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Detailed Practice Notes written by our Professional Support Lawyers, guiding you through the key issues in each topic.
When property is being cleared out or acquired for redevelopment or major refurbishment full vacant possession must be available. The cost and delay of removing remaining tenants can significantly affect the project's viability.
The objective differs where property is being acquired as an investment. Its value will be determined by the income stream and covenant strength of the tenants, and so a buyer needs to know whether any of those tenancies are likely to fall away.
Checking for vacant possession
Even if a property is physically vacant, check that there are no remaining tenancies. Unless the lease and tenancy have been properly terminated, the tenant's right to occupy might remain.
The risk where there are business tenants was highlighted where a lease expired while the property was fire damaged. The tenant could not physically occupy but successfully claimed statutory protection because he intended to resume occupation once the damage was repaired. A similar result occurred where an underlease expired and the subtenant vacated, but just before expiry of the head lease the tenant indicated its intention to move back in. In each case the landlord assumed that the tenancy had finished and so had not followed the 1954 Act procedures.
A 1954 Act protected tenancy can be terminated only by:
the tenant permanently vacating before the end of the contractual term
the tenant (after at least one month's occupation) serving a valid notice to quit
the landlord (or a superior landlord) successfully forfeiting
the landlord serving a section 25 notice (agreeing to or opposing the grant of a new tenancy)
the tenant serving a section 26 request for a new tenancy
If the landlord successfully opposes the grant of a new lease the tenancy ends three months after the date on which the application is 'finally disposed of'. To establish that date, check for:
a court order to terminate the tenancy where the time limit for appeal has expired, and/or
withdrawal of proceedings or of any appeal
Forfeiture may be by court action or (where used solely for business purposes) by 'peaceable re-entry', typically by changing the locks. The tenant and any subtenant or mortgagee may apply for relief from forfeiture. Pre-contract enquiries usually ask whether there has been any forfeiture within the preceding six months.
Where a lease is forfeited by 'peaceable re-entry' there is no court order and the landlord is deemed to be ‘proceeding to enforce’. There is no mandatory time limit within which the tenant, subtenant or mortgagee can apply for relief, but in practice the court adopts six months as a guideline. A reply confirming that at least six months has passed since forfeiture is usually accepted as confirmation that the tenancy has ended.
Where forfeiture is for non-payment of rent and no payment into court has been made before trial, the court must order possession on a specified date not less than four weeks after the order unless within that period the tenant pays into court all arrears and costs. The court may extend this period at any time before possession. The tenant has six months after the landlord secures possession to apply for relief against forfeiture.
Under Common Law Procedure Act 1852, s 210 where more than six months' rent is outstanding a landlord may obtain judgment for possession without formally demanding the rent. If the tenant fails to apply for relief within six months after execution of that order he is ‘barred and foreclosed from all relief or remedy in law or equity’.
An order for relief might require the tenant to comply with conditions by a specified date. The court retains discretion to extend that time limit. On due diligence, specifically confirm that no time limit is running and (if there is) that no application has been made to extend it.
A surrender is a transfer by a tenant to its landlord. The lease 'merges' into the landlord's interest. Difficulties can arise where a surrender is made in error by a group company or partner of the tenant rather than the tenant itself. The surrender is invalid, and the tenancy will continue. Similarly, where there are joint tenants the surrender will be effective only if they all join in.
Title investigation and enquiries before contract will be similar to any other transfer and must confirm the tenant's entitlement to transfer the lease.
A Landlord and Tenant Act 1954 protected tenancy can be ended by surrender. The surrender can be:
express (by deed where the lease was granted for more than three years, by signed writing for shorter terms), or
by 'operation of law' (vacating and giving up the keys)
However, an 'agreement' to surrender at a future date cannot be enforced unless the landlord has given a prescribed warning notice and the tenant has made or sworn a declaration confirming that it understands that the effect will be to end its security of tenure.
The landlord is not obliged to accept a surrender. An act of 'possession' by the landlord (eg securing the property against gypsies) is likely to be regarded as acceptance unless the landlord can show that it was necessary to protect the property and the tenant had failed or refused to do this.
Surrender or merger of a head lease does not end any underlease granted out of it. The underlease continues with covenants becoming directly enforceable under Law of Property Act 1925, s 139. This applies whether or not the underlease has other statutory protection.
Mixed use property
Where property is used for both business and residential purposes, the landlord must check compliance with all applicable statutory protection. Key issues include:
where a single lease is used for business and residential parts (eg a shop with flat above) forfeiture cannot be by 'peaceable re-entry'. Court proceedings are required
two months' notice given:
'before' the end of any initial fixed term will end an assured shorthold tenancy (AST), even if the notice period expires after the end of the fixed term
'after' the end of the initial fixed term (or at any time where the tenancy is 'periodic') must be at least two months and must expire at the end of a 'period' of the tenancy (eg the end of a month where the tenancy period is monthly)
residential tenancies created before 15 January 1989 are likely to be 'protected tenancies' under Rent Act 1977. Rent Act protected tenants enjoy extensive statutory protection, and their presence can significantly diminish the value of the landlord's interest and preclude redevelopment
if a tenancy is 'assured' rather than an AST then termination depends on the landlord's ability to prove one of the statutory grounds set out at Housing Act 1988, s 8
If a break clause specifies conditions they must be met. While the Mannai rule (Mannai Investment v Eagle Star Assurance  3 All ER 352 ) may overcome minor errors that would not mislead a reasonable recipient, the court cannot overlook failure to comply with conditions. Where a 'material' breach of covenant will prevent effective break, 'materiality' is assessed by reference to the Landlord’s ability to re-let or sell the property without delay or additional expenditure.
Unless they enjoy statutory protection (eg Landlord and Tenant Act 1954 security of tenure) the valid exercise of a break clause will end any underleases.
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