What can a landlord do when someone else than the tenant’s occupies the premises without the landlord’s agreement to it?
Forfeiture and Waiver
One of the key events for the landlord’s right to forfeit is a breach of the alienation provision. Whilst some elements of this are simple, for example an unlawful assignment is a once-and-for-all breach which is irremediable, as it cannot be undone, others are not so straight forward. To begin with there are several elements of forfeiture and waiver which need to be understood.
First, the right to forfeit arises where there is either a breach of covenant, or breach of condition. The majority of cases we see are breaches of covenants, but in order to forfeit for these, a right to forfeit must be contained in the lease. Should the right to forfeit arise, a landlord must act quickly otherwise it could waive the right to do so. This is not so crucial where the breach is a continuing breach. For example, a breach of the repairing covenant is ongoing, meaning the right to forfeit arises every day the tenant fails to open.
Alternatively, a once and for all breach is, as the name implies, a breach that has once occurred, will not occur again. One such example is non-payment of rent or making prohibited alterations as the event is singular. In this instance, the landlord could inadvertently waive the right to forfeit if he treats the lease as continuing despite the breach. Waiver could occur by demanding or accepting rent, or liaising with the tenant in a way that implies the lease is ongoing.
Points to remember:
- A landlord needs to be aware of the breach, he cannot inadvertently waive the right if he is unaware of the facts.
- Once a landlord is aware, whether the breach is one off or continuing, it is prudent to put in place a rent stop and not to communicate with the tenant to avoid any inadvertent waiver.
- If the landlord is considering forfeiture, unless the breach is non-payment of rent, it should serve a notice pursuant to section 146 of the Law of Property Act 1925 as soon as possible.
- Remember some events are once and for all, but will occur again, such as non-payment of rent. If you waive the right for one breach, the right to forfeit will arise again if the tenant commits another breach.
Dealings with the lease
Most leases contain standard alienation clauses which deal with assignment and subletting as the main ways a tenant might part with its rights over some or all of the property. However there are other ways a tenant can do so, and these are generally dealt with in the alienation or dealings clause. The main three are parting with possession, sharing possession and sharing occupation.
Despite sounding similar, there are important distinctions to be aware off between these three events as some are a once and for all breaches while others are continuing breach, which may have an impact on the landlord’s ability to forfeit.
Parting with Possession
It has been held that parting with possession is a once and for all breach which means the landlord should act quickly, put in place a rent stop and serve a S146 Notice as soon as he becomes aware that the tenant has parted with possession.
The Privy Council case of Lam Kee Ying Sdb Bhd v Lam Shes Tong [1975] A.C. 247 stated that parting with possession is a question of fact – has possession been transferred or not? In this case, the tenant entered into a lease with a covenant preventing the tenant from parting with possession. The tenant then formed another company which operated from the premises, paid the rent and put a sign up outside with its name. The court determined this was parting with possession as possession of the premises had been transferred to the new company.
Sharing Possession
Sharing possession means the tenant has not formally parted with the possession, but is actually still in possession, with another. This is most likely to occur with group companies and therefore care should be taken when drafting any group company provisions.
Whilst the point has not strictly settled in case law, sharing possession is generally deemed to be a continuing breach. So whilst action should be taken as soon as possible to rectify the position, the ability to forfeit will arise each day the tenant is in breach of the obligation.
Sharing Occupation
Sharing occupation is slightly different to sharing possession. Possession is construed as a legal right, whereas occupation gives no interest in the premises. In the case of Jackson v Simons [1923] 1 Ch. 373 the court held that an arrangement whereby the tenant of a ground floor shop allowed the owner of a nightclub situated below the premises, to sell tickets outside of the tenant’s trading hours was a case of sharing occupation. This was on the basis that it conferred no estate or interest but was a mere privilege or licence and the tenant retained the legal possession of the whole.
It can be said sharing possession and sharing occupation may amount to one and the same as both are continuing breaches, but care must be taken to use the correct phrase when drafting a S146 Notice. A failure to specify the correct breach, could result in the tenant claiming relief from forfeiture.
Remediable or Non-Remediable
Unlike an unauthorised assignment or subletting which are generally considered to be irremediable breaches, parting with or sharing possession and sharing occupation are all remediable by the tenant. Any S146 Notice must specify a reasonable time for the tenant to rectify the breach complained of. If the tenant does so, the landlord can no longer forfeit.
