Leases Flashcards
(18 cards)
Give an overview of leases and the different types
Lease describes a leasehold estate
- Freehold estates endure forever, but leasehold estates are of certain/fixed duration
- Leasehold estates are carved out of freehold estates
- Owner of leasehold estate is known as a tenant or a leaseholder
Fixed term lease – defined, fixed period
Periodic lease – each time a period expires, the term renews automatically
- If rent is paid monthly, the period of a month is the period for a periodic tenancy and would be a parol lease + therefore legal
- This may be the case where the question says 5-year lease, but not fixed
What are the formalities to create a legal lease?
A lease is capable of being a legal estate in land (a term of years absolute in possession)
To create a legal lease:
1) More than three years – deed is required
2) Three years or less – look for parol lease exception – can be created orally - requirements:
- Tenant has immediate right to possess and enjoy the land
- Tenant pays market rent
- Landlord must not charge a premium in granting lease
- This can happen when the lease is periodic too, like monthly – so it becomes a legal, monthly periodic lease under the parol lease exception
What are the formalities to create an equitable lease?
Where formalities for a legal lease haven’t been met, equity may recognise an equitable lease if there is:
1) A contract, complying with s2 LPMPA; and
- In writing, signed, incorporates all expressly agreed terms
2) Clean hands
- Party seeking to have the lease has behaved properly and there’s been no fraud or deception
What are the ‘essential characteristics’ of a lease?
1) Correct formalities followed (for either legal or equitable lease)
2) Period of possession is for a fixed or ascertainable duration; and
- Definable beginning and end
- Leases of fixed term containing a break clause to end the term early would count
3) Exclusive possession must be given to tenant
- This means the ability of the tenant to exercise control over the land at the exclusion of all others, including the landlord (freehold owner)
4) If one or more of these isn’t present, the occupier only has a license to occupy the land
5) Payment of rent is not an essential characteristic, but supports the idea of a LL and T relationship
What are the terms of a lease called? What are the key things that the landlord agrees to the tenant and vice versa?
A lease is essentially a contract that creates an estate in land – represents the agreement between the landlord and tenant, detailing their rights and obligations during the lease period
Terms of a lease are known as covenants and can be agreed through negotiation, although many leases have standard lease covenants
Key lease covenants:
Tenant to landlord
- To pay rent
- To repair and look after the property
- Alienation
Landlord to tenant
- Give tenant quiet enjoyment
- To insure the property
- Implied - Obligations in respect of fitness of the property
What does an ‘alienation’ covenant involve?
Relates to the ability of a tenant to deal with the property
- They can assign the lease to a new tenant and existing lease changes hand
- Tenant can make a sub-lease of a shorter term than the head lease (they are tenant and landlord at same time)
What are the 4 possible scenarios for how the lease will class the alienation covenant? Can the landlord stop the tenant from dealing with the property as they like?
1) Open contract – lease doesn’t stop this, so tenant can deal with the lease as they like
2) Absolute prohibition – covenant for tenant not to deal with the lease
3) Qualified covenant – tenant cannot deal with lease without LL consent
4) Fully qualified covenant – T cannot deal with lease without LL consent, which is not to unreasonably withheld
LL must give reasons for refusal in writing within a reasonable time for qualified and fully qualified covenants
They can agree with original tenant the circumstances where they may withhold consent and conditions subject to which they may give consent
- LLs commonly ask for authorised guarantee agreements if they give consent to dealing by the tenant
There are 2 sets of rules in relation to the enforceability of leasehold covenants, differing based on when the lease was granted.
What are these sets of rules (in overview only)?
There are 2 sets of rules – which set applies, depends on when the lease was created
- “Old leases,” granted before 1st Jan 1996
- “New leases,” granted after 1st Jan 1996
Date of subsequent assignment or transfer doesn’t matter
The date of grant is key
The different rules impact who can enforce the covenants and who is bound by them
With ‘old’ leases, how can the original parties to the grant of lease have covenants enforced against them and for how long?
Original parties have a relationship of privity of contract
- This means the original landlord and tenant are liable for the burdens of the original covenants for the whole term of the lease
- Applies even where they assign lease
Original parties might use indemnity covenants against successors in breach – will be implied if not express (for old leases only)
With ‘old’ leases, how do the benefit and burden of leasehold covenants pass to successors in title, if the original parties sell their interests on?
1) Landlord
- Successor landlord will take the benefit of the tenants’ covenants and the burden of the landlords’ lease covenants, that touch and concern the land
2) Tenant
(a) Successor takes the benefit of the landlords’ covenants and the burden of the tenants’ covenants that ‘touch and concern the land.’
- This means covenants that relate to the land
(b) An assignee is only liable under privity of estate for the duration that the lease is vested in them (ie whilst they are the tenant in occupation and paying rent)
- If T2 passes on to T3, T2 is not liable
- T1 (by privity of contract) and T3 (by privity of estate) would be
With ‘old’ leases, when will a covenant ‘touch and concern’ the land?
A covenant will ‘touch and concern the land’ if the covenant satisfies the 3 tests in this case (The Swift principles)
- Must benefit only the dominant owner for the time being
- Covenant affects the nature, quality, mode of user or value of dominant land
- Covenant must not be expressed to be personal (given to one specific dominant owner)
With ‘new’ leases, how can the original parties to the grant of lease have covenants enforced against them and for how long?
Original tenants are bound by the covenants of the lease only whilst the lease is vested in them
- Outgoing tenants are automatically released from any liability under the lease and cease to be bound
- Assignee would take the burden and benefit of relevant covenants
With ‘new’ leases, how do the benefit and burden of leasehold covenants pass to successors in title, if the original parties sell their interests on?
On an assignment of a lease, all landlord and tenant covenants are passed to successor, unless they’re expressed to be personal (s3 1995 Act)
- Only personal covenants don’t pass to new landlord or tenant, so there is no longer a need to consider whether the covenants ‘touch and concern the land’
Outgoing landlord isn’t automatically released following an assignment of the reversion
- They have to follow the criteria of the LTCA 1995 to obtain a release from landlord covenants
With ‘new’ leases, a landlord can get the outgoing tenant to sign an authorised guarantee agreement (AGA). What does this involve?
It is possible for the landlord to keep the original outgoing tenant on the hook for the whole term, by getting the outgoing tenant to make an authorised guarantee agreement (AGA)
- This agreement means the outgoing tenant guarantees that the incoming tenant will perform the lease covenants
- They give it to the landlord, so if the incoming tenant doesn’t perform the covenants, the landlord can take action against the outgoing tenant who gave the AGA
- Only works against the next tenant, so T3 could breach without issue for T1, as T1 would only guarantee T2s performance
Assignor would need to get an express indemnity from incoming tenant, as there is no implied indemnity in every assignment as with old leases
What remedies can the landlord pursue for non-payment of rent?
1) Landlord can sue for the rent in a debt action
- Must claim within 6 years of arrears becoming due
- Must serve a default notice first within 6 calendar months of charge becoming due
2) Forfeiting the lease
- Must be expressly reserved by lease
- Terminates lease by giving LL physical possession again
- Can peacefully re-enter or obtain a possession court order
3) Affecting a commercial rent arrears recovery and seizing tenant’s goods to sell them – only works for non-payment of rent and no other breached covenants
What remedies can the landlord pursue for other breaches?
Breach of contract claim and seek damages
- Any claim for damages for disrepair is limited to the amount by which the reversionary interest of the landlord has diminished in value as a consequence of the disrepair
Specific performance might be appropriate
What remedies can the tenant pursue for breaches?
Will depend on desired outcome – action from landlord or monetary damages for a loss
- Could ask court for specific performance
- Could ask for injunction
- Could sue for a contractual claim for damages
- Self-help remedy
How can a lease come to an end?
Lease comes to an end by time lapsing
By way of some action, like giving notice to terminate or agreeing to surrender or using a break clause
Through forfeiture of a lease by a landlord
Rarely, lease can end by frustration
