Leasehold covenants Flashcards
What are leasehold covenants
Leases are both estates in land and contracts between the parties. It will set out the terms agreed between the parties such as the boundaries of the property and the duration. It will also include covenants that define obligations of the parties under the lease (e.g. who is responsible for repairing the premises).
Types of leasehold covenants?
1) Express Covenants
There is no definitive list as each lease can vary and different covenants will apply in different circumstances.
Typical covenants include:
• a covenant to pay the rent
• a user covenant (e.g. do not use for business purposes)
• a covenant not to assign, sublet or part with possession of the premises without landlord’s consent
A covenant not to assign can be absolute - i.e. assigning is restricted entirely, even where the landlord is acting unreasonably; or it can be qualified - i.e. the consent of the landlord is needed (s19(1) Landlord and Tenant Act 1927 and s1(1) Landlord and Tenant Act 1988) - but refusal of consent must not be unreasonable. In Ashworth Frazer it was provided that
- his reason for refusing must relate to the nature of the assignee or his proposed use of the property;
- the question of whether the landlord’s conduct was reasonable is a question of fact
- the landlord is required to show that his conduct was reasonable in the circumstances, not that it was right or justifiable according to some objective criteria
- Implied Covenants
Where the lease is silent on certain issues, implied terms will be added to the express terms of the lease. The following are implied into every lease:
Implied Landlord Covenants:
• Landlord’s covenant to allow tenant quiet enjoyment (Markham v Paget)
• Covenant that landlord will not derogate from his grant - i.e. he cannot give with one hand and take with the other - if he gives a lease for a particular purpose he cannot behave in a way that prevents the tenant using the property for that specified purpose
(Aldin v Latimer)
• There is generally no covenant that the premises are fit for the purpose for which they are let or are habitable - and this is true even where the premises are domestic but unfit for human habitation (Lane v Cox) - but this rule is modified in the case of furnished houses and houses let at low rent, which must be fit for human habitation at the start of the term (Smith v Marrable).
• Landlord’s covenant to repair is implied in all residential leases for a term of less than seven years (s11 Landlord and Tenant Act 1985). It covers the structure and exterior of the property; as well as the facilities for the supply of water, gas, electricity, sanitation, and heating - but it does not cover general internal decoration. There is a general duty of care to make the property safe by dealing with defects arising from disrepair ONLY - not a general duty to make it safe, habitable, etc.
Implied Tenant Covenants:
• Covenant to pay rent
• Covenant to pay rates and other taxes on premises
• Liability for damage or disrepair
• Allow landlord entry in the event of repair
Enforceability of leasehold covenants
Are you dealing with a lease that was originally granted before or after 1 January 1996?
Before is covered by old law; after is covered by the Landlord and Tenant (Covenants) Act 1995.
Lease granted before 1st January 1996
Original Parties (Landlord and Tenant):
Privity of contract applies - which means that the original parties are bound by the terms of the lease and have continuing liability for its duration. Even if they have assigned their interest in it, they will still be personally liable for their own conduct, as well as that of any assignees and subtenants (s79 LPA 1925). The estate owner therefore has a choice to proceed against the original covenantor or the present owner only - but he can only ever recover one set of damages, he cannot proceed against two defendants in respect of the same breach of
covenant. S134 LRA 2002 provides that where the estate owner proceeds against the original covenantor - the original covenantor is entitled to an indemnity from his or her assignee in one of two ways, e.g.
L grants T a lease.
T assigns A1 - A1 assigns A2 - A2 assigns A3
• Proceeding against A3
T may seek to recover directly from A3, relying on the rule in Moule v Garrett which provides that “where one person is compelled to pay damages by he legal default of another, he is entitled to recover from that person the sum paid”
• Proceeding against A1
T may seek to recover from A1, because any assignment of a lease includes an implied covenant by the assignee to indemnify the assignor for any breach of covenant in the lease (s134 LRA 2002). Thereafter. A1 may sue A2, and A2 may sue A3 also on the basis of the indemnity covenant.
Successors to the Original Parties
Normally, it is more convenient to proceed against the person who has actually caused the breach. Accordingly, it is essential to know whether an assignee from a covenanting tenant, or a purchaser of a reversion from a covenanting landlord, can be made directly liable for
breaches of covenant.
Where the original parties assign a new tenant or landlord, the benefit and burden of covenants in the lease will only pass to a new tenant or landlord on assignment where:
• there is privity of estate between the parties - i.e. the assignee must be the tenant of the landlord who is suing or being sued
(though, it will be enforceable where the lease is not made by deed and there is consequently no relationship of contract or estate: oral and written leases for not more than 3 years which created a legal estate by virtue of LPA 1925 54(2) (Boyer v Warbey).
• Spencer’s Case:
• Where the assignment is by Tenant - the covenants “must touch and concern the land” - i.e. it must affect the landlord as a landlord, or tenant as a tenant - the covenant must touch the land but it must be incidental to their relationship as landlord and tenant.
• Where the assignment is by Landlord - the covenants must “have reference to the subject matter of the lease” - this has the same meaning a touch and concern.
There is no privity of estate between subtenants and the head landlord and so he cannot enforce covenants against him directly. In the event that the current tenant is not prepared to act against the subtenant, the landlord has at his disposal the remedy of forfeiture, or this can be avoided by insisting that subtenants enter into direct covenants with the head landlord as part of his consent.
Lease granted after 1st January 1996
The Landlord and Tenant (Covenants) Act 1995 affects leases entered into on or after 01/01/96. All leases granted prior to that date are governed by the old rules outlined above.
Original Parties
• Original Tenant
Section 5 LTCA 1995 provides that the tenant is automatically released from continuing liability on the assignment of the lease and will therefore no longer remain liable for breaches by his assignees once he has assigned the lease.
There are two exceptions to this rule where the original tenant will remain liable for breaches of covenant committed by an assignee:
- Excluded assignments - assignments that are in breach of a covenant in the tenancy; or, assignments by operation of law, e.g. on death or bankruptcy (s11)
- Authorised guarantee agreements - an agreement by which the tenant guarantees the assignee’s performance of the covenants in the lease (s16). There must be present a qualified covenant against assignment.
• Original Landlord
Section 6 LTCA 1995 provides that original landlord is not automatically released from his obligations under the lease - the landlord must give notice to the tenant, informing him of the proposed or actual assignment of the reversion, and requesting release from the covenants
(s8). If the tenant does not consent, the landlord may apply to the court which will determine whether it is reasonable for the covenant to be released.
• Successors to the Original Parties
Section 3 LTCA 1995 provides that the benefit and burden of all landlord’s and tenant’s covenants pass on assignment of all or part of the
lease or reversion - indeed, it applies to any assignment (s28(1)). There is no requirement that the covenant shall touch and concern the land or that the lease or assignment be legal.
There is one exception:
• Covenants which are expressed as personal covenants will not bind successor (e.g. where the original tenant “personally covenants to not use the premises for business”. On assignment the covenant ceases to bind the original tenant due to s5, and s3 means that it does
not bind the assignee
Remedies for a breach of covenant - Remedies available to the Landlord
Non-payment of rent:
• Sue the tenant personally for the rent
• Distress for rent
• Forfeiture - this is where the landlord re-enters the property:
(i) The lease must contain an express right of re-entry (forfeiture) clause
(ii) The landlord must serve a formal demand on the tenant for the rent, although leases will normally obviate this demand by stating that the landlord may re-enter the premises as soon as rent is in arrears.
(iii) The landlord must re-enter the premises - either by obtaining a court order for possession or by peaceably re-entering the property. If the premises is let as a dwelling then a court order must be obtained (S2 Protection from Eviction Act 1977)
(iv) The landlord may have waived the particular breach (either expressly or impliedly). A waiver will be implied where the landlord, with knowledge of the breach, acts in a way which treats the lease as continuing (e.g. by accepting rent, Van Haarlem v Kasner)
(v) The tenant can apply to the court for relief from forfeiture, i.e. he is given the final opportunity to pay the rent arrears plus interest and therefore prevent the lease being prematurely terminated
Breach of Other Covenants
a) Damages - the landlord can claim damages for breach of covenant
b) Specific Performance - only made rarely when damages are not an adequate remedy (Rainbow Estates v Tokenhold - covenant
to repair)
c) Forfeiture - very similar to forfeiture following a breach of covenant to pay rent, but some differences:
(i) The lease must contain an express right of re-entry (forfeiture) clause
(ii) The landlord must serve a s146 notice under s146 Law of Property Act 1925 on the tenant for the rent, although leases will normally obviate this demand by stating that the landlord may re-enter the premises as soon as rent is in arrears.
(iii) The landlord must re-enter the premises - either by obtaining a court order for possession or by peaceably re-entering the property. If the premises is let as a dwelling then a court order must be obtained (S2 Protection from Eviction Act 1977)
(iv) The landlord may have waived the particular breach (either expressly or impliedly) and will therefore lose his right to forfeitures. A waiver will be implied where the landlord, with knowledge of the breach, acts in a way which treats the lease as continuing (e.g. by accepting rent, Van Haarlem v Kasner)
(v) The tenant can apply to the court for relief from forfeiture, i.e. he is given the final opportunity to pay the rent arrears plus interest and therefore prevent the lease being prematurely terminated
(vi) Where the lease has been granted for a period of more than 7 years with at least 3 years remaining unexpired, on receipt of the s146 notice the tenant has 28 days in which to serve a counter-notice claiming the protection of Leasehold Property (Repairs) Act 1938. If the tenant does serve the notice, the landlord cannot proceed with forfeiture without leave of the court. Section 1(5) provides that the court will only grant leave in certain circumstances, including:
• immediate remedying of breach needed to prevent diminution in value of property/or is already substantially
diminished
• where the lessee is not in occupation and remedy is required for the interests of the occupier
• special circumstances which, in the opinion of the court, render it just and equitable
Remedies for a breach of covenant - Remedies available to the Tenant
Termination of leases:
Leases can be terminated in a number of ways, including:
- Expiry - A fixed term tenancy will come to an end at the expiry of the term, but in many cases the tenant will have a statutory right to remain in the property after the expiration of the contractual term (security of tenure)
- Notice to quit - it must be in writing, delivered 4 weeks before the notice period ends or one month of rent if paid monthly, and it must bring the tenancy to an end at the end of a full rent period. Fixed term tenancies can be terminated before the expiration of the contractual term if the lease expressly provides for this.
- Surrender - giving up the lease to the landlord who accepts the surrender
- Merger - tenant acquires the freehold reversion, so the lease merges into the reversion
