What can you do when your commercial tenant breaches their lease?

Saturday, 08 June 2019

Simon Newman

Forfeiture

Forfeiture is the process whereby the landlord re-enters the property, takes possession of it back from the tenant and brings the lease to an end. Your lease should set out the circumstances in which the landlord is allowed to forfeit the lease. However, there are a number of limitations to the landlord’s right to forfeit and it is very important to always take legal advice before you take any steps to repossess the property. If you get the forfeiture wrong and it is deemed unlawful then you could face a claim for very substantial damages from your tenant.

For all breaches of the lease, apart from the non-payment of rent, an essential first step is to serve on the tenant what is called a Section 146 Notice. The Section 146 Notice warns the tenant about the alleged breaches of the lease and tells them that the breaches must be remedied.

If a Section 146 Notice has been served and your tenant has failed to comply with it, then this strengthens your potential right to forfeit the lease. However, you should always take legal advice before taking any steps due to the potential consequences of getting it wrong.

Even if you have lawfully forfeited a lease, your tenant still has a right to apply to Court for what is called “relief against forfeiture”. This is where your tenant can make an application for the Court to use a discretion to order the lease to be reinstated.

One thing you have to be careful about when considering forfeiture of the lease is not to do anything which could be interpreted as you waiving.

Waiving of the breach can happen inadvertently when you do something that implies that you are happy for the lease to continue, even though it has been breached. One example of this would be to continue to collect rent whilst the lease has been breached. It would be advisable to stop the collection of rent as soon as you have identified any breach on the part of the tenant which could potentially result in you forfeiting the lease.

Breach of repair covenant

In nearly all commercial leases there is a covenant/condition in there that the tenant has to repair the premises. Most leases also have a clause where the tenant is in breach of their duty to repair, the landlord has the right to go into the property, carry out the repairs themselves and then recover the costs from the tenant.

If the clause in the lease that has been breached relates to repairs, then you usually have the option of entering and doing the repairs yourself.

Damages

This is where the tenant has breached the lease and, as a result, you, as landlord, have suffered some kind of loss. An example of this might be if a tenant breaches their lease in such a way that the value of the premises was diminished or if they caused another tenant in the building to leave due to their actions. In this case, you would have the right to make a claim to the Court that the tenant has to pay you damages to make good what you have lost.

Injunctions

Where there is a continuing breach of the lease, for example, the premises are being used for an unauthorised use, then you have the option of applying to Court for an injunction against the tenant to bring the breach to an end.

If you are to apply for an injunction, it is usually good practice to serve a Section 146 Notice at the same time.

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Leeds Public Inquiry: Navigating Licence Lending and Maintenance Missteps 11 September 2024

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It is easy to fall foul of technical aspects of operator licencing. Whether of goods vehicles or passenger service vehicles. One commonly seen relates to disc loaning or licence lending.

An operator is generally not permitted to allow other businesses to ‘use’ the O Licence. And to deliberately do so would likely lead to revocation of the licence, and possible disqualification (perhaps indefinitely) of the legal entity or person behind the licence from holding or even applying for a licence.

Some operators, while not acting with deliberate intent, inadvertently blur the lines of who is ‘using’ or operating the vehicles. One such case was an operator (a limited company) in the North-East traffic area that we represented at the Leeds OTC public inquiry (PI) room.

Our client successfully ran ( and continues to do so) a niche business with highly bespoke heavy goods vehicles. It used several legal entities, including limited companies, to conduct its well-established business. It’s not unfair to say the business model was unusual and complex. (Although the Traffic Commissioner (TC) is not a regulator of businesses, to the extent that matters touch on O Licencing, he/she has regulatory powers to exercise against operators. ) An additional factor was that it involved a restricted licence, meaning that the vehicles could only carry the goods of the entity with the licence.

Without going into all the detail, the operator was using vehicles in such a way that raised the question of whether other legal entities were using the licence, or otherwise unlawfully benefitting from it, and carrying the goods of another entity (Who is the ‘user’ of the vehicle and the true operator can be very complex, and is determined by multiple factors).

We gave our comprehensive legal opinion on all matters that would foreseeably be raised at the hearing. This included urgent advice on an immediate change to how the company was using its vehicles; the company’s maintenance and compliance documentation; and how a different approach would be needed, particularly in respect of brake testing, daily walkarounds and defect reporting/remedying. The company was keen to learn and was receptive to our advice. This involved a site visit, email correspondence, and video-conference/telephone meetings.

All requested maintenance documentation and a business model was submitted in advance to the OTC.

At the hearing the company was able to demonstrate that it was operating vehicles within the authorised parameters. It had learned much in the build-up to the PI and was willing to implement advice - even as late as the day of the PI. The TC conducted a balancing exercise. He concluded there had been a falling-short of O Licence standards in respect of vehicle use and maintenance, and that the company was late to take on professional advice. On the other hand, new systems were in place and dramatic improvements made. OLAT courses had either been booked or completed and the services of a transport consultant were engaged. The almost inevitable regulatory action in this case was limited to a short curtailment involving some vehicles, and undertakings added to the licence. The client considered this a significantly good result considering the consequences of losing the licence or other kinds of regulatory action – which potentially had been on the cards based on the TCs public inquiry brief.

Case Study - Operator Application, Pheonix Arrangement and Fronting 10 September 2024

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As with many applications or ‘regulatory’ public inquiries, the Traffic Commissioner (TC) has before her or him a set of papers prepared by their case worker. The fact a public inquiry has been convened means there are concerns. The papers alone cannot determine the TCs decision—one way or the other. It is imperative therefore that applicants or licence holders prepare their case thoroughly. If prepared properly, it will help assist the TC to make a favourable decision. If not, the TC may conclude that the case is as it appears on the papers – or even worse.

We recently represented a company that applied for an O Licence (the applicant). The matter was brought to public inquiry because of serious concerns that the new company was either a front for a company that had gone into administration, and/or a phoenix arrangement was taking place; transport manager (TM) considerations; and the application form had not been completed correctly—causing an appreciable misrepresentation of the facts (The simple filling out of the application form is the first opportunity the TC has to see anything about the applicant, including whether they are trustworthy!)

After taking instructions, we could see there was plenty of scope to prepare a strong case for the grant of the application. The applicant’s connection to a company that had gone into administration: any links were tenuous and superficial. There was no phoenix arrangement because there were no substantive connections between the two entities, or relevant individuals. The incorrectly filled-out application form was a genuine error (even though it appeared otherwise).

On the professional competence issue, we advised that a replacement TM was necessary. The originally nominated TM was, in our opinion, not suitable in this case. A TM may have the qualification, but depending on the facts, more is required, including experience, actual knowledge and other capabilities. Our client accepted our advice and contracted another TM, contingent on the grant of the licence.

Most, if not all, of the TCs case directions were fully adhered to. Documentary evidence and representations were submitted two weeks in advance.

Most of the work for the inquiry was completed beforehand. That just left the hearing. We advised on what the hearing would entail and how best to present first-person evidence. Hearings can be particularly stressful, especially if things are left last minute, or not addressed properly. In the end, this hearing was fairly straightforward and relatively short. The TC was satisfied that the evidence submitted adequately addressed concerns. Further evidence and submissions were presented at the hearing. Assurances were given, including a willingness to have conducted an independent audit. As at the date of the hearing, it was clear that the applicant had a good knowledge of O Licence compliance requirements and of their specific kind of haulage work. The application was granted with immediate effect with authorisation for several HGVs.

Case Study - 'S' Market Prohibition and Operating in Wrong Entity 09 September 2024

Transport Law

We were instructed by a business primarily involved in farming and authorised to operate six large goods vehicles

The public inquiry was called before the Traffic Commissioner to consider the operator’s repute. Revocation, suspension, curtailment of the licence, and possible disqualification, were also under consideration (under sections 26(1)(b), 26(c)(iii), 26(e) and 26(f) and 35 of the Goods Vehicles (Licensing of Operators) Act 1995.

Background: the operator (like many operators) had not understood the consequences of changing its legal entity. In this case from a sole trader to limited company. And that, generally, in such circumstances, a licence must be applied for in the name of the new legal entity.

Over the period of some months, the operator had started to run some of the business through the limited company; some thought the sole tradership. Meanwhile, one of its HGVs was stopped by DVSA at a roadside encounter. The vehicle was unfortunately given an ‘S’ marked prohibition for significant failings in its braking system. After questioning the operator, the DVSA concluded that there had been an outright change of legal entity. There were also some other less-significant shortcomings, relating to finances, daily walkaround checks, and paperwork issues .

Together, these were serious failings to overcome at PI. Much would depend on how responsive to our advice the operator and transport manager would be.

We were instructed in good time, and promptly advised on all relevant matters. DVSA had concluded there had been a categoric legal entity change, but we were able to give our opinion on this somewhat nuanced area of law. We advised that this could easily lead to the revocation of the licence, but not necessarily. A robust response would be needed in all areas and any shortcomings remedied as soon as practicably possible.

After several meetings, our client and the TM were clear on what needed to be done before the PI. We also advised on what to expect at the PI itself, including what questions might be asked. The client was responsive and we managed to adhere to the OTC deadlines. During our instructions, other matters emerged—ones not raised in the TCs PI Brief papers. We advised on these also to pre-empt further potential questioning.

The hearing went as near-to-plan as could be expected. The operator and TM were well prepared for the hearing. They were able to fully satisfy the TC on most matters raised. The TC accepted our final submissions that there had never been any attempt to deceive or gain an unfair commercial advantage (there had been no such advantage ) and that any mistakes were inadvertent. We’d submitted supporting evidence in advance.

The simple decision was that the TC curtailed the margin on the licence for two weeks. This resulted in no material disadvantage to the operator. On a balance of probabilities, the TC was satisfied that the business would be compliant as the holder of a goods vehicle operator licence. The effect was that the operator was now in a position to continue using its O’licence without interruption, and run its well-established and successful farming business.

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What can you do when your commercial tenant breaches their lease?

Forfeiture

Damages

Injunctions

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Simon Newman

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