Breaches of covenant should be understood properly before any action
How not to restrict your remedies |
Question I am a landlord of a commercial unit on two floors let for retail use. The letting is on standard terms and five years of the term are left to run. I discovered at the end of July that my tenant has allowed another trader to occupy one of the floors. I have now received an application from the tenant for a licence to underlet. What can I do? Answer If there is a breach of covenant, you may be able to forfeit the lease of the premises and to recover possession subject to the tenant’s right to seek relief against forfeiture. You need to be careful not unintentionally to waive any breach of covenant, which will restrict your options. Even if you cannot forfeit for breach of covenant, you can seek to enforce the lease terms. |
EXPLANATION
First, you need to identify what has actually occurred and whether the tenant is in breach of covenant. Has the tenant parted with possession of part of the premises or is it sharing possession of the unit with the other trader without your consent? In either case, is this a breach of covenant?
If there is a breach of covenant(s), you must decide whether you want to recover possession of the premises or are prepared to permit the arrangement. Your decision is likely to depend upon the identity of the other trader and the nature of its business. If you wish to recover possession, you must not inadvertently waive the right to forfeit. The most common act of waiver is the demand or acceptance of rent, but it can be any act that communicates to the tenant that you are treating the lease as continuing.
The nature of the breach will also affect your options. Breach of a covenant not to part with possession is a one-off breach of covenant and waiver of the breach will mean that you cannot then forfeit the lease. Breach of a covenant not to share possession is a continuing breach and so the right to take action for the breach arises again immediately after any act of waiver.
So, you must decide and take any action to forfeit before you either demand or accept the rent due on 29 September. However, any dealing with the tenant’s application for licence to underlet will also be an act of waiver. Thus, you will need to make your decision speedily, bearing in mind your obligations under the Landlord and Tenant Act 1988 to consent to the application, unless it is reasonable not to do so, within a reasonable time of receiving the completed application. A breach of covenant by the tenant can be a good ground for refusing consent. However, if you decide to forfeit, you will need to serve a section 146 notice immediately.
If you forfeit the lease, the tenant may apply to the court for relief against forfeiture, which is likely to be granted if the tenant remedies the breach and pays the outstanding sums due, including the landlord’s costs.
Even if you waive the right to forfeit in respect of a parting with possession, you are still able to enforce the covenant contained in the lease, so you could seek an injunction to restrain the parting with possession or claim damages.
What constitutes a waiver of covenant? |
Question My recently acquired sublease of commercial premises contains a covenant to comply with covenants in the headlease. The premises include a multi-storey building (erected 10 years ago). The headlease contains a covenant not to build anything other than single-storey buildings on the estate. I wish to erect a further multi-storey building. Other multi-storey buildings have been erected on the estate over the past 50 years. The landlord has taken no action. Is the covenant enforceable and am I in breach? What about my proposed development? Answer The landlord appears to have waived the right to forfeit the sublease and also waived the breach of covenant, given its acquiescence. Further, it appears that the landlord has in fact abandoned the covenant and so it is no longer enforceable. |
EXPLANATION
Existing breaches: If rent has been paid after the erection of the multi-storey building, the landlord will be taken to have waived any right of re-entry that may have arisen when the building was erected, since receipt of rent usually amounts to a waiver.
Although this right may have been waived, a landlord can still pursue its common law right to recover damages for the breach of covenant or seek equitable relief. As for equitable remedies, a landlord’s acquiescence and delay in seeking relief may preclude it from seeking relief because such conduct can amount to a waiver of the breach. Since the multi-storey building was erected 10 years ago, it seems that the breach of covenant has been waived. You may also rely upon the fact that the landlord has acquiesced in the prior breaches when the other multi-storey buildings were erected, particularly given that some of them were erected long ago (assuming that no permission was ever granted).
Proposed development: This principle can extend further and amount to an abandonment or waiver of the covenant. A landlord cannot acquiesce in conduct of which it is unaware and proof of knowledge of the previous breaches would be required.
However, since this covenant applies to the entire estate and multi-storey buildings were erected on it as long as 50 years ago, the landlord is likely to be taken to have abandoned the covenant, which would then be unenforceable. Thus, you may be able to erect a further multi-storey building and not be in breach of covenant. It would be prudent (in the event that there was no agreement that the covenant had been waived) to seek a declaration that this covenant had been waived and is unenforceable. Proceedings would be issued following CPR 8 or, depending on the length of your lease, for discharge of the covenant pursuant to section 84 of the Law of Property Act 1925, on the basis of the above facts.
E-mail your questions to egq&a@enterprisechambers.com and EGQ&A@charlesrussell.co.uk
Louise Clark is a partner at Charles Russell LLP and Shaiba Ilyas is a barrister at Enterprise Chambers
