Leases: Covenants

Question 1

What are the 10 qualities providing the ‘anatomy’ of a lease?

Answer 1

1. Parties, date, definitions, interpretation provisions
2. Demise and rents
3. Tenant covenants;
   prohibitory or negative restrictions.
4. Landlord covenants:
   usually when the lease is part of a building or ‘covenant for quiet enjoyment.’
5. Guarantor’s covenants:
   i.e guarantee payments
6. Provisos, agreements and declarations (forfeiture, exclusion of security of tenure etc..)
7. Rights granted:
   Easements
8. Rights excepted and reserved:
   reserved rights by landlord
9. Other provisions
   rent review or service charge.
10. Execution:
    granted by deed unless < 3 years.

Question 2

What are the three types of covenants?

Answer 2

1. Absolute covenant:
   The tenant is completely prohibited from doing something
2. Qualified covenant:
   The tenant can go and ask the landlord for its consent but landlord does not have to give it
3. Fully qualified covenant:
   the landlord has to be reasonable if it is going to withhold its consent.

Question 3

What are the four usual covenants found in most residential and commercial leases?

Answer 3

1. Repair
2. Alterations
3. User
4. Alienation

Question 4

What is the covenant of repair?

Answer 4

The tenant must keep the premises in the condition in which they would be kept by a reasonably minded owner:

Look at..

• The character and type of premises at the beginning of the lease.
• The age of the premises.
• The express words of the covenant

PS! can be limited by a schedule of condition.
NOT RENEWAL only repair.

Question 5

What is the covenant of alteration?

Answer 5

Tenant is free to carry out any alterations to the premises.

BUT! Subject to the legal doctrine of ‘waste’ which prevents alterations which would
devalue the premises.

Question 6

What statutory intervention applies to the covenant of alteration?

Answer 6

s19(2) of LTA turns any qualified alteration covenant into a fully qualified one;
stating a landlord’s consent must not be unreasonably withheld.

ONLY IN ‘improvements’:

• payment of compensation for loss in value to the reversion caused by the alterations;
• reinstatement of the premises if reasonable (at the end of the lease term);
• payment of the landlord’s expenses in giving consent.

Question 7

What is the user covenant?

Answer 7

A landlord will want control over what the tenant is to use the premises for eg for residential use or a specific business purpose.

Question 8

What statutory intervention applies to the user covenant?

Answer 8

LTA 1927, s 19(3) applies to ‘qualified’ user covenants.
A tenant may be able to change the use of the premises depending upon the type of covenant.

• prevents a landlord demanding
  payment for granting its consent, unless the change of use also involves a change to the structure of the property
• BUT does not imply a reasonableness
  proviso into qualified user covenants

Question 9

What is the alienation covenant?

Answer 9

Method for the tenant disposing of
the whole, or part, of their interest in a leasehold property.

Mainly describes:

• assignment
• underletting
• parting with possession

Question 10

What is the assignment of a lease under the covenant of alienation?

Answer 10

‘sale’ by the tenant of the remainder of their lease to another party (the ‘assignee’.) AS LONG AS there is no restriction to it in the lease.

The assignee then becomes the immediate tenant of the landlord.

In a registered lease; the change of proprietor (tenant) is shown in the proprietorship register.

Question 11

What can the tenant do under a restriction of assignment?

Answer 11

The covenant is construed in the tenant’s favour so that:

• A covenant against assignment does not prohibit subletting of the whole or part
• A covenant against sub-letting the whole does not prohibit a subletting of part

A landlord’s consent is formally recorded in a deed called a Licence to Assign to which
the landlord, tenant and assignee will all be parties.

Question 12

What formalities are needed in the assignment/transfer of a lease?

Answer 12

1. LPA 1925, s 52 requires a deed
   TR1 form with a freehold transfer.
   There is no short lease exception.
2. Registration:
   If the lease is registered at the Land Registry, the deed of assignment must also be registered.

Question 13

How does a tenant sublet a lease?

Answer 13

Underlease/sublease

The procedure is largely the same as for the grant of a new lease out of a freehold, as it simply involves a new underlease document being drafted and entered into.

deed + registered (<7 years) + License to underlet (consent from landlord)

PS! Leases nowadays generally contain an absolute prohibition against assignment of part of or any underletting of part of the property.

Question 14

What is the statutory intervention used against the alienation covenant?

Answer 14

Where a tenant applies to the landlord in writing for consent, LTA 1988, s 1 provides that:

• The landlord must give written consent within a reasonable time (unless it is reasonable to refuse.) - 28 days.
• The burden is on the landlord to prove reasonable refusal – s1(6), and written reasons must be provided.

! if not done the landlord may be liable for tortious damages for breach of statutory duty.

Question 15

What are the statutory interventions for assignments of new leases (any lease before 1 January 1996)?

Answer 15

In new leases, LTA 1927, s 19(1A) :

• The landlord and tenant can agree the circumstances in which the landlord may withhold consent to an assignment.
• The landlord and tenant can agree the conditions subject to which consent may be granted.

!! the outgoing tenant enters into an Authorised Guarantee Agreement (AGA) promising to perform the incoming assignee’s obligations under the lease, if it defaults.

• Such circumstances or conditions will be automatically reasonable if imposed by the landlord when giving consent to assign.