TENANT DEFAULT NOTICE – THE NEW SECTION 146 NOTICE

A landlord wishing to terminate a tenancy before the end of its term because of tenant default will have to warn the tenant by giving a written notice, called a ‘tenant default notice’. Unlike a section 146 notice, it will also have to be served on any parties holding derivative interests, such as sub-tenants or mortgagees.

The tenant default notice will have to be served within a statutory time limit and will have to set out:

• the details of the breach that the landlord is complaining about;

• any remedial action required; and

• the date by which that action must be taken

The landlord will not be able to take any further steps towards terminating the tenancy until the specified date has passed.

TERMINATION CLAIM BY THE LANDLORD – THE NEW FORFEITURE PROCEEDINGS

If the tenant does not undertake the required remedial action by the specified date, the landlord will be able to make a termination claim. The court will be able to make a variety of orders, including:

1) A termination order – this will end the tenancy on the date specified in the order.

2) A remedial order – this will set out what the tenant must do to remedy the default and the date by which it must be remedied. Such an order will not affect the continued existence of the tenancy, and the landlord’s claim for a termination order will be automatically stayed for a period of three months.

3) An order for sale – this will require the tenancy to be sold and the proceeds distributed between the landlord and tenant. Such an order will be most appropriate where the tenancy in question is a significant capital asset, which, if made the subject of a termination order, would provide a disproportionate windfall to the landlord.

4) A transfer order – this can only be applied for by the owner of a derivative interest, and will transfer the tenancy from the tenant to that owner.

5) A new tenancy order – this too can only be applied for by the owner of a derivative interest, and will grant that owner a new tenancy of the whole or part of the demised premises.

SUMMARY TERMINATION PROCEDURE – THE NEW PEACEABLE RE-ENTRY

The scheme provides an alternative procedure for a landlord to terminate a tenancy without the need to apply to the court. The Law Commission intends this alternative procedure to be used only where the tenant would have no realistic prospect of resisting a termination order, or where the premises have been abandoned.

The summary termination procedure will be commenced by the landlord serving a summary termination notice on the tenant. That notice will operate to bring the tenancy to an end one month after the notice is served.

The tenant may, however, resist the summary termination by applying to the court to discharge the notice. Such an application will suspend the termination of the tenancy until the application has been decided. In order to defend such an application successfully, a landlord will have to show that, had a termination claim been made, the court would have made a termination order and that there is no reason why the termination of the tenancy should not be disposed of summarily.

There are a number of restrictions upon the use by a landlord of the summary termination procedure. It cannot be used:

1) concurrently with the court-based procedure;

2) where someone is residing on the premises;

3) where the unexpired term of the tenancy is more than 25 years; or

4) where the tenancy was granted for a term in excess of seven years and there are three or more years unexpired, and the default is a breach of a repairing covenant.

For six months after the summary termination of a tenancy, the former tenant (or the former owner of a derivative interest) will be able to apply to the court for a ‘post-termination order’. Although a court will not be able to revive the terminated tenancy when such an application is made, it might order the grant of a new tenancy, or require the landlord to pay compensation. This procedure is effectively a statutory replacement for the present ability to apply for relief from forfeiture.

TIMETABLE FOR REFORM

The Law Commission has long been campaigning for reform to the law of forfeiture. The present law is manifestly unsatisfactory, and the reform proposals represent a principled and logical set of measures that would leave landlords with an effective remedy while giving tenants appropriate protection.

Reforms of this technical nature are never near the top of any government’s agenda, but work their way through the system in the end. These ones are long overdue, and it is to be hoped that they find their way into legislation in the near future.