In the case of a breach of a tenant’s covenant the landlord would be able to look to the current tenant for remedy. They may also be able to look to former tenants and any of their guarantors. This will be dependent on whether the lease is old (i.e. granted before 1 January 1996) or new (i.e. granted from or after that date).
With old leases, the original tenant remains liable for the covenants under the lease for the full term of the lease regardless of the fact they may have assigned it to another tenant. The landlord may be able to sue any intervening tenants on privity of contract if as is common the landlord required each incoming tenant to give a direct covenant to the assignment.
If the lease was granted after 1 January 1996 the original tenant is released from liability for the covenants in the lease as soon as it assigns the lease to another tenant. This is a worse position for the landlord than under an old lease because it means the landlords of new leases cannot always see the original tenant.
To compensate for this loss of control the landlord is allowed to stipulate in advance of the lease any certain circumstances and conditions which must be met before the landlord will give their consent to the assignment. For example, the landlord is allowed to ask for the original tenant and any subsequent tenant to give an authorised guarantee agreement when they assign. An AGA is a promise by the outgoing tenant that it will be liable for any breach of the covenants in the lease by the incoming assignee.
The remedies available depend on what kind of breach has occurred. Generally there is a distinction between breaches of a covenant to pay rent and breaches of other covenants, the most important being the covenant to repair. For non-payment of rent the first thing to check is that there is a covenant to pay in the lease and that the tenant has failed to pay the rent by the due date. If there is a breach there are a number of remedies available to the landlord.
Firstly, non-payment of rent is a debt and so the current tenant or one of the other parties mentioned above can be liable for rent and recovered through the High Court or County Court.
The Commercial Rent and Arrears Recovery (CRAR) permits the landlord to enter the property and seize and sell goods belonging to the current tenant. The remedy applies to commercial premises and there are strict procedural rules relating to its use. The landlord must give seven days’ notice of its intention to enter the premises and must use an enforcement agency to enter the premises to remove goods. CRAR is only available in relation to rent paid for possession and use of premises and at least seven days’ rent must be outstanding. Arrears of other payments such as insurance rent will not be recoverable using CRAR even if they are reserved as rent in the lease.
A landlord could pursue guarantors under a rent deposit. Wherever a tenant under a lease fails to pay the rent the landlord should consider who can be sued. The current tenant who has committed a breach is always a possibility, but they may also have a guarantor and there may be former tenants and their guarantors who may also be liable. The landlord could have required a guarantor if it had reservations about the proposed tenant’s ability to maintain rental payments without financial difficulties. The situation might be more complex where the landlord wants to sue the guarantor of a former tenant. The liability of a guarantor under an old lease is likely to extend through the duration of the lease regardless of an assignment by a guaranteed tenant. With a new lease the guarantor is automatically released from liability on assignment of the lease by the guaranteed tenant and any attempt by the landlord to require the guarantor directly to guarantee the incoming tenant is likely to be void.
Where the landlord intends to pursue a former tenant or the guarantor of a former tenant whether under a new or old lease, the landlord must comply with Section 17 of the Landlord and Tenant (Covenants) Act 1995. The landlord must serve a default notice on any former tenants or their guarantors if the landlord intends to recover a fixed charge from them. The default notice must be served within six months of the current tenant’s breach otherwise the landlord will be unable to claim from the former tenant or their guarantor. Section 17 applies for all leases whenever granted, not just new leases. Landlords may also consider forfeiture. Unlike other remedies for non-payment of rent, forfeiture will bring the lease to an end to enable the landlord to gain vacant possession of the property. To be able to use forfeiture the lease must contain a forfeiture clause.
Once the landlord has established that the tenant is in breach of the covenant to pay rent and has identified who may be liable for the breach, they must decide which remedy or combination of remedies is most likely to produce the correct outcome. It is an important part of your role as a solicitor and so should consider the possibilities when advising landlords on their options.