Leases: covenants in leases

Question 1

What is an absolute covenant?

Answer 1

This starts with ‘The tenant shall not do’ and is an absolute restriction on the tenant doing that

Question 2

What is a qualified convent

Answer 2

The tenant shall not do [] without the landlords consent-requires the landlords consent and they ahve to be reasonable

Question 3

What is a fully qualified covenant

Answer 3

The tenant shall not do [] without the landlords consent, such consent not to be unreasonably withheld- must relate to the tenant/landlord relationship and harm to the tenant not being able to use the covenant/detriment to the landlord must be considered

Question 4

What is alienation

Answer 4

This is a method of a tenant disposing whole or part of the property- could be through an assignment or underletting.

S19(1)(a) LTa- converts a qualified covenant against alienation to fully qualified. Under LTA 1988 s1, written response from landlord has to be in reasonable time (about one month)
lra 19(1)(A) imposes circumstances/conditions that are automatically reasonable.

Question 5

What are the enforeceability of covenants if there is an assignnee or sale of freehold

Answer 5

The rules governing the passing of the benefit and burden of the leasehold covenants are governed by the Landlord and Tenant covenants Act 1995 (LT(C)A 1995) which gave rise to an entirely new statutory regime for enforcement of covenants contained in leases granted on or after 1 January 1996 (‘new leases’).

This statutory regime aimed to consolidate the previous rules that governed the passing of the benefit and burden of leasehold covenants, which were a mixture of statute and case law, and also to address the harshness of the principle of original tenant liability which applies to ‘old leases’, granted before 1 January 1996.

Pre-1996, original tenant ‘on the hook’ liable for breaches by all future assignees. This is because of privity of contract- this exists between original parties
Privity of estate is between current estate and current landlord.

In new leases, there is an automattic release unless tenant is in breach or assignment is without consent.

An AGA may be entered into by the tenant guaranteeing their assignee.

Ther is no automatic release for a landlord on a reversion, but can apply to be released by the original tenant.

All benefits and burdens of all LL and T covenants will pass automatically on an assignment or sale.
Personal covenants will not pass to successors.

Question 6

Are there any retrospective provisions?

Answer 6

Although the majority of the 1995 Act does not apply to old leases created pre 1 January 1996, certain provisions do apply retrospectively to old leases. These provisions lessen the impact of original tenant liability to a certain degree.

Sections 17, 18 and 19 of the 1995 Act apply in respect of both old and new leases where the landlord wants to pursue a former tenant for a fixed charge where the former tenant is liable under original tenant liability or in respect of new leases, where the former tenant remains liable under an AGA.

Fixed charge: rent, service charge or insurance payments.

1. S 17 – Default notice

In order to recover any fixed charges, the landlord must serve a notice of the claim on the tenant within 6 months of the charge becoming due. This means a landlord cannot let arrears accrue over anything longer than 6 months and then claim them back.

For example, if the current tenant (the defaulting assignee) is in arrears of 9 months, the landlord loses the right to claim for 3 months’ worth of them.

2. S 18 – Liability for variations

The former tenant will only be liable to pay anything arising as a result of a variation to the original lease if that variation was foreseeable and anticipated at the time the lease was entered into.

For example, a foreseeable variation is where the original rent has been increased as a result of a rent review clause.

3. S 19 – Overriding Lease

Where the former tenant pays the sum demanded in full, it is entitled to an overriding lease from the landlord. The overriding lease gives the former tenant control.

For example, if the current landlord serves a default notice to the former tenant because the current tenant (the assignee) is in default, then the former tenant can request an overriding lease, which puts it in position of being landlord of the current tenant (the defaulting assignee).

As the landlord to the current tenant (the defaulting assignee) it can choose to forfeit the lease to the current tenant in default and then assign the overriding lease to a new party or sub-let to new party.