Categories
Property Law

Commercial Landlord And Tenant Disputes-What You Need to Know

commercial-lease-law-ireland

Landlord and tenant disputes are on the rise for obvious reasons with the downturn in the economy and landlords being faced with the choice of trying to recover outstanding rent or additionally trying to recover their premises and get the tenant out.

Generally the failure to pay rent by the tenant will be a breach of a covenant of the lease leading to a right accruing to the landlord for a straightforward breach of contract and the normal remedies available to the landlord when this occurs.

The legal proceedings that a landlord will take will depend on the amount of rent owed-if it is less than 6,348.69 euros it will be by way of Civil Summons in the District Court, if it is between that figure and less than 38,092.14 euros it will be by Civil Bill in the Circuit Court. Higher than that and you will find yourself the subject of High Court proceedings.

Recovery of Premises

Generally you will find that most commercial leases will have a covenant providing for the right to recover possession of the premises when there is a breach of a covenant of the lease.

Notice To Quit

If a lease has just expired, that is the time is up, the landlord needs to serve a Notice To Quit giving whatever period of notice is stipulated in the lease itself. After the service of the Notice To Quit the landord should mark any rent received as “mesne rates only” as not to do so could be seen as a waiving of the Notice by the landlord.

Forfeiture

Forfeiture procedure is appropriate where the landlord wants to get the tenant out before the term of the lease is up. He will want to do so if the rent is overdue and not being paid and the landlord thinks that he is better off trying to let the premises to someone else.

To do this the landlord must be sure that the lease makes provision for forfeiture in the event of rent not being paid or whatever other breach of covenant the landlord is alleging. Most leases will contain such a covenant; if yours does not it will provide for forfeiture for breach of a condition of the lease.

In order to use the forfeiture procedure the landlord must first, by law, give the tenant the opportunity to remedy whatever breach has occurred.

Firstly the landlord will need to serve a Notice of Forfeiture on the tenant which will set out the alleged breach and the time withing which it must be put right or that the landlord will re-enter the premises. This is called a Section 14 notice as the requirement arises from section 14 of the Conveyancing Act 1881.

If the remedy is not forthcoming and the breach is not sorted out then the landlord can re-enter the premises peaceably-it is important that to note that anything other than the minimum damage can lead to a criminal offence being caused by the landlord.

If resistance is offered by the tenant then it would be very difficult for a landlord to enter peaceably and should withdraw.

Ejectment Civil Bill on Title

If the landlord can not take the premises peaceably he will need to go the Court route and it is by way of Ejectment Civil Bill on Title.Be warned that this is a slow process and the Courts have traditionally given a fair degree of latitude to tenants giving them more time to put things right.

Tenant Relief

Conveyancing Act 1881, section 14(2), provides some relief for the tenant provided that the landlord has not re-entered and the tenant has put matters right by paying the rent or whatever breach is alleged.

The courts have traditionally been very fair with tenants in these matters and a tenant who has paid up, even late, will be in a strong position to get this statutory relief from the Court.

Commercial Landlord and Tenant Issues in Insolvency

Liquidation

In a liquidation situation, any rental arrears which arose prior to the liquidation will rank as unsecured claims and participate in any dividend on a pro rata basis with other unsecured creditors.

Rent arising where the liquidator occupies the premises to wind up the failed company is deemed to be an expense of the liquidation and will rank, along with the costs of the liquidation, above all creditor claims.

Receivership

Rent accrued prior to the appointment of the receiver will rank as an unsecured debt.

Rent due during the period of receivership, the receiver is obliged to pay the rent as a priority expense of the receivership.

Examinership

Theoretically, rent accrued during examinership should be paid to the landlord. However, proceedings cannot be taken against a company when it is in examinership so it would be very difficult to enforce the payment of rent.

Repudiation of leases during examinership

Section 20(1) of the Companies (Amendment) Act 1990 allows the repudiation of any contracts of a company in examinership.

This includes leases and a Court has jurisdiction to approve the repudiation of a lease of a company in examinership. This is a discretionary power which will be exercised in each case in the particular circumstances of the case.

Disclaiming a lease

Section 290 of the Companies Act 1963 allows a liquidator to apply to Court for an order for disclaimer of onerous property or contracts.

The liquidator has 12 months within which to disclaim a lease and it is a slow process. The landlord will be able to claim as an unsecured creditor for damages as a result of the disclaimer.

However, whether there is going to be a dividend available to unsecured creditors or not will depend on the circumstances of each case.

Categories
Property Law

Termination of Commercial Leases and the Right to a New Lease-the Essentials

leases-property-law

Are you a landlord or tenant of a commercial lease?

Do you want to terminate a commercial letting agreement?

Or perhaps you want to lawfully lay claim to a new lease?

This piece aims to give you a good handle on what’s involved.

Termination of a Commercial Letting Agreement

The most common ways to terminate or end a commercial ease 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, that is the term of the lease has ended.

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 or ejectment where there has been a breach of a condition in the lease;

3) Re-entry or 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 also has a proviso for re-entry in the lease.

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 strictly no need for a ‘section 14’ notice, but it is probably advisable to serve one.

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

Peaceable re-entry

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.

If peaceable re-entry is carried out, and this is difficult, the landlord should make a detailed inventory of property, possessions/stock on the premises and write to the tenant telling him how he can retrieve them, and what will happen if he doesn’t.

Ejectment civil bill on title

If the landlord can not re-enter peaceably the landlord’s remedy is to issue an ejectment civil bill and seek an order for possession in court. If re-entry cannot be carried out peaceably the landlord cannot use force.

Relief against forfeiture

There are 2 reliefs for the tenant to 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.(Much of the Conveyance Act, 1881 has been repealed by the LAND AND CONVEYANCING LAW REFORM ACT 2009 but this relief has not been repealed).

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.

Other Forms of Termination

The list below is not exhaustive:

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.

Merger

A lease may end when the interest of the landlord and tenant become vested in the one person in the same right.

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 disadvantage 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.

The Entitlement to a New Commercial Lease

The Landlord and Tenant Act 1980 which was amended byLandlord and Tenant Act 1994 provide statutory entitlements to tenants in a landlord/tenant relationship.

The reliefs apply where the property that is the subject of the agreement is a tenement which is a legal description but has been interpreted fairly generously. It includes buildings which are not permanent and can include sheds erected without planning permission.

To qualify for the statutory entitlements the main purpose/use must attach to the buildings. If there is land involved then the land must be subsidiary and ancillary to the main use of the buildings.

Section 16 of Landlord and Tenant Act 1980 provides that a tenant will be entitled to a new tenancy at the expiry of his existing lease if he can prove one of the following equities

Business equity-if the tenant was in occupation for 5 years continously and was using the premises/tenement for business purposes (this period used to be 3 years); temporary breaks can be disregarded by the courts. The five year period only applies to tenancies/leases which commence after 10 August 1994 and the tenant must occupy the tenement for the entire period

Long possession equity-this applies to both residential and business property and states that if the person was in occupation for 20 years then he/she was entitled to a new lease

Improvements equity-this also applies to both residential and commercial property and states that if the tenant would be entitled to compensation for improvements and they accounted for half or more than half of the letting value of the tenement when the notice of intention to claim statutory relief, then the tenant has an improvements equity

Terms of a new tenancy

These terms are to be agreed between landlord and tenant and failing that will be fixed by the court. If the tenant is entitled to a new lease based on business equity the new term shall be fixed at 20 years or such time as the tenant may nominate, provided it is over 5 years.

If the right to a new tenancy is based on long possession or improvements the term of the new tenancy will be 35 years or a lesser term that the tenant can nominate.

Rent

This will be fixed by the court at open market value if the landlord and tenant can not agree on a new rent.

Restrictions on a right to a new tenancy

Section 85 of the act prevented any provision contracting out of the Act. However this was changed re the tenant of an office premises who could contract out of his right if he took independent legal advice and signed a renunciation under sect 4of his right and this had to be done before the commencement of the tenancy.

Other restrictions include the situation where the tenant is in breach of the lease in respect of payment of rent.

Furthermore where the landlord intends to pull the building down in order to redevelop the building/site then he can refuse to grant a new tenancy.

However if this occurs and the tenant would have been entitled to a new tenancy otherwise, then the tenant is entitled to disturbance compensation which is a right of both residential and commercial tenants.

How to claim a new tenancy

The forms required are set out in Landlord and Tenant Regulations, 1980. This notice must be served before the end of the tenancy or within 3 months of the end. (The courts have discretion to extend these time limits in limited circumstances).

Compensation for improvements

This is available to both residential and business premises. Where a tenant quits a tenement because of the termination of the tenancy he is entitled to be paid compensation for every improvement by him or any predecessors in title which adds to the letting value of the premises.

However he will not be entitled to compensation if he has surrendered the lease or the termination is for non-payment of rent.

Improvement notice

Where a tenant proposes to make improvements to the tenement he may serve an improvement notice on his landlord.

If the latter ignores it then the tenant can go ahead with the works and is entitled to compensation. However the landlord can then himself serve an improvement undertaking notice on the tenant and execute the works himself.

Or he can object to the improvement notice and the tenant can then withdraw his notice or apply to court which can allow the tenant to make the improvement or reject his claim based on the fact that he has not been in occupation for 5 years and is consequently not entitled to a new lease.

Any covenants in the lease which prohibit the selling of the building or the change of use of the building will be interpreted as only prohibiting this to occur without the landlord’s consent, and this consent must not be unreasonably withheld.

A similar interpretation will apply to any covenant in the lease prohibiting the making of improvements.

Update

The Civil Law Act 2008 has made some changes to Landlord and Tenant legislation. Previously only the occupier of an office lease could contract out of his right to a new lease as outlined above.

The Civil Law Act 2008 now allows any business user to renounce his right and furthermore allows him to renounce not just prior to the commencement of the lease but at any time. He must still receive independent legal advice.