Leasehold Covenants

Question 1

What is a leasehold covenant?

Answer 1

A promise contained in a lease given by a landlord or tenant (i.e to keep the premises in good repair). The basic rule is that the tenant may do all the things an owner of a freehold can do unless the lease prohibits it.

Question 2

What is an absolute covenant?

Answer 2

The tenant shall not do X.

Question 3

What is a fully qualified covenant?

Answer 3

The tenant shall not do X without the consent of the landlord not to be unreasonably withheld or delayed.

Question 4

What is a qualified covenant?

Answer 4

The tenant shall not do X without the Landlord’s consent.

Question 5

What principle was established in International Drilling Fluids v Louisville Investments (Uxbridge) Ltd regarding landlord consent?

Answer 5

The landlord is not entitled to refuse consent on grounds which have nothing to do with the landlord and tenant relationship.

Question 6

What does a general repairing covenant require according to Proudfoot v Hart?

Answer 6

The tenant must keep the premises in the condition in which they would be kept by a reasonably minded owner, considering factors like the character and type of premises at the beginning of the lease, the age of the premises, and express words of the covenant.

The tenant must put the premises in repair at the start of the lease if it is in disrepair - this might be limited by a schedule of conditions.

Question 7

What is the difference between repair and renewal in leasehold covenants?

Answer 7

Repair is the restoration by renewal or replacement of subsidiary parts, while renewal is the reconstruction of the entirety.

Question 8

How does s.19(2) of the LTA 1927 impact alterations covenants?

Answer 8

It upgrades a qualified alterations covenant to a fully qualified covenant.
* “Improvements” is construed widely to mean works which improve the premises from the tenant’s perspective.

As a condition for giving consent, the Landlord may require in the License for Alterations:
1. Payment of compensation for loss in value caused by alterations;
2. Reinstatement of the premises at. theend of the lease term;
3. Payment of the landlord’s expenses in giving consent.

Question 9

What is the impact of s.19(3) of the LTA 1927 on user covenants?

Answer 9

Landlord will have discretion whether to grant consent - does not need to be reasonable.

The Landlord cannot demand payment for granting its consent unless the change of use involves a change to the structure of the property - could charge lump sum or premium or increase rent.

Question 10

How does statute impact absolute covenants against alienation?

Answer 10

It doesn’t. The Landlord can simply refuse consent to alienate. However, could also choose to waive the covenant on a one-off basis.

Question 11

How does statute impact absolute alterations covenants?

Answer 11

The tenant can serve notice on the landlord of an intention to carry out improvements + if the landlord objects, the tenant can apply to court (s.3 LTA 1927).

• If landlord does not object within 3 months, the tenant can do the work.
• Landlord can offer to do the work itself and increase the rent; the tenant need not agree but if it rejects this, the tenant cannot apply to court.

Question 12

What conditions might the Landlord include in the License for Alterations?

Answer 12

• Requirements for certain colours, designs, materials etc to be approved by the landlord;
• Planning permission and building regulations approval to be obtained by tenant;
• Tenant to pay landlord’s costs of obtaining license for alterations;
• Tenant to reinstate premises at end of lease term

Question 13

How does s.19(1)(a) of the LTA 1927 impact qualified alienation covenants?

Answer 13

Converts a qualified alienation covenant into a fully qualified covenant.

Question 14

When can a Landlord reasonably withhold consent to alienation?

Answer 14

• Where the condition has been agreed in the lease
• Where the reason relates to the Landlord tenant relationship, for example:
• *bad reference for the assignee
• reason to believe they will not be able to pay.
• assignee’s use would damage landlord’s own commercial interests
• tenant in breach of covenant = must be remedied before consent given

NOT:
* where assignee already tenant of another of landlord’s properties which would be difficult to re-let

Question 15

What is the procedure for the landlord to give consent to alienation?

Answer 15

• Must provide written consent within a reasonable time (28 days) of receiving the tenant’s application.
• Consent by deed (License to assign / underlet)
• Conditional consent given = conditions must be reasonable
• Reasonable for landlord to refuse consent if, by giving consent, the tenant would end up in breach of covenant.
• Burden is on the landlord to prove that refusal is reasonable

Question 16

What is the consequence if the landlord fails to comply with the procedure for giving consent?

Answer 16

Tortious damages for breach of statutory duty.

Question 17

Can the Landlord and Tenant agree circumstances in which refusal of consent to assign is ‘reasonable?’

Answer 17

Yes, s.19(1A) of the LTA 1927 states that, for new leases only, the landlord and tenant can agree circumstances in which the landlord may withhold its consent or give conditional consent. If the tenant agrees this within the lease, the grounds on which consent can be withheld will automatically be considered reasonable.

Question 18

What is an Authorised Guarantee Agreement (AGA)?

Answer 18

A condition of consent that might require the tenant to guarantee the incoming assignee’s obligations under the lease if the assignee defaults, lasting for the period that the assignee is the tenant. Landlord will only ever have current tenant and directly preceding tenant liable under the AGA.

Question 19

How are covenants in old leases (granted before 1 January 1996) enforced?

Answer 19

Original landlord and tenant remain liable for breaches of covenant by successors for the entire duration of the lease due to privity of contract. A small number of obligations will pass to the successor by virtue of them having privity of estate. Would need direct covenants if you wanted all liability to pass though.

Question 20

How are covenants in new leases (granted on or after 1 January 1996) enforced post-alienation?

Answer 20

The assignee and new reversioner (often just the current landlord) become subject to the benefit and burden of all the covenants on assignment.

The tenant obtains automatic release from covenants unless the assignment is in breach of the alienation covenant (s.5 LTCA 1995).

There is no automatic release for the landlord, who must apply to the tenant (i.e assignee) for release or, failing this, the court.

Question 21

How can a landlord enforce a restrictive covenant against a subtenant?

Answer 21

Restrictive covenants in NEW leases can be enforced against any owner or occupier of the land (LTCA 1995, s 3(5)).

Question 22

What must a landlord do under s.17 LTCA 1995 to claim arrears from a former tenant?

Answer 22

• Applies to both old and new tenancies
• Must serve a tenant default notice of claim within 6 months of the charge becoming due

Question 23

What protection does LTCA 1995, s 18 offer former tenants and guarantors?

Answer 23

They are not liable for additional amounts owing in respect of variations made to the lease after assignment that could not have been anticipated at the time the lease was entered into.

For example, if there was a rent review clause then this could clearly have been anticipated and so the former tenant would be liable.

Question 24

What right does LTCA 1995, s 19 grant to former tenants called upon to pay arrears?

Answer 24

The right to request an overriding lease from the landlord for the remaining term of the lease + 3 days, which the landlord must grant within a reasonable time.

The covenants will remain (except personal covenants).

Question 25

Who bears the costs for alienation?

Answer 25

The tenant will pay the landlord’s costs associated with the License to Assign or Underlet.

Question 26

What are the remedies for breach of covenant?

Answer 26

It depends on whether which covenant is breached (i.e rent covenant or other).

Question 27

What are the remedies for breach of rent covenant?

Answer 27

1. Action for Debt
   * Landlord can recover 6 years’ worth of rent, usually useless though since tenant probably does not have the money.
2. Injunction
3. Commercial Rent Arrears Recovery
   * Landlord must give 7 clear days’ notice of intention to seize assets from the property to satisfy the debt + must be in minimum 7 days’ of rent arrears
   * tenant can apply to have notice set aside

Question 28

What are the remedies available for breach of a non-rent covenant?

Answer 28

1. Forfeiture
2. Injunction
3. Specific performance
4. Damages