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...