Problems Arising between Tenants and Landlords - Coursework Example

There are many cases when problem arises between tenants and landlords. This includes defaulting from rent and other dues as well as noncompliance tothe agreements stipulated in the contract of lease between two parties. However, both parties are protected by the statutory laws in case one of them defaulted from their dues. The Landlord and Tenant Act (LTA) 1954 discusses the rights of both the tenant and the landlord and their responsibilities when contracting a lease. Question 1 The first floor was leased to Spotted Dice Limited in 2009 on a FRI basis for a term of ten years. The tenant has defaulted on this quarters rent (due on 25 March 2015) as well as defaulting on its service charge and insurance contributions which were also reserved as rent. What remedies are available to you and explain any procedural steps you would have to follow in respect of those remedies? Tenant default is defined as the breach of agreement of the tenancy contract (The Law Commission, 2006). Spotted Dice Limited has breached the agreement with Lansbury Towers when the former defaulted with the rent payment, service charge, and insurance contributions. It is very important that the Landlord will carefully consider the action needed. In order for this to happen, the landlord should assess whether the default made by the tenant is just temporary or the tenant wants to terminate the lease (Green 2012). Without commencing any court proceedings, there are different remedies available to the management of Lansbury Towers where the tenant Spotted Dice Limited is in default such as forfeiture, levying distress, recovery as a debt, recovery from third parties, negotiations, surrender and reduction of rent (Cass 2013). 1. Forfeiture Most of the lease contract contains a clause that will entitle the landlord to forfeit the lease in case of default. This remedy is considered one of the fastest, simplest and cheapest which will only require locks and notice to the premise (Cass 2013). “The right of landlord to forfeit arises: where there has been a breach of condition in the lease; or where there has been a breach of any covenant, so long as the lease itself contains an express right to forfeit in that event (Lexology 2007).” However, under Section 146 of the Law of Property Act of 1925, the landlord’s right to forfeit in respect to tenant’s default and breach of contract will not be enforceable unless a notice containing the following is served on the tenant: specifies the particular breach complained of; requires the tenant to remedy the breach (if it is capable of remedy); requires the tenant to make compensation in money for the breach (Lexology 2007). 2. Levying distress The Commercial Rent Arrears Recovery (CRAR) provides the new process for landlords of commercial premises such as Lansbury Towers to recover tenant’s default by taking control of tenant’s goods. There should be no residential element and CRAR requires lease of commercial premises and recovery for principal rent for it to apply. This remedy is very handy as it only requires transparency of process through a notice given to tenants (Hirst 2014). This form of remedy has been discussed in Fuller v Happy Shopper Markets Ltd [2001] 25 EG 159. 3. Recovery of debt Default can be sued or demanded by the landlord though insolvency procedures (Cass 2013). Landlords can also demand for additional charges for late commercial payment on top of claiming interest according to Late Payment legislation such as Late Payments of Commercial Debts (Interest) Act 1998, the Late Payment of Commercial Debts Regulations 2002 and the Late Payment of Commercial Debts Regulations 2013. The amount charged will depend on the amount of debt by the tenant. 4. Recovery from third parties Some contracts require a third party such as guarantor or administrator. In case of default on paying rent, the third party may be obliged to pay for the balance or the rent going forward ( Cass 2013). The landlord should serve a statutory notice within six (6) months before the payment is due. 5. Negotiations, surrender and reduction of rent One of the most common instances whenever there is case of default of rent by the tenants, the tenants inform the landlord for negotiation. Both parties can negotiate and enter into agreement as to what will be done regarding the current default. The parties can negotiate a reduction of rent or stipulate another term of lease. Whatever the parties agreed, it is important that they will carefully decide on what actions to take to save costs and time. Question 2: The ground floor is let to Pears Limited (Pears) also for a term of ten years commencing on the 14th May 2010. The lease includes a break clause which means the tenant can terminate the lease on the 13th May 2015 (Break Date) on giving not less than six months written notice to the Landlord before the Break Date as long as the tenant gives vacant possession of the premises and the tenant is not in breach of any of its tenant covenants. The lease is not contracted out of Part II of the Landlord & Tenant Act 1954. Your surveyor has noticed permanent stains on the floor coverings and peeling paint from the internal walls. The Schedule of Condition shows the premises in perfect condition at the grant of the lease to the tenant. “A break clause is a provision in a lease which enables either the landlord or the tenant, or both, to end the lease early (Pinsent Masons n.d.).” This can be exercised on a fixed date during the term of lease. Break clauses protect and benefit tenants who want to lease for a long term but ensure contract can be flexible to deal with the uncertain future. In section 24 of the Landlord and Tenant Act of 1954, the following are provided: A tenancy to which this Part of this Act applies shall not come to an end unless terminated in accordance with the provisions of this Part of this Act; and, subject to the provisions of section 29 of this Act, the tenant under such a tenancy may apply to the court for a new tenancy— (a)if the landlord has given notice under section 25 of this Act to terminate the tenancy, or (b)if the tenant has made a request for a new tenancy in accordance with section 26 of this Act (Landlord and Tenant Act of 1954 S 24).” Section 29 of the Landlord and Tenant Act 1954 provides that: (1) “on an application under subsection of section twenty-four of this Act for a new tenancy the court shall make an order for the grant of a tenancy comprising such property, at such rent and on such other terms, as are hereinafter provided. (2)Where such an application is made in consequence of a notice given by the landlord under section twenty-five of this Act, it shall not be entertained unless the tenant has duly notified the landlord that he will not be willing at the date of termination to give up possession of the property comprised in the tenancy. (3)No application under subsection (1) of section twenty-four of this Act shall be entertained unless it is made not less than two nor more than four months after the giving of the landlord’s notice under section twenty-five of this Act or, as the case may be, after the making of the tenant’s request for a new tenancy.” The contract between Pears and the landlord was not contracted out of Part II of the Landlord and Tenant Act 1954. Therefore, the tenancy agreement between the two shall not be terminated unless provided in the Landlord and Tenant Act 1954. In this protected tenancy, the tenant can exercise his right for break through break notice that will serve to terminate both the contract of lease and tenancy (Thomas 2014). On the other hand, the landlord’s break clause in a protected tenancy agreement allows him to end the lease contract earlier than the stipulated date, given that he is able to comply with the requirements of section 25. The break clause in the contract entered by Pears and the landlord allows the former to terminate the tenancy providing that the tenant vacate the premises and did not breach any of the agreements. The Schedule of Condition also confirms that the vacated premise is in perfect condition when the lease was granted to the tenant. However, in this case, as the report of the surveyor provides, there are permanent stains on floor coverings and peeling paint from the internal walls. Tenancy agreements need to be “materially” or “substantially” or “reasonably” complied with tenants in order to proceed with the termination of lease prior to the term of lease. Reasonable, material and substantial compliance with the tenancy agreements is less tedious than complying with the requirements which relate to the state and condition of the property (Pinsent Masons n.d.). Since Pears is facing financial difficulties, it is advisable that the company will exercise it break right and terminate tenancy with the landlord. It is important that Pears will carry the compliance audit with the surveyor to avoid breaches with break clauses and to work on the remedy of the breaches. Pears should ask the landlord to schedule the repair of the premises. It is better if the tenants will settle all dilapidations with the landlord in advance of the date of break. This is to ensure that the tenants will be able to process repair and settlements of the pre-condition of break (Pinsent Masons n.d.). One of the usual pre-conditions attached to a break clause is that the tenant must have paid all the rents due during the lease period. It is important that Pears review the break clause if there is specification on how the rent is paid. Because the courts give emphasis that unless there is very clear wording to the contrary, where in the “break date falls between quarter days, the tenant must pay the full quarters rent and not apportion the rent to the break date (Pinsent Masons n.d.)”. Pears will not be entitled to a refund for the rent compensated for the period after the break date if there is no express provision to the contrary. Lease Code 2007 recommended to only include the principal rent as pre condition. Check the provision of lease and ensure there is a condition that requires the landlord to refund the tenant for the payments made for periods after the break date. It is advisable for Pears to check the following in order to properly exercise the break clause: 1. Definition of rent in the lease. The tenants should check if the rent is defined to include the service charge, insurance rent, VAT, outgoings and interest. 2. Payment history. Tenants are advised to trace back history of payments and check if interest of payment is classified as a rent and payments of rent is a pre condition of break clause. Interests of late payments should be paid accordingly to avoid the break to be prevented. 3. Settle invoices. All invoices should be settled as soon received from the landlord. 4. Confirmation by the landlord that payments are up to date should be asked. 5. Pay the disputed amount. All disputed amounts should be paid without prejudice basis and argue after the break date unless your lease evidently provides otherwise. Question 3 Imagine the lease of the ground floor was granted outside of Part II of the Landlord & Tenant Act 1954. Explain the procedure with statutory references where necessary, that both the landlord and tenant would have followed in order to ensure the lease does not get statutory protection. The landlord and tenant can agree to contract out of Part II of the Landlord and Tenant Act of 1954 and concur that there will be no security of tenure of the lease. As initially enacted under the LTA 1954, both the tenant and the landlord shall obtain court order if they preferred to contract out of LTA 1954. However on June 1, 2004, this old court procedure was eradicated and replaced by new procedure called The Regulatory Reform Order 2003 of Business Tenancies (England and Wales). The following procedures should be undertaken by the parties: 1. The landlord shall serve a warning notice in a form specified by RRO to the tenant before the lease is granted or before the agreement is made. The warning notice duly informs the tenant that the lease offered has no security of tenure and gives details regarding the rights which the tenant will give up upon contracting out. The notice also gives 14 days allowance for the tenant to take professional advice before making a decision. 2. Upon receipt of landlord’s warning notice, the tenant should make a simple statutory declaration before the lease or agreement is made. A simple declaration is needed if the landlord warning notice has been served not less than 14 days while a more formal statutory declaration is needed if the notice has been served in less than 14 days. Simple declaration should include: (a) the proposal of tenant entering into a tenancy (b) the proposal of tenant agreeing to contract out from the security of tenure provisions of the LTA 1954 (c) the warning notice has been duly served by the landlord not less than 14 days (d) the tenant has read and accepts the effects of entering into the agreement A statutory declaration has the same format except it will omit the part referring to the 14-day period. If statutory declaration has been made despite the warning notice has been served more than 14 days, the court ruled it as valid according to the decision of Court of Appeals in Chiltern Railway Co Ltd -v- Patel (2008). 3. The last procedure is to ensure that the agreement to contract out of LTA 1954 shall be contained in the lease or agreement for lease: (a) the landlord’s warning notice has been served (b) a reference to the simple or statutory declaration (c) the concurrence to contract out of the LTA 1954 (Ashurst n.d.) The Landlord and Tenant Act of 1954 provides the security of tenure for tenants who are occupying under contract of lease of a residential property. This serves as a protection of the tenants as well as landlord to honor the agreements in the contract of lease in cases of defaults and other difficulties arising from the said contract. There are many remedies in case of tenant default that is allowed by the statute such as forfeiture, levying distress, recoveries and other negotiations. The landlord and tenants are also allowed to contract out of the Landlord and Tenant Act 1954 so that tenants will not have the benefit to a new lease or both can have the flexibility to contract a new lease as desired. References: Ashurst n.d. Business Tenancies: Contracting out of the Landlord and Tenant Act 1954. ? Available at https://www.google.com.ph/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=0CBwQFjAA&url=https%3A%2F%2Fwww.ashurst.com%2Fdoc.aspx%3Fid_Resource%3D4845&ei=d2o0VZS4MoasmAW4poGgCg&usg=AFQjCNFF3skfMN5RGmYI71Hj2CU-JXN2Qg&sig2=ToFvKxfJTFMKjXyu0bTrnQ&bvm=bv.91071109,d.dGY&cad=rja [Accessed 13 April 2015]. Cass, J. 2013. If the tenant has stopped paying rent – what can be done? Available at http://www.gannons.co.uk/dispute-resolution/my-tenant-has-stopped-paying-rent-what-can-i-do/ [Accessed 13 April 2015]. Chiltern Railway Co Ltd -v- Patel (2008). Green, S. 2012. Bahrain: Landlord Rights Against Tenant Default Under A Commercial Lease. Available at http://www.mondaq.com/x/201236/landlord+tenant+leases/Landlord+Rights+Against+Tenant+Default+Under+A+Commercial+Lease [Accessed 12 April 2015]. Fuller v Happy Shopper Markets Ltd [2001] 25 EG 159. Hirst M. 2014. The landlord in distress (no more): reform to recovery of rent arrears after 6 April 2014. Available at http://www.blakemorgan.co.uk/news-events/news/2014/07/02/crar-reform-law-distress/. [Accessed 15 April 2015]. Landlord and Tenant Act of 1954 S 24 Landlord and Tenant Act of 1954 S 29 Lexology 2007. Forfeiture of Commercial Leases. Available at http://www.lexology.com/library/detail.aspx?g=3ba823c6-329a-41c5-8b60-cec20ba6bcde [Accessed 14 April 2015]. Pinsent Masons n.d. Break Clauses-Top Tips for Landlords and Tenants. Available at http://www.out-law.com/en/topics/property/corporate-occupiers/break-clauses---top-tips-for-landlords-and-tenants/ [Accessed 15 April 2015]. Smith C. 2012. A Guide to Landlord and Tenant Act 1954. Available at http://www.lexology.com/library/detail.aspx?g=a836e986-fee0-47ff-afdb-1b29fdda08e7 [Accessed 15 April 2015]. The Law Commission 2006. Termination of Tenancies for Tenant Default. Available at https://www.google.com.ph/url?sa=t&rct=j&q=&esrc=s&source=web&cd=7&cad=rja&uact=8&ved=0CEkQFjAG&url=https%3A%2F%2Fwww.gov.uk%2Fgovernment%2Fuploads%2Fsystem%2Fuploads%2Fattachment_data%2Ffile%2F272363%2F6946.pdf&ei=vlcuVcXKDIWtogSmx4D4Dg&usg=AFQjCNHqdu6-ohInscAFjUlcMpmO_Bz_lw&sig2=yKVe0vQNzsLSnZpzT2fN1w&bvm=bv.90790515,d.cGU [Accessed 14 April 2015]. Woodfords Solicitors n.d. Break Clauses: Implications for Landlords and Tenants. Available at http://www.woodfords.co.uk/break-clauses-implications-for-landlords-and-tenants/ [Accessed 15 April 2015]. Read More