BusinessAndLegal.ie » commercial leases

Termination and Ending leases

terry — Sat, 26 Sep 2009 07:47:18 +0000

Leases may be terminated in many ways and the first thing you must look at is….whether the lease is covered by the Residential tenancies act 2004.

The vast majority of residential leases and tenancies are now governed by this legislation and the landlord and tenant’s rights and obligations in a residential letting are set out here in landlord/tenant

What follows mainly concerns commercial leases.

The most common ways to terminate or end a lease are

1) Notice to quit

2) Forfeiture

Since the Residential Tenancies Act 2004 lays down the procedure for the vast majority of residential tenancies Notice to Quit and Forfeiture now only apply to commercial tenancies.

You only use a Notice to Quit procedure where the tenant remains in possession after the expiry of the agreed term and continues to pay rent. This tenant is said to be overholding.

Where the landlord wishes to end the tenancy prior to the end of the agreed term, the appropriate procedure is Forfeiture.

Notice to Quit

Notice to quit is the most common procedure to recover the premises where the tenant is overholding.

Anybody who has received prior express authorisation may serve the notice to quit.

Where the landlord is not serving the notice to quit himself it is prudent to arrange prior written authority to be given to the server. This authority can not be given retrospectively.

There is no set form for the notice to quit but it must contain a clear and unambiguous intention to end the tenancy.

A description of the premises must be given and it must be addressed to ‘the tenant and all other persons in occupation’.

It need not be signed but it is prudent to do so.

Length of Notice

Firstly check the written agreement to see is there an agreed procedure. If not the statutory minimum is 4 weeks and the notice must end on a gale day(this is the point when one period ends and another begins)

The crucial question is how is the rent reserved in the lease(this is not the same as how is the rent paid)

A monthly tenancy requires one month’s notice expiring on a gale day.

A quarterly tenancy requires 3 months notice and this should expire on a gale day.

A tenancy from year to year requires 183 days notice expiring on the anniversary of the tenancy.

Personal service is best and in the case of a limited company on the registered office of the company.

Waiver of notice

You will be deemed to have waived the notice to quit if you
Serve another notice
Demand the rent
Accept the rent which falls due after the end of the notice period

Landlords are advised therefore not to accept rent after the end of the notice to quit has expired.

Care should be taken to check the lease to see if any provision has been made for a specific method of terminating the tenancy.

Forfeiture

This is only appropriate where the term of the lease is still running. But a landlord has no right to terminate a lease prematurely unless the tenant has been in breach of one or more of it’s terms.

A landlord also loses the right to forfeiture if he does not follow certain statutory procedures which give the tenant a reasonable opportunity to remedy any breach.

It is extremely difficult in practice to forfeit a lease, especially if the parties are in court for the first time.

Grounds for forfeiture

The 3 main grounds for forfeiture are………

1) Disclaimer by the tenant of the landlord’s title

2) Re-entry of ejectment where there has been a breach of a condition in the lease

3) Re-entry of ejectment where there has been a breach of a covenant which provides for re-entry for that breach

Breach of condition of lease

Breach of a condition of a lease gives the landlord an inherent right to re-enter. But the landlord must be careful to distinguish between a condition and a covenant.

Breach of covenant in a lease

A breach of covenant in a lease will only give rise to a right to re-enter if the covenant broken has a proviso for re-entry.

Before forfeiture can take place a ‘section 14’ notice must be served unless forfeiture is occurring for non payment of rent. In this case there is no need for a ‘section 14’ notice.

This notice calls upon the tenant to remedy the breach within a reasonable time.

If the notice is served and the time specified in the notice has elapsed without the remedy of the breach, a demand is again made for possession and the landlord may re-enter if it can be done without the use of force. There is a statutory prohibition on the use of force.

Ejectment civil bill on title

If the landlord can not re-enter peacably the landlord’s remedy is to issue an ejectment civil bill and seek an order for possession in court.

Relief against forfeiture

There are 2 reliefs for the tenant t prevent forfeiture of the lease-statutory and equitable.

Statutory

Section 14(2) Conveyancing Act 1881 allows the tenant to apply to court for relief-it is then at the discretion of the court and there are no fixed rules for the court in exercising its discretion.

A sub-lessee will get statutory relief and his sub-lease will continue as if the superior landlord was the immediate lessor.

The Landlord and Tenant(Ground Rents) Act 1978 provides that forfeiture can not occur by reason of failure to pay ground rent in the case of a house where the tenant is entitled to buy out the freehold.

In general there is no statutory relief where the landlord forfeits the lease for non-payment of rent.

Equitable

Courts may use its equitable discretion to grant relief to the tenant, even for non-payment of rent, if it would appear to be just to do so.

Courts lean against forfeiture for non payment of rent and tend to give tenant’s plenty of opportunity to pay up. But it will look at the conduct of the parties prior to going to court.

Effluxion of time

Where the term of a lease is up there is no need to serve a notice. A letter prior prior to the end of term pointing up the end of the term and demanding possession will suffice.

Court Order

The court has jurisdiction under certain legislation to terminate a tenancy.

Exercise of an option (break clauses) in a lease
Commercial leases often have break clauses entitling either party to terminate prematurely.

Legal proceedings

It may still prove necessary to go to court,even after ending the lease by one of the methods outlined above.

Ejectment Civil Bill on Title Based on Forfeiture

The landlord’s claim is based on the fact that the tenancy has ended by forfeiture and the tenant has no right to retain possession. This is a very common procedure, especially where non-payment of rent has occurred.

The landlord may need to go to court a number of times to establish a poor track record of the tenant as the court is very reluctant to grant possession first time for non payment of rent.

Ejectment for non payment of rent

This is based on Deasy’s Act,1860. The huge disadavantage is that the landlord must wait until one years rent is due-not very popular method for this reason.

Ejectment Civil Bill for overholding

This is used following service of a notice to quit or where the original lease has ended and the tenant remains in possession.

From the tenant’s perspective under the Landlord and Tenant Act 1980 he must now serve notice to seek relief, that is to seek a renewal of the lease) within a certain period following service of the notice to quit.

Repairs in a Landlord/Tenant Agreement/lease

terry — Thu, 24 Sep 2009 18:44:41 +0000

Generally the tenant will usually be liable for repairs. With residential tenancies the obligation to repair is set out in the Residential Tenancies Act 2004.

However these obligations are in addition to any other statutory obligation such as The Landlord and Tenant Act 1980 and the Housing Regulations 1993.

Housing Regulations 1993

These regulations require landlords to maintain certain minimum standards and Article 5 requires the landlord to keep such houses in a proper state of structural repair.

These regulations have been poorly enforced and have been superseded to a great extent by Residential Tenancies Act 2004 which has increased the penalties for breach of Housing (Miscellaneous Provisions) Act, 1992 which was the forerunner of Housing Regulations 1993.

Landlord and Tenant (Amendment) Act 1980.

This act limited the landlord’s remedy when the tenant was in breach of a covenant concerning repairs.

Section 65 essentially limits the tenant’s liability to the landlord’s loss in value of the building e.g. if a premises is worth €750,000 and the building was damaged to the extent that it is now worth €600,000 the tenant will be liable for €150,000 even though it may cost the landlord €200,000 to repair.

Section 87 also allows the tenant to carry out repairs which the landlord was bound by covenant to do and then deduct the cost of those repairs from the rent.

The Housing Act, 1966 states that in relation to a house a condition shall be implied into the lease that at the commencement of the lease the house is reasonably fit for human habitation and the landlord will keep it so.

Regardless it is necessary for the tenant to serve a notice on the landlord setting out the disrepair complained of and requesting the landlord to sort it out.

In Conclusion

There is nothing to stop both parties at the outset concluding their own agreement and providing for liability in most situations.

As noted at the outset it will generally be the tenant who will be liable for repairs. It must be noted however that sect. 12 and 16 of Residential Tenancies Act 2004 places specific obligations on both landlord and tenant re tenancies to which the act applies and sect. 18 provides that these obligations can not be varies or contracted out of by any lease or agreement.

In commercial leases it is more common for the tenant to be responsible for both interior and exterior repairs. One important point here is the phrase ‘to put and keep in repair’ in a covenant.

This has been held to mean that the tenant must put the premises in repair, not just keep so it is crucial that commercial leases are scrutinised closely.

Generally if a dispute goes to court which turns on the repairing covenant the court will consider a number of factors including location, age of building and the kind of tenant likely to rent the building when deciding the extent of the tenant’s liability under an ordinary repairing covenant.

Remedies

I have dealt elsewhere on this site with residential tenancies and the Residential Tenancies Act 2004 and the termination procedures.

From the landlord’s perspective

Forfeiture (only applies to premises outside the scope of Residential Tenancies Act 2004) This can occur where the written lease contains a provision for re-entry

Damages (most leases nowadays include a covenant by the tenant to make good all loss sustained by the landlord as a result of a breach by the tenant on any covenant/condition contained in the lease.

From the tenant’s perspective

Damages ( a tenant can carry out the necessary repairs when the landlord is in breach of the covenant to repair and can then sue for damages)

Set off against rent (a tenant can set off the cost of repairs against rent due)

Injunction/specific performance (this is available to the tenant where the landlord is in breach of the covenant to repair)

Termination (landlord’s failure can be taken as a breach of contract)