Termination of Tenancies for Tenant Default - Law Commission

termination of a tenancy under the statutory termination scheme would therefore
not be breaking entirely new ground.
5.60 The consultees who suggested a power of this sort stressed that it would have
practical application only where the tenancy in question has some capital value.
Typically this will be a long residential tenancy but it is possible that a fixed-term
commercial tenancy with some time left to run might also have sufficient value to
make an order for sale worthwhile. Our general policy in this project has been to
adopt principles which are applicable across the various types of tenancy. We
doubt that an order for sale will be an appropriate disposition in relation to
commercial tenancies, save in a small minority of cases. We do not consider,
however, that its use should be prohibited in those relatively rare circumstances.
5.61 One of the most difficult issues in this project has been how to deal appropriately
with interests that derive out of the tenancy that will terminate with the tenancy
from which they are derived in the event that a termination order is made. There
are acute problems, discussed at length in Part 6, concerning the type of order
that is appropriate where such interests exist. In particular, it is vital that we do
not adversely affect the position of mortgagees and others with security over the
tenancy.
5.62 An order for the sale of a tenancy would not terminate that tenancy. The tenancy
would continue, albeit in the hands of the purchaser. The sale will be subject to
any interest deriving from the tenancy, such as a sub-tenancy. 39 However, where
a sum is secured by a mortgage or charge over the tenancy, the holder of that
security will invariably require repayment of that sum when the tenancy is sold.
Our recommendations therefore provide for the holders of such interests to be
paid out of the proceeds of sale.
5.63 In considering whether to make an order for sale, the court must respect the
rights of landlords and those with security over the tenancy. Where the tenancy
contains a covenant restricting assignment of the demised premises, it cannot be
disregarded. It should follow that if the covenant is absolute, prohibiting
assignment altogether, no order for sale should be made unless the landlord
consents. If the covenant is qualified, prohibiting assignment without the consent
of the landlord, no order for sale should be made unless the landlord consents, or
the court is satisfied that it would be unreasonable for the landlord not to consent.
Where the tenancy is subject to a charge, and the charge contains a covenant
restricting assignment (whether absolute or qualified), no order for sale should be
made unless the person holding the charge consents to the order being made.
While this would in effect confer a veto on an order for sale upon the chargee
where such a covenant is contained in the charge, we think that is necessary to
give proper effect to the chargee’s security.
39
If a sub-tenant or other derivative interest holder wishes to surrender or terminate his or
her interest in consideration for payment (or simply because he or she no longer wants it)
then that is something the parties are free to negotiate and settle between themselves (just
as they can under current law). We do not recommend that express statutory provision is
needed to facilitate this.
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