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Leasehold Covenant: Enforcement

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Leasehold Covenants: Enforcement

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  • Landlord & Tenant (Covenants) Act 1995: leases granted after 1 January 1996: new leases / old leases made prior to this date

Enforcement of covenants: old leases

  • lease: creates estate in land (creates privity of estate / L & T relationship) / & also contract (privity of contract between parties / enforceable throughout duration by parties) / privity of contract & privity of estate allow for parties to sue if breach occurs
  • if original T assigns lease: privity of contract between original T & L not ended / privity of estate between original T & L ended / no privity of contract between L & assignee (A) / privity of estate between L & A / same rules apply if L assigns reversion
  • if both original parties assign interest: privity of contract between original parties / privity of estate between As
  • if original T sublease to subtenant (ST): privity of contract & estate remain between T & L / privity of contract & estate exist between T & ST / no privity of contract & estate between ST & L

Old leases: benefit

  • original L (covenantor) & original T (covenantee) / T subleases to ST / L in breach of covenant entered into with T / covenant would benefit ST / ST wishes to enforce
  • if T also assigned benefits of covenants entered into by L: ST can sue L to enforce / or ST may rely on s.78 LPA 1925 / LPA 1925 s.78: covenant deemed to be made with the covenantee & persons deriving title under him
  • T able to enforce covenant made with freeholder Smith & Snipes Hall Farm v River Douglas Board
  • if lease created on or after 11 May 2000 / may be assisted by Contracts (Rights of Third Parties) Act 1999 / may expressly state third parties (ST or superior L) have benefit of covenants entered into with T
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Leasehold Covenants: Enforcement

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Old leases: burden

  • T entered into covenant with L: ST (in occupation of premises) is person who caused covenant breach / no privity of contract or estate between L & ST / can burden pass to ST so L can enforce directly?
  • burden of covenant (positive or restrictive) not run at common law / burden of positive covenant does not run in equity / burden of restrictive covenant may run in equity
  • burden of restrictive covenant may run in equity if: covenant benefits land of covenantee / & parties intend burden to run / (P acquiring land with notice of covenant will be bound by it) Tulk v Moxhay
  • Tulk v Moxhay applies if underlessee acquires an underlease with notice of covenants contained in head lease Hall v Ewin / confirmed Hemingway Securities v Dunraven
  • s.29 LRA 2002 : restrictive covenant binding on ST / takes land subject all implied & express covenant's incident to leasehold estate
  • indirect enforcement: L can sue T / T may sue ST / or if forfeiture clause L forfeit head lease & end ST's underlease
  • L granted lease to T (containing covenants by both L & T) / L assigned reversion to L1 / T assigned lease to T1 / lease between L & T (privity of contract & privity of estate) / for covenants entered into by L & T to be effective: necessary capable being enforced by L1 & T1 / law imprints contractual obligations on the estate (but may not imprint all covenants)
  • common law: covenants touch & concern the land: benefit of L's covenants run with land (pass to T1) / & burden of T's covenants runs with term (bind T1) Spencer's Case
  • by statute: LPA 1925 / covenants having reference to the subject matter of the lease / s.141(1): benefit of T's covenants with L will runs with reversion (pass to L1) / s.141(2): benefit of L's covenants with T will runs with reversion (bind L1)
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Leasehold Covenants: Enforcement

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Old leases: touching & concerning

  • in principle L1 & T1 / bound by obligations entered into by original parties / but may be limited / rules are purely arbitrary & the distinctions... quite illogical Grant v Edmondson
  • Q: whether covenant touches & concerns the land or has reference to the subject matter of the lease?
  • to touch & concern must: affect the land itself during term (eg regard mode of occupation) / or affect value of land at end of term (not merely from collateral circumstances) Congleton Corporation v Pattison
  • L was a lessee & granted underlease to T / D (T's parent company) entered into covenant with L guaranteeing performance by T of covenants / L assigned reversion to C with no express assignment of benefit of D's guarantee / T defaulted in paying rent & went into liquidation / was C entitled to benefit of the guarantee given by D? / s.141 LPA 1925 applies to covenants by lessee & provides benefit annexed to & goes with reversionary estate / covenant not entered into by lessee (T) but by parent company (D) / privity of contract between D & L but no privity of estate / no privity of contract or privity of estate between C & D / no express assignment of benefit of contract statutory rules not apply / depends whether benefit ran under common law (C required legal estate & covenant had to touch & concern the land) / T's covenants touched & concerned & therefore D's guarantee also P & A Swift Investments v Combined English Stores
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Leasehold Covenants: Enforcement

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  • options: to buy an estate or renew lease / gives person entitled right to compel owner to sell or grant estate / he is free to exercise option or not / covenants containing options may be included in leases
  • X granted A lease with option to purchase freehold reversion / X sold freehold reversion to Y / & A assigned lease to B (with no mention of option) / B wants to exercise option
  • for B to enforce option against Y: has to show he has benefit & burden passed to Y / covenant contained in lease between X & A (between whom there was privity of contact) / no privity of contract between Y & B but there is privity of estate / covenant enforceable between Y & B if touch & concern the land
  • option to purchase freehold: not touch & concern land / option to renew a lease: does touch & concern land Woodall v Clifton
  • other ways benefit may pass to B: covenant an estate contract & capable of being expressly assigned / or if in original lease A described as lessee & term described as including successors & assignees (argument B lessee & therefore right to exercise option) / mere assignment of the term operates to assign the benefit of the option Griffith v Pelton
  • other ways burden may bind Y: if registered title / estate contract is interest affecting a registered estate & should be protected by entry notice on charges register (s.27 LRA 2002) / notice would bind Y / if no notice Y would take free
  • as B in actual occupation / option gives him proprietary right / B can claim overriding interest under sch.3 para.2 LRA 2002 (s.29 LRA 2002) & enforce option against Y
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Leasehold Covenants: Enforcement

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Old leases: assigning & subletting

  • lease may contain covenant by T restricting ability to alienate lease / absolute covenant: T cannot assign or sublet / qualified covenant: T cannot assign or sublet without L's prior written consent / fully-qualified covenant: L cannot unreasonably withhold consent / qualified converted into fully qualified s.19(1)(a) LTA 1927
  • L statutory duties consent / Landlord and Tenant Act 1988 / s.1(3)(a): provide consent in reasonable time unless unreasonable to do so / s.1(3)(b): in reasonable time written notice of decision (if consent subject to conditions or reasons if withheld) / s.1(4): reasons for withholding must not be unreasonable / s.1(6): L must be able to demonstrate compliance / s.4: breach of duty actionable tort for breach of statutory duty
  • unreasonable: withheld consent / nothing to do with L & T relationship International Drilling Fluids v Louisville Investments
  • valid refusal consent: ST will acquire protection Landlord and Tenant Act 1954 (security of tenure as business tenant) / & T not have that protection West Layton v Ford
  • failure valid written reason for refusal within reasonable time / L under duty to consent Norwich Union v Shopmoor
  • granting sublease for term equal or greater than term of lease / assignment of lease Milmo v Carreras
  • if T proceeds without consent: assignment effective & assignee new tenant / T breached covenant & L may seek forfeit lease Old Grovebury Manor Farm v W Seymour Plant Sales
  • s.144 LPA 1925: no fine payable for giving of consent / s.144 may be expressly excluded in lease
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Leasehold Covenants: Enforcement

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Old leases: liability

  • original T under old leases / liable despite yrs passing
  • L granted lease to T / L assigned reversion to L1 who assigned reversion to L2 / T assigned lease to T1 who assigned lease to T2 / T2 not pay rent & in breach of repairing covenant / s.141 LPA 1925: L2 has benefit of all covenants reference subject matter to the lease (rent & repairs) / L2 only person with enforceable benefit
  • once benefit of covenants pass under s.141 LPA 1925 / original assignor no longer sue if breach occurs / right passes to reversion assignee Re King
  • L2 may sue T2: T2 current tenant & L2 current landlord (privity of estate) / burden of covenants passed to T2 on assignment to extent they touch & concern land (Spencer's Case)
  • L2 may also sue T: T originally bound by all T's covenants (privity of contract between L & T) / T remains liable under contract throughout entire term of lease / benefit of L's contract with T has now passed to T2

Old leases: protecting former tenant

  • Landlord and Tenant (Covenants) Act 1995 / some protection for former Ts under old leases
  • LTCA 1995 s.17(1): former T after assignment bound by covenant liable for fixed charge (old lease or AGA) / s.17(2): only if served with notice within 6 months of charge becoming due / s.17(6): fixed charge includes rent & service charges / s.19: if notice served & arrears recovered / former T claim overriding lease: former T / L of current T & may forfeit lease & recover possession of premises)
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Leasehold Covenants: Enforcement

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Enforcement of covenants: new leases

  • Landlord and Tenant (Covenants) Act 1995 / creates new lease / leases granted on after 1 January 1996 / except if pursuant to contract or court order made before - remain old leases
  • s.2(1): no distinction: covenants have reference to subject matter of lease or not / or whether covenant express or implied
  • s.3: benefit & burden of all L & T covenants passes to successors in title / except: s.3(2): burden of T's covenants not pass if: (a)(i): assignor no longer bound at date of assignment / (a)(ii): covenant relates part of leased not assigned / s.3(6)(a): covenant will not pass to successor in title if personal
  • s.5(2)(a): T released from burden of T's covenants when assigns lease / s.5(2)(b): T no longer entitled to benefit from L's covenants when assigns lease
  • s.16(1): T who assigns lease may be required enter Authorised Guarantee Agreement (AGA) / s.16(3): L can require AGA as condition for consent / s.16(4): AGA can only impose obligation to guarantee the liability of his immediate assignee & can only last as long as lease vested in immediate assignee
  • s.6(2)(a): L must apply to T / for release from burden of covenants / on assigning reversion / s.8(1): L serves notice on T / informing assignment & requesting release / before or within 4 wks / s.8(2): landlord only released if tenant agrees or fails to respond within four weeks of service of notice or court declares release reasonable
  • LTCA 1995 s.3(5) : L may enforce / restrictive covenants as to user / directly against ST (as an occupier of land)
  • L still rely on Tulk v Moxhay / enforce other types of restrictive covenants
  • commercial lease: LTCA 1995 s.22 / introduces subsections to s.19 LTA 1927 (1A - 1E) / apply to assignment of qualifying lease / L agree with T circumstances when consent to assignment may be withheld & state conditions for consent / if L refuses consent on specified grounds / T cannot argue unreasonable under s.19 LTA 1927
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