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Is A Lease Really Necessary

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Lawson-West Solicitors - Expert Author

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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 the solutions.

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 approvals.

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 of this.

You will see from the above examples that a properly drafted lease 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

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