Learning Outcomes
After studying this article, you will be able to explain how leasehold covenants are enforced between landlords and tenants, including how the benefit and burden of covenants pass on assignment of a lease or reversion. You will understand the distinction between old and new leases, the impact of privity of contract and estate, and the main statutory reforms under the Landlord and Tenant (Covenants) Act 1995. You will be able to apply these rules to SQE1-style scenarios.
SQE1 Syllabus
For SQE1, you are required to understand the enforceability of leasehold covenants and the rules for passing the benefit and burden of those covenants when leases or reversions are assigned. In your revision, focus on:
- the distinction between old leases (pre-1996) and new leases (post-1995)
- how the benefit and burden of leasehold covenants pass to assignees of the lease or reversion
- the role of privity of contract and privity of estate
- the effect of the Landlord and Tenant (Covenants) Act 1995 (LTCA 1995)
- the enforceability of covenants, including Authorised Guarantee Agreements (AGAs)
- the requirement that covenants must "touch and concern" the land to run with the lease or reversion
Test Your Knowledge
Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.
- What is the main difference between the enforceability of leasehold covenants in leases granted before and after 1 January 1996?
- Which of the following best describes privity of estate?
a) A relationship between the original landlord and original tenant only
b) A relationship between any two parties to a contract
c) A relationship between the current landlord and tenant of a legal lease
d) A relationship between a landlord and a subtenant - When can a landlord require an outgoing tenant to enter into an Authorised Guarantee Agreement (AGA)?
- True or false? Under the LTCA 1995, the original tenant is always liable for breaches of covenant after assigning the lease.
Introduction
Leasehold covenants are promises made by landlords and tenants in a lease. Understanding how these covenants are enforced, and how their benefit and burden pass to successors, is essential for SQE1. The rules differ depending on whether the lease was granted before or after 1 January 1996, due to major reforms introduced by the Landlord and Tenant (Covenants) Act 1995.
Key Term: leasehold covenant A promise made by a landlord or tenant in a lease, which may be positive (to do something) or restrictive (not to do something).
Key Term: privity of contract The legal relationship between the original parties to a lease, making them liable for all covenants throughout the lease term.
Key Term: privity of estate The legal relationship between the current landlord and tenant of a legal lease, allowing covenants that "touch and concern" the land to be enforced while they hold their respective interests.
Leasehold Covenants: Types and Enforceability
Leasehold covenants can be positive (e.g., to repair) or restrictive (e.g., not to sublet). Their enforceability depends on whether the parties are the original landlord and tenant, or successors.
Key Term: privity of contract The legal relationship between the original parties to a lease, making them liable for all covenants throughout the lease term.
Key Term: privity of estate The legal relationship between the current landlord and tenant of a legal lease, allowing covenants that "touch and concern" the land to be enforced while they hold their respective interests.
Old Leases (Pre-1996): Common Law Rules
For leases granted before 1 January 1996, the common law rules and the Law of Property Act 1925 apply. The key principles are:
- The original landlord and tenant remain liable for all lease covenants for the entire lease term due to privity of contract.
- When the lease or reversion is assigned, privity of estate arises between the current landlord and tenant, but only covenants that "touch and concern" the land can be enforced between them.
Key Term: touch and concern the land A covenant affects the nature, value, or use of the land itself, rather than being personal to the parties.
Key Term: assignment The transfer of a lease or reversion to a new tenant or landlord.
Worked Example 1.1
Scenario:
In 1990, Landlord A grants a 30-year lease to Tenant B. In 2000, B assigns the lease to C, and A sells the reversion to D. C fails to repair the property as required by the lease.
Answer:
D (the new landlord) can sue C (the current tenant) for breach of the repair covenant if it "touches and concerns" the land, as there is privity of estate between them. A (the original landlord) can also sue B (the original tenant) due to privity of contract.
Exam Warning
For pre-1996 leases, the original tenant remains liable for all lease covenants, even after assigning the lease, unless released by the landlord. This is a common source of confusion.
New Leases (Post-1995): The Landlord and Tenant (Covenants) Act 1995
The LTCA 1995 applies to leases granted on or after 1 January 1996. It introduced major changes:
- When a tenant lawfully assigns the lease, they are automatically released from future liability for tenant covenants.
- When a landlord transfers the reversion, they are released from future liability for landlord covenants (subject to notice and tenant's right to object).
- All covenants (except those expressed to be personal) automatically bind assignees of the lease or reversion, regardless of privity of estate.
Key Term: landlord and tenant (covenants) act 1995 The statute that reformed the rules for passing and enforcing leasehold covenants in new leases (from 1 January 1996).
Key Term: authorised guarantee agreement (AGA) An agreement where the outgoing tenant guarantees the immediate assignee's performance of tenant covenants, if required by the landlord as a condition of assignment.
Worked Example 1.2
Scenario:
In 2005, Tenant X assigns a 20-year lease to Tenant Y. The landlord requires X to enter into an AGA. Y later defaults on rent.
Answer:
X is released from liability for tenant covenants except to the extent of the AGA. If Y defaults, the landlord can enforce the AGA against X, but X is not liable for breaches after Y assigns the lease again.
Revision Tip
For SQE1, always check the date the lease was granted. The rules for passing and enforcing covenants are different for old and new leases.
Passing the Benefit and Burden of Leasehold Covenants
Passing the Burden
- In old leases, the burden of covenants that "touch and concern" the land passes to the assignee of the lease or reversion while they hold the interest (privity of estate).
- In new leases, the burden of all covenants (except personal covenants) passes automatically to the assignee, regardless of privity of estate.
Passing the Benefit
- In both old and new leases, the benefit of covenants passes to the assignee of the lease or reversion, provided the covenant "touches and concerns" the land (old leases) or is not personal (new leases).
Worked Example 1.3
Scenario:
A lease contains a covenant by the tenant not to sublet without the landlord's consent. The lease is assigned to a new tenant, who sublets without consent.
Answer:
The landlord can enforce the covenant against the new tenant if the lease is a new lease (post-1995), as the burden and benefit pass automatically. In an old lease, the landlord can enforce the covenant if it "touches and concerns" the land and there is privity of estate.
Authorised Guarantee Agreements (AGAs)
Under the LTCA 1995, a landlord can require an outgoing tenant to enter into an AGA as a condition of consenting to assignment. The AGA makes the outgoing tenant guarantee the immediate assignee's performance of tenant covenants. The AGA ends when the assignee assigns the lease again.
Worked Example 1.4
Scenario:
Tenant M wishes to assign a lease. The landlord requires an AGA. The assignee defaults, and the landlord seeks payment from M.
Answer:
If the AGA was validly required, M is liable for the default of the immediate assignee, but not for further assignees.
Enforceability: Key Points
- For old leases, original parties remain liable for the whole term unless released.
- For new leases, liability ends on lawful assignment, except under an AGA.
- Only covenants that "touch and concern" the land (old leases) or are not personal (new leases) run with the lease or reversion.
- AGAs must be reasonable and are only valid if required as a condition of assignment.
Exam Warning: Grant vs Assignment
Do not confuse the date of assignment with the date the lease was granted. The LTCA 1995 applies only to leases granted on or after 1 January 1996, not to assignments of older leases.
Key Point Checklist
This article has covered the following key knowledge points:
- The distinction between old leases (pre-1996) and new leases (post-1995) is critical for passing covenants.
- Privity of contract binds original parties for the whole term in old leases; privity of estate binds current landlord and tenant for covenants that "touch and concern" the land.
- The LTCA 1995 introduced automatic release for outgoing tenants and landlords in new leases, except where an AGA is required.
- The benefit and burden of leasehold covenants pass to assignees if the covenant "touches and concerns" the land (old leases) or is not personal (new leases).
- AGAs allow landlords to require outgoing tenants to guarantee the immediate assignee's performance, but only for that assignee.
Key Terms and Concepts
- leasehold covenant
- privity of contract
- privity of estate
- touch and concern the land
- assignment
- landlord and tenant (covenants) act 1995
- authorised guarantee agreement (AGA)
