Rights when assignee’s lease is forfeited because of a former leaseholder’s breach

This article was first published in Lexis PSL Property.

A former leaseholder carried out renovation works contrary to the terms of the commercial lease and accordingly the landlord served them with a notice under the LPA 1925, s 146. The leasehold property was then sold—and the new leaseholder had no knowledge of any alleged beach—and following the sale the landlord forfeited by peaceable re-entry by changing the locks. Should the new leaseholder make an application for relief from forfeiture, and if not what are their other rights or remedies? Can the court make the new leaseholder rectify the previous leaseholder's breach of lease?

The personal liability of an assignee for breaches which occur before the assignment of a lease is limited and a tenant is usually only liable where there is an express covenant in the lease covering such breaches. This is because, in the absence of an express provision, there is no covenant that the landlord can enforce against the assignee in respect of breaches which were completed before the assignment of the lease.

Forfeiture is however a proprietary, rather than a personal, remedy. It is available to a landlord against a tenant for breach of covenant. See Practice Note: Forfeiture—an overview.

Where a landlord can establish that the now former tenant carried out renovation works contrary to the terms of a commercial lease, he becomes entitled to exercise the remedy of forfeiture.

The first step will be the service of a notice under Law of Property Act 1925, s146 (LPA 1925) (section 146 notice). This will need to be served on whoever is the tenant at the time of service of the notice. If the lease is assigned after service of the section 146 notice, the landlord is not required to serve a further notice on the assignee: Kanda v Church Comrs for England.

In a situation in which the breach of covenant occurred wholly before the assignment, the landlord will retain the right to exercise the remedy of forfeiture against the assignee. The right to forfeit for breach of that covenant will only be lost, if the landlord has waived it. The usual rules concerning waiver will apply. Waiving the right to forfeit is doing or committing any act expressly or impliedly that recognises the continuing existence of the lease. A landlord will be waiving the right to forfeit if he knows of the breach and then recognises the lease as continuing. See Practice Notes: Waiving the right to forfeit and Section 146 notices and waiving the right to forfeit.

As forfeiture was by peaceful re-entry, the assignee will be entitled to make an application for relief from forfeiture under LPA 1925, s146. In support of this application, the assignee may be able to rely on his lack of knowledge of the breach and his willingness to remedy the breach. See Practice Note: Claiming relief from forfeiture for any breach other than rent arrears.

The court can and usually will order that the assignee is required to make good the breach as a condition of relief from forfeiture. This will mean that the assignee will be required to remedy the breach committed by the previous tenant.

If the cost of repairs are extensive, the assignee may wish to consider any authorised guarantee agreements (AGA) under Landlord and Tenant (Covenants) Act 1995, s16(1). It may be that such an agreement, in which the previous tenant guarantees performance of the relevant covenant by the assignee provides some assistance. Does the AGA provide that the previous tenant will comply with the relevant covenant in the event of a breach by the assignee? Does the AGA require the former tenant to take a new lease for the unexpired term? See Practice Note: Authorised guarantee agreements.

The assignee will need to act promptly in making any application for relief from forfeiture to ensure that the landlord does not enter into a new lease of the premises with a new tenant in the interim.