In commercial property, a tenant breaches the terms of the lease if they do anything that is expressly forbidden by the agreement, including subletting without authorization or making unauthorised changes. Another breach of a covenant is not making rent payments. In this article, breach of lease covenant, we take a look at the process and mechanism involved.
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What is the nature of the breach?
The tenant will likely have signed numerous covenants at the beginning of the lease, covering topics like use of the space, insurance, maintenance, continuing the business, alterations, rent, other amounts owed, the right to sublet or assign, insolvency, planning, use of the space for unlawful or immoral purposes, and following licencing laws. If it is determined by the landlord that one or more of these covenants have been broken, he must determine if these violations are “once and for all” or “continuing.” The next step for him will be to determine if the violations can be fixed or not.
How can a breach of covenant be enforced?
How a landlord can enforce a restrictive covenant if a tenant violates it are determined by the specifics of the lease as well as the type of breach.
The most popular techniques for enforcement consist of:
Forfeiture
The strongest remedy available to a landlord is forfeiture. It enables them to reclaim ownership of the property and end the lease. Either a court order for forfeiture or a peaceful re-entry can result in the forfeiture of a lease. The right of forfeiture must be specifically stated in the lease and does not occur by default. A right to forfeiture provision is typically seen in business leases.
Even in cases when the lease has a right of forfeiture, some breaches may make that right easily forfeited. The landlord may forgo their forfeiture right if they, even accidentally, treat the contract as ongoing. Therefore, if you are a landlord, it is imperative that you determine the type of violation as soon as you learn about it and hold off on taking any action related to the property until you have consulted with an experienced solicitor.
Serving a statutory Notice in accordance with section 146 of the Law of Property Act 1925 is the initial step in the forfeiture procedure for all breaches, with the exception of non-payment of rent. The Notice shall allow the tenant a reasonable amount of time to repair the breach, if it can be done so. The landlord may continue with forfeiture if the tenant does not correct the violation as soon as it is required.
Seeking professional legal assistance is essential when considering forfeiture. Although it is a powerful treatment, it is easy to get wrong. A claim for wrongful forfeiture may be brought against you if you attempt to forfeit the lease in circumstances that do not support such an action. In the event of unjust forfeiture, the tenant may be entitled to re-entry into the property through an order, as well as trespass damages and the potential for large losses resulting from having to cease operations. Commercial factors are also significant. Is forfeiture your company’s best course of action? Will it be easy for you to rent the space out again after you regain custody of it? Other actions might be more appropriate if there’s a chance you’ll be stuck with empty premises.
Injunction
Covenant breaches are largely prevented via injunctions. An application for injunctive relief will typically be successful unless the covenant is unenforceable. After that, the defendant will always be forbidden from breaching the restrictive covenant. The Court has the authority to order the prohibited action to be undone if it has already been carried out. In order to keep things as they are until the court can properly assess the case during a hearing, interim injunctions are frequently granted.
A breach of an injunction is a grave offence that is punishable by harsh fines and even jail time.
Damages
In certain cases, damages may be granted in addition to or in place of an injunction. The specifics of the case will determine the methodology used by the Court to determine damages. The landlord is required to demonstrate that they have suffered losses as a result of the breach, and the judge will often base damages on those losses. On occasion, though, damages may be determined by taking into account the sum that the landlord may have rightfully charged to remove or alter the restrictive covenant.
Continuing or once and for all breach?
The right to forfeit the lease (i.e., end it early) for a breach is lost if the landlord waives it, thereby accepting it as a one-time occurrence.
Therefore, it is crucial that the landlord says and does nothing that would be interpreted as giving up the right to forfeit in connection with that breach in order to maintain that right.
If a continuing breach is waived it will continue, as will the landlord’s right to forfeit the lease in relation to it.
What are the implications if the breach can or can’t be remedied?
Before providing the tenant with a notice under Section 146 of the Law Property Act 1925 (also known as a Section 146 Notice), the landlord must ascertain whether the tenant has broken any other covenant in the lease, including the obligation to pay rent. In the event that the breach may be remedied, the tenant shall be obliged by the Section 146 Notice to do so within a reasonable amount of time.
It is not necessary to serve a Section 146 Notice in relation to business premises if the breach is for non-payment of rent and the landlord seeks to forfeit for such a breach.
The Section 146 Notice will be void if the landlord refuses the tenant the chance to correct a remedial breach within a reasonable amount of time. As a result, it is likely that any attempts to relinquish the lease or allow the landlord to re-enter the property peacefully will be rejected or subject to legal challenges. In order for a Section 146 Notice to be legitimate and enforceable, it is crucial that it be properly worded.
How we can help
We have a proven track record of helping clients deal with breaches of lease covenants. We will guide you through the process and ensure all checks are carried out swiftly and efficiently and we firmly believe that with the right solicitors by your side, the entire process will seem more manageable and far less daunting.
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How to Contact Our Commercial Property Solicitors
It is important for you to be well informed about the issues and possible implications of a breach of lease covenant. However, expert legal support is crucial in terms of ensuring a positive outcome to your case.
To speak to our Commercial Property solicitors today, simply call us on 0345 901 0445, or click here to make a free enquiry. We are well-known across the country and can assist wherever you are based. We also have offices based in Cheshire and London.
Disclaimer: This article provides general information only and does not constitute legal advice on any individual circumstances.
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