The Law Commission

Regulatory impact

part i: introduction

The scope and extent of this project

part iv: tenant default

1 function of tenant default

(1) Grounds on which the landlord may base an application for a termination order (or recover possession unilaterally of commercial premises) may conveniently be called "tenant default".

2 Breaches of covenant

(1) All breaches of covenant by the tenant should comprise "tenant default" save and in so far as the tenancy expressly stipulates that the particular breach or breaches does not do so.

(2) Although under the present law breaches of covenant are grounds for forfeiture only if they are expressly made so by the inclusion in the tenancy of a "forfeiture clause", no such special provision should be necessary to make them comprise tenant default. But:

(a) This should not apply to tenancies granted before the date on which the implementing legislation comes into force: in such tenancies a breach of covenant should comprise tenant default only if covered by a forfeiture clause.

(b) If a tenancy, though granted after that date, is granted in pursuance of a binding obligation in existence before that date, and the obligation was such that a forfeiture clause was not to be included (or was not to be included in relation to some of the tenant's covenants) then the obligation should be interpreted as requiring the inclusion of an express term excluding the termination order scheme in relation to the tenant's covenants (or some of them as the case may be).

(c) Where an obligation entered into before the date on which the implementing legislation comes into force was such that a forfeiture clause was to be included in a tenancy granted after that date, that requirement should be treated as fulfilled if the tenancy maintains silence on the point, so allowing breaches of covenant to comprise tenant default.

(d) Tenant insolvency of itself shall not comprise tenant default.

3 Disguised breaches of covenant

(1) "Tenant default" should also include all events on the happening of which the tenancy (whether through the inclusion of a condition or limitation or for any other reason) is to cease (whether immediately or after a period) or the landlord is to have the right (whether or not on notice) to apply for a termination order, to forfeit the tenancy or to bring it to an end in any other way or to require its surrender or its assignment to a person nominated or to be nominated by him.

4 Non-payment of rent

(1) Non-payment of rent should comprise "tenant default" without formal demand after 21 days (whether or not there is a dispensing term) - unless the tenancy provides for a period different from 21 days, in which case the different period should apply.

(2) The above proposal should apply whether the tenancy is granted before or after the coming into force of the implementing legislation.

5 Denial of title

(1) In tenancies granted after the implementing legislation comes into force, there should no longer be an implied term to the effect that the tenant should not deny or disclaim the landlord's title; and any such term implied in a tenancy granted before that time should be ineffective. This should not prevent the inclusion of (or render ineffective) any express term to similar effect.

6 Severance of the tenancy

(1) If parts of premises originally held as a whole under a single tenancy have been the subject of separate assignments to different people, a tenant of any one part should be at risk of termination proceedings in respect only of tenant default occurring in relation to that part.

7 Should there be exceptions?

(1) All events falling within the general definition of "tenant default" should attract the court's discretionary powers which correspond with its power to grant relief under the present law. (The existing exceptions to the court's relief-giving powers under section 146(8)-(10) of the Law of Property Act 1925 should have no counterpart in the proposed scheme.)

8 Remedied breaches

(1) Tenant default should generally remain available as a ground for a termination order despite the fact that its consequences may have been remedied. In determining whether to grant a termination order on application by the landlord, the court should be required to take account of the tenant's conduct before and in the course of the proceedings, including whether and to what extent the tenant has remedied the consequences of the tenant default on which the application is based.

9 WAIVER

(1) The doctrine of waiver as such should be abolished. In determining whether to grant a termination order on application by the landlord, the court should be required to take account of the landlord's conduct before and in the course of the proceedings, including whether that conduct has been such as to lead the tenant reasonably to believe that the landlord would not seek termination of the tenancy.

part v: notice before action

10 compulsory pre-action notice

(1) In all cases, the landlord must serve a notice on the tenant prior to commencing termination order proceedings (or unilaterally recovering possession).

11 timing of notice

(1) The pre-action notice must be served within six months of the landlord obtaining knowledge of the tenant default (in the case of a continuing breach of covenant, that being the date on which the breach was last continuing).

(2) Following service of the pre-action notice the tenant may refer it to the court which will be entitled to make such orders as it thinks fit in the exercise of case management.

12 contents of notice

(1) The notice, which must comply with a prescribed form, would particularise the tenant default.

(2) The tenant would be required to put right the default complained of within a time specified. If the default comprised non-payment of rent, that time would be no less than seven days from the date of service of the notice.

(3) The landlord would be required to indicate the effect of the tenant remedying the default complained of. The notice would therefore state either ("Option (A)") that on the default being remedied, and the landlord's reasonable costs being paid, the landlord shall not take termination order proceedings (and/or unilaterally recover possession), or ("Option (B)") that whether or not it is remedied the landlord intends to seek a termination order from the court (and/or unilaterally recover possession).

(4) The notice would also give the date by which action must be taken by the landlord upon it, after which date the notice would cease to be effective.

13 repairs procedure.

(1) Where the tenancy has three years or more unexpired, and the landlord intends to terminate it for breach of a repairing covenant, it will be necessary to state in the pre-action notice that the new repairs regime (modelled on the Leasehold Property (Repairs) Act 1938) applies to the particular breach and to inform the tenant that he or she may serve a counter-notice on the landlord requiring that leave of the court be obtained before a termination order can be sought.

part vi: orders of the court

14 termination order

(1) The landlord's main claim will simply be for "a termination order".

15 effect of absolute termination order

(1) An absolute termination order should have the effect of terminating the tenancy on a date specified in the order.

(2) In general the date so specified should be the date on which the tenant is to give possession of the property let and the order should specifically require him to do so. The court should have power to postpone the date of termination of the tenancy for a period not exceeding six weeks from the date of the hearing.

16 effect of remedial order

(1) A remedial order should have the effect of adjourning the landlord's application for a termination order on terms that the tenant take specified remedial action within a specified time.

(2) When the matter returns to court following the adjournment, the court will then consider whether the tenant has complied with the terms of the remedial order, and, if not, whether to make an absolute termination order.

17 no order

(1) On application by the landlord for a termination order, the court may also decide to make no order.

18 conditions for making an absolute termination order

(1) An absolute termination order should be made if, and only if, one of the following cases is established:

Case 1: the court is satisfied, by reason of the serious character of any tenant default occurring during the tenure of the present tenant, or by reason of its frequency, or by a combination of both factors, that he is so unsatisfactory a tenant that he ought not in all the circumstances to remain tenant of the property; or

Case 2: the court is satisfied that an assignment of the tenancy has been made in order to forestall the making of an absolute order under Case 1 above, that there is a substantial risk of the continuance or recurrence of the state of affairs giving rise to a tenant default on which the proceedings are founded, and that the new tenant ought not in all the circumstances to remain a tenant of the property; or

Case 3: where tenant default on which the proceedings are founded comprises a wrongful assignment, the court is satisfied that no remedial action which it could order would be adequate and satisfactory to the landlord; or

Case 4: the court, though it would wish to make a remedial order, is not satisfied that the tenant is willing, and is likely to be able, to carry out the remedial action which would be required of him.

19 conditions for making a remedial order

(1) If the court does not make an absolute order, it should make a remedial order unless one of the following situations exists:

(i) Remedial action has already been taken.

(ii) Remedial action is impossible or unnecessary.

(iii) Remedial action ought not in all the circumstances to be required.

20 costs

(1) Subject to the specific proposals below, the court should have full discretion as to the award of costs.

(2) If the landlord has not given the tenant time to take full remedial action before the hearing, but the court is satisfied that the tenant has taken such remedial action (if any) as it was in all the circumstances reasonable for him to take, the court should have power to order the landlord to pay the tenant's costs.

(3) If tenant default has occurred, the tenant should be liable to repay any reasonable costs incurred by the landlord in ascertaining the existence and nature of the default and in deciding upon his course of action including the fees of a surveyor, valuer, legal adviser or other expert, and including such costs incurred in the preparation and service of a pre-action notice. But if the tenant serves a counter-notice under the new repairs regime then, notwithstanding any express term of the tenancy, the tenant's liability for such costs should not arise unless the landlord makes an application to proceed and, on such application, the court should have power to nullify or vary such liability.

21 rent and mesne profits

(1) Rent is payable by the tenant until the date of termination of the tenancy.

(2) If the tenant wrongfully retains possession for any period after the date on which the tenancy terminates, he is liable to pay mesne profits during that period. Mesne profits should be calculated by reference to the amount of the rent unless fixed by the court at a higher or lower figure on proof of current value.

part vii: derivative interests

22 effect of termination order

(1) An absolute termination order shall terminate, together with the proceedings tenancy, all interests which derive out of it.

23 who may apply for relief

(1) Members of the derivative class may however apply to the court for relief from the consequences of the termination order.

(2) The derivative class should include sub-tenants, mortgagees and chargees (whether their interests are legal or equitable).

(3) We seek the views of consultees as to whether other persons, in particular those holding an incorporeal hereditament (such an easement) or an option or a right of pre-emption should be included within the derivative class.

24 how claimants can be better informed of the landlord's action

(1) The landlord must serve the pre-action notice on all those persons who are members of the derivative class where

(a) the person's interest would have been revealed by an official search of the register of title or the Land Charges Registry (as the case may be); or

(b) the landlord knows that the person is a member of the derivative class; or

(c) the person had previously notified the landlord that he or she was a member of the derivative class.

(2) A member of the derivative class will therefore be deemed to have given the landlord effective notice of the derivative interest

(a) where it has been registered against the title out of which it derives;

(b) where it has been registered with separate title or in the Land Charges Register; and/or

(c) a member of the derivative class has served written notice on the landlord identifying the interest and stating a address for service.

25 what forms of relief may the court grant

(1) The court may make orders on an application for relief:

(a) preserving the derivative interest in question; or

(b) vesting the proceedings tenancy in the claimant; or

(c) granting a new tenancy to the claimant.

(2) The landlord may seek to preserve all interests deriving out of the tenancy which is being terminated or to preserve a complete branch of interests in relation to a part of the property subject of the tenancy.

(3) We seek the views of consultees as to the appropriate means of dealing with the effect of termination on the mortgagee's equity of redemption and as to the factors to which the court should have regard in deciding what order to make in the exercise of its discretion.

part viii: unilateral recovery of possession

26 right to recover possession unilaterally

(1) A landlord should be entitled to exercise the right to recover possession unilaterally whenever there is tenant default, save in the following circumstances, and subject to the following restrictions.

27 restrictions

(1) It may not be exercised where the tenancy expressly excludes its operation either generally or in respect of any specified form of tenant default.

(2) It may not be exercised unless the landlord could apply to the court for a termination order in the circumstances which have arisen.

(3) It may not be exercised where the tenant is insolvent, even where this is in breach of an express condition as to the solvency of the tenant.

(4) If the tenant default comprises breach of a repairing covenant such as to activate the repairs scheme, or failure to pay a service or administration charge, the relevant regimes pertaining to those circumstances must be complied with.

(5) It may not be exercised in relation to premises in which any person is lawfully residing. Violence must not be used or threatened in exercise of the right. The Protection from Eviction Act 1977 (and the Criminal Law Act 1977, s 6) will apply to its exercise.

(6) It may not be exercised in relation to any tenancy with an unexpired term of more than 25 years.

28 conditions for exercise

(1) The landlord must serve a pre-action notice on the tenant and on any members of the derivative class in the usual form stating expressly that the landlord intends to terminate the tenancy and for that purpose to recover possession of the premises.

29 effect of exercise

(1) Recovery of possession will not itself terminate the tenancy. Following recovery of possession, there will commence a period of one month during which application for relief may be made to the court by the tenant or by any other person entitled to apply.

30 abandoned premises

(1) There will be no special procedure applicable to abandoned premises.

part ix: joint tenants

31 power to order continuation of tenancy with fewer tenants

(1) If a landlord applies for a termination order against a number of joint tenants, one or more of whom is willing to submit to an absolute termination order, the court should have power, on application of the other or others, to make a remedial order (or to make no order) pursuant to which the tenancy shall continue on the basis that the applicant tenant or tenants are the sole remaining tenants and that the outgoing tenant or tenants are released from future liabilities.

32 jointly held derivative interests

(1) If on termination of a tenancy, a derivative interest is held jointly by a number of persons of whom fewer than all apply for relief, the court should have power to grant relief to the applicant or applicants.

33 considerations in making the order

(1) In making these decisions, the court should consider whether unjustifiable prejudice will be caused to the landlord. In either case, the applicants may make proposals (such as the provision of a guarantor or surety) to overcome any such prejudice, and the court may give effect to such proposals in the terms of any order it might make.

part x: tenant insolvency

34 tenant default

(1) Tenant insolvency shall not in itself comprise tenant default entitling the landlord to commence termination order proceedings.

35 unilateral recovery of possession

(1) The landlord may not unilaterally recover possession where the tenant is insolvent.

36 definition

(1) The views of consultees on the appropriate definition of "tenant insolvency" are invited.

part xi: service and administration charges

37 residential tenancies

(1) Where premises are let as a dwelling, a failure to pay a service or administration charge shall not comprise tenant default unless the tenant has admitted that the amount is owing or the court, or tribunal, has made a final determination to that effect.

38 existing provisions

(1) Provisions to this effect can replace in their entirety the provisions restricting forfeiture for non-payment of service or administration charges contained in the Housing Act 1996 and the Commonhold and Leasehold Reform Act 2002.

39 Commercial tenancies

(1) No specific provision is required to regulate the enforceability of service charges in commercial tenancies.