The Law Commission

 


PART VI

ORDERS OF THE COURT

6.1     Part IX of the First Report recommended that the court would have jurisdiction to make two types of termination order. An absolute order would operate to terminate the tenancy unconditionally on a date specified in the order. A remedial order would suspend such termination conditionally upon the tenant taking certain action specified in the order and would operate to terminate the tenancy if, and only if, the tenant failed to take such action. It would of course also be open to the court, on hearing the landlord's application, to make neither type of order. In addition, the court would be able to make ancillary orders in favour of the landlord such as requiring the tenant to pay outstanding rent or to meet the costs, not only of the landlord's legal proceedings but also of the investigation and assessment of the tenant default, making orders for the payment of damages, and granting injunctions restraining future breaches of covenant.
6.2     It is essential that we ensure that termination order procedures comply with the spirit of the civil justice reforms, which have made profound changes both to the underlying objectives of the court process and to the manner in which the court should exercise its powers. In this Part we review the recommendations of the First Report in the context of those reforms. We conclude that it is necessary to make important modifications to those recommendations which will in our view have the additional benefit of simplifying the process.

The Civil Procedure Rules

6.3     We have already outlined the underlying philosophy of the civil justice reforms effected by the Civil Procedure Rules.^[1] Part 55 of those Rules, which came into force on 15 October 2001, governs all possession proceedings, that is all claims for the recovery of land including buildings and parts of buildings. Claims by tenants for relief from forfeiture must also be brought under that Part.
6.4     Possession proceedings, including tenants' claims for relief, must normally be started in the county court for the district in which the land is situated.^[2] This reflects the principle of proportionality. It should also be noted that, while no proceedings should be allocated to the small claims track unless all parties agree, the court may direct that possession proceedings may be allocated to the fast track even though the value of the property is in excess of £15,000. The Practice Direction expressly states that the financial value of the property will not necessarily be the most important factor in deciding the track for a possession claim.^[3] We would anticipate that most termination order proceedings, save the most complex, can be dealt with in the fast track.
6.5     Proceedings for a termination order are not, strictly speaking, possession proceedings. The termination of the tenancy, by order of the court, does not in itself require that possession be given up to the landlord. We do not however consider that this factor seriously detracts from the desirability of dealing with termination order proceedings under Part 55. While it will be a matter for the Civil Procedure Rule Committee in due course, we would envisage that such proceedings should (as tenants' claims for relief are currently) be dealt with under that Part.

Termination orders

Absolute termination orders

6.6     An absolute termination order is intended to reflect the view of the court that the tenancy should terminate without any further chances being given to the tenant.^[4] As we shall explain, the power of the court to make an absolute termination order will be limited by statute.
6.7     An absolute order would terminate the tenancy on a future date specified in the order of the court. On that date the tenancy will terminate and the landlord will usually become entitled to possession of the property.^[5]
6.8     It is essential, in our view, that the order of the court is clear. If its effect is that the landlord is entitled to recover possession then it should say so. We therefore propose that the court should distinguish between an order terminating the tenancy and an order granting possession to the landlord and that where necessary the court should make two orders concurrently:

(1) an order terminating the tenancy with effect from a specified date; and

(2) an order that the tenant deliver up possession on that same date.

6.9     The First Report recommended that the court should be empowered to allow the tenant to remain in possession for a limited period after the date of the hearing although an absolute termination order has been made.^[6] This period we referred to as the "respite period". The respite period is therefore the period commencing with the date on which the order is made, and ending on the date on which the order takes effect. On the latter date, the tenancy will terminate and the tenant will be required to deliver up possession.
6.10     We seek the views of consultees on the appropriate length of the respite period. Section 138(3) of the County Courts Act 1984 provides that where a landlord enforces a right of re-entry or forfeiture for non-payment of rent the court shall order possession to be given to the landlord at the end of a period not less than four weeks from the date of the order. There is no maximum length of postponement. We provisionally propose that the court on being satisfied that it should make an absolute termination order should be empowered to postpone the termination of the tenancy for a period not exceeding six weeks from the date of the hearing.
6.11     The First Report recommended that the court should have power, on the landlord's application, to specify different terms on which the tenant is to hold the property during the respite period, in particular that the rent should be payable at a higher rate to accord with the current rental value of the property.^[7] We now feel that this may create unnecessary complexity. The straightforward logic of the scheme is that the tenancy continues, and the obligations owed by landlord and tenant pursuant to the tenancy continue, until its termination takes effect. It now seems to us to defy this logic to allow the landlord to claim a higher rent than that contractually agreed at a time when that contract is still extant and dictating the respective rights and obligations of landlord and tenant. Where an absolute termination order is made, the respite period should be short, recognising the acceptance by the court that the tenant is so unsatisfactory a tenant that an absolute order requires to be made.^[8] In such circumstances, it would seem unnecessary and undesirable to complicate matters and to increase the liabilities of the tenant whose days are numbered anyway.
6.12     An absolute termination order could also be combined with ancillary orders in relation to the tenant default such as orders for the payment of rent or costs, for damages for breach of covenant, or injunctions restraining breach of covenant.^[9]

Remedial orders

6.13     Where, following application of the statutory guidelines, the view is taken that the tenant should be given the opportunity to preserve the tenancy by taking specified remedial action, the appropriate order recommended in the First Report was a remedial termination order.^[10] Such an order would, as its name implies, have the effect of ending the tenancy if, but only if, the specified action was not taken within a specified time. The First Report considered at some length the types of action which could be specified, and recommended that remedial action should specifically include making a payment to the landlord (or any other person), ending the state of affairs which comprised the breach of covenant, rectifying the consequences of a breach of covenant, assigning the tenancy following tenant insolvency, re-assigning the tenancy where it had been assigned in breach of covenant, and finding an acceptable surety.^[11] This list was not intended to be comprehensive.
6.14     The mechanics of the remedial termination order would involve the court specifying the date on which the tenancy is to terminate if the remedial action has not been taken. Save in those cases where the tenant had statutory security, the court would make a possession order to take effect on that date in those circumstances.^[12]
6.15     In recent years, the courts have experienced difficulties arising from the analogous jurisdiction to make suspended possession orders in response to residential tenants' rent arrears. It is not the point of principle, that landlords may use proceedings for recovery of possession as a heavyhanded means of debt collection, which concerns us here.^[13] It is the problem that suspension of the court order leaves the parties in a state of uncertainty which the expiry of the period specified for any remedial action does not necessarily dissipate. The parties may not accept that the tenant has- or has not, as the case may be- complied with the terms of the suspension, with the result that the landlord may consider that the tenancy has now terminated whereas the tenant takes a diametrically opposed view.
6.16     In his final Report on Access to Justice,^[14] Lord Woolf highlighted the illogicality of the court process being centred on a hearing which produces a suspended order and which is followed by very little further examination of whether that order is subsequently complied with. The effect of non-compliance, however trivial, is that the tenancy is immediately terminated, converting the occupier into a trespasser, albeit pending actual eviction a "tolerated trespasser".^[15] This status has been acknowledged by the courts to be unsatisfactory.^[16]
6.17     The analogy between suspended possession orders and remedial termination orders is not by any means perfect. As we have sought to emphasise, a termination order, whether absolute or remedial, does not in itself confer on the claimant the right to recover possession of the property. Remedial termination orders may make more demanding, and complicated, requirements of the tenant than to pay rent. In essence, however, the notion is that the tenant is being given the opportunity to preserve his or her existing rights provided that he or she complies with the demands made by the court. In the event of non-compliance, without any further reference back to court, the status of the tenant changes.
6.18     We have explained at some length the difficulties which are caused under the current law as a result of the application of the doctrine of re-entry whereby the tenancy terminates immediately the landlord commences forfeiture proceedings or carries out physical re-entry. The law adopts an artificial view of the parties' relationship: while to all outward appearances the tenant is continuing in possession as tenant of the property, as a matter of law, the tenancy has terminated and the tenant is a trespasser. We do not wish, at the same time as we are reforming the law so as to remove one artificiality, to introduce or to perpetuate another, in this case the subtle transformation of the tenant into trespasser on a failure to comply with the terms of a remedial order.
6.19     We have therefore given this matter further consideration. We feel that the recommendations for remedial termination orders are likely to produce uncertainty where clarity is required. Therefore, we are now making revised provisional proposals to deal with the situation where the landlord has proved tenant default but in accordance with the statutory guidelines the court decides that the tenant should be given the opportunity to preserve the tenancy by carrying out action specified in the order. We invite the views of consultees on these provisional proposals.
6.20     We now provisionally propose that the court should make a remedial order clearly setting out the action which is required of the tenant and the date by which that action must be taken. The order will state that a failure to comply with the terms of the order will result in an absolute termination order being made. The order will give a date on which the matter is to return to the court so that it can be considered whether the tenant has complied with the terms. On that date the court will decide whether to make an absolute order, and, if appropriate, whether to make an order for possession. No order for possession will be made at the same time as a remedial order.
6.21     The procedural details of this process we should leave to the CPR Committee. We would hope, however, that the court may be able to deal with the grant of a remedial order by means of a paper application, at least where the tenant admits being in default and accepts the remedial action which is being required by the landlord. We are firmly of the view that the number of hearings should be kept to a minimum, and where the landlord realises that the court is unlikely to make an absolute order he or she should expressly seek a remedial order. The occasion for a hearing would be at the moment when the landlord argues that the tenant has failed to carry out the action required and that the tenancy should accordingly be terminated. That is also the time when the court should make any order for possession.

Guidelines for the court's decision

6.22     The First Report recommended that an absolute termination order should be made by the court in four "Cases", of which the first was the most important and the others were subsidiary.^[17]
6.23     Case 1 concentrated on the conduct of the current tenant. The court would be required to make an absolute termination order:^[18]

Where 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 their frequency, or by a combination of both factors, that he is so unsatisfactory a tenant that he ought not in all the circumstances remain tenant of the property.

6.24     We endorse this recommendation. As we emphasised in the First Report, the test is intended to require the court to look to the future rather than the past.^[19] It is not the function of the court to punish the tenant for the breaches of covenant which have been committed by depriving him or her of the tenancy, but to give such protection to the landlord as may be necessary or just having regard to all the circumstances. It is therefore not intended to be the case that certain breaches of covenant will be assumed to debar the tenant without more from the possibility of continuing as tenant. The doctrine of "stigma", whereby certain breaches are deemed to cast such a shadow over the property which can be removed only by forfeiture of the tenancy, is too blunt an instrument and can lead to unjust results.^[20] Under the test which we propose the court would be required to consider every case on its own merits.
6.25     There will therefore be cases where a single serious breach by the tenant will result in the making of a termination order, and there will be others where a series of persistent, albeit less grave, breaches will have the same effect. The focus will shift away from the breach or breaches themselves onto the likely future conduct of the tenant, and the court will be required to ask the question whether, in all the circumstances, this tenant ought to remain the tenant of the property. As we have already mentioned above, we consider that in answering this question it would be appropriate to consider not only the conduct of the tenant but also the conduct of the landlord. For example, where the landlord has led the tenant to believe that the commission of a particular breach should not result in the termination of the tenancy, then the court may consider that the tenant should remain tenant. That, in our view, enables the court to adopt a more flexible, and less mechanistic, approach on the merits to circumstances which have to date been dealt with by resort to the doctrine of waiver.
6.26     We do however wish to emphasise the importance to landlords that any statutory scheme makes it very clear that once certain conditions are satisfied, then a termination order must be made. If, therefore, the judge decides, taking account of all the circumstances including the conduct of the parties throughout the duration of their commercial relationship, that the tenant is so unsatisfactory a tenant that he ought not remain tenant of the property, then an absolute termination order must be made. There will be no discretion exercisable by the court at that stage save in respect of stipulating the date when termination is to occur and when possession is to be recovered by the landlord.
6.27     Case 2 and Case 1 are interdependent:^[21]

(2) Where 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, that there is a substantial risk of the continuance or recurrence of the state of affairs giving rise to the [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.

6.28     In these circumstances, the tenant in default is no longer in possession. If the landlord could only rely upon Case 1, which requires action to be taken against the defaulting tenant, an assignment would frustrate the landlord's attempts to terminate the tenancy. If, therefore, the landlord can show that the assignment was made in order to forestall termination pursuant to Case 1, and also that the new tenant ought not to remain a tenant of the property, then the court must make an absolute termination order.
6.29     Case 3 as presented in the First Report requires some modification.

(3) Where [the tenant default] on which the proceedings are founded is a wrongful assignment, or is an insolvency event, and the court is satisfied that no remedial action which it could order would be adequate and satisfactory to the landlord.

6.30     The problem is the reference to an insolvency event. We are now proposing that tenant insolvency should not without more give rise to the right to terminate. It would not therefore be appropriate for tenant insolvency to form an integral part of the termination process. We therefore propose that Case (3) should only be activated where the tenant has carried out an unlawful assignment.
6.31     Case 4 is more wide-ranging. It deals with the situation where a breach or breaches of covenant clearly require to be remedied, but the tenant is unwilling, or unable, to effect the remedy in question:

(4) Where a 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.

6.32     If the court is not satisfied that any of the four cases have been proved to its satisfaction, only then is it entitled to make a remedial order. It will be required to make such an order unless:^[22]

(1) Remedial action has already been taken.

(2) Remedial action is impossible or unnecessary.

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

6.33     Where one or more of these circumstances apply, the court would make no order. It is likely that the landlord would be required to pay the costs of the application, although this would be a matter for the discretion of the court exercisable under CPR Rule 44.

Ancillary claims

Costs incurred in relation to tenant default

6.34     Under the current law, a landlord is entitled to recover from the tenant as a debt "all reasonable costs and expenses properly incurred by the lessor in the employment of a solicitor and surveyor or valuer" even though relief is granted or the breach is waived at the tenant's request.^[23] The First Report recommended that such costs should continue to be recoverable where a "termination order event" has occurred, with an exception being made in relation to the regime governing enforcement of covenants to repair.^[24]
6.35     We support these recommendations, with necessary amendments to deal with the amendments we propose to the scheme as a whole,^[25] and therefore propose that the tenant should be liable to repay any reasonable costs incurred by the landlord in ascertaining the existence and nature of the tenant default and in deciding upon his or her course of action. These costs would include the costs incurred in the preparation of the pre-action notice and the fees of any surveyor, valuer, legal adviser or other expert. If, however, the tenant serves a counter-notice under the 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.^[26]

Rent

6.36     The First Report highlighted a problem caused by the current law being based on "re-entry". As the tenancy terminates (by forfeiture) as soon as the landlord commences proceedings, in almost all cases there will be a period during which the (former) tenant is in possession following termination of the tenancy. During that period, the former tenant is not liable for rent, and if the landlord claims rent the right to re-enter will be waived. The landlord is however entitled to be compensated for being kept out of his or her property, the appropriate recompense being in the form of "mesne profits".^[27]
6.37     Under our proposals, the tenancy will continue unless and until the court orders that it should terminate with effect from a certain future date. This has the beneficial effect that there is no need to make a somewhat artificial claim for mesne profits. It is necessary, however, to protect the landlord's interests by providing that the court should make an order for payment of the rent up to and until the date the termination order takes effect.^[28]

Mesne profits

6.38     In most cases, the effect of termination of the tenancy will be that the tenant has no further right to possession of the premises. Indeed, the court will have made a possession order taking effect on the same date. If the tenant fails to deliver up possession as ordered, he or she will become a trespasser, and liable to compensate the landlord accordingly. In these circumstances mesne profits will be payable.
6.39     Mesne profits are based on the current rental value of the land.^[29] This can be most effectively calculated by reference to the rent being paid under the tenancy which has been terminated, and we support the recommendation in the First Report that this should be presumed by the court.^[30]
6.40     It should however be open to the landlord to argue that the rent payable under the tenancy which has been terminated does not fairly represent the true rental value of the land. It may be that as a result of inflation market values have increased significantly since the tenancy was granted or the rent was last reviewed. It may be that the tenancy was not at a rack rent: it was perhaps a long tenancy granted at a premium and with a low rent. In such circumstances it would not be fair to the landlord to assess mesne profits by reference to the rent payable under the old tenancy. If, therefore, the landlord can show that the current rental value is higher than that rent, then the landlord will be entitled to claim the higher sum as mesne profits.
6.41     The First Report did not contemplate the position where the current rental value of the premises is less than the sum payable under the old tenancy. In such circumstances, the former tenant who has failed to deliver up possession is only liable to pay (as mesne profits) the current rental value of the property. The question therefore arises whether it should be open to that tenant to argue that the amount payable to the landlord should be correspondingly reduced. In our view, it should follow that where the rental value of the property is lower than the rent payable under the terminated tenancy (and it will be for the tenant to prove this), the amount payable to the landlord should be calculated with reference to that value.

Damages, injunctions and other relief

6.42     We accept that the court should have power in termination order proceedings to make ancillary orders granting other relief such as damages and injunctions.^[31]

summary of provisional proposals in this part

termination order

(1) The landlord's main claim will simply be for "a termination order".^[32]

effect of absolute termination order

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

(3) 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.

effect of remedial order

(4) 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.^[33]

(5) 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.

no order

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

conditions for making an absolute termination order

(7) 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.^[34]

conditions for making a remedial order

(8) 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.^[35]

costs

(9) Subject to the specific proposals below, the court should have full discretion as to the award of costs.^[36]

(10) 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.

(11) 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.^[37]

rent and mesne profits

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

(13) 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.^[38]

Note 1    See Part 1, paras 1.27 et seq.    [Back]

Note 2    CPR 55.3(1). Claims may be started in the High Court where r 55.3(2) applies or an enactment provides otherwise. CPR PD 55.3, para 1.3, indicates three circumstances which may justify a claim being started in the High Court: (1) there are complicated disputes of fact; (2) there are points of law of general public importance; or (3) the claim is against trespassers and there is a substantial risk of public disturbance or of serious harm to persons or property which properly require immediate determination.    [Back]

Note 3    CPR PD 55.9, para 6.1.    [Back]

Note 4    First Report, para 9.15, Recommendation (40).    [Back]

Note 5    The most important instance where the landlord will not be entitled to possession following termination of the tenancy will be where possession of the property has been granted to some person other than the defendant tenant (for example a sub-tenant). There may also be circumstances where the tenant is entitled to continue in possession pursuant to some statutory right.     [Back]

Note 6    First Report, paras 9.16 to 9.18, Recommendation (41).    [Back]

Note 7    First Report, para 9.18, Recommendation (41).    [Back]

Note 8    See further paras 6.22 et seq below.    [Back]

Note 9    First Report, para 9.20, Recommendation (42).    [Back]

Note 10    First Report, para 9.21, Recommendation (43).    [Back]

Note 11    First Report, para 9.23, Recommendation (44).    [Back]

Note 12    First Report, para 9.25, which concludes “Normally the date so fixed will be the date by which it is reasonable for the tenant to have completed the remedial action, but the court should have power to fix a later date if it wished to let the tenant retain possession for a further period by way of respite.” See also Recommendation (45).    [Back]

Note 13    See Law Com Consultation Paper No 162, para 12.33 et seq.    [Back]

Note 14    Ch 16, para 20 et seq.    [Back]

Note 15    Thompson v Elmbridge DC (1987) 19 HLR 526.    [Back]

Note 16    For an excellent analysis of the problems generated, see Susan Bright, The Concept of the Tolerated Trespasser (2003) 119 LQR 495.    [Back]

Note 17    First Report, para 9.33.    [Back]

Note 18    First Report, para 9.34, Recommendation (51)(1).    [Back]

Note 19    First Report, para 9.38.    [Back]

Note 20    First Report, para 9.39.    [Back]

Note 21    First Report, paras 9.41 - 9.50, Recommendation (51)(2)-(4).    [Back]

Note 22    First Report, para 9.51, Recommendation (53).    [Back]

Note 23    Law of Property Act 1925, s 146(3).    [Back]

Note 24    First Report, paras 9.3 - 9.10, Recommendation (35).    [Back]

Note 25    References to “tenant default” would replace those relating to “termination order events”. The proposed requirement of a mandatory pre-action notice in every case must also be catered for.    [Back]

Note 26    On such application, the court should have power to nullify or vary such liability: First Report, para 9.9.    [Back]

Note 27    In Dean & Chapter of the Cathedral of Christ Canterbury v Whitbread plc [1995] 1 EGLR 82, Judge Roger Cooke, sitting as a judge of the High Court, distinguishes between mesne profits and damages for use and occupation on the basis that the former are payable where the holding is “trespassatory”, and the latter where it is “consensual”. It is however a distinction without a difference, the measure of damages being the same: see Woodfall’s Law of Landlord and Tenant, vol 1, para 10.017. In this Paper, we use the term “mesne profits”.    [Back]

Note 28    First Report, paras 9.11- 9.12, Recommendation (36).    [Back]

Note 29    Swordheath Properties Ltd v Tabet [1979] 1 WLR 285.    [Back]

Note 30    First Report, para 9.12, Recommendation (37).    [Back]

Note 31   First Report, paras 9.13 - 9.14, Recommendation (38). See Law of Property Act 1925, s 146(2) for current statutory power.    [Back]

Note 32   First Report, para 9.2.    [Back]

Note 33   First Report, para 9.21; cl 4(3) and (4).    [Back]

Note 34   First Report, paras 9.33-9.49; cls 13, 14 and 15(1).    [Back]

Note 35   First Report, para. 9.51; cl 15(1)-(3).    [Back]

Note 36   First Report, para 9.52.    [Back]

Note 37   First Report, para 9.9; and see paras 9.4-9.10; cls 22 and 47(1).    [Back]

Note 38   First Report, para 9.12(b); cl 18(3) and (4).     [Back]