Repairing covenant? Flashcards
Basic anatomy of leases?
Parties, date, definitions, interpretation provisions
- Most leases usually start with date of lease and names of landlord. Guidelines on interpretation and definitions on stuff like common parts of building
Demise and rents
- Operative provisions of the lease where the landlord demises or grants lease for premises for a specific consideration of rent paid and covenants entered into
Tenant covenant
- Basis rule is that a tenant may do all things that an owner of an estate can do unless the lease prohibits such actions.
- Cover issues like obligations to pay rent, what tenants can sue property for
Landlord covenants
- Most common is covenant for quite enjoyment – not to interfere with tenants’ possession or enjoyment of property during the term of the lease.
Guarantors’ covenants
- An individual or company guarantor may also be party to lease and will covenant to guarantee payments that must be made under the lease and the performance of any other obligations so that if the tenant defaults in payment the landlords able to call upon guarantor.
Provisions, agreements and declarations
- Forfeiture
- What happens in event if damage by insured risks
- Security of tenure
Rights granted
- Might need a way to access premises
Rights expected and reserved
- Rights to access to run cables through
Other provisions
- Rent revie
- Service charge
Execution
- Need to execute document in accordance with normal attestation rules
Covenants in leases? Repair
Repair
- Under a general repairing covenant – tenant must according to rule in Proudfoot v Hart
- Keep premises in condition in which they would be kept by a reasonably minded owner having regard to
o Character of premises and type of premises
o Age of premises
o Express words of covenant
- It also entails an obligation to put them into repair first if they were not in repair
- It can be limited by schedule of conditions – photographs and verbal description – ‘like under no obligation to put it in a better state’
- Covenant to repair does not require renewal of the whole or substantially the whole of the property
Types of covenants
Absolute covenant – tenant is completely prohibited from doing something
Qualified covenant – tenant can go ask landlord for consent - landlord does not have to consent.
Fully qualified covenant – shall not make any without landlords’ consent and landlord has to be reasonable if going to withhold consent
- Reasonableness – almost objectively – cannot do so on something that has nothing to do with tenant and landlord relationship
Alteration covenants?
- Leases will normally allow tenant to make some alterations.
- Unless lease specifies otherwise – tenant is free to carry it out – subject to waste doctrine.
- If it’s a qualified covenant – converted to a fully qualified – so landlord consent cannot unreasonably be withheld.
- Only applies to improvement
- Allows landlord to require as a condition of giving consent – payment of compensation for loss in value to reversion causes by alterations.
- Reinstate of premises at end
- Payment of landlord expenses in giving consent
User covenant?
- A landlord will want control over what land is sued for
- Not upgraded to reasonableness
- But does prevent a landlord demanding payment of granting its consent
Alienations covenant?
- Term described a method of tenant disposing the whole or part of their interest in a leasehold property
- Assignment of lease – transfer by tenant of remainder of their lease to another party
- If lease is silent as to assignment – then can be freely done
- Most leases contain restriction so that landlord’s consent must be required
- Covenant is construes in tenants’ favour – so that a covenant against assignment does not prohibit subletting the whole or part
- Covenant against subletting the whole does not prohibit a subletting of part.
- Landlord consent is formally recorded in a deed called a license to assign
Subletting a lease?
Subletting of a lease
- Involves granting a lease out of its own lease – called an underlease or sublease
Why sublet rather than assignee
- Would mean tenant would remain responsible for performing covenants
- May be because its temporary
- Or market isn’t great
Formalities for sublet
- New underlease document being drafted and entered into
- General rule – must be in deed and registered if more than 7 years
- Usually, a license to underlet is needed
Statutory intervention with alienation covenant?
Statutory intervention with alienation covenants
- S19 – any qualified covenants become fully qualified – so cannot be withheld unreasonably.
- Applies to all forms of alienation
Landlord and tenant act 1988 s1
- Landlord must give written consent within a reasonable time
- Burden is on landlord to prove reasonable refusal and written reasons must be provided
- 27 days from receipt was deemed reasonable in one case
- If landlord doesn’t not comply with this statute – may be liable for tortious damages for breach
Reasonable refusal examples
- Unsatisfactory tenant reference
- Damage commercial interest
- Well below market premium
New leases - pre conditions for assignment?
- Apply to any on or after 1st January 1996
- S19 inserted that
- Landlord and tenant can agree in circumstances in which the landlord may withhold consent to an assignment.
- Landlord and tenant can agree to condition
- Such circumstances will automatically be reasonable if imposed by landlord when giving consent to assign.
These circumstances and conditions are agreed in advance by including them in the lease when it is drafted.
Common condition attached to landlords’ consent under assignment is - Outgoing tenant agrees enters into an authorises guarantee agreement AGA – promising to perform the incoming assignees obligations under the lease if it defaults. - Landlord will only ever have current tenant and the tenant immediately prior to current tenant on hook under an AGA.
Enforceability of leasehold covenants? Privity of estate?
Both landlord and tenant enter into covenants agreeing to do and not do certain things in a lease.
Original parties – privity of contract
- Privity denotes the legal relationship between two or more parties to a contract.
Current landlord and tenant – privity of estate
- A lease if formalities complied with give tenant a legal estate in the land.
- When landlord and tenant are each owner of legal estate in same property there is said to be privity of estate between them.
- Exist between any current landlord and current tenant and only lasts only for period while the lease is vested in the tenant.
- Upon assignment – privity of contract will exist between original landlord and tenant – but there will no longer be privity of estate between them.
- Consequently, privity of estate will be between current landlord and current tenant.
Legal issue
- When tenant assigns its interests to a successor in title – no contractual relationship between landlord and new tenant (assignee)
- Enforceability of leasehold covenants – two sets of rules
Old leases
- Before 1st Jan 1996
- Liability of original landlord and original tenant continue for the full duration of the lease term.
- Even after assignment
LCTA 1995 –
- Makes some fundamental changes
- Abolishing original party liability
- No longer liable for full duration of full original lease.
- Generally, obtain an automatic release from tenant’s covenants upon assignment, when it assigns.
- No automatic release if assignment is unlawful.
Landlords of new leases
New leases
LCTA 1995 provides for automatic transmission of benefit and burden of all landlord covenants to new owner of reversion and the benefit and burden of all tenant covenants to the assignee.
This means
- When a tenant assigns a lease, the assignee acquired the benefits and burdens of the covenants
- When landlord assigns revisionary interest, the incoming landlord acquires the benefit and burden of the covenant.
- ONLY EXCEPTION TO THIS RULE – for those covenants which are expressed to be personal to any person, then they will not pass to a third party.
New leases
- Suing a former tenant
- An assignee of lease becomes liable from date of assignment for all covenants in the lease
- Should assignee by unwilling or unable comply the landlord may look to other parties for compensation in respect of breaches of covenants committed by a subsequent assignee.
- If outgoing tenant has automatically been leased from its obligations under assignment under LCTA 1995 s5 – it will not be liable. However, if the outgoing tenant has provided an AGA the landlord could sue the former tenant who is guaranteeing obligations of their immediate successor.
- The AGA is often required alongside consent for assignment.
Landlord can decide who to sue? Consequences for tenant?
Landlords’ choice
- Presence of an AGA provides landlord with a choice. If landlord sues the former tenant under the AGA its remedy is limited to damages because the former tenant is not in control of the premises any more. Such damages may be extensive.
Options for a former tenant who is sued
- The former tenant may be able to recoup damages paid out on behalf of defaulting assignee using an indemnity.
- Under a new lease, an outgoing tenant should ensure that their assignee enters into an EXPRESS INDEMNITY COVENANTS on assignment, whereby the assignees agree with assignor to pay the rent and to perform all covenants for remainder of lease. The former tenant may then sue the assignee for breach of the indemnity covenant and recoup damages paid to the landlord.
- In the absence of an express indemnity covenant the assignor could claim an indemnity at common law under the rile in Moule v Garett
o This would give same effect as above but limited to practical value.
LCTA 1995 – retrospective provisions
S17 tenant default notice
S18 liability for variations
S19 – overriding leases
If a landlord wants to sue previous tenant - what’s the procedure?
Tenant default notice
- Where a landlord wishes to pursue a former tenant who remains liable under terms of the lease for a fixed charge the landlord must serve notice of potential claim on such tenants within 6 months of charge becoming due
- If landlord has not notified former tenant of this claim, landlord will be precluded from making a claim against it
Fixed charge is – arrears of rent, service charge, or insurance premiums
Liability for variations
- Former tenants and guarantors are not liable to pay an additional amount owing in respect of variations which have been made to lease subsequent to assignment – they could not have anticipated it
Overriding lease?
- Creation of an overriding lease in certain circumstances
- If a former tenant is called upon landlord to pay rent or other fixed charges due from an assignee, the former tenant is entitled to request from the landlord an overriding lease becoming the immediate landlord of defaulting party
- Granted for a term equal to remaining term of lease plus 3 days. If former tenant requests it, landlord is obliged to grant it within reasonable time
- The former tenant is then in a better position to ensure assignees compliance under terms of lease.
Sublease?
- When there is a sublease in place – there is no direct relationship between the landlord and the subtenant
- Despite lack of relationship LCTA allows restrictive covenants in new leases to be enforces against the any new occupier of premises in headlease.
- But will not be able to enforce directly against any positive covenants.
- As such any prudent landlord as a condition of subletting insist on any subtenant of property entering into direct covenants with it
