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UK commercial landlords and deliberate breaches of covenant

When commercial tenants have gone against agreed terms and are judged to be in 'breach of covenant', most leases allow property owners to 'forfeit' by ending the tenancy. While many commercial landlords presume that they have a right to deal with difficult tenants in this way, two recent court cases have thrown this certainty into question.

What happened?

In the case of Magnic Ltd vs. Mahmood Ul-Hassan and Nasim Akhtar Malik, the tenants' lease stipulated a need to comply with planning legislation requiring a fume extraction system in their takeaway. Installation of this device was not possible due to a conflict between the relevant planning permission and the tenants' lease, and a lengthy court battle ensued that resulted in Magnic Ltd attempting to forfeit. When the restaurant owners appealed this attempt to terminate their lease, they were granted 'relief from forfeiture' on the basis that they had misunderstood a previous ruling asking them to cease trading.

The second case, Friefeld and Ayr vs. West Kensington Court Ltd, involved the illegal sub-letting of a commercial retail unit to a noisy Chinese restaurant. Forfeiture was initially granted to the landlord, but an appeal was subsequently approved even though the tenants had deliberately sub-let the property.

Why were these decisions taken?

Armel Elaudais of Clyde & Co. argues that the deciding factor in these cases is clear: the windfall that landlords receive in the event of forfeiture. Granting forfeiture would have deprived tenants of their livelihood and resulted in landlords receiving large lump sums. This proportionality consideration seems to have outweighed the fact that both tenants could, albeit to differing degrees, be argued to have deliberately breached covenant.

Given that the above rulings take place in the context of tightening CRAR laws and changes to bankruptcy thresholds, it appears that it's getting more and more difficult for commercial landlords to run their businesses. Fortunately, landlords can still ensure a baseline level of cash flow security by enlisting the help of ethical Enforcement Agents and making sure that rent arrears don't become irrecoverable 'bad debts'.

If you're a commercial landlord who's worried about your ability to protect your livelihood, contact a Dukes Debt Advisor to discuss how our services could give you extra peace of mind.

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