Leasehold Covenants Flashcards
Nature of a lease
Leasehold allows two or more persons to enjoy the benefits of owning an estate in the land at the same time. Both landlord and tenant retain a proprietary right in the land and both of these proprietary rights can be sold or transferred after the lease has been created. Essential qualities are exclusive possession, for a certain term, at a rent.
Covenants
All leases will contain covenants, whereby the landlord and tenant promise to do - or not to do - certain things in relaiton to the land, These rights and obligations may run with the land on a transfer of the lease or of the landlords reversion.
Creation of legal leases
General rule is legal leases must be created by deed. Currently, leases for over seven years, even if created by deed will not take effect as a legal estate until substantively registered with their own title number. Leases for three years or less that take effect immediately in possession where the tenant does not pay an initial capital sum will be legal, however created. Most periodic tenancies are legal under this exception
Equitable leases
As a general rule, equitable leases must derive from a written contract. This written agreement will create an equitable lease if it is specifically enforceable. As an exception, equitable lease can be generated purely orally via the principles of proprietary estoppel.
Leases in registered land
In registered land, the majority of legal leases for seven years or less are overriding interests and legal leases created for more than seven years are substantively registrable as titles in their own right.
Equitable leases can be protected by regisrtration of a notice, althoug most are overriding interests and automatically binding against subsequent purchasers becase the equitable tenant will be the person in actual occupation.
Leases in unregistered land
Legal lease will bind automatically any subsequent purchaser or transferee of the estate out of which it is created
Differences between equitable and legal leases
Created in different ways.
Equitable leases may be vulnerable to sale of the freehold or leasehold estate out of which they are created
Leases granted before 1 Jan 1996, leasehold covenants will run with the land in a legal lease more easily than equitable one
Leasehold covenants before 1 Jan 1996
If an original party to a pre-1996 lease assigns their interest, the assignee inherits both the benefits and burdens of all leasehold covenants. This applies to covenants which touch and concern the land.
Pre-1996 assignees do not inherit the burden of leasehold covenants if the lease/assignment is solely equitable (Lichfield)
What is privity of estate
Privity of estate exists when two or more parties hold an interest in the same real property. In lease context, a lease agreement is both a conveyance of an interest in property and a contract. Landlord have both privity of estate and privtiy of contract
leasehold covenants after 1 Jan 1996
LTCA 1995 applies to all leases granted on or after 1 Jan 1996, whether legal or equitable. The original tenant is released from liability under leasehold covenants on assignment, subject only to the possibility of guaranteeing the next immediate tenants performance of the covenants under and AGA.
Original landlord not automatically released on assignment, but may apply to the course for such release of rely on an Avonridge clause.
The rule that covenants must touch and concern the land in order to run to new landlords and tenants is abolished. All covenants will run unless they are expressed to be personal.
By statute, the benefit and burdens of leasehold covenant pass automatically to assignees of the landlord and tenant without need to show privity of estate or rely on LPA1925.
A tenant is liable on the leasehold covenant only while in possession of the land, subject only to the possibility that the tenant may be required to guarantee performance of the covenants by next immediate assignee under AGA.
Landlord remedies for breach of covenant
CRAR scheme allows landlords of commercial leases to enter and recover rent without a court order.
Landlord can enforce the covenant to pay rent by bringing an action to recover arrears of rent.
Landlord may sue for damages for breach of every covenant other than covenant to pay rent.
At discretion of court landlord may obtain an injunction to prevent the breach of a restrictive covenant by the tenant
Specific performance of tenants repairing obligation
Most powerful weapon is remedy of forfeiture. The lease must contain a right of re-entry. Re-entry may be by peaceful physical re-entry or through court action, former not possible in all cases. Forfeiture for non payment of rent depends on the landlord making a formal demand for rent but may be halted if the tenant obtains relief from the forfeiture. Landlord attempting to forfeit the lease must ensure they have not waived the breach as this means loss of the right to forfeit for that particular breach.
Tenants remedies for breach of covenant
Sue the landlord for damages at common law
sue for an injunction to stop a continuing or threatened breach of covenant by the landlord
sue for specific performance of the landlord’s covenants, particularly the landlord’s covenant to repair
deduct the cost of carrying out the landlord’s repair from future payments of rent
Examples
Landlord
Non derogation from grant - if a landlord agrees to allow the tenant a benefit, they must not do anything that substantially deprives the tenant of that benefit
Allow for quiet enjoyment - a landlord is required to allow the tenant to possess and benefit from the property without interference
Repair obligations - landlords are commonly obliged to repair some or all the property.
Tenant
Pay rent - the most common covenant is for the tenant to pay the rent they agreed
Entry and inspection - many covenants allow the landlord to enter the property for specific purposes, such as to inspect for repairs
Not to sublet or assign - the tenant may covenant that they will not sublet or assign their interest to another.
Repairs - some repair obligations may be placed on the tenant
Remedies
Many of the usual contractual remedies are available for breach of covenant, such as damages, specific performance or an injunction. Landlords also have the power to seize the property to recover rent (only for commercial)
Most significant is forefiture of the lease. This applies to both commercial and domestic property and is where the landlord exercises their right to re-enter the property, retake possession and extinguish the lease
When can the landlord forfeit the lease
While it is a right generally implied into all leases, there will normally be an express covenant setting out the circumstances under which the landlord can trigger a forfeiture procedure. The standard is failure to pay rent or comply with leasehold covenant.
If choose to pursue forfeiture, must follow the correct procedure. Firstly, landlords must give tenant notice of the breach. Notice must identify the breach and what is demanded of them. If tenant complies landlord cannot forfeit the lease.
Secondly, if lease is for dwelling, landlord must obtain a court order before attempting to re-enter. Failure will lead to criminal liability.
