The Practical Lawyer

 If T is in administration, then IA 1986 imposes a statutory moratorium. This means that L cannot exercise its right of forfeiture by peaceable re-entry except with the consent of the administrators or permission of the court. This gives the administrators ‘breathing space’ to enable the business to continue to trade (and ultimately to maximise value for creditors). But, the existence of the moratorium can be said to interfere with L’s proprietary rights – and there are arguments that the system is being misused through the use of pre-packs where the business is sold on day one of the administration, with the buyer therefore getting an unjustified benefit at the expense of L.

 A seller of commercial properties should bear in mind the complications that can arise if there is a mixed use (eg commercial unit with flats above).

his table sets out the rules applying to common breaches of covenant. Remember that if a breach is ‘once and for all’ and that breach is waived by L, then the right to forfeit the lease is lost forever. Note also that if a covenant (other than a covenant to pay rent) is broken, then L must decide whether the breach is capable of remedy – if so, any s146 notice must require T to remedy the breach within a reasonable time.

 If T is in administration, then IA 1986 imposes a statutory moratorium. This means that no legal process can be started without the court’s permission. The court will then consider whether forfeiture would impede the purpose of the administration by balancing the interests of the parties (ie those of L and the administrators/creditors of T).

What steps must L take before forfeiting a lease? From a contractual point of view, L simply needs there to be a proviso for re-entry (since that sets out the right to forfeit). Conventionally, this will apply to any breach of covenant by T (unless it is rent, when the right to forfeit will usually only arise 14 or 21 days after the rent falls due). It might also extend to matters which do not involve any breach of covenant (eg insolvency of T). But, there are also statutory requirements that have to be complied with:

 If an agricultural building is no longer used for agricultural purposes, then any letting of it will not be a farm business tenancy, but a conventional business tenancy (under LTA 1954). Obviously, this has important security of tenure implications.

In the UK, there are long-established principles for measuring gross external floor area, gross internal floor area and net internal floor area (in particular, the RICS Code of Measuring Practice).

If T has applied for a renewal lease under LTA 1954, the issue of L’s ‘intention’ for the property is decided as at the date of trial.

The general rule is that on a new lease T can expect an initial rent-free period (often three months). Theoretically, that compensates T for the time and expense incurred in fitting out the premises, although it is rare indeed for there to be any such calculation or correlation between fitting-out costs and the negotiated rent-free period. But, what is the impact of that rent-free period on future rent levels?

When T enters into a new lease, they may well identify specific defects and want those recorded (so as to limit their liability to repair and reinstate at the end of the lease). Often, this will be recorded by photographs.