Question: You have just published your report "Termination of Tenancies", what are the problems this project is seeking to address?

Stuart Bridge: The project focuses on the law of forfeiture of tenancies. It is an area of the law that is extremely complex, it lacks coherence, and as we said in our consultation paper three years ago, it can lead to injustice.

Question: What do you mean by forfeiture, and what tenancies does it currently apply to?

Stuart Bridge: Forfeiture is the means whereby tenancies for a fixed term can be terminated by the landlord where the tenant has been in breach of covenant or has failed to pay the rent.

The law of forfeiture has particular influence in those sectors where fixed term tenancies are commonplace: in other words, the commercial sector and the long residential leasehold sector.

Question: What does the Commission believe should be done?

Stuart Bridge: Forfeiture operates on the basis of what is known as re-entry. The landlord can forfeit either by issuing legal proceedings or by going into the property (at least if it is a commercial tenancy) and changing the locks.

We have been looking at these two methods and considering whether forfeiture is an appropriate means of terminating leases in the 21st century.

A major problem with forfeiture by court process is that the tenancy is terminated immediately once the legal process is served. The landlord serves the writ and then, astonishingly, the tenancy is already over before the tenant can oppose the landlord's application or do anything about it. This causes many complications in practice. There are also difficulties with peaceable re-entry (where the landlord goes in and changes the locks). It was trenchantly criticised by the House of Lords in the early 1990s.

What we think should be done is to abolish the current law of forfeiture and to replace it with an entirely new statutory scheme. There would be set out in a single statute the basis on which landlords may terminate tenancies in the event of tenant default.

Annexed to our report is a draft Bill. The Bill details the procedure which the landlord must follow. In each case, the tenant should be given a written notice before action is taken so that the tenant knows what the landlord is intending to do and can respond effectively. The Bill also lists the orders that a court can make and confers appropriate protections on third-party interests such as mortgages and sub-tenancies.

The Bill also contains a summary termination procedure which permits landlord in certain restricted circumstances to secure termination of tenancies without resorting to the court process at all. This is targeted at cases where the premises may be abandoned or where there is absolutely no prospect of the landlord obtaining any rent, or recompense for breaches of covenant, because the tenant has clearly ceased trading. The summary termination procedure would not apply to residential premises.

So, what the report recommends is a new structure which offers a clear basis on which landlords and tenants can resolve- hopefully, in many cases, by negotiation- those disputes that arise during the currency of the lease.

Question: You say that the principle of proportionality is at the heart of your recommendations. What do you mean by that exactly?

Stuart Bridge: We feel that the court, when it is deciding what orders should be made, should be expressly required to make whatever order is appropriate and proportionate in the circumstances. 

The Bill includes a checklist of factors which the court should be required to consider in determining these criteria.

Proportionality is therefore absolutely central to the scheme. Let me give one example. We recommend that the court should have a power that it doesn't currently have which is the power to make an order for sale of the tenancy. We see the order for sale as being extremely useful where there is a tenancy with a significant capital value and where the landlord's loss is in fact relatively insubstantial.

Under the current law what happens is that if the landlord forfeits the lease, and the tenant fails to apply for relief, the tenancy will end, and the landlord will obtain possession of the premises. The landlord will then be able to re-let (or to sell the freehold free of the tenancy) and in those circumstances will stand to gain a considerable windfall. The tenant, on the other hand, loses a very considerable asset without any compensation.

We think that in such circumstances the court should be entitled to make an order for sale and to require that the proceeds of sale be distributed. The landlord would obtain out of the proceeds the debt owed by the tenant, any secured creditors who wished to be discharged would be paid out, and the residue would go to the tenant. This would be a proportionate remedy which would recognise the very considerable investment of the tenant. It would be particularly valuable where landlords seek to terminate long residential tenancies for tenant default.

Question: Do you expect the report and Bill to be welcomed equally by landlords and by tenants?

Stuart Bridge: Yes we do. This project has not been motivated by any particular need to protect tenants, or for that matter to empower landlords. What we have been seeking to do is to ensure that there is a level playing field between landlords and tenants.

There are certain aspects of the current law which tend to favour tenants and there are certain aspects which tend to favour landlords.

We are recommending that the current law of peaceable re-entry be abolished and we can see that some landlords would regret its disappearance as it can operate as a rather useful, albeit unsophisticated, bargaining tool. At the same time we also recommend the abolition of the doctrine of waiver which can frequently operate against landlords and in favour of tenants.

So there are 'gains' and 'losses' on both sides, but both landlords and tenants will benefit from a coherent, modern scheme.

Question: How do the recommendations in the report impact upon lending institutions?

Stuart Bridge: There are several respects in which our recommendations will be of benefit to the lenders.

Firstly, the process of termination will always begin with the service of a notice, indicating that a tenant is in default and intimating the possibility of future action by the landlord. We recommend that notice should be served not only on the tenant but also on any person who has an interest secured on that tenancy, such as a mortgagee.

We think that this will be very useful to mortgagees, as it will give them early notice of what the landlord is doing and the opportunity to become involved in any negotiation process.

Secondly, some of the court orders that we have recommended would be extremely beneficial to a lender. Not only is there the order for sale (there may be circumstances where the lender wishes to take over the tenancy, in which case a transfer order can be made in its favour). Or it may be that the lender would be content to take a grant of a new tenancy of the premises, and, that is something that would be available under the scheme.

Thirdly, I mentioned earlier the summary termination procedure that could be used where the premises have been abandoned or where the tenant is no longer trading. We recommend that there should only be one month between the service of the summary termination notice and the termination of the tenancy. However, we consider that the lender should be able to make an application to the court even after termination has occurred for what we refer to as a post-termination order.

Question: What do you think will be most controversial about the report, and do you have a feeling for how this will be received by the government?

Stuart Bridge: We do not consider that this is a particularly controversial set of recommendations.

We see them as a genuine attempt to introduce a workable system enabling parties to exchange information that enables them to come to terms. While they should litigate only when it is necessary, there should be in place a modern and coherent structure rather than the archaic laws that currently apply.

We see our recommendations as advancing a process of modernisation which will be in everyone's interest because it will be so much clearer to parties exactly what their legal rights and obligations are at all stages of the process.

We believe that this scheme should be extremely attractive to all those in the industry.

It should therefore be something that government is keen to implement at an early legislative opportunity.