Enforcement of Covenants in Leases

Tutorial 5

Enforcement of covenants in leases

Old tenancies = granted pursuant to a contract or court order made before the 1/1/96

Privity of contract – between contracting parties

Privity of estate – relationship of landlord and tenant

Position of landlord and sub-tenant:

Benefit: i.e. can sub-tenant sue landlord

a) has the contract assigned the benefit of the covenants b) s.78 LPA 1925 – deemed to be made with covenantee and those deriving title under him c) Contracts (Rights of 3rd Parties) Act 1999 – 11/5/00 does the sub lease expressly state that the 3rd party is to have the benefit of covenants entered into with T

Burden: i.e. can landlord sue the sub-tenant

a) positive covenants – burden neither runs at law nor in equity and so landlord must sue tenant to forfeit the head lease b) negative covenants – run in equity if: i) covenant benefits the land + ii) parties intend the burden to run and the purchaser has notice of the covenant

n.b. covenants between landlord and tenant cannot be registered either at the Land Charges Department or at the Land Registry. So, landlord can sue sub-tenant if sub-tenant has actual, constructive or implied notice of the covenant. (sub- tenant would have the right to see the head lease and so would have constructive notice) Assignments: s.141 & s.142 LPA 1925 – benefit and burdens of covenants in leases go with the reversionary estate without the need for an express transfer at common law the benefit and the burden of covenants in leases go with the lease an assignee is not liable for breach of covenant committed after he has assigned the lease as after that time there is no longer any privity of estate (or, indeed, contract) between the parties.

For covenants to run as above they must touch and concern the land = must not be personal to a specific individual.

Where there is a guarantor then provided that T’s covenants touch and concern the land the guarantor’s covenants will also touch and concern – P & A Swift Investments v Combined English Stores Group plc.

Options to purchase the freehold do not touch and concern the land – Woodall v Clifton – and so do not affect the parties as landlord and tenant. They do affect the parties as vendor and purchaser.

However, if the lease in which the option is contained refers the “lessee” as including his successors and assigns, the mere assignment of the term operates to assign the benefit of an option, Griffith v Pelton.

The burden of an option is registrable and lack of registration will make it void. But, if the land is registered and T is in actual occupation he will have an overriding interest under Schedule 3 para 2 LRA 2002 and will be able to enforce the option.

Options to renew a lease

Benefit – touches and concerns the land and will pass automatically on assignment.

Burden – unregistered land – needs to be registered as a C(iv) land charge and if not registered is void against the purchaser of the legal estate for money/money’s worth. If not correctly registered all an assignee can do is to sue the original landlord for failing to comply with his obligation. - registered – minor interest and needs to be registered by the entry of a notice in the charges register on the registered title.. If not registered it will be an overriding interest under schedule 3 para 2 LRA 2002 and will be enforceable.

Covenants against assigning and subletting s.19(1)(a) Landlord and Tenant Act 1927 - where a covenant requires consent to assignment such consent is not to be unreasonably withheld.

Ss.1 & 4 Landlord and Tenant Act 1988 -where T serves a written application for consent on the landlord, the landlord owes a duty to give/refuse written consent within a reasonable period of time

- breach of this duty gives rise to civil liability

Norwich Union Life Insurance Society v Shopmoor Ltd – landlord has a statutory duty to tenant to give consent except in a case where it is reasonable not to give consent.

Where landlord fails to comply with this duty tenant can make an application to the court or he can risk going ahead with an assignment. If he does this there will have been a breach of covenant and landlord may take steps to forfeit the lease.

Granting a sublease for a term equal to or greater than the term of the lease takes effect as an assignment, Milmo v Carreras s.144 LPA 1925 – landlord cannot exact a penalty for consent to an assignment unless the lease provides that he can

New tenancies

Landlord and Tenant (Covenants) Act 1995 s.2 – Act applies to ALL covenants whether express, implied or imposed by law s.3 (1) – benefit and burden of all L & T’s covenants annexed to the whole and every part and pass on assignment

(2) – on assignment T1 becomes subject to burden but has the benefit of all T’s operative covenants in the lease

(3) similar provisions for L (6) (a) where a covenant is expressed to be personal it is only enforceable against that person (b) where a covenant has not been correctly registered it is not saved by this statute s.4 – benefit of right of L to re-enter is annexed to the whole and to every part and passes on assignment s.5 (1) where T assigns the whole of the demised premises he is released from the covenants and drops out of the picture s.6 where L assigns the reversion of a lease he can apply under s.8 to be released from L’s covenants and if successful he drops out of the picture s.8 – to obtain release L must serve on T 4 weeks written notice beginning with the date of the assignment telling T of it and asking for release. T has 4 weeks to serve a written notice objecting. If T objects L can apply to the court for a declaration. T can withdraw his objection s.16 – where T is released from his covenants on assignment and guarantees T1’s performance of the covenants because the lease prohibited assignment (either absolutely or qualified) and L required the guarantee then T is only responsible for the activities of his assignee whilst the assignee holds the lease s.17 – applies to rent and service charges. Where L relies on his guarantee to claim from a former T he must serve notice within 6 months of the charge becoming due specifying the amount to be paid (exclusive of interest). Former T is only obliged to pay the amount stated in the notice s.19 – where guarantor pays up under s.17 he can take an overriding lease of the premises – term = remainder of term + 3 days or extent of L’s reversionary interest less 3 days. This provision does not apply where the lease has been forfeited s.22 – where a lease specifies circumstances where L can withhold his consent then he will not be unreasonable for the purposes of s.19 L & T Act 1927 if he withholds on that ground. This does not apply where the condition is framed by reference to any matter which L or a 3rd party must determine to the extent that this power is exercised unreasonably. This section does not apply to residential leases. It does not apply to sub-letting s.23 a new L or T does not have any rights or liabilities for what occurred before the date of their assignment