The Law Commission

 


PART IX

JOINT TENANTS

9.1     Many tenancies are granted to a number of tenants who hold the interest thereby created jointly- as "joint tenants". In this Part we consider the application of our proposals concerning termination of tenancies for tenant default to joint tenancies.

Release of joint tenant during termination order proceedings

9.2     Under the current law, where a tenancy is held by two or more persons as joint tenants, and the landlord proceeds to forfeit the tenancy, they must all apply for relief under section 146(2) of the Law of Property Act 1925.^[1] Where one or more of their number does not apply for relief, relief must be refused. The reason is that the joint tenants are treated, as a matter of law, as "the tenant".
9.3     An important question which we must therefore ask is whether each tenant should have an independent right to oppose the landlord's action, or whether the court should only be able to deny the landlord the right to terminate the tenancy where both, or all, tenants wish the tenancy to continue.
9.4     The landlord may argue that to permit continuation of the tenancy with a smaller number of tenants than originally contemplated would be to transform the nature of the obligations which have been agreed between the parties. In granting the tenancy to two (or more) tenants, the landlord was ensuring that the rent could be recovered, and other covenants enforced, against a specific number of potential defendants, thereby conferring the landlord with greater security for the tenant covenants than would be the case had the grant been to fewer tenants. To allow one, or more, of these parties to have their liability under the tenancy extinguished (at least as far as future breaches of covenant are concerned) would therefore unfairly prejudice the landlord's security. In effect, the landlord would be penalised for bringing termination order proceedings, as the tenant or tenants who now wished to cease to be tenants would be given an opportunity to withdraw which would not otherwise have been available.
9.5     It is true that, had the landlord not sought to terminate the tenancy, the unwilling tenant would not be able to secure a release from liability without the landlord's concurrence, and would remain tenant until the tenancy terminated by effluxion of time. But there is in our view a countervailing argument which is more powerful, and which we expressed as follows in the First Report:

The unwilling tenant has no inherent right to be released from the tenancy, and if the landlord had chosen not to exercise his right of forfeiture the tenant would have remained bound anyway. But it is one thing for him to remain bound at the instance of the landlord, and another for him to remain bound at that of his fellow tenant; and on the whole we think it would be wrong to give the latter a power of this kind.^[2]

9.6     As we went on to explain in that Report^[3], the unfairness that the landlord can, as a consequence of the court order, look in future to fewer defendants for the performance of the obligations may be more apparent than real. It is a risk which the landlord takes at present in granting any joint tenancy, as the number of joint tenants may be reduced by the operation of the doctrine of survivorship should any of the original number die. It would, furthermore, be possible to provide that the court, in deciding whether to sanction the reduction in the number of tenants, should take into account the risk of prejudice to the landlord in the individual circumstances of the case and that the court should be able to require the remaining tenant or tenants to provide further security for compliance with the covenants. This security could take the form of the provision of a guarantor or surety of the obligations of the tenancy.
9.7     The 1994 Bill included express provision to the effect that the outgoing tenant should remain liable in respect of the breaches of obligation committed before he or she ceased to be tenant. That is a wholly conventional application of landlord and tenant law. We should however emphasise that the outgoing tenant should not be liable for breaches of obligation committed subsequent to the date he or she ceases to be tenant. This would be necessary to ensure consistency with statutory incursions to the common law effected since the publication of our earlier work.
9.8     According to the "privity of contract principle", at common law the tenant remained liable under the covenants for the duration of the tenancy even where assignment of that tenancy had taken place and the tenant was no longer entitled to possession. This principle, heavily criticised by the Law Commission in its Report on Privity of Contract and Estate, was statutorily reversed by the Landlord and Tenant (Covenants) Act 1995. It is now the case that, at least with regard to tenancies entered into on or after 1 January 1996, on lawful assignment of premises demised to a tenant, the tenant is thereupon released from the tenant covenants.^[4] We would wish this "clean break" principle to apply in the circumstances we have discussed above.

Example.

A, B and C are joint tenants pursuant to a ten year tenancy granted in 2000. The rent has not been paid for six months, and L serves on the tenants a pre-action notice indicating that he wishes to terminate the tenancy for tenant default. A and B indicate that they intend to oppose these proceedings. C does not, as he is willing to give up possession.

The matter comes before the court. A and B indicate that they can discharge the rent arrears if they are given a short period of time to do so. The court makes a remedial order, adjourning for 28 days on terms that the rent arrears, together with interest and the landlord's costs, be paid in the interim. The court also considers an application by C that he be released from the obligations under the tenancy, conditional on these terms being complied with. If it is satisfied that L will not suffer undue prejudice from such an order, having regard to conditions which the court may impose, the court may make an order releasing C in those circumstances. It would be possible, for example, for the court to require, as a condition of C's release, the provision of a further guarantor of the liabilities of A and B.

If the terms of the remedial order are complied with, the tenancy will continue, A and B being the tenants. C will be liable for breaches of covenant committed before the date the order takes effect, but not for breaches of covenant committed thereafter. If the terms of the remedial order are not complied with, the court will make an absolute termination order.

Derivative interests

9.9     A similar problem may arise in relation to members of the derivative class who wish to apply for relief following termination of the tenancy from which their interest is derived.

Example.

L grants a tenancy to T, who sub-lets to X, Y and Z jointly. L serves a pre-action notice on T as he intends to terminate the tenancy for tenant default. The notice is also served on X, Y and Z. Only X and Y wish to apply for relief.

We believe that in such circumstances, the court should have the power to grant relief to X and Y, possibly by means of an order vesting the tenancy in X and Y, without requiring that Z should also be a party to that tenancy. Again, the court should have discretion to make provision ensuring that L does not suffer prejudice, and a requirement that X and Y provide a satisfactory guarantor of their obligations under the tenancy is something which the court may well consider reasonable.

summary of provisional proposals in this part

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.

jointly held derivative interests

(2) 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.

considerations in making the order

(3) 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.

Note 1    T.M. Fairclough and Sons Ltd v Berliner [1931] 1 Ch 60.    [Back]

Note 2    First Report, para 12.3.    [Back]

Note 3    First Report, para 12.4.    [Back]

Note 4    This provision applies essentially to tenancies granted on or after 1 January 1996, and does not apply to assignments in breach of covenant or by operation of law. There are also circumstances where the tenant may be bound subsequent to assignment as a guarantor pursuant to an “authorised guarantee agreement”.    [Back]