Leases-covenants

Question 1

What is a leasehold covenant?

Answer 1

A leasehold covenant is a promise contained in a lease given by a landlord or tenant.

Question 2

What are the four usual covenants found in most leases?

Answer 2

1. Repair
2. Alteration and user
3. Alienation
4. Assignment

Question 3

What is a tenant required to do under a general repairing covenant?

Answer 3

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

-character and type of premises at the beginning of the lease
-age of the premises
-express words of the covenant

Question 4

If repair work constitutes renewal, will this fall within a tenant’s repair obligation?

Answer 4

A covenant to repair does not require renewal of the whole or substantially the whole of the property.

If the work constitutes renewal rather than repair, it will not fall within the tenant’s repair obligation.

Question 5

If a lease is silent on alterations & user covenants, is a tenant free to carry out alterations?

Answer 5

Yes, leases will normally allow the tenant to make some alterations to the premises.

Unless the lease stipulates otherwise, the tenant is free to carry out alterations subject to the legal doctrine of ‘waste’.

Question 6

What is assignment of a lease?

Answer 6

An assignment is the transfer by the tenant of the remainder of the lease to another party.

Question 7

Does a covenant against assignment prohibit subletting of the whole or part?

Answer 7

No, it does not.

Question 8

Does a covenant against subletting the whole part prohibit a subletting of the part?

Answer 8

No, it does not.

Question 9

What are the formalities for assignment?

Answer 9

Deed and registration.

Question 10

What is an authorised guarantee agreement (AGA)?

Answer 10

A promise from an outgoing tenant to perform the incoming assignee’s obligation under the lease in the event of default.

Question 11

What does subletting mean?

Answer 11

Subletting means that the tenant would always be responsible for performing the lease covenants and still be in the picture at the end of the lease term, maybe because they are away for a temporary period and want to earn an income.

Question 12

What are the formalities for a sublease?

Answer 12

Deed and registration (if over 7 years).

Question 13

What is an absolute covenant?

Answer 13

When the tenant is completely prohibited from doing something.

Question 14

What is a qualified covenant?

Answer 14

The tenant may do something but only with the consent of the landlord, who doesn’t have to give it.

Question 15

What is a fully qualified covenant?

Answer 15

When the tenant may do something but only with the consent of the landlord, who has to be reasonable if it is going to withhold its consent.

Question 16

What kind of grounds can a landlord refuse its consent under a qualified/fully qualified covenant?

Answer 16

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

Example: the proposed assignee supporting a different football team would not be reasonable but their ability to pay the rent or bad references would be reasonable.

Question 17

What is privity of contract in the context of leases?

Answer 17

All the terms, regardless of their nature, can be enforced by the original landlord against the original tenant and vice versa.

Question 18

What is privity of estate in the context of leases?

Answer 18

Where the landlord and tenant are each owners of a legal estate in the same property, there is said to be privity of estate between them.

This exists between any current landlord and current tenant and lasts only for the period while the lease is vested in the tenant.

Question 19

In old leases created before 1 January 1996, describe the nature of continuing liability of the original landlord and tenant.

Answer 19

In old leases, the liability of the original landlord and the original tenant continues for the full duration of the lease term regardless of an assignment or sublease.

This continuing liability of the original contracting parties led to both absurdities and hardships for the original parties.

Question 20

When is a lease deemed to be a ‘new lease’?

Answer 20

If the lease is granted on or after 1 January 1996, it is a new lease.

Question 21

What did the LTCA 1995 abolish?

Answer 21

The LTCA abolished privity of contract for all new leases, meaning that the original landlord and tenant are no longer liable for the covenants for the full duration of the lease term.

Question 22

When will a tenant with a new lease be automatically released from the tenant’s covenants?

Answer 22

Upon assignment, its liability for breach of covenant caused by any subsequent assignee ceases when it assigns the lease (s5 LTCA 1995).

Question 23

Is there an automatic release of the landlord upon assignment of the reversion of a new lease?

Answer 23

No, the landlord must apply for such a release and can apply to the Court if the tenant refuses.

Question 24

What does LTCA 1995, S3 provide for in respect of the benefit and burden of all landlord & tenant lease covenants?

Answer 24

LTCA 1955, s3 provides for the automatic transmission of the benefit and burden of all landlord covenants to the new owner of the reversion, and of the benefit and burden of all tenant covenants to the assignee.

Question 25

What is the exception to the rule under LTCA 1995, S3 that all covenants automatically transmit to new owners upon assignment?

Answer 25

The only exception to this rule is for those covenants which are ‘expressed to be personal to any person’-the benefit and burden of these covenants will not pass to a third party: LTCA 1995, s3(6).

Question 26

When does an assignee of a lease become liable for all covenants in the lease?

Answer 26

From the date of assignment for all covenants in the lease under LTCA 1995, s3.

Question 27

What choices does a landlord have for breach of covenant when the outgoing tenant has provided an AGA?

Answer 27

The presence of an AGA provides the landlord with a choice:

-Sue the current tenant-able to obtain an equitable remedy such as specific performance

-Sue the former tenant-remedy limited to damages as the former tenant is no longer in control

Question 28

What is an express indemnity covenant and when is it commonly used?

Answer 28

An outgoing tenant should ensure that their assignee enters into an express indemnity covenant whereby the assignee agrees with the assignor to pay the rent and to perform all covenants for the remainder of the lease.

Question 29

What is the nature of the relationship between the landlord and a subtenant?

Answer 29

Where a sublease is in place, there is no direct relationship between the landlord and subtenant.

Question 30

What kind of covenants can be enforced against any owner/occupier of the premises under a sublease?

Answer 30

LTCA 1995 s3(5) allows restrictive covenants in new leases to be enforced against any owner or occupier of the premises.

Positive covenants cannot be enforced directly against subtenants.

Question 31

What is a tenant default notice and when must it be served under S17 LTCA 1995?

Answer 31

Where a landlord wishes to pursue a former tenant who remains liable under the terms of the lease for a fixed charge, the landlord must serve notice of the potential claim on such tenants within 6 months of the charge becoming due.

Question 32

Will former tenants/guarantors be liable to pay additional amounts for variations made after assignment?

Answer 32

No, S18 LTCA 1995 states they will not be liable to pay except when the variation is one which they could have anticipated at the time when the lease was entered into e.g. a rent review.

Question 33

What is an overriding lease and how long is it granted for under S19 LTCA 1995?

Answer 33

If a former tenant is called upon by the landlord to pay rent or other fixed charges due from an assignee, that former tenant is entitled to request from the landlord an overriding lease, to become the immediate landlord of the defaulting party.

The overriding lease is granted for a term equal to the remaining term of the lease in question plus 3 days.