Leases Running Of Covenants I Notes

• - Problem: enforcing covenants in leases on new parties.

  • original landlord (L) + original tenant (T) – contractual relationship: enforcement by contract principles.

  • successors in title (i.e. T assigns lease to T1 or L sells reversion to L1) – no contractual relationship.

  • attempt to balance 2 issues:

    • 1. if covenants unenforceable vs. successors v. short lifespan: not always convenient.

    • 2. if covenants always bind successors land less attractive to buyers.

  • 2 sets of rules:

    • pre-1996 (old leases): old system of rules.

    • 1996- (new leases): Landlord and Tenant (Covenants) Act 1995 (LT(C)A).

  - These notes: old leases.

  Privity of Contract and Estate

  - Privity of contract: between original landlord (L) + original tenant (T) continuing liability.

  • all terms in lease can be enforced between L + T: under rules of contract.

  • liability continues for full lease term – even after assignment.

    • T’s liability continues after assignment of lease – Thursby v Plant [1668].

    • L’s liability continues after assignment of reversion – Stuart v Joy [1904].

    • s79 LPA 1925: covenant deemed to be made by covenantor on behalf of self + successors (inc. owners/occupiers for time being) + persons deriving title under successors.

    • (possible absurdities reformed by LT(C)A).

  - Privity of estate: between any current landlord + current tenant.

  • proprietary relationship: landlord (freehold reversion) + tenant (leasehold) owners of legal estate in same property.

  • on assignment by L or T or interest:

    • privity of contract: remains between L + T.

    • privity of estate: between whoever is current landlord + tenant.

    • e.g. below: privity of contract – L + T; privity of estate – L1 + T2.

  • may allow covenants to be enforced vs. successors – but dep. on other conditions.

    Assignment of the Lease

  - Assignment of lease: assignee liable under privity of estate if conditions met (Spencer’s Case [1583]).

  • assignment of lease: privity of estate between L + new tenant (T1).

  • Spencer’s Case [1583] – 4 conditions for burden + benefit to pass to assignee of lease (T1):

    • 1. privity of estate between the parties (i.e. those in current position of landlord + tenant).

    • 2. there must be a legal lease.

      • old view: only if created by deed – Purchase v Lichfield Brewery Co [1915].

        • problem: leases <3 years – can be legal without deed (s54(2) LPA 1925).

      • new view: just need appropriate formalities – Boyer v Warbey [1953]: [Ld Denning].

    • 3. lease must have been legally assigned – Cox v Bishop [1857].

      • correct formalities complied with satisfied.

      • NOT equitable assignment: although benefit of covenants may pass to assignee under contract.

    • 4. covenant must touch + concern the land: i.e. affects landlord qua landlord / tenant qua tenant (Hua Chiao Commercial Bank Ltd v Chiaphua Industries Ltd [1987]: [Ld Oliver]).

      • a. consider if particular type of covenant dealt with in case law.

      • b. apply test: P & A Swift v Combined English Stores [1989]: [Ld Oliver]:

        • i. benefits land itself – lacks utility if separated from land;

        • ii. affects nature, quality, mode of use or value of land;

        • iii. non-personal in nature.

        • (approach followed: Caerns Motor Services Ltd v Texaco Ltd [1994]: [Paul Baker QC]).

      • examples:

        • tenant’s obligations touching + concerning land: to pay rent; repair; decorate; use only in stipulated fashion; not assign without consent; not make alterations; insure premises.

        • landlord’s obligations touching + concerning land: to renew lease at end of term; supply premises with water; not build on adjoining land.

        • covenants NOT touching + concerning land: not to employ certain persons; give lessee right of first refusal on sale of adjoining land; sell reversion to lessee; pay tenant compensation at end of lease if new lease not granted.

  - Duration of tenant’s liability: privity of estate lasts only for period lease vested in tenant.

  • no liability for breaches before assignment or after assigns lease to 3^rd party: intermediate assignee not liable for breaches by later assignee (but original tenant is!).

  • remains liable for any breaches committed while tenant.

    • inc. continuing breaches inherited from assignor (e.g. breaches of repairing covenant).

  • but: liable for breaches of assignee if covenanted with landlord to be responsible – Estates Gazette Ltd v Benjamin Restaurants Ltd [1995].

    • common practice: landlord makes consent to assignment conditional on tenant promising continued fulfilment of covenants in lease.

  - Original tenant remains liable even after assignment indemnities on assignment.

  • original tenant remains liable: landlord can sue for compensation for breaches by subsequent assignee.

    • Walker’s Case [1587]: original tenant remains liable.

    • s79 LPA 1925: original tenant covenants on behalf of self + successors + those who derive title under them.

    • only damages available: not specific performance/injunction – original tenant not in possession.

  • but: original tenant may be able to recoup damages from assignees.

    • common law: rule in Moule v Garrett [1872]: where 1 person compelled to pay damages because of legal default of another, entitled to recoup damages from defaulting party.

  
  

  • statute: implied covenants by assignee to assignor on transfer of lease.

    • unregistered land: s77 LPA 1925: assignee covenants with assignor to pay rent + perform all covenants touching + concerning land for remainder of lease.

      • chain of indemnity created between T + any subsequent assignee: each assignee covenants to previous assignee on assignment. T can sue assignee under contract.

        • but: only assignments for valuable consideration.

      • registered land: Sch. 12 para 20 LRA 2002: assignee covenants with assignor (unless contrary intention) –

        • (2)(a): pay rent reserved in lease; (2)(b): comply with covenants in lease; (2)(c): keep assignor indemnified against actions from failure to comply.

        • any disposition: inc. gifts.

    • express covenants: needed for gift of unregistered land (s77 LPA 1925 does not apply).

  • BUT: indemnities...

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