Disrepair: Landlord's options during the term
For breach of repairing obligations damages are the only remedy available to the landlord of commercial premises at the end of the term of a lease, but what options does the landlord have during the term, and what are the advantages and disadvantages of deploying them?
If the landlord forfeits the lease for breach of the repairing obligations, relief from forfeiture (to have the lease placed back on foot) will only be granted in circumstances where the breaches have been remedied by the tenant. It can therefore be a very effective way of having the tenant carry out works to put the property back into good repair at its own expense.
If the tenant fails to apply for relief (or fails to comply with the obligation to repair having applied for relief) the property will revert back to the landlord who, in a rising market, may be able to re-let it at a higher rent. The converse is of course true, and a landlord should consider the difficulties that it may face in re-letting in a less favourable market.
If the landlord knows that the property is of high importance to the tenant then forfeiture, or the threat of it at least, can be a useful way of convincing the tenant to carry out the works.
Forfeiting for breach of the repairing covenant is not straight-forward however. A landlord must first serve a "section 146 notice" giving the tenant a "reasonable time" to carry out the works before it may forfeit. What is "reasonable" will depend on the nature of the disrepair. Where the lease was originally granted for a term of at least seven years, and has more than three years remaining, the tenant may serve a counter notice, which will force the landlord to get permission from court before it can make an application to forfeit the lease.
This process can be lengthy, and a landlord should note that it can be a long time between taking forfeiture action and a tenant being granted relief, which can lead to periods of uncertainty.
Claims made during the term for damages to compensate a landlord for breach of repair clauses are rare and have distinct drawbacks.
Where a lease was granted for a term of at least seven years and has more than three years to go, then as with forfeiture the landlord must first serve a "section 146 notice" and the tenant may serve a counter notice. In those circumstances the landlord will again need permission from court to take further action.
There are other disadvantages to pursuing a claim for damages during the term. For example: the remedial works do not get carried out; any damages awarded are taken away from the claim made by the landlord at the end of the term; and the damages are limited to the amount by which the landlord's interest has been diminished by the breach which, with time still to run on the lease, can be very difficult to establish.
- Specific Performance
Obtaining an order for "specific performance" of the repairing obligations in a lease will place great pressure on a tenant to do the repairs, as failure to comply with such an order will place it in contempt of court. If a landlord obtains an order for specific performance the works are likely to be carried out at the tenant's expense.
Granting an order for specific performance is however at the court's discretion, and to obtain it a landlord will have to convince the court as to the urgency of the works and that the alternative remedies available to it are inadequate.
There is also an up-front cost to the landlord of going to court and, unless urgency is established, it will most likely have to wait until a final trial to get the order.
- Self Help – "Jervis v Harris" Clause
Some commercial leases contain a provision (often referred to as a Jervis v Harris clause after the leading case) which entitles a landlord to enter the premises to carry out repair works itself and to recover the cost of those works from the tenant as a debt.
A landlord cannot pursue this self-help remedy unless the right to do so appears in the lease.
The benefits to a landlord of being able to do this mean: that it is in control of the works that are carried out; it avoids the time and cost of having to litigate; it allows urgent works to be addressed quickly; and the landlord recovers the cost of the works without having to prove any reduction in the value of its interest.
On the flip side there are often issues regarding access to the premises when exercising the self-help remedy. For example if a tenant refuses access the landlord will need an injunction to force the tenant to allow him in to carry out the works. In addition, if the landlord fails to serve notice correctly its right of access may not properly arise with the result that the entry constitutes a trespass for which it may be liable to pay damages.
The landlord should also bear in mind that it will have to incur the cost of the works in advance before recovering them from the tenant, and that there are often arguments over the reasonableness of the cost incurred, which in itself can be costly to deal with.
In deciding which option to take during the term of the lease, if at all, the landlord will have to take into account several factors including the value of the premises to the tenant, the urgency of the works, its own cash-flow and the wording of the lease.
If a good relationship exists between landlord and tenant it may be the case that the parties can resolve the issue between themselves relatively easily. However if urgent works are required and cooperation is unlikely, a landlord would be wise to contact its legal advisors at the earliest opportunity to discuss the options.