LAW REFORM

Termination of Tenancies for Tenant Default

The law of forfeiture governs the method by which tenancies may be brought to an end following breach of covenant or a condition of a lease. It is only of relevance to commercial tenancies and long residential leases.  

Short term residential leases are governed by statute. Under the existing law, where a tenant breaches a condition of the lease, the landlord may exercise a right of re-entry, thereby forfeiting the lease. Re-entry may be either physical re-entry or re-entry by service of proceedings for possession based on forfeiture. Where the breach is of a condition other than one relating to payment of rent, the landlord must serve notice before re-entering the property under s.146, Law of Property Act 1925, which must allow the tenant an opportunity to remedy the breach.

The tenancy is brought to an end at the date of re-entry, although the tenant may apply for relief from forfeiture, allowing him to continue in the property if he remedies the breach by repaying the arrears of rent. Where there has been a breach, capable of forfeiting the lease, but the landlord takes no action or continues after the breach to treat the tenant as his tenant, he is deemed to have waived his right to forfeiture. In 2004, the Law Commission published a report called “Termination of Tenancies for Tenant Default” stating their view that the law of forfeiture “is complex, it lacks coherence and it can lead to injustice”.

The Law Commission has now issued a final report and draft Bill, recommending the abolition of the law of forfeiture and the introduction of a new scheme. The new scheme is based on the concept of “tenant default”. Under the scheme, a tenancy could not be terminated on the ground of breach by the tenant of a covenant unless the breach is a “tenant default”, which is defined as a breach by the tenant of a covenant of the tenancy other than an “excepted covenant”. “Excepted covenants” would be - in the case of tenancies created after introduction of the scheme - those which the landlord and tenant agree should so qualify, and - in the case of tenancies pre-dating the scheme - those which would not give rise to a right to forfeiture.

Where the landlord considers there to have been tenant default, he would have to give the tenant an “explanatory statement” stating the consequences of the default. If he intends to take possession of the property, he would have to make a “termination claim”, by serving a tenant default notice within six months of the date of the alleged tenant default. The notice would have to set out the details of the tenant default and could require the tenant to remedy the default within a specified time frame of no less than seven days.

The intention of a default notice is to encourage negotiation between landlord and tenant to avoid court proceedings. In the event that the notice does not avoid proceedings, the landlord would be able to elect to use one of two procedures to end the tenancy: a court-based procedure or a summary termination procedure. Where the court-based procedure is used, the court would have power to make such order as it considers appropriate and proportionate, taking into account a number of specified considerations including the conduct of the parties, the extent to which action to remedy the default can or has been taken and any other remedies that are available.

The draft Bill proposes six orders that may be appropriate, although does not limit the court's powers to those orders: