Leasehold Covenants: New Leases

Question 1

What covenants does the Landlord and Tenant (Covenants) Act 1995 (LT(C)A) apply to?

Answer 1

s 2 states that the LT(C)A applies to landlord and tenant covenants of a tenancy, regardless of whether they have reference to the tenancy’s subject matter or are express, implied, or imposed by law, excluding covenants specified in subsection (2).

Question 2

According to LT(C)A s 3(1), how are the benefits and burdens of landlord and tenant covenants transmitted?

Answer 2

Under LT(C)A s 3(1), the benefits and burdens of all landlord and tenant covenants are annexed to the entire premises demised by the tenancy and the reversion, passing upon assignment of any part of these premises or the reversion.

Question 3

What happens to a tenant’s covenants upon their assignment according to LT(C)A s 3(2)?

Answer 3

LT(C)A s 3(2) states that upon a tenant’s assignment, the assignee becomes bound by the tenant covenants, except those not binding the assignor before the assignment or not related to the assigned premises, and entitled to the landlord covenants’ benefit, with similar exceptions.

Question 4

How does LT(C)A s 3(3) address the assignment of covenants by a landlord?

Answer 4

LT(C)A s 3(3) specifies that an assignee of a landlord becomes bound by the landlord covenants, except those
- not binding the assignor before the assignment or
- unrelated to the assigned premises, and
- becomes entitled to the tenant covenants’ benefit, with similar exceptions.

Question 5

What limitations does LT(C)A s 3(6) place on the transmission of covenants’ benefits and burdens?

Answer 5

LT(C)A s 3(6) limits the transmission of covenants’ benefits and burdens by excluding:-

1. personal covenants expressed to be personal to any person and
2. covenants not enforceable against a person due to lack of registration under the Land Registration Act 2002 or the Land Charges Act 1972.

Question 6

How does LT(C)A s 4 address the transmission of a landlord’s right of re-entry?

Answer 6

LT(C)A s 4 states that a landlord’s right of re-entry under a tenancy is annexed to the entire reversion in the demised premises, passing upon assignment of any part of the reversion

Question 7

What is the effect of a tenant assigning the entirety of the premises demised under a tenancy according to LT(C)A s 5?

Answer 7

According to LT(C)A s 5, if a tenant assigns the entire demised premises, they are released from the tenant covenants and cease to be entitled to the landlord covenants’ benefit from the assignment.

Question 8

What does LT(C)A s 6 stipulate for a landlord assigning the reversion in premises?

Answer 8

LT(C)A s 6 provides that a landlord assigning the entire reversion may apply to be released from the landlord covenants of the tenancy under section 8, and upon complete release, ceases to be entitled to the tenant covenants’ benefit from the assignment.

Question 9

What procedure must be followed for a landlord to seek release from a covenant under LT(C)A s 8?

Answer 9

Under LT(C)A s 8, a landlord must serve a notice on the tenant within four weeks of the assignment, informing them of the assignment and requesting the covenant’s release. The covenant is released if the tenant doesn’t object within four weeks, consents, or if the court declares it reasonable.

Question 10

What provisions does LT(C)A s 16 make for a tenant guaranteeing the performance of a covenant by an assignee?

Answer 10

LT(C)A s 16 allows a tenant, upon assignment, to enter into an authorised guarantee agreement guaranteeing the assignee’s performance of a covenant, subject to conditions including
- the agreement’s conformity with specific requirements and
- the tenant’s liability being no more onerous than if they were the principal debtor.

Question 11

What is the liability status of original parties in a new tenancy under the Landlord and Tenant (Covenants) Act 1995?

Answer 11

In new tenancies under the 1995 Act, the original landlord and tenant retain their ability to enforce covenants due to privity of contract, similar to their position in old leases, until their respective interests in the property are assigned.

Question 12

What happens to a tenant’s liability upon assigning a new lease under the 1995 Act?

Answer 12

When a tenant assigns a new lease, they are automatically released from the tenant covenants (s 5(2)(a) LT(C)A 1995), meaning they are not liable for breaches committed by the assignee, and they also cease to have the benefit of the landlord covenants (s 5(2)(b) LT(C)A 1995).

Question 13

How is a landlord’s liability affected upon assigning the reversion in a new tenancy under the 1995 Act?

Answer 13

A landlord does not automatically get released from their covenants upon assigning the reversion in a new tenancy. They must apply to the tenant for release (s 6(2)(a) LT(C)A 1995), and if not released, they may remain liable even after the reversion is assigned to a new landlord.

Question 14

How does liability transfer among successive tenants and landlords in new tenancies under the 1995 Act?

Answer 14

Successive tenants and landlords in new tenancies are liable only for their direct successors, with tenants being automatically released upon assignment (s 5(2)(a) LT(C)A 1995) and landlords needing to apply for release (s 6(2)(a) LT(C)A 1995), unless involved in an Authorised Guarantee Agreement (AGA) which only applies to immediate successors.

Question 15

What is the role of an Authorised Guarantee Agreement (AGA) in new tenancies under the 1995 Act?

Answer 15

In new tenancies, an AGA can require a tenant to guarantee the performance of covenants by their immediate assignee. This guarantee ceases when the assignee reassigns the lease, potentially making the original tenant or their immediate assignee liable for breaches by their direct successor if they entered into an AGA at the time of assignment.

Question 16

What change did Section 14 of the Landlord and Tenant (Covenants) Act 1995 make regarding indemnity covenants in new leases?

Answer 16

Section 14 of the 1995 Act abolished the statutory implied indemnity covenants for new leases, as tenants are automatically released from their covenants upon assignment, making such indemnity covenants unnecessary.

Question 17

How can a tenant recover losses if liable under an Authorised Guarantee Agreement (AGA) in new tenancies as per the 1995 Act?

Answer 17

If a tenant becomes liable under an AGA in new tenancies, they can recover from the assignee based on the principle in Moule v Garrett or through an express indemnity agreement obtained at the time of the lease assignment.

Question 18

What concerns did commercial landlords have regarding the Landlord and Tenant (Covenants) Act 1995, particularly for commercial leases?

Answer 18

Commercial landlords expressed alarm at the basic provisions of the 1995 Act, fearing the investment value of their reversions in properties like shopping centers, often owned by pension funds or insurance companies, would drop due to the reduced ability to claim against original tenants and limited rights to refuse assignment consent.

Question 19

How did Section 22 of the Landlord and Tenant (Covenants) Act 1995 address commercial landlords’ concerns about the assignment of leases?

Answer 19

Section 22 introduced amendments to Section 19 of the Landlord and Tenant Act 1927, allowing landlords to specify circumstances in which they may withhold consent for lease assignments and conditions for granting consent, thus strengthening landlords’ control over assignments of commercial premises.

Question 20

What is the significance of Section 22’s amendments to Section 19(1)(a) of the Landlord and Tenant Act 1927 for commercial leases?

Answer 20

Section 22’s amendments to Section 19(1)(a) effectively water down the provisionsregarding unreasonable withholding of consent by landlords, by allowing them to specify conditions for assignment consent in the lease, thereby strengthening their control over the assignment of commercial premises.

Question 21

What is the significance of an Authorised Guarantee Agreement (AGA) in the context of Section 22’s amendments to commercial leases?

Answer 21

An AGA becomes a crucial tool in the assignment of commercial leases under Section 22’s amendments, often required by landlords as a condition for granting assignment consent. It ensures that outgoing tenants guarantee the performance of covenants by their assignees, providing an additional layer of security for landlords.

Question 22

Under what conditions does Section 17 of the Landlord and Tenant (Covenants) Act 1995 apply to a former tenant’s liability?

Answer 22

Section 17 applies when a former tenant, due to an assignment, is no longer under a tenancy but has either guaranteed the assignee’s performance via an authorised guarantee agreement in a new tenancy or remains bound by a covenant in any tenancy.

Question 23

What is required under Section 17(2) for a former tenant to be liable for fixed charges under the Landlord and Tenant (Covenants) Act 1995?

Answer 23

The former tenant is not liable for fixed charges unless the landlord serves a notice within six months of the charge’s due date, specifying that the charge is due and indicating the amount the landlord intends to recover, including any applicable interest.

Question 24

How does Section 17(3) of the Landlord and Tenant (Covenants) Act 1995 affect a guarantor’s liability?

Answer 24

A guarantor is not liable for fixed charges unless, within six months of the charge’s due date, they receive a notice from the landlord stating the due charge and the intended recovery amount, including interest, similar to the former tenant’s notice requirement.

Question 25

What happens under Section 17(4) if the amount a former tenant or guarantor is liable for is determined to be greater than initially specified?

Answer 25

If the liability is determined to be greater, the landlord must issue a further notice within three months of the determination, informing them of the increased amount (plus interest) they intend to recover, provided the initial notice mentioned this possibility.

Question 26

What constitutes a “fixed charge” under Section 17(6) of the Landlord and Tenant (Covenants) Act 1995, and who is considered a “landlord” for these purposes?

Answer 26

Section 17(6) defines a “fixed charge” as including rent, defined service charges, and any liquidated sums for covenant breaches.

A “landlord” includes anyone with the right to enforce the payment of these charges, broadening the scope of parties who can hold former tenants or guarantors liable.