenant uses or manages the holding – this will require some substantial reason. The real question is whether the landlord’s interest has been prejudiced by the breaches24.

(d) The Landlord can offer alternative accommodation – this must be offered on reasonable terms having regard to the current tenancy and must be suitable to the tenant’s requirements.

(e) There are complex subtenancies and the landlord could obtain a better rental return if the premises were let/sold as part of a larger unit – this ground is rarely used as it is very difficult to satisfy the requirements.

(f) The Landlord has an intention to demolish or reconstruct the premises on the termination of the current tenancy or intends to carry out substantial work of construction on the holding and could not reasonably do so without obtaining possession – this is the most frequently used ground. The

19 Section 26(6), 1954 Act 20 Section 30(1), 1954 Act 21 Lyons v Central Commercial Properties [1958] 1 WLR 869 22 Nihad v Chain (1956) 167 EG 139 23 Horrowitz v Ferrand [1956] CLY 4843 24 Beard (Formerly Coleman) v Williams [1986] 1 EGLR 148

-5-

Landlord must show that it has a genuine intention25 and reasonable prospect of carrying out the work26; evidence of this may include preparation and approval of plans, a successful application for planning permission and evidence of the necessary financial ability27. The intention must be that of the competent landlord at termination of the tenancy28. The date on which the intention must be established is the date of the eventual trial29.

(g) The Landlord intends to occupy the building for his own business – this is another frequently used ground. There is no requirement that the landlord intends to occupy for a particular length of time but short-term occupation will not be sufficient for this ground: for example if the landlord has a fixed and settled intention to sell within the next few months it does not have the requisite intention30. It is important to be aware of the five year rule: the landlord can only rely on this ground if his interest was purchased (meaning “bought for money”31) or created32 at least five years before the date specified in the section 25 or 26 notice33.

Grounds (a), (b), (c) and (e) are discretionary; the court will consider all of the circumstances and decide whether it is reasonable to refuse to grant a new lease to the tenant on the grounds specified.

By contrast, grounds (d), (f) and (g) are mandatory and if the Landlord can prove the requisite conditions and intentions for the particular ground the court must order the termination of the tenancy. For grounds (f) and (g) the facts relevant to the ground relied upon only have to be judged as at the date of the substantive trial of the landlord’s grounds of opposition – the landlord does not need to be able to prove the necessary intention at the date on which the notice is given or at a summary judgment hearing34. However, an offer of alternative accommodation should probably already have been made before the landlord can specify ground (d)35.

2.2.5 Compensation

If the landlord relies solely on the “no-fault” grounds ((e), (f) or (g)) then statutory compensation may be payable to the tenant. Compensation is fixed at one times rateable value36 unless it can be shown that the tenant’s business had been carried on at the premises for at least 14 years preceding the termination of the tenancy (though not necessarily by the current tenant), in which case the tenant is entitled to two times rateable value37.

Compensation is only available on quitting the premises and only where38:

the landlord’s notice specifies only one or more of these no-fault grounds and the tenant either:

o does not apply to the court, or does so but withdraws his application; or

o applies to the court but his application is refused because the landlord is able to establish one or more of these grounds; or

25 Fisher v Taylor’s Furnishing Stores [1956] 2 QB 78 26 Reohorn v Barry Corporation [1956] 1 WLR 845 27 Woodfall contains a lot of detail on how this ground may be satisfied at Chapter 22.105-22.118 28 Morris Marks v British Waterways Board [1963] 1 WLR 1008, CA – an intention to sell to a develop is not enough: Ahern (PF) & Sons v Hunt [1988] 1 EGLR 74, CA 29 Somerfield Stores v Spring (Sutton Coldfield) (No.2) [2011] L & TR 125 30 Patel and another v Keles and another [2009] EWCA Civ 1187 31 HL Bolton Engineering Co Ltd v TJ Graham & Sons Ltd [1957] 1 QB 159 – so the rule doesn’t preclude landlords who acquired for no value, for example on a surrender or transfer for no value 32 The creation of a lease occurs when it is executed and not when it is expressed to begin or when it is registered; where there is an agreement for lease the interest is created when the agreement becomes specifically enforceable 33 Section 30(2), 1954 Act 34 Somerfield Stores Ltd v Spring (Sutton Coldfield) Ltd (In Administration) [2010] EWCH 2084 35 Betty’s Cafes Ltd v Phillips Furnishing Stores Ltd (No 1) [1959] AC 20 36 Section 37(2), 1954 Act 37 Section 37(3), 1954 Act 38 Section 37, 1954 Act

-6-

the landlord’s notice specifies one or more of these grounds together with other grounds, the tenant applies for a new tenancy and his application is refused based solely on one of these grounds.

3. End of a fixed term contracted out tenancy

A lease which is granted for a fixed term and does not have statutory protection expires when the term comes to an end. It does so automatically and without notice39. At the end of the term the tenant must give up possession of the demised property.

3.1 When the tenant vacates – requirement for delivery of possession

3.1.1 Implied position

a) Tenants

If a lease does not contain a yield up clause, it is implied by law that the tenant must deliver possession to the landlord at the end of the contractual term40, together with anything that has become part of the demised property during the term41.

b) Subtenants

This implied obligation also includes procuring that any sub-tenant gives up possession42.

Where the premises are still occupied by a subtenant on expiry, the tenant will be liable in damages for breach, even if the sub-tenant wrongfully refused to vacate. The tenant will be liable for the period of the subtenant’s occupation after expiry, together with any costs incurred by the landlord in suing the subtenant to recover possession43.

If the subtenant has a protected tenancy entitling it to stay in possession even after the tenant's lease has ended, the tenant will not have to pay compensation for use and occupation relating to any period after the end of its own tenancy as long as it has done everything it can to give possession to the landlord44.

Where only part of the property is sublet, similar principles apply. If a landlord is effectively kept out of possession of the whole because part of it remains in the possession of a subtenant, the landlord may recover damages equal to the lost rental value of the whole property45.

3.1.2 Express terms

Most written leases do not rely on the implied position. Instead they will contain an express obligation on the tenant to yield up possession at the expiry or earlier ending of the term in compliance with the covenants in the lease. The relevant clauses that this must be read in conjunction with are the repair, decoration, alterations and signage clauses.

The obligation to yield up possession will generally specify that the tenant must give up vacant possession rather than just giving up occupation. In this case the lease will usually provide that, if the tenant has left items at the property after expiry, the landlord may remove, store and dispose of them at the tenant's cost. The landlord may then sue under this clause to recover these costs.

For failure to give vacant possession on expiry, the sum recoverable from the tenant is likely to be modest in comparison to the same breach where the lease has ended due to the expiry of a break notice where delivery of vacant possession was a condition of the break. The requirements for vacant possession are covered in more detail in the context of break clauses (see paragraph 5.5.3(b) below).

39 Cobb v Stokes (1807) 8 East 358 40 Henderson v Squire (1869) LR 4 QB 170 41 John Laing Construction v Amber Pass [2004] 2 EGLR 128 42 Harding v Crethorn (1793) 1 Esp 56 43 Henderson v Squire (1869) LR 4 QB 170 44 Reynolds v Bannerman [1922] 1 KB 719 45 Henderson v Squire (1869) LR 4 QB 170

-7-

3.2 When the tenant stays – consequences of remaining in occupation

3.2.1 On what basis?

Where a lease has expired and the former tenant continues to occupy then, in the absence of any formal agreement, the basis of occupation depends on the circumstances and conduct of the parties. However, it is important that you ascertain the basis of occupation; if a periodic tenancy has arisen the tenant will acquire 1954 Act protection and it may be a lot more difficult for the landlord to recover possession.

Occupation is likely to be as one of the following:

Trespasser

Tenant on sufferance

Tenant at will

Implied periodic tenant

It’s possible, though very unlikely, that there will an implied licence; this would require a complete change in the nature of the occupation. Depending on the nature of occupation the tenant may be liable for mesne profits or double value (see paragraph 9.2 below).

a) Trespasser

Where the landlord has indicated that he wishes to recover possession of the premises the tenant is likely to be a trespasser, even if the situation is then allowed to continue without proceedings being taken for several months46.

See paragraph 9.1 below for the steps that the landlord can take to recover possession and paragraph 9.2 for the landlord’s damages claim.

b) Tenant on sufferance

A tenancy on sufferance arises when a tenant wrongfully remains in occupation after its lease has expired and the landlord hasn’t given any indication of whether or not it is willing for the tenant to remain47. The landlord is able to recover possession without any prior demand and can claim for mesne profits (see paragraphs 9.1 and 9.2 below).

c) Tenancy at will

A tenancy at will is unlikely to be inferred if the landlord has given any indication that it intends to recover possession.

Where negotiations are taking place for a new lease it is likely that occupation will be as a tenant at will, even if rent is being paid and accepted48. The terms of the tenancy at will are established by reference to the expired lease save where these are inconsistent with the nature of a tenancy at will or where there is evidence of a different intention.

Terminating a tenancy at will

If the tenant wishes to terminate he must give notice and give up possession49. Notice alone will not be sufficient.

There is no need for the landlord to give any notice in order to terminate a tenancy at will (an express document which requires notice to be given is unlikely to be a tenancy at will, as this is a key feature of the arrangement). A tenancy at will can be terminated by the landlord making a demand for possession50 (for example demanding the return of the key51), sending a letter

46 Westminster City Council v Basson (1991) 62 P & CR 57 47 Remon v City of London Real Property Co [1921] 1 KB 49 48 Javad v Aqil [1991] 1 WLR 1007 49 Stevenson v J Barnett & Co (London Ltd) [2004] All ER (D) 599 50 Fox v Hunter-Paterson [1948] 2 All ER 813 51 Pollen v Brewer (1859) 7 CBNS 371

-8-

before action or initiating possession proceedings. The tenant has the right, for a reasonable period, to enter the property and remove his possessions.

If the tenant does not vacate following a demand, possession can be recovered – see paragraph 9 below.

d) Periodic tenancy

A periodic tenancy is likely to be implied where there are no negotiations for a new lease (or the negotiations stall or break down)52 but the landlord and tenant relationship is still active. The principal example of an active landlord/tenant relationship is the demand and acceptance of rent.

As for a tenancy at will, the terms of an implied periodic tenancy are established by reference to the expired lease, save where there is evidence of a different intention53.

The moment that a periodic tenancy exists then (provided the tenant is using the premises for business purposes) the tenant will have a protected business tenancy. It is therefore advisable to avoid any argument as to whether a protected business tenancy has arisen by taking active steps – see paragraph 3.2.2 below.

Terminating an implied periodic tenancy

Where a periodic tenancy arises which is not a protected tenancy (for example, if someone is using space to store personal possessions or to pursue a hobby) it can be terminated by notice. Assuming that an annual rent was reserved under the previous lease the periodic tenancy will almost certainly be a tenancy from year to year, terminable on the anniversary of the old tenancy term54. A half year’s notice must be given (this may be either six months’ or two quarters’)55.

Note that where the periodic tenancy is a business lease this timing determines the earliest date on which the contractual term can be brought to an end and therefore the earliest date on which the s25 notice can expire.

3.2.2 Avoiding the problem

In an ideal world the problem will be avoided by taking active steps prior to expiry of the lease. The landlord or his managing agents should contact the tenant at least six months prior to lease expiry to ascertain his plans, and should communicate this to the lawyer acting as soon as possible.

If the tenant indicates that he wishes to remain, negotiations should start immediately for a new lease, with the aim of completing this before expiry of the current one.

However, if a few weeks before lease expiry it isn’t known whether the tenant is staying or leaving, or a new lease will not be completed on time, the best practice is as follows:

Send an open letter demanding possession of the property upon lease expiry; consider whether to refer to s1 of the Landlord and Tenant Act 1730, entitling the landlord to claim double value (see paragraph 9.2.2 below).

If the landlord wishes to enter into a new lease, send a separate letter at the same time as the open letter stating that the landlord doesn’t intend to issue possession proceedings for a short period (until a stipulated date) to allow negotiations to take place, with a request that the tenant sign and return a copy of this.

Considering putting a rent stop in place to ensure that no rent (whether as rent or mesne profits) is demanded or collected in respect of any period after the

52 Walji and others v Mount Cook Land Ltd [2000] EWCA Civ 356 53 Digby v Atkinson (1815) 4 Camp 275 54 Croft v Blay Ltd [1919] 2 Ch 343 55 Parker d. Walker v Constable (1769) 3 Wils 25

-9-

lease has expired – this helps to avoid arguments about whether there is a periodic tenancy or a tenancy at will and mesne profits can always be recovered once the situation is resolved.

Alternatively, where negotiations for a new lease are already in progress, the landlord may consider requiring the tenant to enter into a formal tenancy at will.

3.2.3 What should you do if a former tenant is in occupation?

You should always seek to regularise the position as soon as possible.

If the landlord is happy for the tenant to remain, he should send an open letter demanding possession together with a separate without prejudice letter stating that no possession proceedings will be taken for a specified period and requiring the completion of a tenancy at will. A rent stop should also be considered (see paragraph 3.2.2 above).

If the landlord wishes to recover possession of the property he should write to the former tenant stating that it is acting as a trespasser and requiring immediate vacant possession.

4. Ending a periodic tenancy

Though this isn’t something that arises very often in commercial practice it is important that you are aware of the notice that must be given in order to terminate a periodic tenancy. It is most likely to be an issue where a tenant has been allowed into occupation without any kind of formal documentation or where a tenant has been allowed to remain in occupation at the end of his fixed term tenancy. Where the tenant occupies for business purposes he will gain 1954 Act protection as soon as the tenancy arises.

A periodic tenancy will always run by reference to a particular period (such as a week, a month or a year), until it is terminated by either party giving notice. It can be created expressly or impliedly. The court will examine the intentions of the parties in all the circumstances, including whether any rent has been paid to the owner, to determine whether a periodic tenancy should be inferred.

4.1 What notice is required?

If you have an express term as to the notice required, notice must be given in accordance with this, even if it is more or less than would usually be required by law.

In the absence of a written tenancy agreement, a periodic tenancy will usually be for the same period as that in respect of which the rent is paid. Therefore if rent is paid annually, the periodic tenancy will be an annual tenancy. Unless the parties have agreed otherwise, the landlord must give at least six months' notice to terminate a yearly periodic tenancy, and the notice must expire at the end of the relevant yearly period56 (being the anniversary of the expiry of the original lease57).

Where the period of the tenancy is less than yearly (because a weekly, monthly or quarterly rent is payable) the length of notice must correspond to the period of the tenancy58. The notice must expire on a rent day.

Where a periodic tenancy has 1954 Act protection, a single s25 notice can incorporate the requirements of the notice to quit or a separate notice to quit can be served.

4.2 What is the effect of a notice to quit?

In the absence of an express term to the contrary, a periodic tenancy can be determined by a notice to quit given by either party. Once a valid notice to quit has been given the tenancy will automatically come to an end on the expiry of the notice; any waiver or withdrawal of it is ineffective and if the tenant continues in occupation a fresh tenancy arises59. The notice to quit also has the effect of terminating any subtenancies created out of the tenancy60.

56 Hyatt v Griffiths (1851) 17 QB 505 57 Croft v Blay [1919] 2 Ch 343 58 Doe d. Peacock v Raffan (1806) 6 Esp 4 59 Tayleur v Wildin (1868) LR 3 Ex 303 60 Pennell v Payne [1995] QB 192

-10-

5. Break clauses

5.1 Nature of break clause

A break is in the nature of an option and it operates to end the lease before the fixed term expires. This may be an unconditional right or subject to conditions set out in the lease.

Options are always strictly construed and this is particularly important in respect of notice requirements, time limits and conditions for exercise of the option. Time will always be of the essence, unless the lease says otherwise61.

5.1.1 1954 Act protected tenancies

The fact that a lease has 1954 Act protection has no effect on a tenant’s break.

However, where a landlord’s option to break is in a protected lease, in addition to serving the break notice the landlord must also comply with the statutory procedure (see paragraph 2) on exercise of the break62. Just a s25 notice could fulfil both roles, provided that any requirements as to service of the break notice are complied with63.

5.1.2 Subleases

If subleases have been granted out of the lease which is broken, these will also come to an end64. This is probably the case even if the headlease was varied to introduce a break after the sublease was granted, though there’s no case law on this. The subtenant would have a claim against the tenant for derogation from grant, and if the sublease had 1954 Act protection the subtenant will be able to apply for a renewal lease against the head landlord.

5.2 Who may exercise the break?

A break right is exercised unilaterally and may be available to the landlord, the tenant or both. If the lease includes a break right but is silent as to who may exercise that right then only the tenant may exercise it65.

It may be drafted to be personal to the original tenant or it may also be available to its successors in title; unless the lease expresses the option as being personal to one particular party, it is exercisable by successors in title to the original parties66. This is the case even if the lease does not define the landlord and tenant as including successors in title67.

Unless the lease says something different, then where there is more than one landlord or tenant party, eg joint tenants, the notice must be served by and on all parties, otherwise, the notice will be ineffective68.

Where a registered lease has been assigned, legal assignment takes place at registration, not completion69. A right to break may be exercised by the person holding the legal estate, and not the beneficial owner (if different), so care should be taken to check that an assignment has been registered before a break is exercised.

5.3 When the break may be exercised

A break clause may be drafted to give a rolling right (eg on 6 months’ notice at any time) or the right to break on one or more specified dates only.

5.3.1 Fixed date

A fixed tenant's break is the most common type of break clause. The tenant will be able to break the lease on one or more dates during the term, sometimes at dates that are tied in some way to the rent review dates.

61 United Scientific Holdings v Burnley Borough Council [1978] AC 904 62 Weinbergs Weatherproofs Ltd v Radcliffe Paper Mill Co Ltd [1958] Ch 437 63 Aberdeen Steak Houses Group v Crown Estate Commissioners [1997] 2 EGLR 107 64 Barrett v Morgan [2000] AC 264 65 Dann v Spurrier (1803) 3 B & P 399 66 Olympia and York Canary Wharf v Oil Property Investments [1994] 2 EGLR 48 67 Re 120 Packington Street (1966) 110 Sol Jo 672 68 Hounslow London Borough Council v Pilling [1993] 2 EGLR 59, Sutcliffe v Wardle (1890) 63 LT 329 69 Brown & Root Technology v Sun Alliance [2001] Ch 733

-11-

One of the main considerations where there is a fixed date is apportionment of rent. If the break date is a rent payment date, or any date other than the final day of a rent period, and the break clause requires all payments to be up to date, all sums due on that date must have been paid in full in order to comply with this condition. Unless any provision is made to the contrary, this means that the full quarter’s rent, not just the part due up to the break date, must have been paid70.

An apportioned amount of the rent paid will not be recoverable unless express provisions are included to permit this71. If the break date is a rent payment date this in effect means that the tenant could end up paying for a full quarter’s rent when he is not in occupation.

5.3.2 Rolling date

Where there is a rolling break the party giving notice will usually just need to specify a break date which is eg no less than 6 months’ from the date of service of the notice. The lease should always be checked to see whether the break notice can be served immediately or only after a specified period of time has passed.

5.4 Serving the notice

Whether the break is fixed or rolling, careful attention must be paid to the requirements of the lease when serving the notice. Because a break clause is in the nature of an option, time will be of the essence unless the lease says otherwise.

This means that everything to do with serving the notice must be strictly adhered to. This includes:

5.4.1 Period of notice

The lease could require a fixed notice period (eg 6 months exactly) or the more flexible "not less than 6 months". Where there is any debate about the exact period of notice required to be served, it may be wise to serve 2 or even 3 notices, each without prejudice to the validity of the others, to cover all bases. Remember that if the notice is served even one day late it will be invalid72.

If you are trying to exercise a break clause which contains vague wording about the notice period you should check whether anything else within the lease or other documentation gives any indication as to the intention of the parties. In the absence of any clarification you should always err on the side of caution.

5.4.2 Form of notice

It is essential that the notice is in the form specified in the lease. If a form of notice is annexed this must be used or the break will not be validly exercised. This also means that any wording specified in the lease must be included in the notice, no matter how redundant or irrelevant those words may be73.

5.4.3 Party authorised to sign the notice

If the lease states who may sign the break notice then this will override the common law rules on actual and ostensible authority. This means that, as long as the break notice is signed by whoever the lease says it should be signed by, that signatory has sufficient authority for the purpose of the break.

Where there are joint tenants the break must be exercised by all of them unless the lease contains express authority for one (or more) to exercise it on behalf of them all74. Where one (or more) joint tenant wishes to exercise the break on behalf of all of them, the lease should be checked to see whether this is permitted.

Where the notice is being served by an agent, the existence and authority of the agency should be set out on the notice.

70 PCE Investors Ltd. v Cancer Research UK [2012] EWHC 884 71 Marks and Spencer Plc v BNP Paribas Securities Services Trust Company (Jersey) Ltd [2014] EWCA Civ 603 72 Quartermaine v Selby (1889) 5 TLR 223 73 Friends Life Ltd v Siemens Hearing Instruments Ltd [2014] EWCA Civ 382 74 Hounslow LBC v Pilling [1993] 2 EGLR 59

-12-

5.4.4 Method of service

The relevant provisions as to service of the notice may be mandatory (service must be done in the specified way) or permissive (service may be done in the specified way). Where the provisions are mandatory the specified method must be used: depending on the wording the break may not be validly exercised if some other method is used, even if the notice is in fact received75.

Note that in the absence of an express provisions of this kind, general provisions (either the lease provisions or, if none, the provisions of section 196 Law of Property Act 1925) will apply.

5.4.5 Conditions

Break conditions usually need to be satisfied as at the break date. However, the wording should be checked carefully as some clauses are drafted to require compliance with condition at the date of service. The conditions are strictly construed and even minor breaches can invalidate the break: these are considered in more detail at paragraph 5.5 below.

5.4.6 Problems with service

If the lease prescribes a particular form of notice, this form must be used. However, if no particular form is prescribed, a minor defect will not necessarily invalidate the notice if the reasonable recipient, with knowledge of the factual and contextual background, will “not be perplexed by the error”76.

Generally a notice served by or on the wrong person will be invalid77. However, if the landlord would not have been misled by the error it may be possible to save the notice78.

Where there is a mandatory method of service and that method is not complied with, because, for example, it is sent to the wrong address, the notice may be invalid even if it is in fact received79.

5.5 Break conditions

5.5.1 Types of break condition

Break conditions may be absolute or qualified.

a) Absolute conditions

An absolute condition will prevent the tenant from breaking the lease if there is a subsisting breach of covenant or condition at the relevant time no matter how trivial80.

For example, if the lease requires the property to be painted in the last year of the term and it is painted a few days before the beginning of the last year, the condition will not have been complied with and the tenant will be unable to exercise the break, despite the fact the damages for this breach would have been nominal81.

Note that if there has been a breach, but it has been remedied by the relevant time, the tenant will have complied and can exercise the break82.

b) Qualified conditions

Alternatively the condition may be qualified by words such as “reasonably”, “substantially” or “materially”. “Reasonable” compliance requires the tenant to have behaved in a way that a “reasonably minded tenant might well behave”83.

75 Orchard (Developments) Holdings Ltd v Reuters Ltd [2009] 1 EGLR 13 76 Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749 77 Lemmerbell Ltd v Britannia LAS Direct Ltd [1998] 48 EG 188 78 Havant International Hioldings Ltd v Lionsgate (H) Investment Ltd [1999] EGCS 144 79 Capital Land Holdings Ltd v Secretary of State for the Environment [1996] SCLR 75 80 Friar v Grey (1850) 5 Ex 584 81 Bairstow Eves (Securities) Ltd v Ripley [1992] 2 EGLR 47 82 Bass Holdings Ltd v Morton Music Ltd [1988] 1 Ch 493 83 Gardner v Blaxill [1960] 1 WLR 752

-13-

What this actually means in practice will depend on the facts of the particular case.

“Material” and “substantial” are generally regarded as interchangeable and compliance is assessed by reference to the ability of the landlord to re-let or sell the property without delay or additional expense. It does not mean that the parties should be taken to have intended that minor breaches are permitted if these minor breaches have a significant impact on the ability to re-let or sell84.

Even a covenant which has been watered down by words such as “reasonable” or “material” can trip up the tenant as exactly what is reasonable or material will be different in every case. However, from a tenant’s point of view a qualified covenant is clearly preferable to an absolute one.

5.5.2 Relevant time for compliance

The date by which any break conditions need to be complied with could be the date of service of the break notice or the break date or both. This will depend on the construction of the break clause and needs to be checked to ensure compliance.

5.5.3 Examples of break conditions

Common provisions which a landlord may try to include are the payment of sums due, vacant possession and compliance with repair covenants. Where these conditions are absolute, any subsisting breach, no matter how trivial, will prevent the tenant from exercising the break.

a) Payment of sums due

Care must be taken to check which payments are due in order to effectively exercise the break. The condition may require all payments due as at the break date to have been made in order for the break to be effective. Alternatively, the condition may be restricted just to the main rent or the main rent and the service charge.

Basic rent

If the fixed break date falls on a rent payment day – or any other day that is not the final day of a rent period – and the break clause requires the basic rent to be up to date then the full quarter's rent must be paid, not just the part due up to the break date85.

If the break date falls on any other day the lease should be checked to see whether it provides for: (i) the rent to be paid only up to and including the break date; or (ii) for a refund of rent paid in advance in respect of any period following the break date.

“All payments due”

If a break clause requires the tenant to make all payments due under the lease by the break date, this may include default interest on late payments, even if the landlord has not issued any demand for such interest86.

Disputed sums

Great care must be taken with regards to disputed or queried sums. Unless disputed sums are not part of the condition, failure to pay a disputed amount is a failure to pay a sum due and invalidates the break.

It may be necessary for a tenant to pay any outstanding sums due on a without prejudice basis and argue about them later. For a large tenant with a number of premises the accounts department should be instructed to pay all sums demanded in respect of the relevant premises, even if they may normally have queried them, as the failure to pay even a small amount may invalidate the break.

84 Fitzroy House Epworth Steet (No 1) Ltd v The Financial Times Ltd [2006] EWCA Civ 329 85 PCE Investors Ltd v Cancer Research UK [2012] EWHC 884 86 Avocet Industrial Estates LLP v Merol and another [2011] EWHC 3422 (Ch)

-14-

b) Vacant possession

A condition that vacant possession is given at the break date is often included by the landlord.

The principle of vacant possession is that the premises must not contain a substantial physical impediment to their use by the landlord87. The requirement of vacant possession means that the property must be empty of people and that the landlord is able to assume and enjoy immediate and exclusive possession, occupation and control of it. The property must also be empty of chattels, although the obligation in this respect is likely only to be breached if any chattels left in the property substantially prevent or interfere with the enjoyment of the right of possession of a substantial part of the property88.

c) Repair and decoration

If the lease contains a general condition requiring compliance with all tenant’s covenants this is highly onerous for the tenant and means the break is likely to be almost impossible to exercise effectively as a failure to comply with the condition in some very minor respect will invalidate the break89.

If the condition is worded so that any material breach must be remedied then the tenant may need to have its own survey done in order to ascertain exactly what work needs to be carried out and then ensure that this work has been done before the break date. The tenant may be able to persuade the landlord to confirm in advance of the break date that the condition has been complied with. Alternatively, the landlord may be willing to enter into a financial settlement in return for a waiver of this condition. However, unless the provision requires it, the landlord is under no obligation to do any of these things and a landlord who wants to prevent the break from taking place is unlikely to agree to this.

Attention must be given to any notice periods for the landlord to serve notice and the tenant to do any required works. For example, if time is not of the essence in relation to the service of a landlord’s notice of repairs then the landlord would be able to serve a notice a week before the break date and the tenant’s failure to comply would invalidate the break. The lease should be checked to ensure that each party is aware of its obligations.

5.5.4 Waiving compliance with conditions

Either party may waive a requirement to comply with a condition. The waiver may be made in writing, or orally, or inferred by conduct.

Waiver by a landlord may occur where he accepts possession following a purported exercise of a break. However, there will be no waiver until the landlord knows all of the material facts, knows that he has a right to choose between waiving or not and knows the legal effect of each choice90.

If the landlord does want to dispute the tenant’s right to break, he should not do anything which may amount to a waiver. If he (or his agents) has to accept keys or take security measures as a requirement of the insurance policy, this should be done only and expressly on a without prejudice basis.

5.6 Practical issues for a tenant exercising a break

5.6.1 Before service of the notice

Check whether there are any conditions which need to be complied with as at the date the notice is served.

87 Legal & General Assurance Society Ltd v Expeditors International (UK) Ltd [2006] L & TR 368 88 NYK Logistics (UK) Ltd v Ibrend Estates BV [2011] EWCA Civ 683 89 Bairstow Eves (Securities) Ltd v Ripley [1992] 2 EGLR 47 90 HB Property v Secretary of State for the Environment [1998] L&TR 238

-15-

5.6.2 Service of the notice

Ensure that the notice is served in good time and strictly in accordance with the terms of the lease – check whether a prescribed form is required.

Keep evidence as to posting and delivery. Request that the landlord acknowledges receipt, particularly where there are no deeming provisions.

Where the notice is served by an agent, disclose the existence of the agency and the agent’s authority in the notice itself.

5.6.3 Compliance with conditions

Consider carrying out a compliance audit to ensure that all conditions have been met and then take steps to remedy any breaches.

Consider asking the landlord for confirmation of the steps that the tenant needs to take in order to comply with the conditions, for example a schedule of dilapidations in relation to repair works.

Ensure that any subleases are properly terminated and that subtenants have fully vacated the property.

Pay any outstanding sums due even if they are in dispute. Payment can always be made on a without prejudice basis and argued about later.

Consider asking that the break notice be accepted upon payment of an agreed amount of liquidated damages in relation to outstanding breaches.

Ensure that any waiver by the landlord is not made “without prejudice” and that it is clear which conditions the waiver applies to.

6. Surrender of the lease

6.1 What is a surrender?

The surrender of a lease is a consensual arrangement under which the tenant’s leasehold estate is acquired by the landlord. It is a type of conveyance and operates to bring the lease term to an end91.

A surrender is not effective unless it is accepted by the landlord, so a landlord will not agree to accept a surrender unless it is on terms acceptable to it.

6.2 Types of surrender

6.2.1 Express surrender

An express surrender must be made by deed otherwise it is not valid92, though it may take effect as an agreement to surrender if it is in writing and the general contractual requirements are satisfied. No particular words are necessary in an express surrender if it appears to be the intention of both parties that the term should immediately end. However, to be safe, the words “surrender and yield up” should be used.

For a registered lease it’s possible, though not compulsory, to use a TR1.

The surrender must take effect immediately it is made. If it is expressed to take effect at a later date then it will operate as an agreement to surrender at that date93 (see paragraph 6.3 below), which will be void if the lease is a protected tenancy94.

An express surrender will often contain a mutual release of the lease covenants, either past, present and future, or leaving open the possibility of action in respect of breaches existing at the date of surrender.

91 Fairweather v St Marylebone [1963] AC 510 92 Section 52, Law of Property Act 1925 93 Weddall v Capes (1836) 150 ER 341 94 Joseph v Joseph [1967] Ch 78

-16-

6.2.2 Surrender by operation of law

A surrender by operation of law is inferred from the conduct of the landlord and tenant. In effect, there must be some act done which is inconsistent with the continuance of the lease. To be sufficient, the conduct of both parties must unequivocally amount to an acceptance that the lease has ended.

This means the tenant handing back possession of the property and this being accepted by the landlord, or other conduct only consistent with the end of the lease. Mere vacation of the property by the tenant is not enough. The circumstances must be so clear as to mean it would be ridiculous for either the landlord or tenant to subsequently argue that the lease has not ended.

Examples of successful surrenders are the tenant vacating and the landlord going into beneficial occupation95, allowing someone else to occupy96 and accepting rent from subtenants97. However, there was no surrender where the landlord accepted the keys on a without prejudice basis98, where the landlord changed the locks with the intention of securing the property but maintained a rent claim99 or where the landlord allowed occupation by a third party that the tenant wanted to assign the lease to100.

Where surrender is being done by operation of law, usually in practice the tenant vacates and returns the keys, ideally obtaining written confirmation from the landlord that it has received them.

The tenant must give the keys to someone authorised to accept them, although it may be that giving the key to one of two joint landlords would work on the basis that the one joint landlord may have authority to accept surrender as agent for both of them.

6.2.3 Surrender and re-grant

This is a type of surrender by operation of law but the surrender operates due to the landlord granting a valid new lease to the tenant. It operates this way because the landlord would not be able to grant a new lease unless the old one had been surrendered.

As well as the express grant of a replacement lease, a prime example of this is where the landlord purports to extend the term of the lease or add land to the demise by way of a variation to the existing lease. Neither of these can be done if the lease continues to exist as there would, purportedly, be two leases of the same land for the same term and both taking effect in possession. In each case the nature of the legal estate is changing and the situation can only be explained as a surrender of the lease and the grant of a new lease for the extended term or demise101.

The new lease must be valid. It cannot in law be the intention of the parties for a lease that was void or voidable to replace a good lease. If the new lease is in some way not a valid document then the first lease will remain in force102.

The new lease must be expressed to begin during the term of the existing lease. If it begins afterwards then there is no inconsistency between the two interests and therefore no need for surrender.

6.3 Agreement to surrender

There is no need to have an agreement to surrender, but this will be useful where the parties need a binding agreement in respect of a future date. An agreement for surrender must be in writing103.

95 Bird v Defonvielle (1846) 2 Car & K 415 96 Artworld Financial Corporation v Safaryan and others [2009] EWCA Civ 303 97 Gray v Balls (1861) 5 LT 39 98 Re Panther Lead Co [1896] 1 Ch 978 99 Relvok Properties v Dixon (1973) 25 P&CR 1 100 QFS Scaffolding Limited v Sable and another [2010] EWCA Civ 682 101 Friends Provident v British Railways Board [1996] 1 All ER 336 102 Canterbury Corporation v Cooper (1909) 100 LT 597 103 Section 2, Law of Property (Miscellaneous Provisions) Act 1989

-17-

Where a lease has 1954 Act protection the surrender agreement is void unless the parties have followed the correct statutory procedure104 – the landlord must give notice and the tenant must make a declaration or statutory declaration (if the agreement to surrender will be completed sooner than 14 days after the notice). However, note that this only applies to agreements to surrender, not to actual surrenders, whether by deed or by operation of law105.

6.4 Offer-back clauses

A covenant against alienation will sometimes include an offer-back clause under which the tenant must offer to surrender the lease to the landlord before it can proceed with an assignment.

Offer-back clauses are agreements to surrender, meaning that the notice and declaration procedure must be followed before they are entered into in a 1954 Act protected tenancy106.

To ensure that they bind successors in title offer-back clauses must be protected by registration, either as a class C (iv) estate contract or by noting at the Land Registry107.

6.5 Surrenders of part

Surrender of part may be done expressly or by operation of law. When surrendering a part only of the property thought needs to be given as to how liabilities will be apportioned and whether any additional rights or reservations are required.

An express surrender of part is effective if done by way of deed of variation reducing the demise (and making any other variations required). A TP1 may be used for a registered lease but this is not required. Any guarantor should join into the deed to confirm that it will guarantee the remaining part, otherwise it may be released from the whole of its liability108.

Surrender of part by operation of law may occur if the tenant gives up possession of part and this is accepted by the landlord (eg by taking possession of that part and accepting a reduced rent for the remainder). This may release any guarantor under the lease being part surrendered so, if there is a guarantor, the surrender should be documented expressly and the guarantor joined in to prevent it being released from the whole of its liability.

If the tenant simply accepts a new lease of part only of the property comprised in a lease, this operates as a surrender of that part only and not of the whole. There is nothing dealing with the remaining part so the old lease stays in force in relation to that part. The covenants in the old lease will be interpreted to be apportioned accordingly. As there has been surrender of part of the first lease, any guarantor may also be released. This situation should be avoided by dealing expressly with the whole of the first lease.

6.6 Effect of surrender

6.6.1 Between landlord and tenant

The term ends on the date of the surrender and the landlord obtains a right of recovery of possession from that date.

Unless expressly provided for otherwise, the tenant is not entitled to a refund of rent paid in advance109. Each party will be released from future covenants but remain liable for past breaches unless the surrender deed provides otherwise. The surrender deed may deal with past breaches, eg by providing for a payment of liquidated damages in satisfaction of them110.

104 Section 38A(4), 1954 Act 105 Section 24(2), 1954 Act 106 Allnatt London Properties v Newton [1984] 1 All ER 423 107 Greene v Church Commissioners [1974] Ch 467 108 Holme v Brunskill (1878) 3 QBD 495 109 Hill v William Key & Hardware (1964) 108 SJ 82 110 Deanplan v Mahmoud (1992) 64 P&CR 409

-18-

It has been established that a rent review may be enforced after the surrender of a lease is respect of a period before the surrender111, provided that it was initiated before surrender and that the surrender deed does not prevent this.

The tenant loses his right to remove tenant’s fixtures as from the date of surrender112.

6.6.2 Subtenants

Surrender of a lease does not end a sublease previously granted113. This is the case even if the sublease was granted in breach of covenant and the landlord did not know that the subtenant was in occupation at the date of surrender114.

There is some doubt as to whether a landlord would be entitled to recover arrears accruing from the subtenant before the surrender115.

The head landlord will become the subtenant’s direct landlord on the terms of the sublease. Ascertaining the terms of any subleases will therefore be part of the (head) landlord’s investigation of title before accepting a surrender.

6.7 Practical issues for the parties

6.7.1 Landlord

Where the tenant has requested to surrender, the landlord does not have to accept surrender except on terms acceptable to it. Conversely, where the landlord is initiating the surrender, the tenant will be able to dictate the terms.

The landlord should investigate the title, including:

o searching to see whether there any mortgages affecting the lease (so that arrangements can be made for discharge)

o inspecting the property to reveal any unauthorised occupiers and to check the extent of any breach of repairing and decorating covenants

o full documentation relating to any subleases should be obtained since the landlord will take the surrender subject to subleases (even if they were granted by the tenant in breach of covenant)

o other searches including at the Land Registry, Local Authority and Companies House

o raising commercial property standard enquiries of the tenant.

6.7.2 Tenant

The tenant must bear in mind that, where it has initiated the surrender, the landlord does not have to agree to it. It should expect to have to agree to terms satisfactory to the landlord, depending on the circumstances. Likewise, where the landlord wants the property back (eg for redevelopment) the tenant will have the upper hand in negotiating a deal.

The tenant should check the terms of the lease carefully to ascertain the remaining liabilities, including any that can be required on yield-up. While the landlord does not have to agree to the surrender at all, any arrangement should not involve the tenant performing obligations over and above those in its lease.

7. Forfeiture – the right of re-entry

7.1 Nature of the forfeiture right

The “right of re-entry”, or “forfeiture right” is a landlord’s unilateral right to bring a lease to an end in the event of a breach by the tenant. As it is a form of penalty the courts lean

111 Torminster Properties v Green [1983] 1 WLR 686 112 Leschallas v Wolf [1908] 1 Ch 641 113 Mellor v Watkins (1874) LR 9 QBD 400 114 Parker v Jones [1910] 2 KB 32 115 Plummer v John [1920] 1 KB 326 and Electricity Supply Nominees v Thorn EMI Retail [1991] 1 EGLR 46

-19-

against it and will often grant relief if requested (see paragraph 7.4.2), or may find that the right has been waived (see paragraph 7.3). In order to forfeit a lease an act of re-entry is required by the landlord, either by peaceable re-entry (see paragraph 7.4.1) or by the issue of court proceedings (see paragraph 7.4.2).

If a lease is successfully forfeit all interests created out of it will fall including those of any subtenants or mortgagees, subject to any relief that they might claim.

It is important to understand that when a breach of covenant occurs the landlord must make a decision to either determine the lease or allow it to continue. Once the landlord is on notice of an act or omission that would permit him to determine the lease he must ensure he does nothing to waive the breach on which he may want to rely to determine the lease (see waiver at paragraph 7.3 below).

7.2 Reason for forfeiture

For a breach of condition the landlord may re-enter the property even if there is no reserved forfeiture right. However, in modern commercial leases it is rare that any of the lease covenants will be construed as a condition; for a breach of any other covenant it is necessary that the lease contains a forfeiture clause which sets out the circumstances in which the landlord can exercise this right116 (this is a standard clause in commercial leases, but you should still check for it). Forfeiture rights apply equally to both excluded and protected tenancies.

The required procedure is different where you are forfeiting for non-payment of rent as compared to any other breach of covenant.

7.2.1 Forfeiture for non-payment of rent

The rules relating to non-payment of rent cover all sums reserved as rent under the lease – it is not limited to non-payment of the main rent. If other sums (such as service charge or insurance rent) are not reserved as rent they will be treated like any other breach of covenant – see paragraph 7.2.2 below.

The forfeiture clause will usually provide that the right to re-enter does not arise until after the expiry of a fixed period (usually 14 – 21 days) after the rent falls due. It is important that the landlord checks and complies with whatever period is specified.

Most modern leases will state that a formal demand for payment of rent is not required in order to forfeit – all that is required is that payment is due. If not, a demand for rent must be made before a right to forfeit can be exercised. Where the unpaid sums are service charge or insurance rent it is likely that the lease will require these to be demanded before they fall due.

What distinguishes non-payment of rent from other breaches is that there is no need for the landlord to give any notice to the tenant prior to forfeiting the lease: if the above requirements have been satisfied and the landlord has not done anything to waive the breach, he can forfeit by either issuing court proceedings seeking possession (and the arrears of rent) or by peaceably re-entering the premises.

7.2.2 Forfeiture for other breaches of covenant

Where the tenant is in breach of a covenant other than the covenant to pay rent, the landlord cannot exercise his rights under the forfeiture clause unless he has first served a notice under section 146 of the Law of Property Act 1925. The purpose of this is to give the tenant the opportunity to remedy the breach.

Most commercial leases will contain an obligation on the tenant to allow recovery of costs associated with drawing up and serving a section 146 notice. Note that there is some doubt as to whether a landlord would be able to recover costs

116 Doe d Wilson v Phillips (1824) 2 Bing 13

-20-

associated with a section 146 notice where this was served when it was not required (eg non-payment of service charge reserved as rent)117.

a) Contents of section 146 Notice

The notice must:

Specify the particular breach complained of.

If the breach can be remedied, require the tenant to remedy it (the landlord does not have to tell the tenant how to remedy it). If the breach cannot be remedied there is no such requirement. However as the majority of breaches are remediable118 the best approach is to require the breach to be remedied “if it is capable of remedy”. The only irremediable breaches are illegal or immoral use (though this will depend on the particular facts)119 and subletting or assignment120 (though comments from the court of appeal suggest that they would rather this was remediable by surrender or reassignment if they weren’t bound by the Scala case121).

Give the tenant a reasonable period of time in which to remedy the breach; what is reasonable will depend upon the facts and the breach.

Require the tenant to pay compensation in money for the breach, if the landlord requires compensation.

b) Special requirements for breach of repairing covenants

Where the landlord is serving a section 146 Notice in respect of breaches of the repairing covenants and where the original lease was for a term of 7 years or more and more than 3 years of the term are left unexpired at the date of service of the section 146 notice, the notice must comply with the requirements of the Leasehold Property (Repairs) Act 1938. The notice must be served on the tenant at least one month prior to issuing proceedings and it must state that the tenant has a right to serve a counter-notice within 28 days. If a counter notice is served the landlord cannot forfeit the lease without leave of the court. In seeking leave the landlord must establish one of the five grounds in the Act122.

Note that where the landlord is seeking to recover repair costs which have been incurred pursuant to a Jervis v Harris clause these sums are a debt and do not fall within the special section 146 notice requirements.

If the breach is not remedied within the reasonable time specified and there has been no waiver of the breach, the landlord can proceed to forfeit the lease by peaceable re-entry or by court proceedings. Even if the breach is incapable of remedy, the landlord should still wait a short time (eg 14 days).

117 69 Marina, St Leonards-On-Sea, Freeholders of v Oram and another [2011] EWCA Civ 1258 and Escalus Properties v Robinson, Escalus Properties v Dennis, Escalus Properties v Cooper-Smith and another, Sinclair Gardens Investments (Kensington) Ltd v Walsh [1996] QB 231 118 Akici v LR Butlin Ltd [2005] EWCA Civ 1296 119 This leaves a stigma that cannot be erased if the use stops – Rugby School (Governors) v Tannahill [1935] 1 KB 87 120 Scala House Ltd v Forbes [1974] QB 575 121 Akici v LR Butlin Ltd [2005] EWCA Civ 1296 122 Section 1(5) of the Leasehold Property (Repairs) Act 1938 states that leave to forfeit shall not be given unless the landlord

proves: (a) that the immediate remedying of the breach is requisite for preventing substantial diminution in the value of his reversion, or that the value thereof has been substantially diminished by the breach; (b) that the immediate remedying of the breach is required for giving effect in relation to the premises to the purposes of any enactment, or of any byelaw or other provision having effect under an enactment or for giving effect to any order of a court or requirement of any authority under any enactment or any such byelaw or other provision as aforesaid; (c) in a case in which the lessee is not in occupation of the whole of the premises as respects which the covenant or agreement is proposed to be enforced, that the immediate remedying of the breach is required in the interests of the occupier of those premises or of part thereof; (d) that the breach can be immediately remedied at an expense that is relatively small in comparison with the much greater expense that would probably be occasioned by postponement of the necessary work; or (e) special circumstances which in the opinion of the court, render it just and equitable that leave should be given.

-21-

There is no obligation to serve a subtenant or mortgagee with a section 146 notice although as a practical measure it is a good idea as the subtenant or mortgagee may be able to put pressure on the tenant to remedy the breach.

7.3 Waiver

Where a breach of covenant occurs, once the landlord has knowledge of it he must decide whether to determine the lease or allow it to continue (by waiving the breach). The landlord will lose his right to forfeit if he does any act which recognises the continuation of the tenancy after becoming aware of the breach. The law on this is complex and great care must be taken.

For an act of waiver to occur, the landlord must have knowledge of the breach123 (although knowledge by a landlord’s employee is sufficient124). If the landlord has knowledge but, upon enquiry of the tenant, he is falsely persuaded that there is no breach there will be no waiver125.

The test of waiver is objective and the landlord’s intentions are immaterial. Once the landlord has knowledge of the breach and acts in a way which unequivocally recognises that the lease continues this constitutes waiver126.

7.3.1 What acts amount to waiver?

Waiver requires a positive act on the part of the landlord. Acts of waiver include:

Demanding or accepting rent127. Rent should not be accepted on a “without prejudice basis”128. Acceptance of rent by a landlord’s agent will amount to a waiver, even if the agent has been instructed not to accept rent129. Where a landlord told a tenant that no further rent payments would be accepted and the tenant paid rent directly into the landlord’s bank account this was not a waiver as the landlord returned the rent130. Rent can probably be accepted if it fell due for the period prior to the breach of covenant (as this rent is due even if the lease is terminated)131. However, it is usually safer not to accept any payments to avoid giving the tenant an argument on waiver.

Giving notice of intention to enter the premises to carry out repairs under a Jervis v Harris type clause132.

Sending in the bailiffs (exercising the Commercial Rent Arrears Recovery procedure)133.

Granting any type of licence under the terms of the lease134.

7.3.2 Once and for all or continuing breach

Waiver will only affect breaches that occurred prior to the act of waiver. If the breach re-occurs or continues thereafter a new cause of action will arise to permit the landlord to make a new election of whether or not to forfeit.

There is an important distinction between “once and for all” breaches and “continuing” breaches. A once and for all breach occurs in respect of a covenant which requires an act to be carried out by a certain time (eg payment of rent) or which prohibits an act (eg unlawful alienation, insolvency, unauthorised alterations). Waiver of a single once and for all breach will be fatal to the landlord’s right to forfeit.

123 Peyman v Lanjani [1985] Ch 457 124 Metropolitan Properties Co v Cordery (1980) 39 P & CR 10 125 Chrisdell v Johnson and Tickner (1987) 54 P & CR 257 126 Central Estates Belgravia Ltd v Woolgar (No 2) [1972] 3 All ER 610 127 Expert Clothing Service & Sales v Hillgate House [1986] Ch 340 128 Strong v Stringer (1889) 61 LT 470 129 Central Estates (Belgravia) v Woolgar (No.2) [1972] 3 All ER 610 130 Mardorf Peach & Co v Attica Sea Carriers Corporation of Liberia [1977] AC 850 131 Seahive Investments Ltd v Osibanjo [2008] EWCA Civ 1282 132 Doe d. Rutzen v Lewis (1836) 5 A & E 277 133 Cotesworth v Spokes (1861) 10 CBNS 103 134 Bader Properties v Linley Property Investments (1968) 19 P & CR 620

-22-

For a continuing breach both the obligation and the breach will be of a continuing nature (eg disrepair, failure to insure, wrongful use). Here a landlord can waive an earlier breach but his right to forfeit will continue in respect of the continuing breach after the act of waiver.

7.4 The “act” of forfeiture – court proceedings or peaceable re-entry?

Note that if the tenant is insolvent the landlord is restricted in what action he is able to take. The table at the end of these notes provides a summary of what action can be taken.

7.4.1 Peaceable re-entry

Peaceable re-entry for non-payment of rent or other breach of covenant is a self-help remedy which does not involve any court proceedings. It takes effect from the date of re-entry.

There must be some final and unequivocal act by the landlord to constitute re-entry135 accompanied by an intention to forfeit136. He need not evict the tenant – he simply has to re-enter. It is normally dealt with by changing the locks so as to exclude the tenant; alternatively, the grant of a new lease to a third party will be effective137. Peaceable re-entry should not be used if any part of the premises is residential.

The act of re-entry must be without violence; if there is someone on the premises who is opposed to the entry great care must be taken. It has been held that breaking down a door is likely to be violence138 but breaking locks is not139. In practice most re-entry takes place either in the middle of the night or in the early morning as it is wise to only re-enter when the premises are unoccupied. If violence is found to be used there is criminal liability140.

A prudent landlord should ideally instruct certified bailiffs who have experience of effecting peaceable re-entry. If the landlord wants to carry out the forfeiture himself he should use the following procedure:

1. Write to the tenant regarding the breach. If the breach is non-payment of rent the tenant should be warned that, if he doesn’t pay within a set period, the landlord proposes to forfeit the lease. The method of forfeiture need not be specified. If the breach complained of requires service of a section 146 notice, this should be served and time given to remedy the breach.

2. Assuming the breach continues, inform the police that the landlord is going to re-enter and provide the date and time and invite them to attend.

3. Choose a quiet time to re-enter when the possibility of resistance is unlikely.

4. The landlord or his agent should attend the premises with a locksmith for the express purpose of forfeiting the lease. If anyone is met at the premises they should be told the purpose of the visit. If there is any resistance, walk away. If there is no resistance the Landlord or his agent should then peaceably re-enter using minimum force and without violence to the premises, walk through them and change the locks. A contemporaneous note should be made as a record of the steps taken in case there is any future problem.

5. Put up a notice at the premises stating that peaceable re-entry has been effected, giving a contact name and a warning that entry onto the premises is not permitted without the written permission of the landlord.

6. Write to any subtenant explaining that forfeiture was effected by peaceable re-entry (giving the date) and that the lease is at an end. State that unless there is an application for relief from forfeiture within 14 days the landlord proposes to re-let the premises.

135 Serjeant v Nash, Field & Co [1903] 2 KB 304 136 Relvok Properties v Dixon (1972) 25 P & CR 1 137 London & County (A & D) v Wilfred Sportsman [1971] Ch 764 138 Hemmings v Stoke Poges Golf Club [1920] 1 KB 720 139 Razzaq v Pala [1997] 38 EG 157 140 Section 6, Criminal Law Act 1977

-23-

7.4.2 Court proceedings

It is strongly advised that where any premises contain an element of residential accommodation the landlord should proceed by way of court proceedings141.

Where forfeiture occurs by the issue of court proceedings the lease is forfeit on the date of service of the proceedings. The subsequent order for possession has retrospective effect to the date of service.

If the lease has been assigned, the proceedings must be served on the assignee even though the ground of forfeiture is the unlawful assignment142.

In straightforward proceedings a court hearing should follow within 7 to 12 weeks depending on the courts schedule.

7.5 Relief from forfeiture

Where the landlord has forfeit by the issue of court proceedings the tenant, subtenant or mortgagee may apply for relief pursuant to s146(2) of the Law of Property Act 1925, as part of the Counterclaim. Relief from forfeiture for non-payment of rent will automatically be granted if the tenant pays all of the arrears (including mesne profits due since the court proceedings were issued) and costs of the action not less than 5 clear days before the hearing. If not, the court will make an order for possession to take effect not less than 4 weeks from the date of the order unless the tenant pays into court all arrears and costs by that date. If the tenant does not qualify for this automatic relief and possession is granted he may still apply for relief within 6 months of the landlord obtaining possession.

Where the landlord has forfeit by peaceable re-entry, the tenant must make an application to court without “undue delay” and probably within 6 months. The court has discretion as to whether to grant relief, on such terms as it thinks fit, including costs, expenses and damages. It will usually grant the tenant relief where the tenant has already remedied the breach or will grant relief conditional upon the tenant remedying within a specific time. The tenant will ordinarily be responsible for the costs of the proceedings.

If relief is granted it is as if the lease had never been forfeit, which means that any subleases are also revived.

A subtenant is able to apply for relief in his own right, on a similar basis to the tenant. The court may either order that the tenant’s lease vests in the subtenant (though in practice this takes effect as the grant of a new lease) or, more usually, that a new lease is granted to the subtenant on such terms as the court sees fit143. Whichever approach is used, any other sub interests will not be reinstated144.

8. Disclaimer

A liquidator is able to disclaim the whole of an insolvent tenant’s liability under a lease, thereby ending all of the tenant’s rights, interests and liabilities145. This right to disclaim continues even if the liquidator has taken possession of the property146 (including circumstances where he has obtained relief from forfeiture): for example he may wish to keep the property while he sells off all of the tenants’ goods which are stored there, and then disclaim.

8.1 How to disclaim

The liquidator disclaims as follows:

Prepare a notice of disclaimer on Form 4.53 including enough detail to enable identification of the property being disclaimed147.

Authenticate and date the notice of disclaimer: the notice is effective from that date148. There is no requirement to lodge the notice at court or for the court to seal the notice for it to become effective149.

141 Section 2, Protection from Eviction Act 1977 142 Fuller v Judy Properties [1992] 1 EGLR 75 143 Cholmeley’s School Highgate v Sewell [1894] 2 QB 906 144 Hammersmith and Fulham LBC v Top Shop Centres [1990] Ch 237 145 Section 178 to 182, Insolvency Act 1986 (“IA 1986”) 146 Section 178(2), IA 1986 147 Rule 4.187(1), Insolvency Rules 1986 (“IR 1986”)

-24-

Send a copy of the notice to the Land Registry if the lease is registered.

Send a copy of the notice to the registrar of companies150.

Send a copy of the notice within seven business days of the date of the notice to the landlord and anyone else with any interest or liability in respect of the disclaimed property151. This includes subtenants, mortgagees and guarantors; in practice the notice should go to anyone who may conceivably have any interest in the property to avoid the disclaimer failing for lack of notice.

The disclaimer does not take effect unless:

no application has been made for a vesting order within 14 days of the date of service of the last notice of disclaimer (see paragraph 8.5 below); or

a vesting order application has been made and the court directs that the disclaimer shall take effect152.

8.2 Landlord’s notice to elect

Generally speaking a disclaimer can take place at any time. However, the landlord is able to force a decision by serving a “notice to elect” on the liquidator. This gives the liquidator 28 days to disclaim, or he loses his right to do so153. The liquidator is able to extend this time limit by application to the court, but the court may impose conditions on the liquidator, such as an obligation that he personally meets the rent and other costs.

8.3 Practical effect of a disclaimer: former tenants and guarantors

The disclaimer itself does not affect the rights and liabilities of any other person, except insofar as is necessary for the purposes of releasing the tenant from liability. This means that former tenants (who have not been released pursuant to the Landlord and Tenant Covenants Act 1995) and guarantors remain bound, not only in respect of any period prior to the disclaimer, but also going forward154. In addition the landlord will often have reserved the right to require that a former tenant or a guarantor takes a new lease of the property on all the same terms as the disclaimed lease.

However, in order to ensure that the former tenant and guarantor remain bound, the landlord needs to be careful not to take back possession of the disclaimed property. He will do this if, for example, he accepts the keys and secures the property (see the commentary on what constitutes a surrender by operation of law at paragraph 6.2.2). If the landlord takes back possession the lease is treated as if it had been surrendered and all third party liabilities and obligations fall away at the point of disclaimer.

Note that the landlord is not under any obligation to take back the property and doesn’t have to mitigate his loss of rent by doing so155.

8.4 The position of subtenants

The position of subtenants is somewhat complicated and can appear contradictory. However, in summary the position appears to be that the sublease no longer exists156 but that the subtenant’s interest in the disclaimed property continues. He has a collection of rights which can be assigned and which constitute good title157. He can remain in possession for the term of the sublease but if he wishes to do so he must pay the headlease rent and comply with the headlease covenants. There are no provisions to deal with the situation where he has a sublease of part only; presumably he must pay and comply in respect of the whole of the property.

The terms of the headlease are not directly enforceable against the subtenant (so the landlord cannot, for example, claim damages for breach of a repair covenant, unless the

148 Rule 4.187(4), IR 1986 149 Rule 4.187(2), IR 1986 150 Rule 4.187(3), IR 1986 151 Rule 4.188, IR 1986 152 Section 179(1), IA 1986 153 Section 178(5), IA 1986 154 Section 178(4), IA 1986 and Hindcastle Limited v Barbara Attenborough Associates Limited and Others [1997] AC 70, 86 155 Cromwell Developments Limited v Godfrey [1998] 2 EGLR 62 156 Re AE Realisations [1987] 3 All ER 83 157 Re Thompson and Cottrell's Contract [1943] Ch 97

-25-

subtenant has directly covenanted with the landlord to observe the terms of the headlease158) but the landlord can still forfeit for a breach of any of the headlease terms (so he could forfeit the lease for breach of a repair covenant, bringing the sublease rights to an end, subject to the subtenant’s right to relief).

The subtenant has no ongoing obligation under the terms of the sublease as from the date of the disclaimer, so if he wishes to leave the property he is able to so: he has only a right to possession, but no obligation to pay rent or comply with any covenants if he chooses not to continue in occupation.

8.5 Vesting orders

The fact that the terms of the headlease and sublease are not directly enforceable between a landlord and subtenant is very unsatisfactory, but the court has the power to make an order vesting the disclaimed property in another entitled party (such as the subtenant or a guarantor). An application for a vesting order can be made by the landlord or by the subtenant/guarantor. It must be made within three months of the applicant becoming aware of the disclaimer or, if later, receiving a copy of the notice159.

The usual order is that the lease vests on the same terms as those affecting the insolvent tenant at the time of winding-up (so the party in which the lease is vested becomes liable for all pre-existing breaches). Exceptionally the court will order that the lease vests on the terms to which the party would have been subject had the lease been assigned at the time of winding up (so no past liability)160. If the landlord applies for a vesting order and the subtenant/guarantor declines the vesting of the lease their rights, interest and liability in respect of the property will determine.

The subtenant can apply for a vesting order of a part of a property but this will be made on the basis that the subtenant is subject to the same obligations as the tenant of a whole: there are no provisions for apportioning rent or for dealing with whether or not the subtenant’s lease is contracted out.

9. Landlord’s rights at the end of the term

9.1 Recovery of possession at the end of the term

Where the tenant remains in occupation of the property as a trespasser following termination of a tenancy the landlord is able to recover possession.

9.1.1 Changing the locks

If the premises are purely commercial the landlord may decide to simply change the locks in order to exclude the tenant who has overstayed his welcome. This is often the quickest and cheapest solution to the problem, but may cause the following problems:

As with forfeiture, re-entry may not be violent and the landlord may be exposed to criminal liability (see paragraph 7.4.1), though use of violence won’t invalidate the re-entry161.

It may be difficult to permanently exclude the tenant and the landlord may end up having to pay for security to keep the tenant from returning.

The landlord will be left with all the tenant’s belongings to deal with and, in the absence of any express provisions in the lease, will become the bailee of those goods with a responsibility to store and look after them (see paragraph 9.3.2 below).

9.1.2 Possession proceedings in court

When the tenant refuses to vacate at the end of the term the landlord can gain vacant possession by issuing court proceedings seeking possession of the premises. A claim for mesne profits, double rent or double value (as appropriate) should also be included in the proceedings. A possession claim can be determined

158 Re Finley ex parte Clothworkers' Co [1888] 21 QBD 475, CA 159 Rule 4.194, IR 1986 160 Section 182(1), IA 1986 161 Stoke Poges Golf Club [1920] 1 KB 720

-26-

reasonably quickly (within 6 – 8 weeks) provided the landlord can demonstrate (usually by production of a witness statement exhibiting relevant documents) that it has a right to possession of the premises.

Once the Landlord has a Possession Order from the Court, if the tenant still refuses to vacate the landlord can instruct the Court Bailiffs or High Court Sheriff to obtain vacant possession.

Alternatively, he can re-enter the premises provided there is no residential element and provided that he uses no more force than necessary. However, peaceable re-entry is not recommended to enforce a court possession order where the premises are occupied, as a court order requires actual eviction of the tenant, not just taking of possession.

9.2 Damages for continued occupation

Where the tenant remains in occupation of the property as a trespasser following termination of a tenancy the landlord is able to claim damages.

A former tenant is a trespasser if the former landlord has not given consent to the occupation and has not done anything that might imply acquiescence to it. If the landlord does something to consent or imply acquiescence then this will take the occupation out of the scope of ‘no consent’ and into the realm of implied tenant (at will or periodic) or licensee.

9.2.1 Mesne Profits

If a former tenant remains in occupation unlawfully as a trespasser after the end of his lease then he is liable to pay mesne profits. The liability arises even if the landlord has in fact suffered no loss, for example where the landlord would not have re-let or occupied the property during the period of the trespass162.

a) Amount of mesne profits

The amount of mesne profits for which the trespasser is liable is equivalent to the ordinary letting value of the property163.

If the tenant was paying a fair letting value for the property then mesne profits are awarded at that rate. If the tenant was paying less than the true letting value then mesne profits may be awarded at a rate exceeding the rent actually paid164.

There are no cases defining the precise basis of valuation for calculating mesne profits. It is considered that the valuation should be on the basis of a short term lease at a rack rent on the terms which would in practice form the terms on which the landlord would let the property165.

b) Other losses

The tenant may also be liable for other losses suffered by the landlord for example, damages payable by the landlord to a person to whom the landlord has agreed to let the property but cannot do so because of the former tenant remaining in occupation166, and possibly for deterioration in the condition of the property during the period of occupation167.

9.2.2 Action for double value (after landlord's notice)

Section 1, Landlord and Tenant Act 1730 entitles the landlord to double the yearly value of the premises from a former tenant remaining in occupation after the landlord demands possession of the premises in writing.

There are certain requirements that the tenancy must have met for a claim to arise, including that the tenant must have had a term for years (not a tenancy at will or an

162 Swordheath Properties v Tabet [1979] 1 WLR 285 163 Ministry of Defence v Thompson [1993] 2 EGLR 107 (CA) 164 Clifton Securities v Huntley [1948] 2 All ER 283 165 Woodfall Landlord and Tenant Part 1, Chapter 19.013.1 166 Bramley v Chesterton (1857) 2 CB(NS) 592 167 Associated Deliveries v Harrison (1984) 50 P & CR 91

-27-

implied periodic tenancy) and must also have held over deliberately, not just by mistake or with a proper claim of title168.

Assuming the requirements are met, the wording of this section is strictly construed against any trespasser remaining in occupation after the landlord's notice has been given. Double value is recoverable as a debt for as long as the occupation continues. There is no equitable relief.

a) Demand and notice in writing

As well as the requirements above, there must also be a demand made and notice in writing given. This may be served before the expiration of the term, requiring the tenant to deliver up possession at its expiration, in which case no further notice is necessary and the double value will be calculated from the end of the term for as long as the tenant holds over169.

Alternatively, the demand/notice may be given within a reasonable time after the expiry of the term. The landlord will then be entitled to double value from the time of the demand, not the end of the tenancy170.

b) Double value – not double rent

The penalty is double value as opposed to double rent. This is more favourable to landlords as the value is “what an occupier would give, and the landlord would otherwise have received, for the use of the freehold and everything connected with it, during the time possession is withheld”. This includes double value of the land, property, tenancies and rights possessed by the trespasser171.

9.2.3 Action for double rent (after tenant's notice)

Section 18, Distress for Rent Act 1737 entitles the landlord to double rent where the tenant has given notice to quit but does not give up possession when the tenancy ends at the expiry of the notice.

The statute only applies where the tenant is capable of ending its tenancy by notice and then has given a valid notice of its intention to vacate. In a modern commercial context this may be an implied periodic tenancy or on exercise of a break option where the tenant has served the notice and complied fully with any conditions attached to it (so it will never apply where giving up occupation or giving vacant possession is a condition of the break). There is no authority on whether double rent would be available following expiry of a section 27 notice given under the 1954 Act, but it is arguable that it would be. It will not apply to a tenancy at will as this cannot be terminated by the tenant without him giving up possession.

The landlord must treat the tenant as a trespasser after expiry of the notice; if the landlord claims that the notice was not valid so that the tenancy continues, he can't claim double rent.

The double rent may be recovered by suing in the same way as single rent would have been recovered before the tenant gave its notice172.

9.3 Property left on the premises

Property which the tenant brings onto the premises may be a landlord’s fixture, a tenant’s fixture or a chattel. The general principle is that a tenant cannot remove the landlord’s fixtures at the end of the term but he has the option of removing tenant’s fixtures and must remove chattels. However, this principle can be modified by agreement between the parties, so the tenant can contractually be required to leave or remove any items, regardless of the nature of them.

168 French v Elliott [1960] 1 WLR 40 169 Soulsby v Neving (1808) 9 East 310 170 Cobb v Stokes (1807) 8 East 358 171 Robinson v Learoyd (1840) 7 M & W 48 172 Humberstone v Dubois (1842) 10 M & W 765

-28-

9.3.1 Fixtures or chattels

a) Landlord’s fixtures

A tenant has no rights to remove anything which is classified as a landlord’s fixture. Something brought onto the premises by the tenant will become a landlord’s fixture if removal would cause substantial damage to the premises or to the fixture itself173.

b) Tenant’s fixtures

Tenant’s fixtures are chattels attached to the land by the tenant (or a predecessor in title under the tenancy) for the purposes of its trade or business and which are capable of physical removal without causing substantial damage to the land and without the chattel losing its essential utility as a result of the removal174.

They may be removed by the tenant during the term but as soon it comes to an end (by whatever means) they belong to the landlord175.

The general rule is that tenant’s fixtures are only those things which have been affixed during the current lease. However, case law has established that where one lease is immediately followed by a replacement lease to the same tenant, the tenant’s fixtures continue to be tenant’s fixtures. The position is less clear with regards to fixtures placed during occupation under an agreement for lease prior to lease grant but it seems logical that the same approach should be taken, particularly where the tenant’s prior occupation is based on the terms of the lease to be granted.

c) Chattels

Chattels continue to belong to the tenant even after the lease comes to an end.

Chattels are articles which have not been affixed to the land or which are so loosely fixed as not to be regarded as fixtures. Whether something is a fixture or a chattel is a question of fact which depends on the mode, extent and purpose of annexation. Any object attached simply by its own weight will usually be a chattel rather than a fixture, unless circumstances are such as to show that it was intended to become a part of the premises176. If an object cannot be removed without causing damage to the land there is a strong presumption that it is a fixture177. However, where an object is firmly affixed (for example a carpet) but can be removed without causing any significant damage it may remain a chattel, depending on the particular circumstances.

9.3.2 Landlord as involuntary bailee

If the tenant leaves chattels on the premises at the end of the term they remain his property and the landlord has certain obligations as an involuntary bailee178. An involuntary bailee must not deliberately or recklessly damage or destroy the goods. If trying to return the goods to the owner through a third party the bailee must take care, to confirm that the third party has the owner's authority to receive them.

It is annoying and potentially expensive for the landlord to be left as involuntary bailee of a former tenant's goods, especially if the goods are bulky or valuable. Unless he is prepared to store the goods indefinitely, the landlord needs to establish that the former tenant has abandoned them, so that he can sell them. The landlord will have to serve a notice179 requiring the tenant (or the true owner of the goods) to come and collect them. The notice should set out where the goods are kept, when and where the sale will take place (if the goods are to be sold),

173 Webb v Frank Bevis [1940] 1 All ER 247 174 Webb v Frank Bevis [1940] 1 All ER 247 175 Re de Falbe [1901] 1 Ch 523 176 Because it cannot be removed and placed elsewhere: Elitestone v Morris [1997] UKHL 15; or because the purpose was to improve the land: Pole Carew v Western Counties and General Manure Co [1920] 2 Ch 97 CA 177 Holland v Hodgson (1871-72) LR 7 CP 328 178 See Robot Arenas Ltd and another v Waterfield and another [2010] EWHC 115 (QB) for a summary of the law on this 179 In accordance with Schedule 1 of the Torts (Interference with Goods) Act 1977

-29-

state that any sale and storage costs will be retained from the sale proceeds and attach a schedule of the goods that remain on the premises.

The notice should be sent to the former tenant, if its new contact details are known, and, in any event, attached to the premises in a place where it can be seen.

If all reasonable steps have been taken to contact the former tenant and he has declined to get in touch it is reasonable to assume the goods have been abandoned and the landlord is free to dispose of them. If the goods are reclaimed, the landlord should get written confirmation from the person collecting them that they are the true owner of the goods.

The landlord should document all action taken in case evidence is required to defend a claim for damages or conversion and to establish a defence of abandonment.

If the landlord decides to sell the goods, the sale should be for a proper price and the landlord should retain the proceeds of sale, at least for a period. How long that period should be will depend on the amount of money involved and all the other circumstances.

To protect against bailee liability a lease will often make the obligation to remove chattels an express one, specifying that if any items are left for more than eg ten working days the landlord is appointed as tenant’s agent in respect of these and will not be liable to the tenant for any damage suffered.

9.4 Terminal dilapidations

The implied covenants in respect of repair by the tenant are very limited: to use in a tenant-like manner, not to commit voluntary waste, to repair any damage caused and to “take proper care” of the property. However, every commercial lease will contain express covenants in respect of decoration, repair and reinstatement.

The majority of claims in respect of compliance with these covenants come at the end of the lease, when the landlord serves a terminal schedule of dilapidations on the outgoing or former tenant.

9.4.1 What are “dilapidations”?

The term dilapidations extends to the repairing and decorating covenant, any covenant relating to the state in which the tenant must leave the premises at the end of the term and any reinstatement obligations that the tenant has at the end of the term.

9.4.2 Disrepair

A landlord’s claim for damages for disrepair at the end of the lease is governed by section 18(1) of the Landlord and Tenant Act 1927. This section imposes a “ceiling” on the amount of the damages which can be recovered (being the amount (if any) by which the value of the reversion is diminished by the breach) and also prevents recovery entirely where the works would be rendered valueless because the property will be pulled down or significantly altered.

When calculating the ceiling amount, the best approach is to assess the cost of carrying out the repairs and then to assess the diminution in value to the reversionary interest (by valuing the premises in a repaired state and in the state of disrepair) and the lesser of the two sums will be the recoverable amount.

a) Valuing diminution (the “ceiling”)

What is to be valued is the freehold reversion at the moment when it vests in the landlord unencumbered by the old lease or any new lease180. In some instances, there will be no difference in value resulting from the disrepair and the landlord will recover nothing.

For valuation purposes, the relevant date is the date on which the term expires (or, in cases where the tenancy continues under the 1954 Act, the date when

180 Van Dal Footwear Ltd v Ryman Ltd [2009] EWCA Civ 1478

-30-

the landlord recovers possession). Normally, events which occur after this date are not relevant to the valuation exercise. However, depending on the particular facts, some later events can serve as evidence of diminution, for example a reverse premium given to new tenant to take a lease of the premises in disrepair181 or the sale of the premises shortly after the expiry of the term at a price below market value based on the premises in the required state of repair182.

In addition, if there is a choice as to how to carry out repairs, damages will be calculated by reference to the method the tenant would have chosen. In all likelihood, this means that damages will be based on a less expensive method of effecting repairs183.

b) Supersession (demolition or structural alterations)

The burden of proving supersession falls on the tenant. It is subjective and therefore depends on what the actual landlord intended.

The relevant date for the purposes of determining the landlord's intention is the date on which the lease expires: if the landlord intended to demolish the premises at the term expiry date, the tenant can still rely on the second limb even if the landlord subsequently changes its mind184. The test is broadly the same test as under Ground (f) of the 1954 Act (see paragraph 2.2.4 above).

This limb only applies in cases where the landlord intends to alter or demolish regardless of the state of repair. If the landlord only plans to do the work because of the dilapidated state of the premises, then the second limb does not apply and damages may still be recoverable185.

c) Heads of loss

The heads of loss (always subject to the s18 limits) can include not only the cost of actual repairs but also:

loss of rent including service charge and rates (while the work is being carried out and the landlord cannot relet186)

solicitors and surveyors’ costs if the lease so provides and insofar as they are reasonable187

VAT if the landlord is not registered for VAT188 but only if there is a realistic chance that the works will be done189.

d) Decoration

Note that section 18 does apply to breach of a decorating covenant (unless this also constitutes a breach of the repair covenant190), meaning that the amount claimed can be the cost of carrying out the works without any limitation to diminution in value.

9.4.3 Reinstatement

A covenant to reinstate may be a stand-alone covenant, may arise under the covenant restricting alterations in the body of the lease or may arise in any licence for alterations granted during the term of the lease.

The covenant may absolutely require the tenant to reinstate any alterations made by the tenant at the end of the term or, alternatively, reinstatement may only be necessary if requested by the landlord.

181 Shortlands Investments Ltd v Cargill plc [1995] 1 EGLR 51 182 Culworth Estates Ltd v Society of Licensed Victuallers (1991) 62 P&CR 211 183 Ultraworth Ltd v General Accident Fire & Life Assurance Corporation [2000] EWHC 172 184 Salisbury v Gilmore [1932] 2 KB 38 185 Hibernian Property Co Ltd v Liverpool Corp [1973] 1 WLR 751 186 Scottish Mutual Assurance Society Limited v British Telecommunications plc (unreported, 18 March 1994) 187 Riverside Property Investments Ltd v Blackhawk Automotive [2004] EWHC 3052 (TCC) 188 Drummond v S & U Stores Ltd [1981] 1 EGLR 42 189 Elite Investments Limited v T I Bainbridge (Silencers) Ltd (No 2) [1986] 2 EGLR 43 190 Latimer v Carney [2006] 3 EGLR 13

-31-

A covenant to reinstate is not caught by section 18(1) and if the tenant does not reinstate the landlord has a claim for costs of works of reinstatement in full provided the landlord does in fact do the works. In the event the works of reinstatement are not carried out by the tenant and the landlord does not intend to do them, the landlord could claim any diminution in value as his loss.

It’s common to see a provision that reinstatement is necessary “only if the landlord requires it”. A well drafted clause will give a date by which notice must be given but, more commonly, clauses are silent. In this situation there are two alternatives available, and case law isn’t very helpful in establishing which is correct: either a notice can be given at any time prior to the date for performance, even if only the day before; or it must be given a sufficient time prior to the time for performance for the tenant to have a reasonable opportunity to perform the covenant and reinstate the premises prior to the end of the tenancy. If the first alternative is correct, the question is what the tenant can do: does he obtain the right to stay in temporary occupation of the premises for a reasonable period of time after expiry for the purpose of carrying out the reinstatement?

The limited case law available suggests that a court will favour an interpretation that notice may be given at any time, but, if given sufficiently late, the tenant will be permitted a reasonable time after expiry to complete the work191. However, the basis of his occupation, and length of occupation, during this period is unclear.

9.4.4 Pre-action Dilapidations Protocol

If the landlord decides that the tenant has left the property in a state that is not in accordance with its covenants, then he can sue for breach of covenant. Where the covenants relate to repairs, the landlord will need to prepare a schedule of dilapidations, giving details of the breaches.

The current Dilapidations Protocol replaces an earlier version and it was formally adopted as a compulsory pre-action protocol under the Civil Procedure Rules with effect from 1 January 2012. This means that there are sanctions for failure to follow the protocol before issuing a claim for damages (usually taking the form of cost penalties for the defaulting party rather than prevention from pursuing or defending a claim).

In brief the Dilapidations Protocol requires:

The landlord to serve the tenant with a schedule of dilapidations in the form of the schedule annexed to the Dilapidations Protocol and a claim (which has regard to the principles in RICS Best Practice Guidance on Dilapidations and to the legal principles governing how loss should be calculated).

The landlord to provide a formal quantification of the landlord's loss prior to issuing proceedings. This quantification must be based on either a formal diminution in valuation or an account of the actual expenditure incurred, or a combination of both.

191 Scottish Mutual Assurance Society Limited v British Telecommunications plc (March 18, 1994)

-32-

Annex 1 Forfeiture in an insolvency situation

Is forfeiture permitted? Peaceable Re-entry Court proceedings

LPA Receiver Lender with fixed charge appoints Receiver who can sell charged assets.

Yes Yes

Administrative Receiver Debenture holder created before 15/09/2003 with floating charge appoints Receiver who can sell assets as a going concern.

Yes Yes

CVA Debtor company reaches compromise with creditors.

Depends on terms of CVA Not permitted during moratorium for small companies

Depends on terms of CVA Not permitted during moratorium for small companies

Administration Court appointment or out of court appointment.

No unless court or administrator gives permission

No unless court or administrator gives permission

Creditors Voluntary Winding-Up Debtor company passes resolution to wind up/Creditors appoint liquidator to realise assets and distribute.

Yes Yes but Liquidator can apply for a stay

Compulsory Winding-Up Winding up petition by Creditor – Court appoints Liquidator to realise assets and distribute.

Unclear authorities but probably yes before order is made (but may be stayed), not without leave of the court after order is made or provisional liquidator is appointed

Yes before order is made (but may be stayed), not without leave of the court after order is made or provisional liquidator is appointed

IVA Individual debtor reaches compromise with Creditors. May bind Landlord even without notice.

Not without leave of the court once application has been made

Yes before interim order is made (but may be stayed), not without leave of the court after order is made

Bankruptcy Court appoints Trustee to realise assets and distribute to creditors

Yes Yes (but may be stayed)

-33-

Annex 2 Effect of termination on subleases

Break Sublease comes to an end (whether exercised by landlord or tenant and even though granted with consent of landlord)

This probably applies even if the headlease was varied to include a break after the sublease was granted but there’s no case law on this (subtenant has a claim for derogation from grant).

If the sublease was not contracted out the subtenant will still be able to apply for a renewal lease, against the head landlord.

Surrender Sublease continues on the same terms

The landlord inherits the sublease and becomes the direct landlord. This applies even if the sublease was granted in breach of covenant and without the landlord’s knowledge.

Forfeiture Sublease comes to an end but can apply for relief

The relief may take the form of the grant of a new lease on such terms as the court sees fit (but not for longer than the original term) or the vesting of the forfeit lease in the subtenant (which actually takes effect as the grant of a new lease).

Disclaimer Sublease comes to an end but subtenant has a collection of rights and liabilities equivalent to the sublease

The subtenant may remain in possession provided he complies with covenants in the headlease including payment of headlease rent BUT the landlord cannot enforce covenants directly against the subtenant (though he may forfeit for breach).

The subtenant has no ongoing liability so may leave if he wishes.

The subtenant may apply for a vesting order; where he has a sublease of only part he can apply for an order in respect of part but he will be subject to the same obligations as the tenant of the whole so this will only be attractive if the court can apportion the obligations.

From: Donald Wilton (donald.wilton@wolvesey.co.uk) Date: 28 May 2014 Subject: Wolvesey Business Park

Following on from our quick chat, here’s some more info about the current situation, plus a site plan. I just want a quick indication of how we can get them all out as quickly as possible – we’d really like to get this sale completed before the summer holidays season starts, and I think most of them should be easy to deal with. I’m out this afternoon so I’ll give you a ring shortly to talk through. Unit 1: Millom Limited – their lease (protected tenancy) is 10 years from 1 July 2009. We’ve got a nice break clause in this one, so should be easy: “Either the Landlord or the Tenant may terminate this lease so that it ends on or at any time after 1 July 2014, by serving a Break Notice giving at least three months’ prior notice to the other party.” Unit 2: Greystoke Limited – their lease (contracted out) was 5 years from 25 March 2009; we’ve been negotiating a new tenancy with them since January and we’d nearly agreed documentation but I guess we can just tell them to go now? Unit 3: Lease (contracted out, 10 years from 25 March 2006) is in the name of a chap called Mr Lewis Bolsover – he was a builder but he died suddenly in February. The unit was used to run the office side of things and also used to store materials and equipment. When I was down there last week there were several people around, but I presume that now Mr Bolsover’s dead we can tell them to get out? I had a letter last week notifying me that executors had been appointed but it didn’t say much else – they’ve not bothered paying the March rent. Unit 4: Don’t really know much about the situation here – we’ve not got anything in writing. I know that a woman called Maria Askerton uses it for something (think she’s a daughter of a family friend of the boss) and we do get a bit of rent every Friday. She was in there when I started work here, so since October 2011 at least. We should just be able to tell her to go. Unit 5: Pendennis Limited – they have a lease (protected tenancy) for 10 years from 25 March 2006 but have already approached us and told us they want to leave at the end of June. We’ve already got a completed deed of surrender (taking effect on 23 June) so this one’s dealt with. Unit 6: Halton Limited – this is actually three separate buildings but they’ve got a single (contracted out) lease for all of them for 15 years from 25 March 2006. There’s no-one in the two smaller units but the big one is being used as a warehouse by Casper Limited – their sublease ends on 22 March 2021. Just discovered we’ve not actually had any rent from Halton since September (I’ve heard that they may be having some financial trouble) so we should be able to kick them out – and I presume the sublease will just end? Unit 7: Raby Limited – (protected tenancy) 10 years from 29 September 2009. This lot are a nightmare – always paying late and the unit’s a total mess; the roof needs some serious attention and the whole place needs repainting (all their responsibility). We want them out anyway, so were just planning to forfeit and be rid of them. Unit 8: Kyme Limited – these ones are a real contrast to Unit 7, the perfect tenant! Their lease (protected tenancy) is 5 years from 29 September 2009, so nearly at an end any way. The property was brand new when they took it and still looked perfect last time I was round there, so Kinnersley have decided to move into this and use it as their own offices. They are happy to wait until October to move in. Any questions just let me know. I’ll get someone to pull out the files and send them over tomorrow with any other info you need. Donald ---------------------- Donald Wilton Property Director

Current site layout (Wolvesey Limited) Planned site layout (Kinnersley plc)

Office to be occupied by Kinnersley

Warehouse space to be

available to shopping

centre tenants

From: Peter Warwick (pwarwick49@hotmail.com)

Date: 4 June 2014

Subject: Unit 3 – Mr Lewis Bolsover

Dear Mr Wilton As you know we are the executors for Mr Lewis Bolsover. After some deliberation we have now decided not to continue with the lease of Unit 3. We hereby give you notice pursuant to clause 12 of the lease dated 25.3.5, between you and Lewis, that we would like to terminate the lease on 23 June 2014. We will make sure that the property is clear of all goods on this date. We look forward to your confirmation of receipt. Yours sincerely Peter Warwick

Lease termination – options and issues: notes

Wolvesley Limited owns a small business park, consisting of eight units, all of which are currently occupied. They have agreed to sell the site to Kinnersley Limited, a property developer. Kinnersley plans to redevelop the site and Wolvesley has agreed to sell with vacant possession.

Donald Wilton, the property director of Wolvesley, wants to know how he can get rid of the current tenants. Based on the information provided, what would you suggest and what further information will you need?

Unit 1: Millom Limited – protected tenancy, 10 years from 1 July 2009

Their lease (protected tenancy) is 10 years from 1 July 2009. We’ve got a nice break clause in this one, so should be easy: “Either the Landlord or the Tenant may terminate this lease so that it ends on or at any time after 1 July 2014, by serving a Break Notice giving at least three months’ prior notice to the other party.”

Initial comments

The lease contains a landlord’s break, allowing three months’ notice to be given. Assuming there are no further conditions attached to the break, Wolvesley can serve a break notice now (the earliest termination date that can be specified is 1 July 2014). However, as it is a protected tenancy the contractual term will come to an end but the lease will continue by virtue of the 1954 Act (Weinbergs Weatherproofs Ltd v Radcliffe Paper Mill Co Ltd).

Wolvesley can serve their section 25 notice at the same time. As this must give not less than six months’ written notice, the earliest date that can be specified will be in November – this may be too late for Kinnersley. They should be able to rely on Ground (f) but it’s worth checking whether any fault grounds are available.

Note that just a section 25 notice could fulfil both roles, provided there are no additional notice requirements in the break clause (Aberdeen Steak Houses Group v Crown Estate Commissioners).

From the documents sent through you discover that Millom previously occupied under a 10 year lease that was renewed. Donald lets you know that the property has some relatively minor disrepair; Millom paid the January rent three weeks’ late and also paid the July rent last year a couple of weeks late but have otherwise been fine.

Q1 What will Wolvesley need to demonstrate in order to bring the lease to an end?

Q2 Will Millom be entitled to any compensation?

Q1 Wolvesley will rely primarily on Ground (f), though they may also be able to use Ground (a) (failure to maintain or repair) and/or Ground (b) (persistent delay in paying rent).

In order to prove Ground (f) Wolvesley must show a firm and settled intention to redevelop (Fisher v Taylor’s Furnishing Stores) and a reasonable prospect of achieving it (Reohorn v Barry Corporation).

Whose intention is relevant: person who will be competent landlord at termination of the tenancy – so this will only work if completion of the sale to Kinnersley takes place before the specified termination date (Morris Marks v British Waterways Board); an intention to sell to a developer is not enough (Ahern (PF) & Sons v Hunt)

Timing of intention: date of eventual trial – real prospect that it will be established by then (Somerfield Stores v Spring (Sutton Coldfield) (No.2))

Proof of intention: eg board resolution, plans and drawings and practical possibility of implementing intention: eg reasonable prospect of obtaining planning permission, building contract, finance, ability to obtain vacant possession of other parts of the redevelopment site.

For Ground (a) Wolvesley must show that Millom is in breach of the repair obligation. They are only likely to succeed on this ground if the breach is serious and unremedied (Lyons v Central Commercial Properties). It’s unlikely they would succeed for “minor disrepair”.

For Ground (b) Wolvesley must show that Millom has persistently delayed in paying rent – Millom must have fallen into arrears on several occasions, but the arrears need not have been substantial or long lasting (Horrowitz v Ferrand) and there need not be any arrears at the date of the hearing. A couple of late payments are unlikely to be considered a persistent delay.

Q2 The tenant will be entitled to compensation if the landlord fails to prove either Ground (a) or (b). Compensation is, as standard, one times rateable value. However, the tenant has been in occupation for more than 14 years, so will be entitled to two times rateable value (1954 Act, s37).

Millom accepts that they’ll have to go and agree to vacate at the end of June, in return for a payment by Wolvesley, and in full and final settlement of all claims that Wolvesley may have. Donald is happy with this.

Q3 How should this be documented?

The 1954 Act does not prevent determination of the tenancy by surrender (s24(2), 1954 Act)). However, a surrender agreement will be void unless the notice and declaration procedure has been followed (s38A(4), 1954 Act). Wolvesley will want a binding agreement now, so should use an agreement and follow the necessary procedure. The surrender itself should be effected by deed (s52, Law of Property Act 1925). However, even though the lease is registered there is no requirement for a TR1 to be used (though it may be used).

Conclusion

The parties enter into a (properly contracted out) surrender agreement and the lease is surrendered by deed on 30 June. Millom moves out; they’ve found a much nicer – and slightly cheaper – unit on a business park a few miles away and they use the pay-out from the landlord to buy new laptops for all of their staff.

Unit 2: Greystoke Limited – contracted out, 5 years from 25 March 2009

Their lease (contracted out) was 5 years from 25 March 2009; we’ve been negotiating a new tenancy with them since January and we’d nearly agreed documentation but I guess we can just tell them to go now?

Initial comments

It is necessary to establish the basis of Greystoke’s occupation: licensee, tenant at will or periodic tenant.

It’s extremely unlikely that Greystoke are a licensee: unless the basis of their occupation changed at lease termination, they have exclusive possession of the property, which is the main indicator of a licence.

Where the tenant is allowed to remain in occupation there will either be a periodic tenancy or a tenancy at will: which it is will depend on all the facts. If there had been no negotiations for a new lease there would be a much greater chance that a periodic tenancy had arisen (Walji and others v Mount Cook Land Ltd).

However, where negotiations are taking place for a new lease it is likely that occupation will be as a tenant at will, even if rent is being paid and accepted (Javad v Aqil). Greystoke are almost certainly occupying under a tenancy at will.

A notice to quit is unnecessary to determine a tenancy at will. It can be determined by a “demand of possession” or by entry. A demand for the return of the key would be sufficient (Pollen v Brewer).

On 30 May Donald notifies Greystoke, in writing, that they must vacate immediately and requests that the key is returned. Despite several repeated requests, a month passes and Greystoke still hasn’t vacated. No money has been paid since the December quarter day (and they were paying a rent significantly below current market rates).

Q1 What would you suggest that Donald does?

Q2 Can he demand any payment for the tenant’s occupation?

Q1 Greystoke is trespassing. Wolvesley can either re-enter the premises and change the locks or start possession proceedings.

Changing the locks is the quickest and cheapest solution, though whether this is a good idea will depend on the circumstances. If Greystoke really don’t want to go they may have someone in the property at all times – use of violence exposes the landlord to criminal liability (s6, Criminal Law Act 1977) so Donald should make sure re-entry only takes place when there’s no-one in the property. Possession proceedings are slower (probably 6-8 weeks) but may be safer. Once Wolvesley has the order they can involve the bailiffs if Greystoke still refuses to go.

Q2 For the period prior to notice being given, Wolvesley can recover rent under the tenancy at will. The terms of the tenancy at will are established by reference to the expired lease, so the rent during this period will be the rent due under that lease (in the absence of evidence of a different intention).

Mesne profits: available if a former tenant remains in occupation unlawfully after the end of his lease – no landlord’s loss is needed (equivalent to the market rack rent of a short term lease).

Double value: available if a tenant remains in occupation unlawfully after the end of a fixed term lease but only if a demand has been made (equivalent to double the amount that an occupier would have paid for use of the freehold during period of possession).

For the period since the notice Wolvesley will certainly be able to bring a claim for mesne profits. The liability arises even though the landlord has in fact suffered no loss – for example in this situation he would not have re-let or occupied the property during the period of the trespass (Swordheath Properties v Tabet). The amount of mesne profits for which the trespasser is liable is equivalent to the ordinary letting value of the property. As Greystoke was paying less than the true letting value, mesne profits will be awarded at a rate exceeding the rent actually paid (Clifton Securities v Huntley). There are no cases defining the precise basis of valuation for calculating mesne profits but it is considered that the valuation should be on the basis of a short term lease at a rack rent on the terms which would in practice form the terms on which Wolvesley would let the property.

There is an argument that Wolvesley may also be entitled to serve a double value notice (pursuant to s1, Landlord and Tenant Act 1730), though double value cannot be claimed from any period prior to the service of such notice (so Donald should have served the relevant notice when he initially wrote to Greystoke asking that they vacate). However, even if Donald was to serve the notice now it is arguable that double value wouldn’t be available going forward as it is only recoverable where the trespass immediately follows a tenancy for years; here the trespass followed a tenancy at will.

Conclusion

Greystoke doesn’t have anyone occupying overnight so Wolvesley decide to go in and change the locks to get the property back quickly. The owner of Greystoke shows up the next morning – when he can’t get in he kicks up a bit of a fuss but after speaking to a solicitor accepts that there’s nothing he can do. Donald lets him in the following week to collect all of his belongings. Greystoke agrees to pay rent at the old rate up until the date they collected their belongings but refuse to pay more than this. Donald decides to accept this as the mesne profits wouldn’t be enough to make it worth pursuing.

Unit 3: Lewis Bolsover – contracted out, 10 years from 25 March 2006

The lease (contracted out, 10 years from 25 March 2006) is in the name of a chap called Mr Lewis Bolsover – he was a builder but he died suddenly in February. The unit was used to run the office side of things and also used to store materials and equipment. When I was down there last week there were several people around, but I presume that now Mr Bolsover’s dead we can tell them to get out? I had a letter last week notifying me that executors had been appointed but it didn’t say much else – they’ve not bothered paying the March rent.

Initial comments

The death of the tenant doesn’t terminate the lease – it simply passes to his personal representatives (s1(1) and s3, Administration of Estates Act 1925). It will be necessary to terminate in some other way.

As there’s another two years left to run on the lease and the property still seems to be in use, we should contact the executors to find out what they want to do.

The following week Donald receives an emailed break notice (see below) from the executors. The lease contains the following break clause: “The Tenant may terminate this lease by serving written notice on the landlord to terminate (a “Break Notice”) on a date which is at least two months after service of the Break Notice (the “Break Date”). The Break Notice shall be of no effect if at the date of the Break Notice or at the Break Date the Tenant has not paid any part of the Annual Rent. The Break Notice must be sent by special delivery.”

From: Peter Warwick (pwarwick49@hotmail.com)

Date: 4 June 2014

Subject: Unit 3 – Mr Lewis Bolsover

Dear Mr Wilton As you know we are the executors for Mr Lewis Bolsover. After some deliberation we have now decided not to continue with the lease of Unit 3. We hereby give you notice pursuant to clause 12 of the lease dated 25.3.5, between you and Lewis, that we would like to terminate the lease on 23 June 2014. We will make sure that the property is clear of all goods on this date. We look forward to your confirmation of receipt. Yours sincerely Peter Warwick

Q1 Donald wants to know what he should do. What do you recommend?

Q1 The break can be validly exercised by the executors as successors in title to the tenant (it is not expressed to be personal, so even if the lease doesn’t define the tenant as including successors in title it can still be exercised by successors (Re 120 Packington Street)).

However, there are various problems with the break notice:

The notice is only from Peter Warwick – however, we know that there are at least two executors. Unless the lease says something different, then where there is more than one tenant the notice must be served by all, otherwise it will be ineffective (Hounslow London Borough Council v Pilling).

The notice is addressed to “Mr Wilton” and doesn’t actually refer to Wolvesley anywhere in it.

The clause requires written notice, sent by special delivery. While it is arguable that “written notice” includes a notice sent by email (the Law Commission considers “writing” to include email), it quite clearly hasn’t been sent by special delivery.

The notice period is insufficient. The lease requires two months’ notice but less than a month’s notice has been given.

The lease requires payment of rent up to date as at the date of the break notice. This hasn’t been paid.

However, here we have a situation where the landlord will be perfectly happy for the break to be exercised. The question is therefore whether all of these breaches can be waived. There shouldn’t be any issue with waiving the method of delivery, the addressee, the period of notice or the payment of rent. The only problem is likely to be with the fact that only one executor has given the notice; if Wolvesley relies on the notice in this form there is a risk that another executor may later claim it was invalid if he decides that he wants the lease to continue.

Donald may choose to just leave it and see if the tenant vacates on the specified date. However, if he wants certainty he should respond with confirmation that he is happy for the lease to be terminated, but he should request that a proper notice be served (or at the very least that the other executor(s) provide confirmation that they also intended to give notice). He should make it clear that that he is happy to waive compliance with the break conditions.

He could request the unpaid rent for March, but he should make it clear that non-payment of this will not invalidate the exercise of the break.

Conclusion

Donald decides to ask for a new notice and receives a very apologetic response as regards the rent. A few days later he receives a more formal notice, this one sent by special delivery, properly addressed and signed by all the executors, accompanied by a cheque for the unpaid rent. The notice period is still too short, but he confirms again that this condition is waived. He gets the keys back on 23 June as promised.

Unit 4: Maria Askerton – informal arrangement

Don’t really know much about the situation here – we’ve not got anything in writing. I know that a woman called Maria Askerton uses it for something (think she’s a daughter of a family friend of the boss) and we do get a bit of rent every Friday. She was in there when I started work here, so since October 2011 at least. We should just be able to tell her to go.

Initial comments

This is almost certainly an implied periodic tenancy. A periodic tenancy will always run by reference to a particular period until it is terminated by either party giving notice. In the absence of a written agreement, a periodic tenancy will usually be for the same period as that in respect of which the rent is paid.

This appears to be a weekly tenancy, so the length of notice to be given is at least a week (Doe d. Peacock v Raffan) and it must expire on a rent day (ie a Friday).

It is important that we find out what Maria is using the unit for: if it’s a business use she will have gained 1954 Act protection, meaning that a section 25 notice will also be required (and it may not be possible to get her out until November).

If she isn’t using the property for business purposes, once a valid notice to quit has been given the tenancy will automatically come to an end on the expiry of the notice.

Conclusion

Donald finds out that Maria is an accountant but she likes to paint in her spare time. She uses the unit as an art studio at the weekends, and while she does occasionally sell a painting, she mostly just gives them to friends. She always knew that she’d only got the unit until she was asked to leave to she packs up and goes without argument the following week.

Unit 5: Pendennis Limited – protected tenancy, 10 years from 25 March 2006

They have a lease (protected tenancy) for 10 years from 25 March 2006 but have already approached us and told us they want to leave at the end of June. We’ve already got a completed deed of surrender (taking effect on 23 June) so this one’s dealt with.

Initial comments

A surrender must take effect immediately it is made. If it is expressed to take effect at a later date then it will operate as an agreement to surrender at that date (Weddall v Capes). As this is a protected tenancy an agreement to surrender is void as the 1954 Act required procedure has not been followed (s38A(4), 1954 Act). This means that Pendennis would be able to continue in occupation in June.

Donald should speak to Pendennis and explain that they need to redo the documents. He will need to serve a notice and Pendennis must make a declaration or statutory declaration (if the agreement to surrender will be completed sooner than 14 days after the notice). They should then enter into an agreement for surrender, with the surrender deed to follow on 23 June.

The necessary procedure is followed and the surrender agreement is entered into. The surrender deed is completed on 23 June. However, when Donald visits the site on 24 June, the unit is still occupied. He speaks to the staff members and discovers that they work for a company called Amberley Limited; they produce a valid five year lease from Pendennis, granted in January 2011. Wolvesley Limited does not have any record of this sublease and did not give consent to the grant of it. Donald attempts to speak to his contact at Pendennis but the phones are dead and his emails just bounce back.

Q1 What can Donald do about this subtenant?

Q2 Will Wolvesley have any claim against Pendennis?

Q1 The surrender of a lease does not end a sublease previously granted (Mellor v Watkins) even if the sublease was granted in breach of covenant and the landlord did not know that the subtenant was in occupation at the date of surrender (Parker v Jones).

Wolvesley has now become Amberley’s direct landlord on the terms of the sublease. Wolvesley could apply to the court for an order that the sublease be surrendered, but it’s not clear that this order would be granted, and the process would take some time. As the sublease doesn’t end until January 2016 it is likely that

Wolvesley will need to negotiate a surrender with Amberley, which may be expensive (and Amberley may refuse to leave).

Q2 Depending on the terms of the documentation Wolvesley may be able to sue Pendennis for breach of covenant. This may be the covenant against subletting contained in the lease, though the surrender might well have included a release of all claims in respect of past breaches. If there has been a full release then the surrender agreement will hopefully have included a covenant that vacant possession will be given and that there are no subsisting subleases, in which case this covenant will have been breached. However, the fact that Pendennis seem to have disappeared isn’t very promising.

If there is a full release with no covenant as to vacant possession/subleases there’s not much that Wolvesley can do as against Pendennis – but they may have a claim against whoever drafted the surrender agreement.

Conclusion

Amberley do finally agree to surrender, but Wolvesley has to pay them £10,000. Pendennis are now in compulsory liquidation but in any event, it turns out that Donald decided to just do the surrender agreement himself, to save on solicitors fees, and didn’t think to say anything about subleases. However, he did remember to give a full release in respect of past breaches. Donald is not expecting a bonus this year.

Unit 6: Halton Limited – contracted out, 15 years from 25 March 2006

This is actually three separate buildings but they’ve got a single (contracted out) lease for all of them for 15 years from 25 March 2006. There’s no-one in the two smaller units but the big one is being used as a warehouse by Casper Limited – their sublease ends on 22 March 2021. Just discovered we’ve not actually had any rent from Halton since September (I’ve heard that they may be having some financial trouble) so we should be able to kick them out – and I presume the sublease will just end?

Initial comments

It doesn’t sound like Halton have any desire to remain in the property, so terminating the headlease shouldn’t be an issue, and they may agree to a surrender. Given that they’ve not been paying rent it may be possible to forfeit. Alternatively, if Halton is insolvent, a liquidator may elect to disclaim. We need to find out more about their circumstances and what they want to do.

The subtenant of part may be more problematic:

Surrender: if the headlease is surrendered Casper’s lease will continue and Wolvesley will become direct landlord (Mellor v Watkins).

Forfeiture: if we successfully forfeit the lease, the sublease will also come to an end. However, the subtenant will be able to apply for relief. The terms of the new sublease will be at the discretion of the court, and may include payment of outstanding rent due under the headlease and taking on of headlease equivalent covenants (Cholmeley’s School Highgate v Sewell). The court is able to grant relief in respect of a part only.

Disclaimer: if the tenant successfully disclaims the lease, the sublease ceases to exist (Re AE Realisations) but the subtenant’s interest continues: he has a collection of rights which can be assigned and which constitute good title (Re Thompson and Cottrell's Contract). He can remain in possession for the term of the sublease but if he wishes to do so he must pay the headlease rent and comply with the headlease covenants. There are no provisions to deal with the situation, as here, where he has a sublease of part only; presumably he must pay and comply in respect of the whole of the property. The subtenant has no ongoing obligation under the terms of the sublease as from the date of the disclaimer, so if he wishes to leave the property he is able to so: he has only a right to possession, but no obligation to pay rent or comply with any covenants if he chooses not to continue in occupation.

We’ll need to find out what Casper wants to do.

On further investigation Donald finds out that Halton have just been put into compulsory liquidation. The liquidator decides to disclaim the lease and validly serves notice of disclaimer on Wolvesley and Casper. Donald’s attempts to find out what Casper wish to do aren’t proving very successful.

Q1 What can Donald do to get a decision out of Casper?

Q1 The court has the power to making an order vesting the disclaimed property in Casper and Wolvesley can force the situation by applying for this (s181, Insolvency Act 1986).

The usual order is that the lease vests on the same terms as those affecting the insolvent tenant at the time of winding-up (so the party in which the lease is vested becomes liable for all pre-existing breaches). Exceptionally the court will order that the lease vests on the terms to which the party would have been subject had the lease been assigned at the time of winding up (so no past liability) (s182, Insolvency Act 1986). Casper can ask for a vesting order of a part of a property but this may well be made on the basis that the subtenant is subject to the same obligations as the tenant of a whole (s182(2)): there are no provisions for apportioning rent or for dealing with whether or not the subtenant’s lease is contracted out. If Wolvesley applies for a vesting order and Casper declines, their rights, interest and liability in respect of the property will determine (s182(4)).

Wolvesley decide to apply for a vesting order, as they suspect that Casper will not be willing to take on all of the liabilities. Their suspicions are correct and Casper decides to vacate. As this is one of the two buildings that will remain standing, Donald wants to know if he can claim for dilapidations in respect of disrepair.

Q2 What’s your advice?

The dilapidations claim would primarily be against Halton as direct tenant: however, as the lease has been disclaimed, it will not be possible to pursue this.

Wolvesley will not have a direct claim against Casper under the terms of the sublease, though they may have a claim pursuant to any direct covenant that Casper gave to comply with the covenants contained in the headlease. Any claim that Wolvesley has will be governed by section 18(1) of the Landlord and Tenant Act 1927. This section imposes a “ceiling” on the amount of the damages which can be recovered (being the amount (if any) by which the value of the reversion is diminished by the breach) and also prevents recovery entirely where the works would be rendered valueless because the property will be pulled down or significantly altered. It would be necessary to establish exactly what’s happening with this property (will it in fact be repaired and how much will those repairs cost? Will there be significant alterations that would render the works valueless?) and whether the amount that Kinnersley are prepared to pay for the site will be reduced by this property being in disrepair (this may be relevant evidence – Culworth Estates Ltd v Society of Licensed Victuallers).

Conclusion

On further investigation in turns out that Kinnersley are planning to completely gut and reconstruct the interior of the warehouse unit. There are some repairs required to the exterior structure which would be caught, but it is accepted that the agreed price for the site wouldn’t change if these repairs were carried out. Donald decides not to pursue the dilapidations claim.

Unit 7: Raby Limited – protected tenancy, 10 years from 29 September 2009

(Protected tenancy) 10 years from 29 September 2009. This lot are a nightmare – always paying late and the unit’s a total mess; the roof needs some serious attention and the whole place needs repainting (all their responsibility). We want them out anyway, so were just planning to forfeit and be rid of them.

Initial comments

We need to establish that there is a breach which would allow Wolvesley to forfeit, and that there hasn’t been a waiver of this breach. We also need to consider whether forfeiture is the best option, given that the tenant can apply for relief within six months following the forfeiture. Note that the fact that it’s a protected tenancy doesn’t impact on forfeiture.

It is likely that the lease will contain a clause permitting forfeiture for non-payment of rent and also for other breaches of covenant, but we need to double check this.

You check the lease and it contains standard commercial forfeiture provisions. Donald confirms that they’ve not received any rent since December. The roof is in a very bad condition, causing water damage to the interior of the unit – just under a month ago, before they decided to sell, Donald had actually served a notice of Wolvesley’s intention to go and carry out the repairs themselves, though they didn’t get round to doing so.

Q1 Are Wolvesley able to forfeit? If they are, what would the procedure be?

Q2 Raby goes into administration: can Wolvesley forfeit?

Q3 Donald discovers that there may have been an unlawful assignment of the lease: can Wolvesley forfeit?

Q1 The non-payment of rent was a once and for all breach of the lease which occurred on the March quarter day (25th). This breach was waived by the service of the repairs notice at the end of April (Doe d. Rutzen v Lewis). It won’t be possible to forfeit for non-payment of rent (for which no s146 notice would have been needed).

The lack of repair is a continuing breach. Even though this breach was waived by service of the notice, it occurred again the next day, meaning that it would be possible to forfeit for this. However, the procedure for breach of the repair covenant is more complicated:

A section 146 notice will be required, specifying the breach, requiring that Raby remedy it, giving a reasonable time to remedy it and requiring compensation.

In addition, as the lease was for more than seven years and had more than three years left to run, the notice must comply with the requirements of the Leasehold Property (Repairs) Act 1938 – it must be served on the tenant at least one month prior to issuing proceedings and it must state that the tenant has a right to serve a counter-notice within 28 days. If a counter notice is served the landlord cannot forfeit the lease without leave of the court.

If the breach is not remedied within the reasonable time specified and there has been no waiver of the breach, the landlord can proceed to forfeit the lease by peaceable re-entry or by court proceedings. Peaceable re-entry is much quicker but it is also more risky and care must be taken if using this approach.

Q2 If the tenant is in administration it is not possible to forfeit without the leave of either the court or the administrator. If leave is obtained then it is possible to proceed as above.

Q3 An unlawful assignment will, in itself, almost certainly be an act which gives rise to the right to forfeit. It’s a once and for all breach, but for waiver of the breach to occur the landlord must have knowledge of it (Peyman v Lanjani) so there will not have been a waiver. Note that where there has been an unlawful assignment the forfeiture is as against the unlawful assignee; this means that the section 146 notice and any court proceedings must be served on the unlawful assignee.

Conclusion

It turns out that there was no assignment. The administrators are actually very happy for this lease to be forfeit and give their permission. The lease is forfeit by peaceably re-entering and changing the locks. Donald also obtains written confirmation that no relief from forfeiture will be sought.

Unit 8: Kyme Limited – protected tenancy, 5 years from 29 September 2009

These ones are a real contrast to Unit 7, the perfect tenant! Their lease (protected tenancy) is 5 years from 29 September 2009, so nearly at an end any way. The property was brand new when they took it and still looked perfect last time I was round there, so Kinnersley have decided to move into this and use it as their own offices. They are happy to wait until October to move in.

Though the lease is nearly at an end this is a protected tenancy, so Kyme have a right to a new tenancy.

It’s not clear that there are any grounds on which the landlord would be able to rely in a section 25 notice. This is the “perfect tenant” so no fault grounds ((a), (b) or (c)) will be made out; and there are no subtenancies, so no chance of succeeding on Ground (e). There are no plans to redevelop the unit, so Ground (f) isn’t available.

Ground (g) would apply if Wolvesley were planning to occupy for their own purposes, but because of the five year rule it will not apply to Kinnersley: the landlord can only rely on this ground if his interest was purchased at least five years before the date specified in the section 25 notice (s30(2), 1954 Act).

The only hope of getting them out will be if Ground (d) can be made out: that the Landlord can offer alternative accommodation, on reasonable terms having regard to the current tenancy and suitable to the tenant’s requirements.

Donald has spoken with Kyme’s office manager and it turns out that they are actually planning to upsize and have been negotiating a new lease of larger premises, so they’re happy to go. Their new premises are being let fully equipped and are actually ready now, so it’s agreed that they’ll vacate at the start of June. They return the keys, which Donald accepts. However, when he inspects the property the next day he finds that they’ve left all their office desks and chairs behind, together with numerous bookcases which have been firmly screwed to the walls.

Q1 If Kyme want to come and collect the bookcases are they entitled to do so?

Q2 Can Wolvesley get rid of the furniture that has been left behind?

Q1 The bookcases may be landlord’s fixtures, tenant’s fixtures or chattels – these fall along a spectrum rather than being clearly defined categories. An item affixed to the land in such a way that to remove it would do significant damage to the land or the item is a landlord’s fixture and the tenant has no right to remove it. Tenant’s fixtures are items attached to the land by the tenant for the purposes of its trade or business and which are capable of physical removal without causing substantial damage to the land and without the chattel losing its essential utility as a result of the removal (Webb v Frank Bevis). They may be removed by the tenant during the term but as soon it comes to an end, by whatever means, they belong to the landlord (subject to any contractual agreement to the contrary). Chattels are any items brought onto the land by the tenant which do not amount to fixtures. The bookcases may be either chattels or tenant’s fixtures. If they are chattels then the tenant may collect them after expiry of the lease; if they are fixtures (and assuming that the lease is silent on this) Wolvesley may let Kyme collect them, but they don’t have to agree to this as they now belong to Wolvesley.

Q2 The desks and chairs are chattels. If a tenant leaves chattels on the premises at the end of the term they remain his property and the landlord has certain obligations as an involuntary bailee. An involuntary bailee must not deliberately or recklessly damage or destroy the goods. There may be a lease clause which makes the obligation to remove chattels an express one and this should be checked. If there is not then before he can get rid of them Donald will need to establish that Wilton has abandoned them and must be careful about what he does with them.

It turns out that Kyme has actually been in touch with Kinnersley directly and had agreed that they’d leave all the office furniture behind for them. They’d also agreed that they could come back and collect their bookcases later. Donald is happy with all this, though he would have preferred them to go through him! However, he has now received a call from Kyme’s office manager, asking for a reimbursement of rent from the date they vacated through until 23 June.

Q3 Does Wolvesley need to repay this rent?

Q4 While checking the files, Donald realises that there is an outstanding rent review which was initiated last year but never concluded. Can he do anything about this now?

Q3 No, Wolvesley need not apportion the rent unless this was expressly provided for in the lease (Hill v William Key & Hardware).

Q4 Yes, a rent review may be enforced after the surrender of a lease is respect of a period before the surrender, provided that it was initiated before surrender (Torminster Properties v Green).

Conclusion

Kyme accepts that there will be no repayment of the rent. They also agree to pay the increase pursuant to the rent review; they’d hoped that Donald had forgotten about it and now regret having asked for a reimbursement and reminding him.