Leases 3 Running Of Leasehold Covenants - GDL Land Law

Land Law: Leases 3, Running of Leasehold Covenants

Intro

• When leases are granted, both L and T enter into covenants agreeing to do/not do certain things.

• When either L or T leaves the land/sells their interests to new parties, question: are the covenants, made by the original parties, enforceable by or against the new parties.

• Between original L and original T there is a contractual relationship; but when T assigns their interest to a successor in title (T1), there is no contractual relationship between L and T1. Likewise, when L sells their reversionary interest, there is no contractual relationship between their successor in title (L1) and T.

• So rules developed to strike a balance between: no enforceable covenants beyond the original contractual relationship; and letting all promises go on to bind all successors in title.

2 sets of rules:

• Those which apply to leases created before 1^st January 1996 (“Old leases”)—old system of rules still governs them.

• Those which apply to leases created on or after 1^st January 1996 (“New leases”)

  • Landlord and Tenant (Covenants) Act 1995—not retrospective

  • (but ss 17-20 apply to old and new leases, retrospective effect)

Definitions:

• Assignment of lease: T sells/transfer the existing lease for the residue of the term of the assignee.

• Sublease: T creates new lease for shorter term than own:

  • Headlease

  • Sublease

• Assignment of reversion: L sells or transfers his freehold or superior leasehold.

• Privity of contract: original parties to the lease. This whole topic is an exception to the privity of contract rule – that only the parties to the contract can sue/be sued.

• Privity of estate: Landlord and tenant for the time being. The current landlord and tenant are said to have ‘privity of estate’—they are privy to the same estate.

Consider enforceability of covenants by and against:

• Original parties.

• Assignees of the lease.

• Assignees of the reversion.

• Subtenants.

Pre-1996 Leases

• NB it’s about the date of assignment.

• Two ways exam questions can test you on both old and new leases:

  • The lease might be assigned before 1996, but the sub-lease might be assigned after.

  • Or question might just say ‘what would you answer be if pre/post 1996’

Privity of contract---Original parties, under privity of contract—in old leases, can still be sued for any breaches by the present parties

• Have privity of contract and privity of estate.

• So the original T remains liable after assignment of lease, can still be sued for the present tenant’s rent or damages for other breaches.

• Privity of contract lasts for whole duration of the lease term, even after an assignment of either the landlord’s or tenant’s interest.

• Original L remains liable after assignment of lease, can be sued for the present landlord’s breaches of covenants.

• Continuing liability of original tenant confirmed in Thursby v Plant (1668).

• Continuing liability of original landlord confirmed in Stuart v Joy.

• Continuing liability of original parties further reinforced by LPA 1925, s79

• [[[LT(C)A has changed this principle for new leases]].

Privity of estate

• A lease gives the lessee a legal estate in the land.

• Since the landlord and tenant are each owners of a legal estate in the same property (the L of the freehold (or sometimes leasehold) reversion, and the T’s being the leasehold) in the same property—there is privity of estate between them, between any current L and current T.

• So when original L or original T assigns their estate, there remains privity of contract between L and T, but no longer privity of estate between them. Privity of estate is between the current L and current T.

• So there would now be, after assignment:

  • If T transfers his leasehold to T1: there is no Privity of contract between L and T, and privity of estate between L and T1.

  • No privity of contract between L and T1 (unless, on assignment, T1 was asked by L to covenant directly with L to perform the covenants in a lease, creating a separate and new contractual relationship between them).

  • [[Note there also exists privity of contract between T and T1 in relation to the transfer of the leasehold estate]].

  • If L sells his reversionary interest to L1: there remains privity of contract between L and T, whilst privity of estate is now between L1 and T.

  • [[Note there also exists privity of contract between L and L1 in respect of the sale of the version; and may exist between L1 and T if they have entered into a new contractual relationship together]].

  • Where there exists privity of estate between the parties, covenants may be enforceable: so enforcement of covenants may be possible beyond the original contracting parties, even where no contractual relationship between the enforcer and enforcee of the covenant.

  • But the existence of privity of estate is not by itself, enough to enable enforcement of the covenant, Other conditions have to be met, which differ according to whether there has been an assignment of the lease or assignment of the reversion.

Assignees of leases

• Assignee (new tenant, T1) takes benefit and burden of lease covenants---[[this only relates to assignment of a lease]]:

  • Where lease assigned to T1, privity of estate will exist between L and T1---the tenant covenants in the lease may now be enforceable against T1.

  • Spencer’s Case (1583), assignee (T1) takes benefit & burden IF, 4 conditions:

  • (1) Must be privity of estate between the parties.

    • The current landlord and tenant are said to have ‘privity of estate’—they are privy to the same estate.

    • So the covenants run with the land to the new L and T, because they are imprinted on the estate, which the new parties are privy to.

  • (2) Must be a legal lease

    • Used to be that Spencer’s Case only applied if the lease was made by deed.

    • But this would create a problem for short leases (those not exceeding 3 years can be made without deed and be legal).

    • Clarified in Boyer v Warbey (1953)—Lord Denning: provided the leases comply with necessary formalities for it to be legal,...