#3750 - Leases Running Of Covenants Ii - GDL Land Law

Introduction – Landlord and Tenant (Covenants) Act 1995

- 1 Jan 1996: LT(C)A 1995 came into force.

• app. to all ‘new leases’: all leases created after 1 Jan 1996.

  • some exceptions: where option or agreement to grant lease entered into before 1 Jan 1996.

• old leases: pre-1996 rules still apply, but modified by retrospective provisions – s17-s19 LT(C)A.

  • date of assignment irrelevant: if lease created pre-1996, old rules apply even if later assignment.

- Main provisions.

• liability of original parties:

  • s5: abolishes continuing liability of original T.

  • ss6-8: enables original L to be released for continuing liability.

  • s11: excluded assignments – original parties not released.

  • s16: Authorised Guarantee Agreement (AGA) – T guarantees performance of covenants by assignee.

  • s22: commercial leases – pre-conditions to assignment possible.

• passing of benefit + burden:

  • s2: app. to all landlord + tenant covenants – ‘touching + concerning’ requirement abolished.

  • s3: passes benefit + burden of all landlord + tenant covenants.

    s3(5): restrictive covenants can be enforced directly on sub-tenant.

    s3(6): NOT covenants ‘expressed to be personal’.

    • replaces Spencer’s Case + ss141-142 LPA 1925.

  • ss23-24: previous L can still sue for breaches before assignment; new L cannot.

• retrospective provisions – app. to old + new leases:

  • s17: warning notice of rent claim against former T must be served within 6 months of rent arising.

  • s18: former T not liable for unforeseen variations to lease.

  • ss19-20: former T can claim overriding lease within 12 months of paying out.

• s25: no contracting out.

Liability of Original Parties: Privity of Contract Abolished

- Assignment of the lease: T automatically released from liability.

• s5: T. released from tenant covenants + no longer entitled to benefit of landlord covenants on assignment.

• s24: T still liable for breaches before assignment.

- Assignment of the reversion: L can apply to be released from liability.

• s6: L may apply to be released from landlord covenants under s8 on assignment – no automatic release.

• s7: former L may apply to be released under s8 on subsequent assignment.

• s8: procedure for seeking release.

  • s8(1): L serves notice on T within 4 weeks of assignment, asking T for release.

  • s8(2): L released from covenants if –

    • (a): T does not object within 4 weeks of notice.

    • (b): L applies to county court court makes declaration that release reasonable.

    • (c): T consents.

• s24: L still liable for breaches before assignment.

• covenants expressed to be personal: continue to bind L – s3.

  • even if relates to land – BHP Petroleum GB Ltd v Chesterfield Properties Ltd [2002]: [Jonathan Parker LJ]: parties free to place contractual limit on transmissibility.

• rationale: protecting T – can refuse to release L if new L less reliable.

  • but: London Diocesan Fund v Phithwa [2005; HoL]: L can include clause in lease excluding liability after assignment of reversion no need to seek release.

    • controversial: at odds with s25 – cannot contract out.

- Excluded assignments (in breach of covenant): defaulting party not released – s11.

• but: next assignment which is not excluded released.

- Authorised Guarantee Agreements (AGAs): concession to landlord – s16.

• AGA: T guarantees performance of covenants by immediate successor in title – condition for L’s consent.

  • only immediate assignee: T’s guarantee lasts only as long as assignee holds lease.

• if AGA in place, L has 2 options:

  • 1. sue current T: can get equitable remedies.

  • 2. sue outgoing T as guarantor.

- Commercial leases: landlord can stipulate pre-conditions to assignment – s22 (amending s19 LT(C)A 1927).

Liability of Assignees

- s3: passes benefit + burden of covenants.

• s3(1): all landlord + tenant covenants pass on assignment.

• s3(6): NOT covenants ‘expressed to be personal’.

  • N.B. First Penthouse Ltd v Channel Hotels & Properties (UK) Ltd [2003]: [Lightman J] obiter: not radical change – ‘expressed to be personal’ similar to having ‘ref. to subject matter of the lease’ + intention that cov. be personal can be explicit or implied.

    • but controversial: has not been followed.

• replaces Spencer’s Case + ss141-142 LPA 1925: not just covs. that ‘have ref. to subject matter of the lease’/’touch and concern’ the land.

- BUT: liability limited to period after assignment – ss23-24.

• s23: no liability or rights under covenant for period before assignment.

  • assignees cannot sue/be sued for breaches before assignment.

• s24: original parties remain liable + retain rights under covenant for period before assignment.

  • original parties can sue/be sued for breaches before assignment.

• e.g. Edlington Properties Ltd v JH Fenner & Co Ltd [2006]: L assigned reversion; T failed to pay rent after assignment; L1 sued T for outstanding rent T unable to set-off damages claim against L against L1’s claim for unpaid rent.

- Original T: recourse if pursued.

• Moule v Garrett still applies: can sue current T for recovery of damages paid on behalf.

• indemnity covenants – only if express:

  • s14: implied indemnity covenants (s77 LPA 1925) abolished.

  • if T signed AGA: T responsible for T1’s breaches but no automatic recourse in respect of losses.

• overriding lease – s19.

Head Landlords and Sub-Tenants

- s3(5): head L can enforce restrictive covenants directly against sub-T.

• replaces Tulk v Moxhay requirements.

Retrospective Provisions (app. to old + new leases) – ss 17-19.

- s17: tenant default notice – by L to pursue (liable) former T for fixed charge – within 6 months of charge arising.

• fixed charge: rent; service charge; insurance premium; fixed penalty for breach of covenant – s17(6).

• if notice not made within 6 months: L cannot recover from former T.

• but notice not necessary for: unascertained liabilities; damages ascertained by court order.

- s18: former T NOT liable for unforeseen variations to lease made subsequent to assignment.

- s19: overriding leases – former T can request from L becomes intermediate landlord of defaulting party.

• greater control to former T: to ensure A’s compliance under terms of lease – can determine lease etc.

• term: remainder of relevant tenancy + 3 days – s19(2)(a).

• procedure – s19(5):

  • request to L in writing specifying qualifying payment – s19(5)(a).

  • within 12 months of paying out – s19(5)(b).

• landlord must grant overriding lease if requested – ...