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As a tenant in a commercial lease, you should understand the likely effect of repudiatory breaches. You should know when this may occur, such as repudiatory conduct and how it may affect your contractual obligations as a contracting party, such as lawful termination of the contract. If you are the innocent party in the contract rather than the repudiating party, it may be your legal right to claim damages in a particular case. This article will explain repudiation and the effect of repudiatory conduct on the parties of the breach.
What is Repudiation?
It is not completely clear what ‘repudiation’ means as the term is ambiguous and can mean various things in a contractual relationship. However, there are three main forms of repudiation, including:
- where one party to a contract no longer performs their obligations because their actions or omissions render the performance impossible;
- renunciation of the contract, which is where one party lets the innocent party know that they no longer wish the contract to continue via explicit or implied conduct from the other party’s behaviour; and
- repudiation because of a severe breach of a term in a contract that is not a condition or warranty.
Repudiatory Breach of a Lease
There are a variety of actions by either a commercial landlord or a commercial tenant which could be a repudiatory breach of the lease agreement. For example:
- a commercial tenant who abandons the commercial premises;
- where there are serious breaches of a landlord’s implied repair covenant in the commercial lease;
- a tenant who denies the landlord’s title;
- unlawful and permanent eviction of a tenant;
- a commercial tenant repeatedly failing to pay the full rent;
- a commercial tenant repeatedly paying only part of their rent;
- a commercial tenant who altered the commercial premises without seeking the consent of their landlord and also not putting it back to normal as required; and
- where there has been a derogation from a grant by the landlord, such as not stopping the nuisance of one tenant to another, providing it is severe enough to deny the tenant most of their benefit from the lease.
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What Are the Effects of Repudiation?
Leases are subject to their own rules rather than only rules which apply to contracts. This is because there is a contract between a commercial tenant and a commercial landlord and an interest in land. Lease agreements are, therefore, subject to contract law and land law. In the past, it has yet to be clear if you can terminate a lease for repudiation as you can in other contracts. It is still unclear as the covenants of the lease are seen as independent from one another, so if one does not need to be performed, it does not necessarily denote that another does not need to.
More recently, however, the view is that it is possible to terminate a lease through repudiation. In doing so, you can terminate the contract and end the tenant’s interest in the land, but this view is not a settled principle.
Therefore, it is generally accepted that a lease’s termination can occur due to repudiation, which applies to the contract and the interest in land.
There are more attempts by tenants to terminate a lease for a repudiatory breach which is likely because a tenant cannot rely on forfeiture, which a landlord can. In terms of a tenant accepting their landlord’s repudiation of the lease, they may be able to do so even where the repudiation is wrongful.
Effects on Parties
It can be advantageous if you are the innocent party where a lease repudiation occurs, as it may allow you to end the lease agreement and claim a loss. This is particularly advantageous as the property market is fluid, so your view of the property as commercial premises may change.
As with other repudiatory breaches leading to contract termination, the innocent party may be able to sue for the loss it incurs as the contract discontinues. If the innocent party to the lease affirms the breach, they can claim damages but cannot terminate the lease. However, it is clear that a landlord cannot claim damages for loss of future rent if they accept a tenant’s repudiation of the lease.
Key Takeaways
Repudiation of a lease is a complex and technical area of commercial leasing, so it is advisable to seek legal advice. Repudiation can occur because:
- the performance of a party to a contract is no longer possible due to their actions or inactions;
- of implied or express conduct from one party to the innocent party which denotes they no longer wish the lease to continue; or
- a severe breach of the lease which means the tenant no longer enjoys their full or the majority of their benefit of the lease.
The effect of repudiation on a commercial lease is not entirely clear as it involves property and contract law. However, in some circumstances, the lease can terminate, and in others, where the innocent party affirms the repudiation, it may still continue but they can seek damages.
If you need help understanding the repudiation of a lease in the UK, LegalVision’s experienced leasing lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. So call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
Repudiation of a lease is where it is either impossible to perform it, a party expressly or impliedly states they no longer wish to continue the lease or due to a severe breach of the lease, meaning the tenant can no longer benefit in full or for the majority of the lease.
Nowadays, it is generally thought that the lease may terminate where there is a repudiation of the lease agreement, but this is not settled law. It can also lead to a claim for damages where the innocent party affirms the lease, but in this instance does not terminate the lease.
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