Bahrain: Landlord Rights Against Tenant Default Under A Commercial Lease

Last Updated: 15 October 2012
Article by Simon Green

This article examines some of the key legal remedies available to a Landlord where a Tenant is in default under a commercial lease in Bahrain. The remedies available to a Landlord include so called ‘self-help’ remedies as well as those requiring the commencement of court proceedings. It should be noted that some of the remedies set out in this article are not mutually exclusive and can be used in conjunction with other remedies.

What is Tenant Default?

Tenant default occurs when a Tenant breaches one of the tenant’s covenants in its lease. Tenant default can arise in a number of different ways but will typically be for one of the following:

  • Non-payment of rent or other sums reserved under the lease

  • Breach of the repair covenant

  • Breach of the alienation covenant

  • Unauthorised alterations

  • Breach of the permitted use

  • An act of Insolvency

Tenant default may or may not be obvious. For example, non-payment of rent is likely to be easily noticed whereas a minor breach of the repair covenant may be less obvious. However, a Landlord should be properly managing its investment and undertaking regular inspections so that any tenant default can be identified and dealt with.

Attitude and Aims

Once a Landlord is aware of the tenant default, it will need to consider what action to take. Such action will be influenced by the Landlord’s attitude to the tenant default as well as the Landlord’s aims.

For example, a Landlord will need to assess whether the tenant default is a temporary issue or whether it is more serious. A Landlord will also need to consider whether it wishes to preserve its rental income and what the prevailing market conditions are like. Ultimately, any action taken by a Landlord will be driven by whether it wants to:

  • Allow the lease to continue, for the Tenant to remain in occupation and for the Tenant to continue paying rent; or

  • Terminate the lease and obtain vacant possession.

Self-Help Remedies

Self help remedies are those which a Landlord can employ without the need to commence legal proceedings and a number of which are set out below.

Entering the premises and undertaking works that should have been done by the Tenant

It is not uncommon in commercial leases in Bahrain to see a right reserved in favour of the Landlord allowing it to enter the premises, remedy any breaches of covenant and to recover the cost of doing so from the Tenant.

However, such a self help remedy is not available to a Landlord in Bahrain. A Landlord must obtain a Court order to enter the premises and carry out any necessary work.

Distress

This remedy allows a Landlord to enter the premises, seize the goods of the Tenant which are contained within the premises and to sell them so as to use the proceeds of sale to set-off any sums owed to the Landlord.

Again, such a self help remedy is not available to a Landlord in Bahrain. A Landlord must obtain a Court order in Bahrain prior to proceeding with this remedy in accordance with the Civil and Commercial Procedures Law of 1971.

Rent Deposit / Security

A Landlord may seek to utilise any monies from a rent deposit / security which it holds against any tenant default such as non-payment of rent.

Article 353 of the Civil Code (2001) provides a Landlord with the right to set-off monies held in a rent deposit / security against rent, service charges or other monies owed to it.

Guarantee

Where a Landlord has the benefit of a guarantee, it may seek to oblige the Guarantor to remedy any tenant default. A guarantee must be in writing to be enforceable under Bahrain law and must be carefully drafted. For example, the guarantee should specify that the Guarantor is the primary obligor and that the guarantee being given is irrevocable.

Demand from third party

Article 544 of the Civil Code (2001) provides for the ability for a Landlord to obtain rent directly from a Sub-Tenant subject to requisite notice being given.

Under Bahrain law, a Landlord is unable to seek redress from a former Tenant. If a Tenant has assigned its interest to an Assignee, and subject to the Landlord consenting to such an assignment, Article 545 of the Civil Code (2001) provides that the Tenant will not be liable for any tenant default which is caused by the Assignee.

Court Proceedings

Those remedies which require the commencement of court proceedings in Bahrain relate to the following:

Suing for Damages

A Landlord may wish to sue the Tenant for damages arising from the tenant default. For example, a Tenant may have breached its repair obligations and has either caused damage to the premises or has allowed the premises to fall into disrepair.

Suing for Recovery of Arrears

A Landlord may wish to seek recovery of a debt from the Tenant against its failure to pay rent or other sums reserved under the lease.

Injunction

This remedy allows a Landlord to prevent the Tenant from breaching an obligation under the lease such as the user covenant. For example, a Landlord may wish to prevent the Tenant from changing the nature of the goods being sold at the premises.

Issuing Insolvency Proceedings

Where a Tenant is in arrears of rent or other sums reserved under the lease, in addition to seeking the recovery of such sums, the Landlord may seek to issue insolvency proceedings against the Tenant on the basis that it is unable to meet its obligations as they fall due. The threat of such action is often used by a Landlord as additional leverage.

Specific Performance

A Landlord may seek a Court order requiring the Tenant to comply with the covenants contained in its lease. This may be appropriate where a Landlord wishes to ensure that the Tenant trades from its premises during certain hours. This is particularly relevant where the lease contains a turnover rent clause as the Landlord has a vested financial interest to ensure that the Tenant maximises it turnover generated from the premises.

Termination

Finally, the Landlord may wish to terminate the lease due to the tenant default. The termination clause in the lease needs to be carefully drafted. For example, the period of notice which a Landlord should give to the Tenant is important. In Bahrain, best practice is for the notice period in relation to termination for tenant default to usually follow the notice period set out in Article 7(a) of Publication No. (42/1374) Law for Leases of Commercial Shops in Manama (1955), which relates to non-payment of rent but is applied more generally and provides for a 1 month grace period and a 2 week notice to remedy.

It is also important to note that under Bahrain law, whilst a lease may provide a Landlord with a contractual right to terminate upon tenant default, should the Tenant fail to vacate the premises (which will usually be evidenced by the Tenant handing back the keys and surrendering the premises), the Landlord will require a Court order to obtain eviction and possession of the premises.

In addition, where the Tenant has vacated the premises but has not removed all of its property, the Landlord is not free to lawfully dispose of such property and again, the Landlord will require an appropriate Court order.

The termination clause should also refer to the Court of Urgent Matters as being the appropriate Court in relation to obtaining the required order for eviction. This is mainly due to expediency. However, the Court of Urgent Matters will only be able to grant an order for eviction if it is satisfied that it is the intention of the parties that the lease has automatically terminated following the tenant default and failure by the Tenant to comply with the relevant notice period. Any doubt as to whether the lease is still in existence may mean that the Court of Urgent Matters is unable to deal with the matter.

A Landlord should be wary that certain actions by it which recognise the continuation of the lease after it becomes aware of the tenant default may result in the Landlord ‘waiving’ the breach and therefore potentially losing its right to terminate. For example, accepting rent after the tenant default has arisen may constitute waiver.

Once an order for eviction has been obtained from the Court of Urgent Matters, a Landlord will need to enforce the order at the Court of Execution. The process of obtaining an order for eviction and enforcing the same is beyond the scope of this article. However, the period from the tenant default to obtaining physical possession of the premises can easily exceed 12 months and recovering any arrears and/or damages may take even longer.

Conclusion

Whilst a Landlord has a number of remedies available under Bahrain law should the Tenant breach the terms of its lease, the most appropriate remedy will depend on the Landlord’s aims, objectives and commercial requirements. It is also critical to note that should a Landlord wish to evict the Tenant and obtain possession, it can only do so by obtaining a Court order.

Charles Russell LLP has considerable expertise and experience in relation to advising on commercial leases in Bahrain and across the region for both Landlords and Tenants. In particular, and in conjunction with our preferred local counsel, we have advised a number of clients in relation to obtaining vacant possession following tenant default.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.