Leases: covenants in leases

Question 1

What does the ‘Demise and rents’ provision do in a lease?

Answer 1

Operative provisions of the lease where landlord demises or grants lease of premises to the tenant for a specified term in consideration of the rent paid and covenants entered into

Question 2

What is the basic rule for what a tenant is able to do on the land?

Answer 2

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

No mention = tenant free to do it

Question 3

What do tenant covenants do?

Answer 3

Set out what the tenant cannot do (prohibited) and obligations e.g. pay rent, what they can use it for, how to make alterations/alienate

Question 4

What do landlord covenants set out?

Answer 4

The provision of services, maintenance of common areas and insurance by landlord

Most common: covenant for quiet of enjoyment

Question 5

What might a guarantor covenant?

Answer 5

To guarantee payments that must be made under lease and performance of any other obligations so that if tenant defaults in payment, the landlord can call upon guarantor

Question 6

What will the provisos, agreements and declarations section set out?

Answer 6

Deals with several matters like forfeiture, what happens in event of damages by insured risks, clauses dealing with exclusion of security of tenure

Question 7

What will the rights granted and rights excepted and reserved set out?

Answer 7

Granted and reserved easements

Question 8

What is the service charge?

Answer 8

A sum of money charged by landlord to tenants to cover costs of services to tenants within a property

Maintenance, repair of exterior and common parts

Question 9

What is a leasehold covenant?

Answer 9

A promise contained in a lease given by a landlord or tenant

Question 10

What condition should a tenant keep the premises to under a general repairing covenant?

Answer 10

Condition which would be kept by a reasonably minded owner having regard to:

• Character and type of premises at beginning of lease (neighbourhood character irrelevant)
• Age of premises
• Express words of covenant

Question 11

Can a covenant to keep premises in repair also entail an obligation to put them in repair first if at time of letting they were out of repair?

Answer 11

Yes - can be onerous if in a state of disrepair at beginning

Question 12

What two sets of rules determine the enforceability of leasehold covenants?

I.e. whether an original landlord can enforce a covenant against an assignee, whether an original tenant can enforce a covenant against the reversioner (the lanlord’s successor in title), whether reversioner can enforce against the assignee etc.

Answer 12

1. The old system for ‘old leases’ (granted before 1 Jan 1996)
2. The new system for ‘new leases’ (granted on or after 1 Jan 1996)

Question 13

How is it decided which rules apply?

Answer 13

The date of the creation of the lease not the date of any subserquent assignment as to whether old or new rules apply

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

Question 14

What is the rule for old leases?

Answer 14

• Privity of contract allows the original landlord and tenant are liable for breaches of covenant by their successors for the entire duration of lease
• Privity of estate allows tenant covenants that ‘touch and concern’ the land in an old lease to be enforceable by and against successor landlord and tenants

Question 15

What are the new rules for a new tenant when it assigns its lease?

Answer 15

A tenant will (generally) obtain an automatic release from tenant’s covenants upon assignment and its liability for a breach of covenant caused by any subseqent assignee ceases when it assigns the lease

Effect = tenant under a new lease only liable for breaches of covenants contained within lease while it remains tenant of property

Question 16

What are the new rules for the landlord upon assignment of the reversion of a new lease?

This directly conflicts with next card so unsure about this

Answer 16

There is no automatic release and landlord must apply for such a release from the tenant (which will generally be granted, but outgoing landlord can apply to court if not)

Question 17

LTCA 1995 s3 provides for the automatic transmission of the benefit/burden for landlord and tenant, what does this mean?

Answer 17

• When tenant assigns lease, the assignee acquires the benefit and burden of all the covenants in the lease
• When a landlord assigns the reversionary interest, the incoming landlord acquires the benefit and burden of the covenants

I.e. original tenant and original landlord are not liable for the leasehold
covenants for the full duration of the lease term

Question 18

What is the exception to automatic transmission?

Answer 18

Covenants which are expressed to be personal to any person - here the benefit and burdens which are expressed to be personal will not pass to third party

Not defined; but means that covenant expressly stated to be between two named parties to lease

Question 19

Do parties remain liable for breaches which occur during period of occupation?

Answer 19

Yes - e.g. if a tenant has a claim against former landlord for damages, they cannot withhold rent from new landlord for this

Question 20

How can the outgoing tenant be liable for breaches for a subsequent assignee even if it has been automatically released from its obligations?

Answer 20

If the outgoing tenant has provided an authorised guaranteee agreement

AGA might be a condition of giving consent to an assignment of lease

Question 21

Under an AGA, what remedies is the landlord limited to?

Answer 21

Damages - as the former tenant is not in control of premises anymore so equitable remedy (e.g. specific performance) not possible

Question 22

How can a former tenant recoup damages paid out on behalf of a defaulting assignee?

I.e. the new tenant defaults and original tenant wants recourse

Answer 22

By indemnity

Question 23

Through what 2 ways can an indemnity be used by outgoing tenant?

Answer 23

1. Express indemnity covenant - assignee enters into this on assignment and agrees with assignor to pay rent and perform all covenants for remainder of the lease - former tenant can sue assignee for breach
2. Indemnity under common law

Question 24

What is the effect of an excluded assignment?

Excluded assignment = tenant has assigned the lease without the permission of
the landlord in breach of the terms of the lease

Answer 24

If a lease is assigned in breach of an alienation covenant this is an excluded assignment and
the defaulting tenant will not be released from its obligations under the terms of the lease (as it usually would via automatic transmission)

Question 25

What can be enforced in new leases against any owner or occupier of the premises despite the lack of direct relationship?

Answer 25

A restrictive covenant

Question 26

As landlords cannot enforce against a subtenant any positive covenants, due to no privity of estate, what can be done about this by the tenant and the landlord?

As tenant will remain liable for observing covenants

Answer 26

• A tenant is likely to include a provision in sublease in which subtenant covenants to observe and perform covenants contained in head lease
• A landlord may insist on the subtenant of the property entering into direct covenants with it to perform covenants in lease (creating contractual relationship)

Question 27

What happens to the sublease if the landlord forfeits the head lease?

Answer 27

The sublease is automatically terminated

But see this?? Answer is C

Question 28

What provisions relate to all leases, regardless of when they were created? How will these apply to former tenants?

Answer 28

1. Tenant default notice
2. Liability for variations
3. Overriding leases
   Will apply to former tenants who remain liable under old lease or because of liability under a new lease under AGA

Question 29

What is the tenant default notice rule?

Answer 29

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

Question 30

What is a fixed charge under this rule and what does this not include?

Answer 30

• Arrears of rent, service charge or insurance premiums
• Does not include unascertained liabilities or damages which become ascertained only after a court order has been obtained

Question 31

What happens if a landlord has not notified the former tnant of this claim and amount due within 6 months?

Answer 31

The landlord is precluded from making a claim against it

Question 32

What is the rule on liability for variations?

Answer 32

Former tenants/guarantors are not liable to pay additional amounts re variations which have been made to the lease subsequent to assignment which they could not have anticipated at time lease entered into

Question 33

What is the rule on overriding leases?

Not to be confused with overriding interest

Answer 33

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

Landlord obliged to grant it within a reasonable time

Question 34

How long will the overriding lease be granted for and what will it contain?

Answer 34

Term equal to remaining term on lease in question plus 3 days - will contain same covenants as the lease in question

Question 35

What can the former tenant do under overriding lease?

Answer 35

• Better ensure assignee’s compliance under terms of lease
• Termiante assignee’s lease and re-let property or assign overriding lease to a more reliable tenant