Pressing the big red button - repudiatory breach as an option for removing a tenant
When a tenant is in breach of their lease obligations, landlords have various remedies at their disposal, each varying in their level of severity. The case of Ramsbury Properties Ltd v Ocean View Constructions Ltd [2024] demonstrates the application of a more uncompromising option and the possibility of terminating for a repudiatory breach in exceptional circumstances.
Ramsbury v Oceanview
The case was decided by the Privy Council and concerned a lease agreement between Ramsbury Properties Limited and Ocean View Construction Limited. The lease provided for 250 of Ocean View’s Mexican workers to occupy a premises owned by Ramsbury as accommodation while they performed a hotel repair contract on behalf of Ocean View. The term agreed was 7 months with a monthly rent payable of $56,000 USD. Additionally, the lease contained a number of important terms including:
“[1.] The Lessor shall grant and the Lessee shall accept a lease of approximately 8000 square feet of space within the building situated on the property for the purpose of sleeping accommodation for 250 workers for a term of Seven (7) months beginning the 18th day of June 2009 at a consideration of $56,000.00 per month.
PROVIDED ALWAYS that the Lessee continues to enjoy the status conferred by its sub-contracting partner and pursuant to the terms and conditions governing the Lessee’s ability to do business on the Island of Nevis, there shall be 250 workers arriving for sleeping accommodations only starting from the 20th June, 2009.”
“5. THE LESSOR HEREBY COVENANTS AS FOLLOWS:
(a) For quiet enjoyment of the space occupied by the Lessee;”
Ocean View’s workers began occupying the premises around 20 June 2009 but by 17 July 2009, Ocean View informed Ramsbury that it was terminating the lease and vacating the premises. The basis of the termination was Ramsbury prohibiting the workers from eating or doing their laundry on the premises, which Ocean View alleged was a breach of the covenant for their quiet enjoyment of the premises. The workers subsequently vacated the premises on 17 July 2009 and Ramsbury commenced legal proceedings on 29 July 2009 claiming specific performance and damages for breach of contract. Ocean View filed a defence and counterclaim seeking a refund of the $56,000 deposit paid to Ramsbury.
The Privy Council decided the case on the basis of two key issues:
- How must “sleeping accommodation only” be defined
- If the definition includes eating and doing laundry, did Ramsbury commit a repudiatory breach by prohibiting Ocean View from performing these activities
On the first issue, it was the view of the Privy Council that “sleeping accommodation only” should be interpreted as permitting performance of the basics of life, thus including eating and doing laundry.
On the second issue, the Privy Council determined that Ramsbury’s persistent prohibition against eating and doing laundry was indeed a repudiatory breach. Notably, this was due to the exceptional circumstances that existed, namely that the breach had resulted in 60 out of the 250 workers (around 25%) expressing their dissatisfaction and intention to immediately return to Mexico. This would have left Ocean View unable to fulfil its hotel repair contract and triggered its liability for damages for breach of contract. As the purpose of the lease was to house the 250 workers to enable Ocean View’s performance of its hotel repair contract, the breach deprived Ocean View of substantially the whole benefit of the contract. As the lease was only for a term of 7 months, it was possible to regard the purpose of the lease as something other than an estate in land as the lease did not provide Ocean View with a long term interest in the property.
As a result, the appeal was dismissed.
What does this case mean for landlords?
It's important to note two things. Firstly, this case was decided by the Privy Council in St Kitts and Nevis. However, the judgment provides that there is no suggestion that the law differs from that of England and Wales. Secondly, the facts of the case were exceptional and this is highlighted in the judgment. Regardless, this case demonstrates that an ability to terminate a lease for a repudiatory breach does exist for both parties, even in a limited capacity, clarifying the uncertainty resulting from pre-existing case law. This represents a drastic measure available to landlords and more commonly a landlord will opt for better established methods of removing a tenant in breach. It should be treated with utmost caution.
Alternative options for removing a tenant in breach
Forfeiture represents a common method of dealing with tenant breaches. This method requires the landlord to serve a section 146 notice before applying to the court for forfeiture or peaceably re-entering, unless the tenant is in breach for non-payment of rent, in which case notice is not required. Whether the landlord takes this option is based on their assessment of the breach and their ability to immediately re-let once the tenant has vacated.
If a landlord wishes to pursue forfeiture, they must ensure that they don't inadvertently waive their right to forfeit after becoming aware of the breach by performing and communicating to the tenant an act that unequivocally recognises the lease as continuing. This could include accepting a rent payment or making a demand for rent. Note, this only applies to once-and-for-all breaches, where the right to forfeit arises only once upon the landlord first becoming aware of the breach (eg, where the tenant has breached the alienation provisions). In contrast, the landlord cannot waive their right where the breach is continuing (eg, where the tenant has breached a covenant to keep the property in repair), as a fresh right to forfeit arises each day that the breach continues.
Landlords must also consider that tenants can apply for relief from forfeiture and so if the landlord wishes to forfeit the lease and grant a new lease to a third party, the tenant should be put on notice of this and asked to apply immediately for relief if this is what the tenant intends to do. Otherwise, the landlord may be left with a vacant property while the tenant makes its decision.
An effective way of dealing with breaches by a tenant is surrender, which represents an amicable agreement between the landlord and tenant to determine the lease. Surrender can either take place by deed or by operation of law. Where it takes place by deed this will require the agreement to be in writing and will result in the immediate surrender of the lease. Where it occurs by law, the surrender will be inferred from the tenant handing back the property to the landlord and the landlord accepting this. If surrender occurs, the tenant will remain liable for any past breaches unless the surrender acts in satisfaction of the past breaches with the tenant paying a sum upon surrender, for example. Such provisions for the satisfaction of any breaches should be included in the written deed of surrender.
Where the lease contains a Jervis v Harris clause, the landlord can enter the property to perform any repair works required and then recover the cost from the tenant as a debt. The landlord must be careful to ensure the works carried out relate to the specific disrepair resulting from the breach as if they go beyond this, they may be liable for trespass.
This remedy is at the discretion of the court and will only be available where damages are inadequate and the obligation requiring performance is sufficiently well-defined so that specific performance is able to occur.
This remedy will not be ordered where it would require constant supervision. Furthermore, it isn't generally awarded where the tenant is in breach of their repair covenant.
Pursuing this remedy will allow the landlord to be put in the position they would have been had the tenant followed its obligations and this may be used alongside other remedies such as forfeiture. Note that for a breach of a repairing covenant the amount the landlord can recover is limited to the diminution in value of the property, and it's for the landlord to prove this diminution.
As with specific performance, injunctions are also an equitable remedy. These are often sought where the tenant is threatening a breach or where the tenant is making unauthorised use of the property. Where a covenant is oppressive the court will refuse to grant an injunction and will award damages in lieu if necessary. It's common for a landlord to threaten forfeiture at the same time as they are making the application for forfeiture.
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