What is a Notice of Breach of Covenants?

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Shergroup’s CEO, Claire Sandbrook is often asked a question by the landlord community about their commercial tenancies. Some of the questions for example are – what are my options for a breach in the tenancy contract, how quickly can you help me to evict my tenants, and what actions can I take against my tenant in the case of non-payment of rent, how much do you charge for eviction?

After hearing the side of our client Claire, the first question is always ” have you checked your lease terms”? In most cases, the answer she gets is No.

It is common for the parties to have just a limited understanding of the agreement they have entered into and their post-completion obligations to one another. For that reason, we have summarised a few points that help us understand the situation better |

The party in breach. Landlord or tenant?
Establish the breach – is it a breach of a positive covenant or negative covenant?
What remedy/action is the party looking to achieve?

Establishing a breach becomes relatively easy now. Either of the parties has failed to do something they should have done (breach of a positive covenant) or they have done something they shouldn’t have done (breach of a negative covenant).

Assuming there is a breach, the question is ‘is the breach capable of being remedied?’ So examples:

If a repair is required to be carried out, can it still be done and that resolves the issue?
If there is non-payment of rent- would clear the arrears to solve the issue? Factor in the relationship- is this a subsisting breach (does it happen often?) in which case has the landlord had enough?
If there has been some damage caused to the property which is a result of the breach that occurred, would agreeing on a sum (damages) in favour of the injured party appease things? Would repairing the damage be a consideration?
Has the tenant used the property for a purpose it shouldn’t have? In which case would cease to do so immediately keep the landlord happy?
The big one is often underletting/subletting without permission. Now, of course, with something like it depends on the landlord and whether they want to be reasonable. A breach of this covenant is a fundamental breach and so capable of immediate forfeiture of the lease. It’s a no-no. The question is, and it’s ALWAYS the most important question in any contractual dispute (property or otherwise) what are the damages/loss?

We first advices our clients to find a mutual and practical approach to find a solution to their problem. If the landlord and the tenant can mutually agree to resolve the matter then nothing like it, if not then a formal action can be considered.

How to Serve a Notice of Breach of covenants?

As a landlord in England and Wales, you can serve the notice in the following way –

Use this section 146 notice to notify a tenant that they are in breach of their lease. If the fault is not remedied, this breach of covenant notice will allow you to take the initial step toward forfeiting the lease. It includes information on the breach, formal disclosure procedures, and a request for compensation.

When should you use a notice of breach of covenants?

Use this section 146 notice to |

give notice to a tenant that they are in breach of the lease
inform the tenant that the breach must be put right
take the first step to forfeit the lease if the breach is not rectified

What’s included in a notice of breach of covenants?

This notice covers:

details of the breach by the tenant
formal requirements for the notice to be valid
a request for compensation

What’s a notice of breach of covenants?

A breach of covenant notice, sometimes known as a ‘section 146 notice’ (after the relevant section of the Law of Property Act 1925), can be delivered to tenants who have broken a lease agreement. It is the first legal step toward the lease being forfeited. This sort of notification is usually only utilised in the case of commercial leases.

Do you need a breach of covenant notice?

If a landlord learns of a tenant breaching a fixed-term lease’s terms and the leaseholder is not in arrears on their rent, delivering a section 146 notice may be the best option to take legal action and forfeit the lease. A breach of covenant notice describes the violation, instructs the renter on how to correct the violation, and may also specify any potential compensation.

What is a covenant in a lease?

Covenants are essentially regulations written in a lease that define a tenant’s (or leaseholder’s) obligations under the lease’s terms. There can be restrictive covenants (for example, not allowing dogs inside the property or preventing the installation of hardwood flooring) or positive covenants (for example, allowing the installation of hardwood flooring) (e.g. cleaning the windows once every six months or replacing blown light bulbs).

What are some common types of breaches of covenant by tenants?

Although non-payment of rent is the most prevalent sort of covenant breach (for which no breach of covenant notice is necessary), covenant breaches are frequently involved in section 146 notices:

tenants making alterations to the property without consent
leaseholders removing carpets and installing hardwood flooring
non-payment of service charges (if these are separate from the rent)
noise complaints
allowing pets on the property (more common in residential tenancies)
issues regarding parking spaces
leaks or damage to the property caused by the negligence of the tenant
repairing obligations (although these usually relate to the landlord), and
sub-letting parts or whole of the property without consent.

How much time should you give a tenant to rectify a breach?

The tenant should be given a reasonable amount of time to correct the breach after receiving a section 146 notice. What is “reasonable” will differ based on the circumstances. As a result, a tenant will require more time to repair serious damage than removing their vehicle from another tenant’s parking area.

What are the consequences of breaches of covenants by tenants?

Tenants will be obliged to correct any breaches of their covenants at first. They may be served with a section 146 notice and the lease may be forfeited if they do not take the appropriate action.

When can a breach of covenant notice not be used?

The use of a section 146 notice for non-payment of rent is not permitted. However, this isn’t truly an exception; in the case of rent arrears, this notice isn’t required to proceed with the lease forfeiture process.

What are the next steps after a breach of covenant notice has been served?

Once the notice has been served, landlords should ensure that the leaseholder has received and understood how the covenant has been breached, and then provide a reasonable amount of time for the breach to be remedied. Compensation may also be requested as part of the section 146 notice. If a tenant fails to put right the breach, steps can be taken towards forfeiture of the lease, repossession as well as any claiming compensation.

Summing-up

You can choose to send a breach of covenant notice to your tenant if your tenant has breached a lease term and you want to bring the tenancy agreement to an end. You can use legal help from experts like Shergroup to draft and serve the Section 146 notice to your tenant and get them to act on it.

If the tenant agrees to rectify the breaches of their covenants at first, then it’s fine. If not, they may be served with a section 146 notice and the lease may be forfeited if they do not take the appropriate action. Shergroup can help in forfeiting the lease, repossession as well as any claiming compensation from the tenant.

So, if you find yourself in a similar situation reach out to the experts at Shegroup. We’re here to help you receive what is rightfully yours.

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