Liability

Question 1

who is liable for breach of covenant where the lease has been underlet?

Answer 1

• Head-LL can sue head-T throughout the entire term of the lease.
• Head-T can sue the under-T for the duration of the sublease
• Head-LL cannot sue under-T unless the head-LL obtained a direct covenant from the under-T that they would perform covenants (usually excl. rent for the headlease)

The above remains the same even if T underlets. They can still be sued for the duration of their lease. This is because the lease still exists and governs the relationship (even if they sublet) so there is still privity of contract.

Question 2

what is an old lease?

Answer 2

a lease which commenced before 1 Jan 1996

Question 3

what is a new lease?

Answer 3

a lease which commenced on or after 1 Jan 1996

Question 4

explain liability for breach of covenant in relation to old leases

Answer 4

• Original T is liable for the whole term of the lease (even after assignment) under privity of contract.
• The assignee is liable whilst they hold the lease under privity of estate
• The assignee will only be bound after their tenancy if they entered into a direct covenant with the LL to this effect (because there would be privity of contract)

Question 5

what is the effect of assignment of a new lease?

Answer 5

o Assignor released from future performance of T covenants; +
o Assignor’s guarantor released from future performance of guarantee

Question 6

how might a LL seek to protect themselves when T wants to assign a new lease?

Answer 6

o The assignor providing an authorised guarantee agreement (AGA)
o The assignor’s guarantor to enter into an AGA

Question 7

what is an AGA? Give examples. What effect does an AGA have?

Answer 7

a promise that obligations will be complied with after assignment, i.e.:
o Assignor AGA = a guarantee the assignee will perform the T covenants
o Assignor’s guarantor AGA = a guarantee the assignor will perform the covenants stipulated in the AGA

if the assignee defaults, LL can pursue under the AGA

Question 8

what is the duration of an AGA?

Answer 8

The AGA only lasts while the assignee holds the lease. In other words, if the assignee assigns the lease, the AGA ends.

Question 9

what is the effect where the lease does and doesn’t make provision for an AGA?

Answer 9

If the lease is silent on AGAs, LL can only require one if it is reasonable to

If there is provision for an AGA, the LL can demand an AGA even if it is unreasonable

Question 10

what is important to remember about AGAs?

Answer 10

they apply to the assignment of of new leases only

Question 11

what is required for a guarantee to be effective?

Answer 11

it must be in writing

Question 12

give a summary of who can sue who when a lease is assigned

Answer 12

Liability (old leases)
o LL can sue original T (privity of contract)
o LL can sue current T (and any guarantor) (privity of estate)
o LL can only sue intervening T (and any guarantor) if they gave a direct covenant (privity of contract)

Liability (new leases)
o LL can sue current T
o LL can sue the previous T if they gave an AGA (this expires when current T assigns)
o LL cannot sue any intervening Ts (or guarantors). T now automatically released when they assign