Business

Terminating a lease agreement

Legal Notes

With Harold B Malcolm

Wednesday, August 10, 2011    

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AN inevitable part of business is that owners of property will lease them for the carrying on of various trades, residential purposes and other activities. Equally true is the fact that hardly any other relationship is potentially more contentious than that of landlord and tenant.

It is for this reason that a well-prepared lease is so crucial for the protection of both parties and the preservation of harmonious commercial arrangements. However, even in the best circumstances, landlords sometimes have tremendous difficulties with tenants, particularly as it relates to the non-payment of rent. The most obvious question therefore, is how does one remove a non-paying tenant?

Given that a lease is a contract, all parties are expected to observe all the covenants (terms), such as the payment of rent. When a tenant fails to honour his obligation, the landlord is entitled to certain remedies under law. He may choose to initiate proceedings for the payment of the outstanding sums or make an application for a court order to eject the non-paying tenant. He may also choose to exercise his right of forfeiture and re-entry.

While forfeiture and re-entry may sometimes seem like the quickest ways to regain leased premises from a defaulting tenant, these remedies can be fraught with problems. Firstly, a landlord is prohibited from evicting tenants of certain premises, that is, premises which fall under the scope of the Rent Restriction Act. A landlord of these premises must seek a court order to dispossess a tenant who does not wish to vacate the premises.

For premises which do not fall under the scope of this Act, a landlord may consider the self-help remedies of forfeiture and re-entry, but he has to ensure that he does so very cautiously and after obtaining careful legal advice.

The law is very clear as to how re-entry must be conducted and a landlord who fails to do this may be guilty of a criminal offence under the Forcible Entry Act, a very old statute which was received from the United Kingdom. The person entitled to possession can enter or re-enter the premises, but the statute requires the lessor who wants to terminate/forfeit the lease to do so in a peaceable manner. If he fails to do so, he may be civilly liable or found guilty of a crime punishable by imprisonment. As a result, the landlord who is exercising his right must not threaten, abuse, intimidate or use any form of violence in order to retake possession of the premises.

It is recommended that the landlord exercises his right to forfeit and re-enter when the tenant is absent from the leased premises so as to minimise the possibility of conflict. The landlord could, for example, change the locks to the premises, and post an appropriate notice, effectively excluding the defaulting tenant from occupation. If the tenant is present at the time of the re-entry by the landlord, he must ensure that his entry is peaceful.

It is generally expected, following common law principles, that a landlord would make a formal demand for the payment of rent before exercising his option to pursue litigation or to forfeit and re-enter the leased premises. In practice, a well-prepared lease usually makes an allowance for forfeiture and re-entry without necessarily requiring that the landlord makes a formal demand. Provided that the rents are in arrears, the landlord is allowed to forfeit the lease and re-enter the leased premises.

It is to be noted that a breach of the condition to pay rent entitles the landlord to forfeit the lease and re-enter the leased premises whether or not the particular lease has a formal provision for re-entry for such a breach. Section 96 of the Registration of Titles Act provides that a right of re-entry is implied in every lease of registered land provided rent or any portion of it remains in arrears for more than one month.

Despite the foregoing, a tenant may apply to the court for relief from forfeiture. The court, in exercising its equitable jurisdiction, will consider all the circumstances to make a determination as to whether it should exercise its discretion to grant relief to the tenant. If the landlord, through the course of his dealings with the tenant, has been reasonable it is less likely that the court will make an order in the tenant's favour. The court will consider several factors such as the actual length of the lease, the unexpired term of the lease, whether the tenant is a persistent delinquent or had simply suffered a temporary misfortune. Additionally, the court may consider whether the tenant is now able and willing to pay the rent or whether his refusal/delay is due to any unreasonable conduct on the part of the landlord. If the tenant is now willing to meet his obligations, the court may grant him relief.

Finally, a landlord for example, who has given notice or made demands (though not necessary), may be considered more favourably by the courts. The real consideration as to whether to grant relief from forfeiture will be whether the court in exercising its equitable jurisdiction thinks it is equitable to do so. In the end, a well-drawn lease agreement is a landlord's best protection against a defaulting tenant.

Harold B Malcolm is an Associate at Myers, Fletcher & Gordon and is a member of the firm's Litigation Department. Harold may be contacted via harold.malcolm@mfg.com.jm or www.myersfletcher.com. This article is for general information purposes only and does not constitute legal advice.

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