The Law Commission

 


PART V

NOTICE BEFORE ACTION

5.1     The current law, as contained in section 146 of the Law of Property Act 1925, requires the landlord to serve notice on the tenant before proceeding to enforce forfeiture either by proceedings in court or by physical re-entry. The notice must specify the breach complained of, require its remedy (if it is capable of remedy) and require the tenant to compensate the landlord (if compensation is required). This notice procedure does not apply where the landlord intends to forfeit the tenancy for non-payment of rent. Section 146 also has no application to mining leases or on bankruptcy of the tenant.
5.2     The First Report criticised the operation of the current statutory notice procedure.^[1] It is uneven in its application, requiring the service of a notice only where the breach complained of does not comprise non-payment of rent. It forces the landlord to make a difficult tactical decision: whether to require the tenant to remedy the breach (which may or may not be remediable, itself a prickly question of law) when to do so may be unnecessary or futile but which will certainly operate to delay matters as the landlord will then be required to give the tenant a reasonable time to carry out the remedial work.
5.3     The First Report accordingly recommended that there should be no general compulsory notice procedure.^[2] It did however recommend the retention of a compulsory notice procedure, modelled on the scheme provided by the Leasehold Property (Repairs) Act 1938, to deal with repairing covenants.^[3] It also recommended that there should be an optional notice procedure available to landlords at their election where they were content that the tenancy should not be terminated in the event of satisfactory remedial action being taken by the tenant.^[4]
5.4     We do not however believe that it follows from the unsatisfactory nature of the current notice procedure that any notice-based procedure is inherently undesirable. Indeed, in the First Report, it was acknowledged that the majority of consultees to the earlier Working Paper had favoured retention of a general notice requirement on the basis that service of a notice was useful in bringing the parties together and in securing agreement out of court.^[5] In short, it could avoid the taking of legal proceedings in cases where the matter could be disposed of without them.^[6]
5.5     The civil justice reforms have not only emphasised the desirability of encouraging out of court settlement, they have also underlined the importance of free and full exchange of information between the parties to a dispute from the earliest possible time. It is important, where the landlord is seeking to terminate the tenancy, that the landlord tells the tenant at an early stage the basis of the claim and what, if anything, the tenant can do about it. It may be that service of a notice on the tenant detailing breaches of covenant and requesting remedy will spur the tenant into action. If it does not, and the landlord then takes termination order proceedings, the tenant should have no right to complain. But, as the Commission stated clearly in the First Report, legal proceedings should not be started while any hope of agreement remains.^[7]
5.6     In Renting Homes, we argued the case for a requirement that landlords intending to bring possession proceedings in relation to homes which they have rented out should serve notice on the occupiers prior to starting proceedings.^[8] We referred to two key matters: first, the need for clarity- that there must be a clear warning that the home may be lost and that, if appropriate, certain action taken by the occupier may lift the threat; secondly, in view of the lack of legal knowledge of occupiers, that there must be a clear statement that they may be able to challenge the proceedings and they should therefore take legal advice quickly. The notice requirement enables prior warning to be given to the occupier in a clear and effective manner. As a result, we provisionally proposed that landlords should be required to issue a notice warning occupiers of their intention to bring possession proceedings and that this should be a compulsory term in the contract.^[9]
5.7     In the current project we are seeking to formulate an effective scheme which can operate in relation to, principally, commercial tenancies and long residential tenancies. In the latter context, there is a clear analogy to be drawn with the domestic rented housing being considered in Renting Homes. In the former, the need for clarity is also substantial. It is essential that commercial tenants are aware of their rights so that they can respond effectively to attempts by landlords to terminate their tenancies and to recover possession.
5.8     It seems to us that there is now a very strong case for an absolute statutory requirement that the landlord serve notice on the tenant in all cases where he or she intends to bring proceedings to terminate the tenancy. The landlord would be expected to put his or her cards on the table, indicating in clear and unambiguous terms the nature of the tenant default of which complaint is made, and the action which the tenant may reasonably be expected to take by way of remedy in order to resist the landlord's application successfully. The tenant may argue that he or she is not in default as alleged by the landlord, in which case he or she should be able to refer the notice to the court, or, in appropriate circumstances, to alternative dispute resolution. The tenant may do nothing, in which case the landlord will allow the time given to effect the remedial works to elapse and then start termination order proceedings - or, if appropriate, unilaterally recover possession outside the court process. Or the tenant may acknowledge that he or she is in default, and seek to remedy the position, as a result of which it may be that the landlord should not be entitled to terminate the tenancy.
5.9     We now provisionally propose that the statutory scheme for the termination of tenancies for tenant default should commence in all cases with the service of a notice by the landlord on the tenant. This "pre-action notice" would be in prescribed form. It would be required whether the complaint concerned non-payment of rent or any other breach of covenant or any other tenant default. While the landlord would be expected to require the tenant to put right those matters of which complaint is made (including to pay rent which is due), a failure to make such a requirement would not render the notice invalid. The court would however be entitled, in the exercise of its case management powers, to give the tenant further time to pay or to carry out remedial works. As we shall explain further below, following service of the pre-action notice, the tenant will be entitled to refer the notice to the court prior to commencement of proceedings by the landlord and to request the court to make any necessary directions.
5.10     We now consider the detail of the notice scheme.

Date of service

5.11     It is important that the threat of termination order proceedings should not hang over the tenant's head indefinitely.^[10] As we have explained in Part IV, we do not wish to retain the archaic and overly technical doctrine of waiver. We propose therefore to replace this doctrine by a strict time limit whereby the pre-action notice must be served within a relatively short period of the tenant default. We intend to refer to this period as the "default period". The default period will commence with the date on which the landlord has knowledge of the facts which constitute the default. Where the default comprises a breach of covenant which is "continuing" (typically a tenant's repairing covenant), the default period should run from the date on which the breach was last continuing. If the landlord fails to serve a pre-action notice within the default period, the tenant default in question will be considered "spent", and it will not be possible for the landlord to base termination order proceedings upon it.
5.12     The First Report, which rejected the idea of a universal pre-action notice, recommended that termination order proceedings should commence within six months of the "termination order event".^[11] We believe, subject to views of consultees, that six months is a sufficiently long period during which a landlord can reasonably be expected to decide whether to take action in response to the particular instance of tenant default. We therefore propose that the default period should run for six months from the date on which the landlord has knowledge of the facts which comprise tenant default, or, in the case of a continuing breach, for six months from the date on which the breach was last continuing. Consistent with the policy of encouraging parties to negotiate and to come to terms where possible, we propose further that the landlord and tenant should be able to agree an extension of this period. Either party should be free to apply to the court to extend time where no agreement is forthcoming.

Contents of the pre-action notice

5.13     The principal purpose of the pre-action notice would be to inform the tenant of the landlord's intention to terminate the tenancy. The notice would give the tenant the opportunity to contest the allegation that there is tenant default entitling the landlord to commence termination order proceedings and to oppose the landlord's application to terminate the tenancy. On service of the pre-action notice, the tenant will be entitled to apply to court (although the tenant will be expected to take reasonable steps to arrive at a settlement with the landlord outside the court process).
5.14     The notice would be in prescribed form. It would indicate on its face that the landlord must select one of two options. Under Option (A) the landlord would state that if the tenant remedies the default complained of, and pays any reasonable costs incurred, then no further action will be taken. Under Option (B) the landlord would state that whether the default is remedied or not the landlord intends to bring termination order proceedings and seek an absolute termination order from the court.
5.15     The notice would therefore be of two possible kinds. The first four elements of the notice would be the same in each case, but the landlord would have to select which of Option A or Option B is appropriate. It would therefore be necessary for the notice to:

(1) state that tenant default has occurred;

(2) identify those, if any, who hold a derivative interest in the property;^[12]

(3) give particulars of the tenant default;

(4) inform the tenant that the current notice will remain valid until a specified date, after which the landlord will be unable to rely upon it;

(5) either Option (A):

(a) specify the action which is required of the tenant,

(b) require the tenant to take such action,

(c) inform the tenant by what date the landlord expects such action to be taken,

(d) set out the costs incurred by the landlord in the preparation and service of the notice,

(e) state that if the tenant takes the action required by the date specified and pays the landlord's costs, no further action shall be taken by the landlord,

(f) state that if the tenant does not comply with the notice, then the landlord shall seek a termination order from the court, and/or

(g) (if the circumstances are such that the landlord may take unilateral action) state that if the tenant does not comply with the notice, then the landlord intends to recover possession unilaterally without prior order of the court.

(6) or Option (B):

(a) specify the action which is required of the tenant,

(b) require the tenant to take such action,

(c) inform the tenant by what date the landlord expects such action to be taken,

(d) set out the costs incurred by the landlord in the preparation and service of the notice,

(e) state that whether or not the tenant takes the action required by the date specified and pays the landlord's costs, the landlord intends to commence termination order proceedings and to seek an absolute termination order from the court, and/or

(f) (if the circumstances are such that the landlord may take unilateral action) state that whether or not the tenant takes the action required, the landlord intends to recover possession unilaterally without prior order of the court.

5.16     Following service of the pre-action notice, the tenant will be entitled to refer the notice to the court. Although proceedings have not yet been commenced by the landlord, it is important that the court is able to exercise its management powers in such a way as to ensure that the overriding objective (of enabling the court to deal with cases justly) is furthered. The court may be asked to rule upon the contents of the pre-action notice, for instance whether the tenant has been given a reasonable time in which to remedy the default. The court may use this opportunity to encourage the parties to use an alternative dispute resolution procedure or otherwise to help them to settle the case. In extreme cases, the tenant may wish to obtain injunctive relief to prevent the landlord from taking the matter further, in particular invoking the right to recover possession unilaterally.

Date of commencement of proceedings

5.17     It will be essential that the pre-action notice gives a date which is the earliest date on which the landlord may commence termination order proceedings (or take unilateral action). In no cases will this date be less than seven days from the date of the service of the notice. Where the landlord is complaining of non-payment of rent, or where (owing to the seriousness of the breach) the landlord does not ask the tenant to take any remedial action, the landlord can expect to give the tenant that minimum period of time. Where however the landlord is asking the tenant to put right certain breaches of covenant, then the tenant should obviously be given the opportunity to do so. The length of time required by the tenant will depend on the extent of the remedial works being demanded by the landlord. In these cases, the period between the date of service of the pre-action notice and the earliest date for commencement of proceedings should be whatever period is reasonable in the circumstances.

Limited period of validity

5.18     It is important that pre-action notices should have a distinct duration (a "shelf-life"). A landlord can be expected, following service of such a notice, to act upon it or fail to do so at his or her peril- in colloquial terms to "use it or lose it"- as it may be very unfair to a tenant to face proceedings for termination of the tenancy where the landlord has not pursued the matter expeditiously and has given the impression that he or she no longer wishes to terminate the tenancy. We propose that there should be a period of six months from the date of service of the pre-action notice, or from the date by which the tenant has been required to remedy breaches of covenant or to pay the rent arrears, whichever is the later, during which the landlord must bring any proceedings to terminate the tenancy or unilaterally recover possession of the property. If the landlord fails to do either of these things within that period, it will not be possible to take further action on the basis of the pre-action notice.

Remedying breach

5.19     We must explain further the landlord's request that the tenant put right the matters complained of. Under section 146 of the Law of Property Act 1925, the landlord is obliged to require the tenant to remedy the breach if the breach is "capable of remedy". This has led to extensive litigation surrounding the question whether particular breaches of covenant are remediable. It is often to the landlord's advantage not to require remedy, as it will not then be necessary to allow the tenant a reasonable time in which to remedy the breach. Forfeiture can as a result be effected more quickly. The tenant may however contend that the section 146 notice is invalid and that the forfeiture proceedings should be struck out on the basis of the landlord's failure to require the remedy of remediable breaches.
5.20     We do not wish to encourage parties to litigate on such an arid topic as the remediability of the breach. For this reason, we have already proposed that a landlord should not be precluded from seeking a termination order where the consequences of the tenant default have been remedied.^[13] We should emphasise however that it will only be in relatively rare circumstances, where there is a history of tenant default, that the court is likely to grant an absolute termination order in the absence of a current breach which has not been remedied.
5.21     We do not consider that there is necessarily any inconsistency in the landlord requesting the tenant to put right the default in question and, despite the tenant remedying the default, seeking to obtain an absolute termination order from the court. The tenant is bound by the obligations of the tenancy. Whether or not the landlord terminates that tenancy, those obligations remain enforceable as a matter of contract between landlord and tenant.
5.22     We do however consider that fairness to the tenant demands that the landlord makes clear, in the terms of the pre-action notice, the consequences of the tenant's response to the landlord's request. Where the landlord requires the tenant to remedy the default, and is content to let the matter then rest, this should be indicated in the notice. Even more importantly, where the landlord intends to seek an absolute termination order regardless of whether the tenant remedies the default, the tenant must be made fully aware of the fact.
5.23     If the landlord selects Option (A), and serves what we may term a "remedial" notice, the tenant's failure to comply with the landlord's demands may lead the landlord to commence termination order proceedings in which either an absolute termination order or a remedial order is sought. If the landlord selects Option (B), and serves what we may call an "absolute" notice, whether the tenant complies or not the landlord may apply to the court for an absolute termination order. In either case, when it decides which order, if any, to make, the court shall have regard to the conduct of both landlord and tenant in deciding what substantive order to make and in deciding what order for costs is appropriate. Where the landlord has acted precipitately, serving an absolute notice and bringing proceedings despite the tenant's remedying the default, the court would be expected to order that the landlord pay the costs of the litigation.

Example

T is the tenant having been granted a tenancy of commercial premises in 1996 for a fixed term of ten years. In January 2004, L discovers that the rent is two months in arrears and that T has sub-let part of the premises to S in breach of a covenant in the tenancy. Under our proposed scheme, if L wishes to terminate the tenancy, L must first serve a pre-action notice on T (and also on S). This notice must be served by July 2004, that is within six months of L acquiring knowledge of the breaches.

The notice must particularise the tenant default, in this case the exact amount of rent owing, and the grant of the sub-tenancy without obtaining prior consent. L must state what action he or she requires T to take and by what date that action must be taken. L must give at least seven days for the rent to be paid. In so far as L seeks termination of the sub-tenancy, L must give T a "reasonable time"to put right the breach.

Let us say that L serves a pre-action notice on T in March 2004. L informs T that T must pay the rent within seven days, and that T must terminate the sub-tenancy by the end of June 2004. In drafting the pre-action notice L must of course select either Option (A) or Option (B).

If L selects Option (A)- the notice is a "remedial" notice- then payment of the rent (together with reasonable costs) and termination of the sub-tenancy will be the end of the matter. If T fails to pay the rent or terminate the sub-tenancy within the specified time, L will then be able to bring termination order proceedings (or, if the notice has intimated an intention to such effect, to recover possession unilaterally). The court may grant an absolute termination order, or a remedial order giving T more time to pay the rent or to put right the other breach. It may decide to make no order at all.

If L selects Option (B)- the notice is an "absolute" notice- then if T pays the rent and costs and terminates the sub-tenancy L will have to decide whether to carry out his intention to bring termination order proceedings (or, again if the notice permits, to recover possession unilaterally). L will have to satisfy the court that one of the grounds for making an absolute termination order exists (most likely, Case (1)), and failure to do so is likely to result in an order that L pay T's costs of the action.

Notice procedure for repairs

5.24     In the current law, the Leasehold Property (Repairs) Act 1938 imposes additional restrictions on landlords who are seeking to forfeit (or indeed to claim damages) for breach by the tenant of repairing covenants.^[14] The First Report did not seek to question the principles underlying this enactment:

Special considerations should certainly apply to tenants' repairing covenants. Such covenants are frequently broken, at least in comparatively minor respects. Indeed, breaches are almost inevitable because a property will not be repaired until it has fallen out of repair, and the fact that it has fallen out of repair may constitute a breach of the covenant. Such breaches seldom cause harm to the landlord until the tenancy nears its end and there was evidence at the time of the 1938 Act that landlords were buying up reversions and enforcing repairing covenants oppressively as a means of regaining premature possession of property in order to sell it with vacant possession or to use it more profitably.

5.25     The First Report recommended that a new regime should be enacted to supersede both the 1938 Act and section 147 of the Law of Property Act 1925.^[15] Based primarily on the structure of the 1938 Act, it would require a notice to be served by the landlord on the tenant giving full particulars of the disrepair alleged, stating the landlord's intention to seek a termination order and informing the tenant of his or her entitlement to serve a counter-notice claiming the benefit of the statute. Service of a counter-notice by the tenant would then prevent the landlord from proceeding to forfeit without obtaining prior leave of the court which could only be obtained on certain grounds being established. This repairs regime would apply not only to applications for a termination order but also to damages claims against the tenant.^[16]
5.26     In the First Report we recommended that the new regime should not be limited (as is the procedure under the 1938 Act) to tenancies of any particular length.^[17] It was however recommended to retain the existing rule that the repairs regime should only apply if there are three years or more of the tenancy unexpired.^[18]
5.27     We do not intend to set out the detail of the repairs regime, which replicates much of the content of the 1938 Act, in the current Paper.^[19] The proposal for a universal pre-action notice will dovetail neatly with such a regime, as it will be relatively straightforward to include references to the repairs regime within the prescribed form of pre-action notice. In effect, where the landlord is seeking a termination order for breach of a repairing covenant within the ambit of the repairs regime, it will be necessary for the landlord to state in the pre-action notice (in addition to the usual matters):

(1) that the repairs regime applies to this particular breach of covenant;

(2) that the tenant has the right to serve a counter-notice which will prevent the landlord from seeking a termination order without obtaining prior leave of the court.

5.28     In this Part, we are making proposals which are quite radically different from the recommendations contained in Part VIII of the First Report. We propose that there should be a general requirement that the landlord give notice to the tenant before commencing proceedings to terminate the tenancy. There would in consequence be no need for a distinctive compulsory notice procedure for repairs, as it would be possible, and we are proposing, to integrate the current protective legislation into the new statutory scheme. As the pre-action notice would be mandatory in all cases, an optional notice procedure would be otiose. We do not therefore intend to confirm Recommendations (25) to (32) in the First Report.^[20]

summary of provisional proposals in this part

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).

timing of notice

(2) 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).

(3) 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.

contents of notice

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

(5) 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.

(6) 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).

(7) 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.

repairs procedure

(8) 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.

Note 1    First Report, para 8.22 et seq.    [Back]

Note 2    First Report, paras 8.21 - 8.32, Recommendation (26).    [Back]

Note 3    First Report, paras 8.33 - 8.66, Recommendation (27).    [Back]

Note 4    First Report, paras 8.67 - 8.72, Recommendations (28) to (32).    [Back]

Note 5    First Report, para 8.23.    [Back]

Note 6    First Report, para 8.26.    [Back]

Note 7    First Report, para 8.67.    [Back]

Note 8    Law Com Consultation Paper No 162, para 10.8. This provisional proposal has now been accepted: see Law Com No 284, paras 9.6 et seq.    [Back]

Note 9    Ibid, para 10.10.    [Back]

Note 10    First Report, para 8.2.    [Back]

Note 11    First Report, para 8.3, Recommendation (25).    [Back]

Note 12    For the significance of this, see paras 7.1 et seq below.    [Back]

Note 13    Paras 4.20 - 4.24 above, First Report, para 7.13, Recommendation (24).    [Back]

Note 14    See also Law of Property Act 1925, s 147 (internal decorative repairs).    [Back]

Note 15    Recommendation (27).    [Back]

Note 16    Recommendation (28).    [Back]

Note 17    First Report, para 8.52.    [Back]

Note 18    First Report, para 8.53.    [Back]

Note 19    See generally First Report, paras 8.33 - 8.66.    [Back]

Note 20    See Appx A for details.    [Back]