Leases: Covenants

Question 1

What is the basic rule for tenant covenants?

Answer 1

A tenant can do all the things that an owner of an estate can do unless the lease prohibits such actions.

Question 2

What is the most common landlord covenant?

Answer 2

Covenant for quiet enjoyment e.g. not erecting scaffolding hindering access to the property, intimidation

Question 3

What is included in most residential and commercial leases?

Answer 3

Parties, date, definitions, interpretation provisions

Demise and rents

Tenant covenants / landlord covenants

Rights granted / reserved

Execution

Question 4

Name four types of covenant found in a residential or commercial lease?

Answer 4

Repair

Alterations

User

Alienation

Question 5

What must a tenant do under a general repairing covenant?

Answer 5

Keep premises in the condition in which they would have been kept by a reasonably minded owner, considering:

• Character and type of premises
• Age of premises
• Express words of covenant

Question 6

Why can a general repairing covenant be onerous for a tenant?

Answer 6

It also entails an obligation to put premises in repair first, if when let they are out of repair.

Question 7

How can a repair obligation be limited?

Answer 7

Schedule of condition

Also, does not require renewal of the whole or substantially the whole of the property. Cost of work versus value of premises considered here.

Question 8

What is an alteration covenant and what is it likely to be subject to?

Answer 8

Allows tenant to make some alterations to the premises.

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

Question 9

What is a user covenant?

Answer 9

A covenant relating to the use of the premises e.g. residential only, no business of a certain kind.

Question 10

What is an alienation covenant?

Answer 10

Covenants [often] prohibiting assignment, underletting and parting with possession

Question 11

What is assignment?

Answer 11

The transfer by the tenant of the remainder of their lease to another party (the ‘assignee’).

Assignee becomes the immediate tenant of the landlord. No need to show this on an unregistered lease.

Question 12

How are covenants against assignment construed in the tenant’s favour?

Answer 12

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

Question 13

What formalities are need to assign a lease?

Answer 13

Deed - no short lease exception

If lease is registered at the Land Registry - over 7 years - Registration also must be updated.

Question 14

What is one of the most common conditions attached to a landlord’s consent for an assignment of a new lease?

Answer 14

Tenant enters into an AGA - Authorised Guarantee Agreement - promising that they will perform the incoming assignee’s obligations under the lease in the event of a default

Question 15

When is a ‘new lease’ granted from?

Answer 15

On or after 1 January 1996

Question 16

Who can a landlord keep on the hook with an AGA?

Answer 16

Only the original contractor and the immediate assignee’s obligations - so if there is a second assignment, a new AGA would be needed.

Question 17

What formalities are required for a sublet?

Answer 17

Deed, which must be registered if it is over 7 years.

Question 18

What are the three types of covenant in a leasehold?

Answer 18

Absolute - the tenant shall not do

Qualified - the tenant shall not do, without the Landlord’s consent

Fully qualified - the tenant shall not do, without the Landlord’s consent, such consent not to be unreasonably withheld or delayed.

Question 19

What makes covenants enforceable between a landlord and tenant when they are originally made?

Answer 19

Principle of privity of contract AND privity of estate.

Question 20

Who does privity of estate exist between?

Answer 20

Any current landlord and current tenant of the property - lasts only for the period while the lease is vested in the tenant.

Question 21

What happens to privity of contract and estate when the lease / reversionary interest is assigned?

Answer 21

Privity of contract remains, but privity of estate no longer exists.

Question 22

What is the liability of the original landlord and tenant in old leases?

Answer 22

Continues for the duration of the lease term, even after assignments.

Privity of contract - original landlord and tenant are liable for breaches of covenant, and privity of estate allowed tenant covenants which ‘touch and concern’ the land to be enforceable.

Question 23

What makes a lease a ‘new lease’?

Answer 23

If it is created on or after 1 January 1996.

Question 24

What is the effect of the LTCA 1995?

Answer 24

Effectively abolishes privity of contract for all new leases.

Tenant with a new lease will generally obtain an automatic release from tenant’s covenants upon assignment.

No automatic release for a landlord - they must apply for a release from the tenant. If tenant refuses they can apply to court.

Question 25

In what circumstance will there be no automatic release from tenant covenants as a new lease?

Answer 25

If the assignment is an excluded assignment.

Question 26

What does the LTCA s3 do?

Answer 26

Benefit and burden of all landlord and tenant covenants passes.

Question 27

What is the exception to LTCA s3?

Answer 27

Covenants which are expressed to be personal to any person. Liability remains for breaches which occur during their period of occupation.

Question 28

When may a former tenant remain liable even under a new lease regime?

Answer 28

If they have provided an AGA - as the landlord can sue them for guaranteeing the obligations of their immediate successor.

Question 29

If the landlord has a choice between suing a current tenant or a previous one who has provided an AGA, what might it consider?

Answer 29

Former tenant - limited to damages only Current tenant - could get an equitable remedy like specific performance. Former tenant may have secured an indemnity from the defaulting tenant.

Question 30

If a former tenant has not secured an express indemnity, how may they be able to secure one?

Answer 30

Could claim one at common law / a quasi - contractual course of action [assignees only, not sub-tenants].

Question 31

Why are methods of indemnity leading a chain to the current tenant of limited value?

Answer 31

If the current tenant were worth suing, they would have done in the first place!

Question 32

What relationship is there between landlord and subtenant?

Answer 32

None - landlord may not be able to enforce covenants.

Question 33

How does LTCA connect the landlord to the subtenant?

Answer 33

S3(5) allows restrictive covenants in new leases to be enforced against any owner or occupier of the premises.

Question 34

How should landlords and tenants mitigate against the risks of subtenants?

Answer 34

Landlords should insist that a subtenant enter into direct covenants with itself. Tenant should include a provision in the sublease in which the subtenant covenants to perform headlease covenants.

Question 35

Which sections of the LTCA apply to all leases, regardless of when they were created?

Answer 35

Tenant Default Notice Liability for Variations Overriding Leases

Question 36

What does the LTCA s17 say about tenant default notices?

Answer 36

When a landlord is pursuing a tenant for a fixed charge e.g. arrears of rent, service charge, insurance premium It must serve notice within 6 months - otherwise cannot make the claim

Question 37

What does LTCA s18 say about liability for variations?

Answer 37

Former tenants and guarantors are not liable to pay any more from a variation to a lease subsequent to assignment that they could NOT have anticipated Rent review clause - would be anticipated.

Question 38

What does LTCA s19 provide for?

Answer 38

The creation of an overriding lease in certain situations. When a former tenant is called upon to pay rent / fixed charges due from an assignee under s17 - they can request from the landlord an overriding lease - making them the landlord of the defaulting party.

Question 39

How long are overriding leases granted for under s19 LTCA?

Answer 39

A term equal to the remaining term of the lease, plus 3 days. Contains same covenants, other than those expressed to be personal. Landlord is obliged to grant overriding lease within a reasonable time.