Termination of Tenancies for Tenant Default - Law Commission

scheme by characterising the obligation as a condition, limitation or any other
term, or by providing that the tenancy should terminate automatically on the
occurrence of an event (such as the bankruptcy of the tenant or a guarantor). At
the same time, the scheme should not be engaged where the landlord simply
wishes to exercise the right to terminate the tenancy by giving notice to the tenant
pursuant to a break clause contained in the tenancy.
3.12 In order to achieve these objectives, we include in the draft Bill a provision which
expands the definition of breach of covenant by a person so as to include:
(1) the occurrence in relation to him of an event on which a right to forfeit the
tenancy would (but for clause 1 of the Bill) become exercisable; 8
(2) the occurrence of an event which is attributable to his conduct where the
continuance of the tenancy is purported to depend on its nonoccurrence;
9 and
(3) the non-occurrence of an event which is attributable to his conduct where
the continuance of the tenancy is purported to depend on its
occurrence. 10
3.13 This provision is intended to deal with a variety of circumstances. Examples of its
application to insolvency are as follows:
(1) If the tenancy (granted before the implementation of the scheme)
reserves to the landlord the right to forfeit in the event of the tenant’s
insolvency (as defined in the tenancy), and the tenant becomes
insolvent, that insolvency would comprise the occurrence of an event in
relation to the tenant on the occurrence of which the right to forfeit would
become exercisable. The insolvency would be treated as a breach of
covenant by the tenant, and the statutory scheme would be engaged.
(2) If the tenancy provides that on the tenant’s insolvency (as defined), the
tenancy shall determine, and the tenant becomes insolvent, that event
(the insolvency of the tenant) would be treated for the purposes of the
scheme as a breach of covenant by the tenant. Again, the landlord must
comply with the requirements of the statutory scheme.
(3) If the tenancy provides that the tenancy shall continue unless and until
the tenant (or the tenant’s guarantor) becomes insolvent, the continuance
of the tenancy is purported to depend upon the tenant and the guarantor
remaining solvent. In the event of the tenant (or the guarantor) becoming
insolvent, the non-occurrence of the event shall be treated as a breach of
covenant, and once more the statutory scheme will be engaged.
3.14 The scheme will not, however, be engaged where the landlord simply invokes a
break clause contained in the tenancy. The giving of notice to terminate is
8 Draft Bill, cl 28(6)(a).
9 Draft Bill, cl 28(6)(b).
10 Draft Bill, cl 28(6)(c).
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