Leases: Enforceability of covenants Flashcards
What is the privity of contract in leases?
the relation between the parties in a contract which entitles them to sue each other but prevents a third party from doing so.
What is Privity of estate?
A lease gives the tenant a legal estate in the land.
Landlord and the tenant are each owners of a legal estate in the same property = privity of estate between them.
! only for the period while the lease is vested in the tenant.
What happens to the privity of contract on assignment of a lease?
When the tenant assigns its interest to a successor in title, there is no contractual relationship between the landlord and the new tenant (the assignee).
Where the landlord sells its reversionary interest, there is no contractual relationship between its successor in title (the reversioner) and the tenant
ONLY THING THAT REMAINS is privity of estate.
What are the two sets of rules which determine the enforceability of leasehold covenants?
- Old system which relate to ‘old leases’ (granted before 1 January 1996) and
- New system, which relate to ‘new leases’ (granted on or after 1 January 1996)
What is the enforceability of leasehold covenants in old leases?
Under privity of estate and contract:
The liability of the original landlord and the original tenant continues for the full duration of the lease term.
EVEN AFTER assignment - remain liable for covenants.
What is the enforceability of leasehold covenants in new leases?
The LTCA 1995 effectively abolishes privity of contract for all new leases.
- A tenant with a new lease will (generally) obtain an automatic release from the tenant’s covenants upon assignment.
- no automatic release of the landlord upon assignment of the reversion of a new lease. The landlord must apply for such a release from the tenant (if refused, court).
Exceptions to the new lease enforceability under LTCA 1995?
For covenants which are ‘expressed to be personal to any person’.
The benefit and burden of covenants which are expressed to be personal will not pass to a third party
Can the landlord sue a former tenant after assignment?
should the assignee be unwilling or unable to comply, the landlord may look to other parties for compensation in respect of breaches of covenant committed by a
subsequent assignee.
- Original tenant has been released form obligation: NO liability
- Original tenant provided ‘AGA’ (authorised guarantee agreement) on assignment of new tenant: Liable.
What are the available remedies the landlord receives for suing under AGA?
its remedy is limited to damages because the former tenant is not in control of the premises anymore.
BUT former tenant can use indemnity to recoup those damages.
How can the former tenant claim indemnity after assignment?
a) Original tenant should ensure that their assignee enters into an express indemnity covenant on assignment.
b) Alternatively, the assignor could claim an indemnity at common law under the rule in Moule v Garrett - recover the damages from assignee.
How can the former tenant claim indemnity under subleases?
Include a provision in the sublease in which the subtenant covenants to observe and perform the covenants contained in the head lease (OG lease).
The landlord can also implement this condition - creating a contractual relationship between them and the subtenant (enabling enforcements).
What sections of the LCTA apply to both new and old leases?
- s 17, Tenant Default Notice
- s 18, Liability for Variations
- s 19, Overriding Leases
What is the s 17, Tenant Default Notice?
6 months notice for the landlord to pursue a former tenant who remains liable under the terms of the lease for a fixed charge (rent, service charge or insurance premium).
What is s 18, Liability for Variations?
Former tenants and guarantors are not liable to pay any additional amounts owing in respect of variations which have been made to the lease subsequent to assignment which they could not have anticipated at the time when the lease was entered into.
What is s 19, Overriding Leases?
When a former tenant is called upon by the landlord to pay rent or other fixed charges, they are entitled to request an overriding lease, becoming the immediate landlord of the defaulting party.
It is granted for a term equal to the remaining term of the lease in question plus three days, containing the same covenants.
