Is A Lease Really Necessary
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09th May 2013
In difficult times, businesses renting premises such as
shops and offices often find it difficult to pay the rent and landlords
want to know what they can do about it.We have had two recent cases but
the problems with the individual tenants were quite different, as are
A family owned a single property which effectively was their pension
and was intended to provide a regular income. They had allowed a tenant
into possession on a ‘back of a fag packet’ tenancy and they had also
agreed that the tenant could carry out substantial works and change the
use of the property provided the tenant got all the necessary
A short time into the arrangement, the tenant stopped paying rent and
the landlord discovered that the tenant had ‘bodged’ most of the works,
and caused damage to other parts of the property. The landlord
therefore wanted to regain possession and because there was no formal
lease, the status of the tenant was uncertain and the longer the tenant
remained in possession the stronger their legal position became.
However, life is not that simple. The whole point about a properly
drawn lease is that it is there to protect the landlord. A key part of
this is the forfeiture clause which allows a landlord to regain
possession if the tenant is in breach of the lease or tenancy. Without
this clause, the landlord can sue the tenant for the rent but cannot
just walk in and re-take possession. The lease or tenancy gives the
tenant a legal right to be in possession to the exclusion of all others
(including the landlord). Without a properly drafted forfeiture clause
it can be very difficult indeed for the landlord to re-enter and take
back the property. Court action may well be involved which makes the
process expensive and time consuming.
A further complication is that these ‘home made’ tenancies and leases
often give the tenant more rights than the landlord had intended,
usually security of tenure under the Landlord and Tenant Act 1954. This
means that the tenant is entitled to a new tenancy or lease each time
the existing one comes to an end. Therefore, not only will the landlord
have real difficulties taking possession if the rent is in arrears, but
the landlord cannot simply regain possession when the lease or tenancy
ends. Instead, the landlord must follow a specific and complex
procedure, but even that does not guarantee possession.
In this particular case we were able to establish that the tenancy was
of a very limited nature and that not only did it not have any security
of tenure but that there were sufficient provisions in it to allow the
client to re-take possession. We organised this, completed the
appropriate procedures and then took possession and changed the locks.
The client was also entitled to compensation from the tenant for damage
done to the property, although there is little chance of our client
receiving compensation because the tenant has no assets.
In the second case the facts were similar in that there were constant
rent arrears and the tenant had done some damage to the property.
However, the critical difference is that we had prepared a formal lease
which the tenant had signed before taking possession. This meant that
the tenant’s legal position was much more certain and therefore our
client had a number of options. For example, terminating the lease for
non-payment of rent can be done very quickly and effectively by
peaceable re-entry which means going in, usually at 5 or 6 in the
morning, and changing the locks.
However, this brings the lease to an end and with no other potential
tenant the landlord would finish up responsible for repairs and, after
a few months, business rates. In this case, on the advice of a
professional managing agent (which our other clients did not have), the
landlord had also obtained a rent deposit, and there was a guarantor.
This meant the landlord could sue not only the tenant, but the
guarantor and could choose not to end the lease but simply to keep
looking to the guarantor to pay the rent whenever due.
In addition, if a tenant becomes insolvent (i.e. is bankrupt or goes
into liquidation) the guarantor can be made to step into the tenant’s
shoes and take a lease in their own name, or to pay a lump sum in lieu
You will see from the above examples that a properly drafted
gives the landlord considerable protection, not only in terms of legal
rights but also in terms of having a number of options. Of course, a
lease is no guarantee of actually recovering rent or compensation for
damage, but a good lease goes a long way in damage limitation.
About the Author
Lawson-West specialise in commercial, business and employment law. Our team
of dedicated commercial solicitors can help with buying or selling a business,
business law and disputes, landlord and tenant issues and commercial property.
Our expert employment team can offer practical advice and guidance on all
aspects of employment law including redundancy, compromise agreements and
dismissal procedures. Visit
www.lawson-west.co.uk for more information.
For more information please contact David Heys at Lawson-West
on 0116 212 1027.
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Article Published/Sorted/Amended on Scopulus 2013-05-13 09:12:18 in Legal Articles