Termination of Tenancies for Tenant Default - Law Commission

often stipulate that a right to forfeit arises where the tenant is served with a
statutory demand. 57 However the covenant is worded, the principle is clear: the
landlord must show that the event that has occurred activates the right to forfeit
thereby entitling him or her to forfeit the tenancy on that ground. 58
3.74 Any right of re-entry that a landlord has reserved is likely to be restricted where
the tenant has become the subject of the statutory insolvency regime set out in
the provisions of the Insolvency Act 1986, the Insolvency Act 2000 and the
Enterprise Act 2002. 59 These Acts impose either stays or moratoria on legal
proceedings, including forfeiture proceedings, against those who come within
their protection.
3.75 We do not intend that the protection given to tenants by the Insolvency Acts
should in any way be weakened by the abolition of forfeiture and its replacement
with our recommended statutory scheme. We therefore seek to retain that
protection.
The CP’s provisional proposals
3.76 The CP provisionally proposed that tenant insolvency should not, in itself,
comprise tenant default. By this it was meant that, if the tenancy agreement is
silent on the question of the tenant’s solvency and the tenant becomes insolvent,
this will not automatically trigger the landlord’s right to take action under the
scheme. The all-important words in this provisional proposal were “in itself”. It
was intended that parties could make specific provision in the tenancy that the
tenant covenanted to remain solvent (within whatever definition the tenancy
employed) and that breach of such a covenant would comprise tenant default.
3.77 Insolvency for the purposes of the CP’s provisional proposals was not defined.
We sought the views of consultees as to whether such a definition was necessary
and if so what that definition should be.
3.78 The CP also discussed an acknowledged anomaly in the current law whereby a
landlord may not, without the leave of the court, commence any action or other
legal proceedings (including forfeiture proceedings) in respect of a bankrupt
tenant 60 but may forfeit by physical re-entry without seeking such leave. 61 The
existence of this anomaly, the CP argued, could frustrate one of the main
objectives of the insolvency regime, namely the financial rescue of the tenant,
and would lead to the removal of the value of the tenancy from the pool of assets
available to satisfy the claims of creditors other than the landlord. The CP
57 Served under the Insolvency Act 1986, s 268.
58
It should be noted that, whether or not the tenancy contains an express covenant
concerning the tenant’s solvency, where a tenant is in financial difficulties it is likely that he
or she will be in breach of a number of other covenants, not least to pay rent.
59 Which regime applies turns on whether the tenant is an individual or a company and the
particular circumstances of the insolvency.
60
Insolvency Act 1986, s 285(3).
61 As established in Razzaq v Pala [1997] 1 WLR 1336.
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