Very often, in commercial lease situations, a tenant might breach one of the covenants in their lease, which can lead the landlord to want to take formal legal action to require the tenant to remedy the breach of covenant.
If a tenant unwisely ignores a Section 146 Notice served on them by their landlord, in the worst-case scenario, the tenant can find that their lease is brought to an early end, and they no longer have the right to occupy the property.
What is a Section 146 Notice?
A Section 146 Notice is a notice served by the landlord under Section 146 of the Law of Property Act 1925 warning the tenant that they have breached one of the terms of their lease and that they need to remedy those breaches if they are capable of remedy. The notice should tell the tenant what breach of covenant has occurred and call on the tenant to put it right if it can be remedied.
Is there a specific period within which the tenant must be allowed to remedy the breach?
The answer to this is no. There are no hard and fast rules about how long a tenant must be given to remedy a breach of covenant, as it all depends on what covenant has been breached. All that the law requires is that the tenant is given a reasonable period of time to remedy the breach of covenant.
In the case of a serious material breach, such as a breach of an alterations clause where the tenant has unlawfully built something or added something to the premises that they do not have the landlord’s consent to build, then a reasonable period of time for the tenant to take down the alteration and reinstate the premises might be anything from four weeks up to four months depending on the circumstances.
In a different case, such as a tenant breaching a clause not to erect signs on the outside of the building, it may be appropriate to only give the tenant 21 days to remedy the breach.
Landlords need to take care when serving Section 146 notices to ensure that a reasonable period to allow the tenant to remedy the breach if it is capable of remedy, is given. If a landlord does not allow sufficient time and then forfeits the lease, perhaps by changing the locks and preventing the tenant from accessing the building, and it is later found that the time allowed was unreasonable, then the landlord could discover that the forfeiture was unlawful and be liable to pay financial damages to the tenant.
Does a landlord have to serve a Section 146 notice in relation to all breaches of a lease?
A Section 146 Notice has to be served on a commercial tenant in relation to all breaches of the lease terms, except non-payment of rent. A landlord does not have to serve a Section 146 Notice in relation to a failure to pay rent, which means that a tenant could find that without notice, they arrive at their premises to find that they have been locked out. A tenant must understand what circumstances would allow the landlord to change the locks if rent is not paid when taking on a commercial property lease.
It is usual in a commercial lease for a landlord to be able to change locks within 14 or 21 days of the rent becoming due. A tenant must understand the date on which rent payments are to be made and make sure that they pay those payments on time to avoid the landlord changing the locks without notice being given to the tenant.
If a tenant finds themselves in a situation where they arrive one day and cannot get into the premises because the locks have been changed and the lease has been forfeited, then a tenant would need to take legal advice immediately to regain access to the premises. It is very common for a tenant to have to pay all of the outstanding rent arrears plus any costs associated with the landlord having to take legal advice and paying a bailiff and locksmith to attend to the premises and change the locks, as a condition of them being allowed back into the premises.
Reasons for serving a Section 146 Notice
A landlord must serve a Section 146 Notice for any breach of the lease terms, except for unpaid rent, if they want the tenant to remedy the breach of covenant or, in the gravest cases, if they want to end the lease.
Very often, commercial landlords serve Section 146 Notices because they require the tenant to remedy the breach of the lease terms and not necessarily because they have any desire to bring the lease to an early end. If a tenant receives a Section 146 Notice, they should take immediate legal advice on the implications of the notice and what they need to do to remedy any breach of covenant. It is also common for commercial leases to include a clause requiring a tenant to indemnify the landlord for any costs that they incur in relation to serving a Section 146 Notice which means that not only will the tenant have to incur costs in remedying the breach of the lease terms, but also pay the landlord’s legal fees associated with the service of that notice.
Are there different rules about Section 146 Notices and disrepair?
Yes. If a commercial tenant has taken a lease that was initially for over seven years and that lease has three years still left to run at the date that a Section 146 Notice is being served for disrepair, then the Leasehold Property (Repairs) Act 1938 will apply. The 1938 Act limits a landlord’s right to claim financial damages for breach of a tenant’s repairing covenant and taking steps to bring the lease to an end in certain circumstances.
If a landlord is serving a Section 146 Notice in relation to disrepair and the 1938 Act applies, then specific provisions have to be included in the notice, highlighting that the tenant can claim the benefit of the 1938 Act if they serve a counter-notice within a defined period and if the tenant serves that counter-notice, that means that the landlord will not be able to take steps to forfeit the lease or claim financial damages without the consent of the Court.
