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Law reform

Abolition of forfeiture

Law Commission Final Report

Termination of Tenancies for Tenant Default

The Law Commission final report on "Termination of Tenancies for Tenant Default" (Law Com No.303) recommended the abolition of the law of forfeiture and its replacement by a new, simpler, fairer and more coherent statutory scheme. This is set out in a draft "Landlord and Tenant (Termination of Tenancies) Bill" attached to the report. The report contains a very useful executive summary. Our own bullet point summary is as follows:
  • The new scheme will apply to all cases for termination for breach of covenant or condition save where the tenancy is subject to some other statutory regime. Thus, it will principally be relevant to commercial premises and residential long leases. (Reform of residential tenancies has been recommended by the Law Commission report on "Renting Homes" - Law Com No297).
  • Breach of a covenant or condition is described as "tenant default". If this arises the landlord will be able to apply for termination before the end of the term. There will be no need for a forfeiture clause. However, the parties will be able to agree that particular breaches will not comprise tenant default and so exclude or limit the right to terminate.
  • There will be no concept of waiver. The landlord will be able to continue to accept rent after tenant default.
  • A landlord wishing to terminate will need to serve a "tenant default notice". This will set out the terms of the breach, any remedial action required and the date by which it should be completed. The notice will also need to be served on mortgagees and sub-tenants known to the landlord. It will not be possible to act on the notice until at least 7 days or until the date for remedy set out in the notice expires.
  • The scheme encourages negotiation and the primary purpose of the notice is to ensure that the tenant complies with the terms of the lease. However, if the tenant does not remedy the breach in the time provided the landlord may make a "termination claim". This will also need to be served on tenants and mortgagees known to the landlord.
  • The court will have available to it a number of remedies: a "termination order", a "remedial order", an "order for sale", a "transfer order", a "new tenancy transfer order" and a "joint tenancy adjustment order". The idea is that once satisfied that the tenant is in breach the court should make such order that it thinks appropriate and proportionate in all the circumstances.
  • A "termination order" obviously terminates the tenancy, and all derivative interests; and a "remedial order" requires the tenant to remedy the breach. The latter stays the landlord's ermination claim for a termination order for a period of three months from the day by which the tenant is required to have carried out the work. During that period the landlord can apply for the stay to be lifted and proceed with the termination claim.
  • An order for sale"is an order that the tenancy be sold and the proceeds distributed. This may be appropriate where the tenancy has a significant capital value and a termination order would provide a disproportionate windfall to the landlord.
  • Sub-tenants and mortgagees will be able to apply for a "transfer order or a "new tenancy order".
  • Where the tenancy (or sub-tenancy) is held by joint tenants and not all wish to contest the landlord's claim, the court will be able to make a "joint tenancy adjustment order" releasing the reluctant part from the joint tenancy.
  • Peaceable re-entry along with the rest of forfeiture is abolished but will be replaced by a "summary termination procedure", under which the landlord can bring a tenancy to an end without applying to the court. It will apply where the tenant has no realistic prospect of resisting a termination claim. The landlord will need to serve a "summary termination notice" that will bring the tenancy to an end one month after service notice. In that time the tenant (or sub-tenant or mortgagee) will be able to apply to the court to discharge the notice. The burden will be on the landlord to show that the tenancy should be terminated. For six months after summary termination the tenant (or sub-tenant or mortgagee) will be able to apply for a "post termination order". This will allow the court to grant a new tenancy or order the payment of compensation but will not allow it to revive the terminated tenancy. It will not be possible to use the summary termination procedure where (1) someone is lawfully residing in the premises, (2) the unexpired term exceeds 25 years or (3) the tenancy was granted for more than seven years and there are three or more years left and the default is a breach of a repairing covenant.
  • Special provision is made to preserve the protections conferred on tenants of long leases by the Commonhold and Leasehold Reform Act 2002; and the protections conferred by the Leasehold Property (Repairs) Act 1938 and the Insolvency Acts.

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