Q&A Landlords faced with premises in disrepair have alternatives to forfeiture
HOW CAN I DEAL WITH MY TENANT’S DISREPAIR? |
Question I am the landlord of commercial premises that are let on a long lease. My tenant is obliged to repair. However, it has not paid the rent for two quarters, and when I recently visited the property I noticed serious signs of disrepair. I have served a schedule of dilapidations, but the tenant has not undertaken the works. I do not want to forfeit the lease, so what other options do I have? Answer You could sue for the rent, serve a bankruptcy petition or distrain. With regard to the repairs, provided that your lease entitles you to do so, you may be able to carry out the works yourself and recover the cost from the tenant. Alternatively, you could obtain an order for specific performance of the tenant’s obligation. |
EXPLANATION
In the current economic climate, many landlords will think twice before forfeiting a lease, especially since a number of other options are available.
Several options
You could sue for the rent arrears, probably in the local county court, and apply for summary judgment at the earliest opportunity.
However, it might be more effective to serve a statutory demand. This is not the same as the issuing of proceedings and need not attract the costs of a claim. You do not have to pay a court fee and the demand can act as wake-up call to the forgetful but not impecunious tenant. If the demand does not lead to prompt payment, you can, 21 days after service, send a bankruptcy or winding-up petition. However, it should be remembered that you do not necessarily want your tenant to enter into an insolvency procedure because you may then be no better off than if you had forfeited the lease.
The service of a statutory demand is advisable only where the sums owing are not in dispute. If the debt is disputed on substantial grounds, the tenant may issue proceedings to set aside the demand or to prevent the service of a winding-up petition. If the tenant is successful, you may have to pay legal costs.
Alternatively, you could try to levy distress, whereby a bailiff seizes your tenant’s goods and you can sell them to clear the arrears. You cannot do this if you have already obtained judgment for the sums due. If you do levy distress, you will be deemed to have affirmed the lease and will lose the right to forfeit for the breaches of covenant existing at the time.
Various restrictions apply to the right to levy distress most importantly, the remedy is not available for residential premises. You will also need to consider the likely value and ownership of the goods at the premises to ascertain whether it is worth using this remedy. However, when it works, distress is quick and effective.
If you are concerned about the tenant’s financial position and would prefer not to take action against it for the time being, you can consider whether any other parties are potentially liable for the arrears. For example, is there a guarantor, a subtenant or a former tenant or a guarantor with continuing liability?
As to the failure to keep in repair, your options may be determined by the lease. It may entitle you to enter the premises, carry out the works and charge them to the tenant. This offers a number of advantages: (i) you are in control of the works and can ensure that they are carried out to your satisfaction; and (ii) you can, to an extent, control the timing of the works and ensure that they are undertaken with reasonable expedition.
You can also recover the cost of the works as a debt, rather than damages. This is the result of the Court of Appeal decision in Jervis v Harris [1996] 10 EG 159 and means that the landlord need not serve any notices under the Leasehold Property (Repairs) Act 1938. (This provision imposes restrictions on landlords that want to take action in respect of disrepair where a lease was granted for seven years or more and has at least three years left to run.) If the tenant then fails to pay the amount due, you can sue or serve a statutory demand. Moreover, there would appear to be no reason why section 18 of the Landlord and Tenant Act 1927 should apply.
The obvious disadvantage of this route is that you have to pay for the repairs in advance. However, you may be more willing to take this risk if other parties, such as a guarantor, are potentially liable for the tenant’s breaches.
Specific performance
Alternatively, you could consider seeking specific performance of the obligation to repair. However, this is equivalent to asking for a mandatory injunction and you will therefore have to show that damages are not an adequate remedy. This ought not to be too difficult if adjoining properties will be affected by the disrepair. However, if the disrepair is only internal and the lease has a long time left to run, it may be difficult to establish that damages (equal to the diminution in the value of the reversion) are not an adequate remedy.
If your lease does contain a Jervis v Harris clause, you are less likely to be able to obtain an order for specific performance because an alternative remedy will be available.
Shanti Mauger is a barrister at Enterprise Chambers and Emma Humphreys is a partner at Charles Russell LLP