Termination of Tenancies for Tenant Default - Law Commission

insolvency process having the same effect’ (which would be sufficient to deal with
any future changes)”. English Partnerships suggested that, in the case of
companies, tenant insolvency should include all current forms of insolvency and
related processes, such as liquidation, receivership, voluntary arrangements and
should expressly incorporate “any arrangements whereby the tenant’s creditors
are not to be discharged immediately and in full”. The Property Bar Association
suggested that the definition should include “a list of insolvency events which
may be amended or added to by statutory instrument”. Herbert Smith suggested
that insolvency “should cover the whole range of company and individual
insolvency events”.
Reform recommendations
3.83 We do not intend to alter the principle that it is for the parties to negotiate and
agree terms of the tenancy dealing with the tenant’s financial circumstances.
Where the breach of one or more covenants of this nature comprises tenant
default, the landlord should be entitled to take termination action.
3.84 However, it may well be that the tenant’s financial circumstances are such that
they come within the protection of the statutory insolvency regime. This regime is
designed to balance the interests of the insolvent individual or company and their
creditors. Our principal concern is not to interfere with that balance.
3.85 We therefore intend that the protection from forfeiture currently afforded to
tenants should apply with equal force to termination action under our statutory
scheme. We recommend that this should be achieved by appropriate
amendments to the Insolvency Acts, rather than express provision in the statutory
termination scheme, as we believe that this will best avoid any potential conflict
between our scheme and existing legislation. 63 This approach does not require
the draft Bill itself to define insolvency for the purposes of the statutory scheme.
3.86 We do not, however, intend to replicate the anomaly discussed in the CP
whereby a landlord may not commence any action or other legal proceedings in
respect of a tenancy held by a bankrupt tenant without the leave of the court but
may physically re-enter. Without amendment, the existing legislation would
prohibit a landlord from making a termination claim against a bankrupt tenant
without the leave of the court but would not prevent the service of a summary
termination notice. We therefore recommend that the relevant legislation should
be amended so that a landlord must also seek the leave of the court before
serving a summary termination notice on a bankrupt tenant. 64
3.87 We recommend that the insolvency of the tenant should not, in itself,
comprise tenant default. 65
63 Schedule 5 to the draft Bill effects these amendments.
64 This amendment is also effected by Schedule 5 to the draft Bill.
65 However, where the tenancy contains a covenant by the tenant, for example to remain
solvent or not to commit an act of insolvency, breach of that covenant should comprise
tenant default (unless it is an excepted covenant): see para 3.28 and following.
46