L4: Leasehold Covenants Flashcards
What is a covenant?
Whereby the landlord and tenant promise each other to do, or not do certain things in relation to the land (e.g. tenant may promise not to use the premises for any trade or business)
What is unique about covenants?
They are capable of running to purchasers of the OL reversion or to purchasers of the original tenant’s lease
What does a covenant entitle a landlord or tenant to do?
Both the right to sue (benefit) and the obligation to perform (burdens)
Which 2 questions must be answered to find an action on the covenant between a claimant and defendant?
Whether the benefit of the particular covenant runs to the claimant & whether the defendant can be subject to the burden of it
What is the general rule for an action on a leasehold covenant between an OL and OT pre-1996?
All covenants are enforceable- liability on the basis of privity of contract, whether they are personal or proprietary
What happens if an OT assigns (sells or transfers) their lease to another?
OT remains liable throughout the entire term of the lease (Allied London Investments v Hambro Life Assurance)
What are the exceptions of an OT’s continuing liability pre-1996?
- Liability ends upon a perpetually renewable lease
- Lease may stipulate expressly that OT’s liability ends upon assignment
- OT not liable for breaches committed by an assignee where the original term had been statutorily extended under the Landlord and Tenant Act 1954
- Is a subsequent assignee and landlord surrender the lease and carry out a regrant on new terms
- May have a right to recover damages or right paid by them
- Increased rent resulting from term variation
OT’s liability in relation to rent
They are not liable for increased rent resulting from term variation (S18 LTCA 1995) , but are liable for originally agreed rent
What is a variation in rent?
Where the current tenant and landlord change the terms of the lease between themselves
What does s17 LCTA 1995 say about an OT’s liability for a fixed charge (rent, service charge or liquidated damages for breach of covenant)?
Landlord may only enforce liability against a fixed charge by serving statutory notice within 6 months of the charge becoming due- warns OT of potential liability & ensures only max 6 months can be charged
What is the effect of failure to serve a s17 LCTA notice?
Relieves OT of all liability for breach of covenant
What are the rights and obligations of the original landlord throughout the lease?
OL remains liable throughout the term, even after assignment of the reversion (Stuart v Joy) and to assignees of the tenant if they have the right to enforce covenants (Celsteel v Alton)
What is the effect of s141(1)LPA 1925
When the landlord assigns the reversion, benefit passes to assignee even if the right existed in respect of a breach occuring prior to assignment (Re King)
What factors have to be considered when determining whether the burden and benefit of a covenant made between OL and OT run automatically with the land when the lease is assigned?
1) Does privity of estate exist between landlord and tenant to allow enforcement
2) DO the covenants touch and concern land
How can privity of estate be established?
Claimant and defendant must stand in a relationship of landlord and tenant- no privity between sub-tenant and landlord UNDER A LEGAL LEASE
Is a deed required for privity of estate in leases of 3 years or less where deed is typically not required?
Yes- Julian v Crago
What is the purpose of the requirement of the covenant having to touch and concern the land?
To distinguish between proprietary and personal covenants
What is the difference between personal and proprietary covenants?
Proprietary covenants attach to the land and affect its use, personal covenants intend to confer an individual or personal benefit on the original tenant alone
What is the test for whether a covenant touches and concerns the land according to Swift Investments v Combined English Stores?
1) Could the covenant benefit any owner of an estate in land as opposed to the particular original tenant?
2) Does the covenant affect the nature, quality, mode of use or value of the land?
3) Is the covenant expressed to be personal, manifesting the original parties’ intention that it should not run with the land
Does a landlord’s covenant to renew rent touch and concern the land?
No- Phillips v Mobil Oil
They are to be treated like third party interests under the land charges and land registration act- must be registered against landlord as a Class C iv Land Charge if it is to bind a purchaser of a legal estate in the land
To what extent does an assignees liability extend to??
Breaches committed while the lease is vested in them
What does s141(1) LPA 1925 stipulate in relation to assignment of a landlord’s reversion?
The benefit of all covenants that have reference to the subject matter of the lease (no need for privity of estate) Hua Chiao Commercial Bank vs Chiaphua Investment
What happens to the benefit of the covenant upon assignment of a landlord’s reversion pre-1996?
New landlord acquires the right to sue in respect of breaches occurring before assignment- old landlord loses this right
What is the test for whether a covenant has reference to a subject matter?
Test in Swift for touching and concerning land
What happens to the burden of the covenant upon assignment of a landlord’s reversion pre-1996 according to s141(1) LPA?
All covenants having reference to the subject matter of the lease passes to the assignee of the reversion irrespective of privity of estate
What are the exceptions to the rule that burdens pass to the assignee of the reversion pre-1996 ?
- Covenant to renew lease is capable of being enforced against assignees, but does not pass automatically - registrable as a class c (iv) land charge, must be registered to bind assignee of reversion
- covenant by landlord to repay a deposit does not touch and concern, cannot be enforced against an assignee of the landlord who actually received the money- cannot be enforced against an assignee
- covenant to sell a freehold to the tenant does not touch and concern the relevant land, cannot be enforced against an assignee
What is the right of re-entry?
special rights reserved to a landlord to re enter the property and terminate the lease as a result of the tenants breach of covenant
Does the right of re-entry pass automatically for pre-1996 leases?
Every assignee of the reversion obtains his right if included in the original lease because it operates against the land
Where do equitable leases arise?
From specifically enforceable written contracts between prospective landlord and tenant- obligated to perform all lease obligations, even if they are personal in nature
What rights to the benefit and burdens of covenants does an assignment of a reversion of an equitable lease give to a new landlord?
141(1) LPA- assignee of reversion is entitled to enforce all leasehold covenants (benefits) that have reference to the subject matter of the lease & the obligation to perform similar covenants (burden) will pass to the assignee
What does the rule in Tulk v Moxhay permit?
The enforcement of any restrictive covenant against a preson in possession of the land over which the covenant takes effect
How can a landlord enforce a covenant against a sub-tenant?
- enforcement of a right of re-entry against current tenant
- tulk v moxhay rules to enforce restrictive covenants
- head landlord may be able to insist that covenants were entered into as a condition of their consent to the grant of the sub-tenancy
What is the effect of the LTCA 1995 on tenants?
They are automatically released from the burden of leasehold covenants when the tenant assigns the tenancy lawfully (s5 LTCA 1995) they may be required to guarantee performance of leasehold covenants by the sole next assignee s16 LTCA 1995
What is the effect of the LTCA 1995 on original landlord?
Not released automatically from the burdens of leasehold covenants, may serve a notice for such release
When will an original landlords burden of leasehold covenants be released?
If the notice is not answered within a specified time, if the landlords application to the county court is successful
What does a successful notice for release do?
Original landlord is relieved from liability arising only under landlord covenants, not personal
BHP petroleum v Chesterfield Properties
Original landlords under the LTCA 1995 are not released from personal covenants that have not been passed to the assignee
What is the position of the rule that covenants must touch and concern land or have reference to the subject matter for benefits and burdens to pass?
Abolished s2 & 3 LTCA
What happens to the benefit and burden of all leasehold covenants on assignment of the lease according to s3 LTCA
Burden and benefits pass to assignees of the lease and of the reversion
AGA
Authorised guarantee agreement
What is the purpose of an AGA
an agreement guaranteeing performance of covenants by the next immediate assignee (only that assignee)
What is the proviso for an assigning tenant to pay a sum under an aga
Problem notice must be served within 6 months of the liability arising for the guarantee to be enforceable
Why do landlords use an AGA as a condition of lease assignment
The release of OG tenant from liability deprives landlord from an effective remedy if the current tenant defaults
What is the major effect of the LTCA 1995
assignees of current tenant acquire the benefit and burden of all leasehold covenants save those expressed to be personal
Does the LTCA deprive the assignor of the right to sue for pre-assignment breaches?
NO
What options does a landlord have in relation to their position after LTCA 1995
Can stipulate in OG lease that liability ceases upon assignment of the reversion- London Diocesan Fund v Avonridge = Avonridge Clause
What is a commercial rent arrears rent recovery
landlord remedy for breach of covenant to recover rent
Qualifications for CRAR
- Purely commercial situations
- Never to oral leases of any type of premises
- Limited to pure rent (no service charges or insurance)
- 7 Days notice must be given prior to seizure of goods - certain goods are exempt
How can a landlord enforce a covenant to pay rent
Action to recover arrears in high or county court
What does s19 Limitation Act 1980 say in relation to actions to recover arrears in rent?
Limited to 6 years rent for recovery
If a landlord fails to observe a covenant to repair the premises, can a tenant withhold rent?
No, however, a tenant may claim to ‘set off’ a sum representing damages for breach of covenant unless such right is expressly excluded Lee-Parker v Izzet
What does the remedy of damages provide to a landlord
puts landlord in the position as if the covenant had not been broken
What does the Landlord and Tenant act 1927 say in relation to damages
damages for a tenants breach of covenant to repair is limited to the amount by which the landlords interest has diminished in value through lack of repair
Remedy of injunction
Prevents breach of a restrictive covenant
What is the general view in relation to the remedy of specific performance?
landlord cannot obtain specific performance for the majority of covenants as they are hard to observe
co-op insurance v argyll
HOL refused to order specific performance of a tenants covenant to keep retail premises open for a specified amount of time each day
What is the remedy of forfeiture
termination of lease due to breach of covenant
What must there a lease contain for a valid forfeiture
lease must contain a right of re entry
What is a right of reentry
A stipulation that a landlord is entitled to re-enter the premises and retake possession should the tenant fail to observe their covenants- all professionally drafted leases will have one & they are implied in equitable leases (Shiloh spinners v Harding)
What are the paths to successful forfeiture?
1) Physical re-entry by actual possession (e.g. changing locks)
2) Action for possession in court
When is physical re-entry possible?
When the tenant is absent from the premises and must be peaceful
Forfeiture for non payment of rent
s167 CLRA 2002- landlord may not forfeit unless the amount owed exceeds a statutory prescribed sum (£350) or has been unpaid for a prescribed period (3 years)
When will a tenant be granted relief from forfeiture?
If they pay all rent within appropriate time
Requirements for forfeiture for breach of covenants other than rent
s146 notice LPA 1925
1) Must specify breach
2) Request compensation for breach
3) Request breach be remedied
4) If forfeiture is in respect of service charge, landlord must inform tenant of safeguards established by s81 housing act 1996
What happens where a landowner attempts to forfeit without a s146 notice
Bilson v Residential apartments- forfeiture is void
How can it be determined whether a breach is remediable
Expert clothing service v Hillgate house- if the damage the breach caused could be rectified
Will the courts allow relief from forfeiture even if the breach was deliberate?
Freifeld v West Kensington- court granted relief for a deliberate breach of subletting covenant- forfeiture has to be proportionate to the breach
What must a landlord attempting to forfeit ensure they don’t do
They must not waive the right to forfeit
When will there be a waiver of forfeiture
If there is any act amounting to affirmation of the continuing validity of the lease after the breach has occurred (matthews v smallwood)
Breaches for repairing covenants
Under leasehold property repairs act 1938, s146 notice triggers tenants right to serve a counter notice - if this is served, landlord may not forfeit the lease without the court’s permission
