Travis Perkins – Real Estate Bulletin – Summer 2023
In this quarter’s update, we look at three landlord and tenant cases involving whether a break notice can be served ‘too early’, whether a proviso to a right reserved to a landlord can operate as a contractual obligation on the part of the landlord and whether a tenant’s refusal to allow a landlord access to the demised premises means the landlord is entitled to forfeit the lease for breach.
Landlord & Tenant – break notice
A tenant had a 21-year lease of a retail superstore. There was a break right entitling the tenant to terminate the lease on or before 11 February 2023 (the break date), provided it gave no less than six calendar months’ notice in writing.
The original tenant served the break notice in December 2018, so well in advance of the six month notice period. In 2020, the lease was assigned to an assignee, who was aware the break notice had been served but who intended to negotiate a new 15-year lease with the landlord.
Just a few days before the assignment completed, it became apparent that the landlord was negotiating to grant a lease of the store to a third party. The assignee served a notice under section 26 of the Landlord & Tenant Act 1954, requesting a new lease. The landlord argued this was invalid, because the break notice had already been served and the lease would come to an end on the break date, meaning the assignee would have to move out.
The assignee tried various technical arguments to try to persuade the court that the break notice was invalid, including that it had been served ‘too early’, but the court did not agree. It felt the lease was very clear on the minimum notice period and did not feel the need to imply any terms that there should be a maximum period.
- Practical tip – it is common for leases to specify a minimum notice period for service of a break notice, less so for them to set out a maximum period or ‘window’ for service. This is unlikely to change following this case
- Practical tip – there can be some benefit in serving a break notice well in advance of the break date, as it provides certainty between the parties at the time, but problems can arise where the lease is assigned after the break notice has been served
- Practical tip – assignee’s taking on leases in these circumstances should ensure the landlord is tied in to any new arrangement, such as the grant of a reversionary lease, so that they don’t find themselves in the position of having to move out before they intended!
Landlord & Tenant – reserved rights
A tenant lived in a first floor flat in a building that comprised one other flat above his, and commercial space on the ground floor. When the tenant bought the flat (for a price of £574,950), the ground floor was used by an estate agency.
The lease reserved rights to the landlord to carry out works to the structure of the building so as ‘to carry out any development of whatever nature upon the Building’. This was subject to a proviso that any such works did not diminish the value of the tenant’s flat.
Shortly after the tenant bought the flat, the estate agency moved out and a prospective new tenant obtained planning permission to change the use of the ground floor to a bar/restaurant. It carried out works to convert the ground floor into the ‘Brick and Liquor’ bar.
The tenant was not happy because of the noise and fumes from the bar and eventually sold the flat for £470,000. He then brough various claims against the landlord, including for breach of contract and claimed damages for the diminution in value of the flat due to the presence of the bar – he contended he would’ve been able to sell for £575,000 if the ground floor was still being used as an estate agent or similar office use.
In a slightly surprising decision, the court found that the proviso to the landlord’s right to carry out works to the building operated as a contractual obligation on the landlord not to do anything which would diminish the value of the flat, rather than just a limitation on what the landlord could do.
- Practical tip – commercial and residential leases of part usually reserve rights to landlords to allow them to carry out works to the rest of the building
- Practical tip – these rights will be caveated to provide some protection to tenants
- Practical tip – Leases also contain – albeit limited – express covenants by landlords to allow ‘quiet enjoyment’ of the premises
Landlord and tenant – forfeiture
A tenant had a lease of zoo premises near Ulverston in the Lake District. The lease contained a fairly standard right for the landlord to enter the premises for any purpose mentioned in the lease or connected with the landlord’s interest in the property and required the tenant to permit access at any reasonable time and on reasonable notice. There were a series of other management/services agreements inherited by the current parties, covering the use of various assets by the zoo operator.
The relationship between the landlord and the tenant became acrimonious; the landlord alleged the tenant wasn’t running the zoo properly and had dishonestly appropriated and sold off certain items it alleged belonged to the landlord.
The landlord arranged to attend the zoo to retrieve certain items. The tenant refused access on the basis that it was solely for the purposes of recovering personal property, which was not covered by the lease and did not relate to the landlord’s interest in the property.
The landlord then arranged for an inspection to be carried out by its representative. The parties agreed on a time and date, but the landlord’s representative actually turned up (with the police) several hours early. Again, the tenant refused entry and by the time the tenant’s own representative arrived, the landlord’s representative had left.
The landlord sought to forfeit the lease on the basis that the tenant had materially breached its covenants by wrongfully refusing access. The tenant brought proceedings for a declaration that the forfeiture was invalid.
The High Court found that there had been no material breach of the lease terms by the tenant in refusing access to the landlord. The first attempt by the landlord to exercise its rights had not been in connection with its interest in the property, merely to recover chattels, and the second visit had not been requested on reasonable notice, given what happened on the day of the proposed inspection.
- Practical tip – forfeiture is a way for a landlord to bring a lease to an end in certain circumstances related to tenant default (or insolvency)
- Practical tip – a tenant can apply to the court for relief from forfeiture or can apply for a declaration that the forfeiture is invalid
- Practical tip – landlords should remember that they are not entitled to access their tenant’s premises for any reason and they should check and comply with any provisos those rights are subject to, particularly if seeking to allege a tenant’s breach has occurred
The content of this page is a summary of the law in force at the date of publication and is not exhaustive, nor does it contain definitive advice. Specialist legal advice should be sought in relation to any queries that may arise.
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