Leasehold covenants and issues - Remedies for breach of leas...

Learning Outcomes

This article outlines leasehold covenants, liability before and after 1 January 1996, Authorised Guarantee Agreements (AGAs), and remedies for breach, including:

• Definitions of leasehold covenants and the distinction between positive and negative obligations
• Liability rules for pre- and post-1996 leases, including privity of contract and privity of estate, and automatic release under the 1995 Act
• Function, scope, and limits of Authorised Guarantee Agreements (AGAs), and the position of guarantors
• Remedies for breach of leasehold covenants, including forfeiture, damages, specific performance, injunctions, CRAR, and debt actions
• Procedural requirements for forfeiture, including section 146 notices, waiver, and relief from forfeiture
• Damages for breach of repairing covenants with reference to s.18 Landlord and Tenant Act 1927 and the Leasehold Property (Repairs) Act 1938, and effective use of Jervis v Harris clauses
• Pursuit of former tenants and guarantors under section 17 notices, and the effect of overriding leases
• Practical considerations in selecting remedies, including tenant solvency, market conditions, time and cost, and the risk of relief

SQE1 Syllabus

For SQE1, you are required to understand leasehold covenants, liability before and after 1 January 1996, Authorised Guarantee Agreements (AGAs), and remedies for breach, with a focus on the following syllabus points:

• The nature and types of leasehold covenants (positive and negative)
• Liability for leasehold covenants in leases granted before and after 1 January 1996
• The operation and effect of Authorised Guarantee Agreements (AGAs), including the position of guarantors
• Remedies for breach: forfeiture (rent and other covenants), damages, specific performance, injunction, Commercial Rent Arrears Recovery (CRAR), and debt actions
• Procedural requirements: section 146 notices, waiver, relief from forfeiture, repairing covenant controls under s.18 LTA 1927 and the Leasehold Property (Repairs) Act 1938
• Pursuing former tenants and guarantors under section 17 notices and the availability of overriding leases
• Practical considerations in selecting and sequencing remedies, including insolvency routes and collecting rent from subtenants

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.

1. Which of the following best describes the effect of an Authorised Guarantee Agreement (AGA) in a post-1996 lease?
   1. The outgoing tenant guarantees all future tenants
   2. The outgoing tenant guarantees the immediate assignee only
   3. The outgoing tenant is automatically released from all liability
   4. The landlord is released from all liability
2. What is the primary statutory notice a landlord must serve before seeking forfeiture for breach of a non-rent covenant?
   1. Section 17 notice
   2. Section 146 notice
   3. Section 25 notice
   4. Section 19 notice
3. Which remedy allows a landlord of commercial premises to seize and sell a tenant’s goods for unpaid rent?
   1. Debt action
   2. Forfeiture
   3. Commercial Rent Arrears Recovery (CRAR)
   4. Specific performance

4. True or false? Under a pre-1996 lease, the original tenant remains liable for all tenant covenants for the entire lease term, even after assignment.

Introduction

Leasehold covenants are contractual promises in leases that set out the obligations and restrictions binding landlords and tenants. Understanding the types of covenants, who is liable for them over time, and the remedies available for breach is essential for SQE1 Property Practice. The choice of remedy is strategic: landlords should consider speed, cost, enforceability, and the potential for the tenant (or others) to obtain relief.

Types of Leasehold Covenants

Leasehold covenants fall into two main categories: positive covenants and negative (restrictive) covenants.

Key Term: positive covenant
A promise in a lease requiring a party (usually the tenant) to do something, such as pay rent, repair the premises, or comply with statutory requirements.

Key Term: negative covenant
A promise in a lease not to do something, such as not to sublet without consent or not to use the premises for certain purposes.

Negative covenants are often enforced by injunction where damages would not be adequate, for example to restrain an unlawful user or unauthorised assignment.

Key Term: injunction
A discretionary equitable order restraining a breach (or anticipated breach) of a covenant, most commonly used for negative covenants where damages would be inadequate.

Liability for Leasehold Covenants

Liability for leasehold covenants depends on when the lease was granted and whether the lease has been assigned.

Pre-1996 Leases (Old Leases)

For leases granted before 1 January 1996, the original tenant remains liable for all tenant covenants for the entire lease term, even after assigning the lease. This is due to privity of contract. Successive tenants are liable for covenants that "touch and concern" the land while they hold the lease (privity of estate).

Key Term: privity of contract
The legal relationship between the original parties to a lease, making them liable to each other for the lease covenants throughout the term.

Key Term: privity of estate
The legal relationship between a landlord and the current tenant, making the tenant liable for covenants that run with the land while they hold the lease.

Post-1996 Leases (New Leases)

The Landlord and Tenant (Covenants) Act 1995 changed the rules for leases granted on or after 1 January 1996. The original tenant is automatically released from future liability on lawful assignment, unless required to enter into an Authorised Guarantee Agreement (AGA). Assignees are liable for all tenant covenants while the lease is vested in them, unless a covenant is expressed to be personal.

Key Term: Authorised Guarantee Agreement (AGA)
An agreement where the outgoing tenant guarantees the immediate assignee’s performance of the lease covenants until the assignee lawfully assigns the lease or is released.

Guarantors of the outgoing tenant are also released on lawful assignment and cannot be required to guarantee future assignees directly. However, they may legitimately be required to guarantee the assignor’s performance under the AGA (thereby indirectly guaranteeing the immediate assignee). On the landlord side, the 1995 Act does not grant an automatic release. A landlord may seek release under ss. 6–8 of the Act, or the lease may include an “Avonridge clause” limiting the landlord’s liability to the period when the reversion is vested in it.

Remedies for Breach of Leasehold Covenants

When a tenant breaches a leasehold covenant, the landlord may have several remedies. The appropriate remedy depends on the nature of the breach, the lease terms, and statutory requirements.

Forfeiture

Forfeiture allows the landlord to terminate the lease early due to tenant default. This remedy must be expressly provided for in the lease (a forfeiture or re-entry clause). For non-payment of rent, forfeiture can be exercised once the rent has been outstanding for the period specified in the lease. For other breaches, the landlord must serve a section 146 notice under the Law of Property Act 1925, specifying the breach, requiring remedy (if possible), and demanding compensation.

Key Term: forfeiture
The landlord’s right to end the lease early if the tenant breaches a covenant, usually after following statutory notice procedures.

Key Term: section 146 notice
A notice served by the landlord for breaches other than non-payment of rent, specifying the breach, requiring remedy if capable, and demanding compensation.

Key Term: waiver
Conduct by a landlord, with knowledge of a breach, unequivocally affirming the continuation of the lease (for example demanding or accepting rent), thereby losing the right to forfeit for that breach.

Key Term: relief from forfeiture
A discretionary court remedy allowing the tenant (or subtenant or mortgagee) to reinstate the lease, typically on terms including payment of arrears and costs.

Section 146 notice is not required for non-payment of rent (s.146(11) LPA 1925). A landlord may forfeit by court proceedings or by peaceable re-entry (for example, changing locks when the premises are vacant), but must not use or threaten violence when there is a person present at the premises (Criminal Law Act 1977, s.6).

Relief from forfeiture is readily granted for non-payment of rent, often within six months of re-entry, upon payment of arrears and costs. Relief is also available for other breaches, but the court assesses the seriousness of the breach and the tenant’s compliance with conditions. Subtenants and mortgagees may apply for relief (s.146(4)). For internal decorative repairs, tenants have an additional statutory route (s.147 LPA 1925) for relief if forfeiture would be unreasonable.

Waiver can be fatal in respect of a once-and-for-all breach (such as non-payment of rent or unauthorised assignment) and more complex for continuing breaches (such as repair or user). The landlord must avoid acts acknowledging continuation of the tenancy after learning of the breach (for example, accepting rent or granting licences).

Damages

Damages are a monetary remedy for loss caused by the tenant’s breach. The landlord must prove actual loss and mitigate losses where possible. For breach of repairing covenants, damages are limited by statute.

Key Term: damages
A sum of money awarded to compensate for loss resulting from a breach of covenant.

Key Term: s.18 Landlord and Tenant Act 1927
Limits damages for breach of repair to the diminution in the value of the reversion; no damages if the landlord intends to demolish or make structural alterations making repairs valueless.

For long leases (granted for seven years or more) with at least three years left to run, where the tenant serves a counter-notice to a s.146 notice alleging breach of repair, the Leasehold Property (Repairs) Act 1938 requires the landlord to obtain leave of the court to proceed. Leave will be granted only if immediate works are necessary to prevent substantial diminution of reversionary value (or substantial diminution has already occurred), to comply with statutory requirements, or in other narrow circumstances.

Where the lease contains a self-help clause, the landlord may carry out the repairs and recover the cost as a debt.

Key Term: Jervis v Harris clause
A lease provision permitting the landlord to enter, carry out repairs, and recover the cost as a liquidated debt, avoiding the s.18 cap on damages.

Because recovery under a Jervis v Harris clause is as a debt, the landlord sidesteps the s.18 statutory ceiling that would otherwise apply to damages for repair breach.

Specific Performance

Specific performance is an equitable remedy ordering the tenant to comply with their obligations. It is only granted where damages are inadequate and the obligation is sufficiently clear.

Key Term: specific performance
A court order requiring a party to perform their contractual obligations under the lease.

Specific performance is rarely ordered for complex or ongoing obligations (for example, extensive repairs requiring supervision). The court expects the landlord to come with clean hands and not to use equitable remedies for improper purposes. Frequently, where appropriate, injunctions restrain breaches of negative covenants (for example, unlawful user or unauthorised assignment).

Commercial Rent Arrears Recovery (CRAR)

CRAR allows landlords of commercial premises to recover rent arrears by seizing and selling the tenant’s goods. Strict statutory procedures apply, including notice and use of enforcement agents. It is available only for pure rent (rent for possession and use of premises) and only for wholly commercial premises.

Key Term: Commercial Rent Arrears Recovery (CRAR)
A statutory process allowing commercial landlords to take control of and sell a tenant’s goods to recover unpaid pure rent.

CRAR requires at least seven days’ rent to be outstanding when the enforcement notice is served and when goods are taken, and the tenant must generally be given at least seven clear days’ notice of entry. Only enforcement agents may enter. Certain goods are exempt, including items up to £1,350 necessary for the tenant’s business (for example computers, telephones, vehicles). Generally, goods must be sold at public auction, with the tenant being given at least seven clear days’ notice of the sale.

If CRAR is available against the immediate tenant and part or all of the premises is sublet, the landlord may serve a 14-day notice on the subtenant requiring payment of rent directly to the superior landlord until arrears are cleared.

Key Term: once-and-for-all breach
A breach that occurs at a point in time (for example, non-payment of rent or unauthorised assignment) and does not continue after the event.

Key Term: continuing breach
A breach that persists over time (for example, repair or user breach), giving rise to repeated opportunities to forfeit while the breach continues.

COVID-19-related protections have ceased, but the Commercial Rent (Coronavirus) Act 2022 introduced an arbitration scheme for “protected rent” accrued during mandated closure periods and restricted use of enforcement (including CRAR) for such protected rent. Check whether arrears fall within that regime before taking steps.

Debt Action

A landlord can sue the tenant for unpaid rent or other liquidated sums due under the lease (for example, service charges). This is a straightforward contractual claim.

Key Term: debt action
A court claim for recovery of a fixed sum owed under the lease, such as rent or service charges.

The limitation period is six years (Limitation Act 1980). As an alternative, a landlord may consider insolvency proceedings where the debt is undisputed and the relevant threshold is met (personal bankruptcy £5,000; corporate winding-up £750). Insolvency demands must not be used where the debt is genuinely disputed, as this may be an abuse of process.

Pursuing Former Tenants and Guarantors

For old leases, the landlord can pursue the original tenant or any intermediate tenant who gave a direct covenant. For new leases, the landlord can pursue the outgoing tenant under an AGA, but only after serving a section 17 notice within six months of the arrears arising.

Key Term: section 17 notice
A statutory notice served by the landlord on a former tenant or guarantor of a new lease, required before recovering fixed charges (for example, rent) from them; must be served within six months of the sum falling due.

Where a section 17 notice is served and the recipient pays, they may call for an overriding lease within twelve months.

Key Term: overriding lease
An intermediate lease granted to the former tenant/guarantor who pays under a s.17 notice, interposed between the superior landlord and the current tenant, enabling control and enforcement (including potential forfeiture).

Guarantors under old leases may remain liable for breaches throughout the term. Under new leases, guarantors are released on lawful assignment by the tenant they guarantee; they cannot be required to guarantee future assignees directly, but may be required to guarantee the assignor’s obligations under an AGA.

Practical Considerations in Remedy Selection

The landlord should consider the seriousness of the breach, the tenant’s financial position, the cost and time involved, and the impact on the landlord-tenant relationship when choosing a remedy. The following points often influence strategy:

• Urgency and recoverability: CRAR can deliver fast recovery of pure rent if the tenant’s goods have sufficient value, but exemptions may limit effectiveness; debt action depends on solvency and may be followed by insolvency routes
• Risk of waiver: once-and-for-all breaches (such as non-payment of rent) can be waived by accepting rent after knowledge of breach; for continuing breaches, waiver is less straightforward but still a risk where acts recognise continuation of the lease
• Probability of relief from forfeiture: forfeiture can be undone if the tenant promptly remedies and pays; the prospect of relief (including by subtenants/mortgagees) may diminish the benefit of forfeiture
• Repair claims: damages may be capped by s.18; use of Jervis v Harris clauses can convert recovery to a debt and avoid the s.18 cap; the LPRA 1938 can slow enforcement where protections are engaged
• Sequencing: debt action and s.17 notices may be combined with forfeiture or CRAR, but ensure steps do not amount to waiver; monitor statutory time limits (for example, s.17 notice six months)

Worked Example 1.1

A landlord discovers that a tenant of a commercial unit has sublet the premises without consent, breaching a negative covenant. The lease contains a forfeiture clause.

Question: What steps must the landlord take before forfeiting the lease?

Answer:
The landlord must serve a section 146 notice specifying the breach, requiring the tenant to remedy it (if possible), and demanding compensation. If the tenant fails to comply within a reasonable time, the landlord may proceed to forfeit the lease.

Worked Example 1.2

A tenant of a shop is six months in arrears with rent. The landlord wishes to recover the arrears quickly.

Question: What remedies are available, and what are the key procedural requirements?

Answer:
The landlord may use CRAR (if the premises are wholly commercial), following the statutory notice and enforcement procedure. Alternatively, the landlord may bring a debt action for the arrears or, if the lease allows, forfeit the lease after the rent has been overdue for the required period. Section 146 notice is not required for non-payment of rent.

Worked Example 1.3

A landlord of a pre-1996 lease wishes to recover unpaid rent from a former tenant who assigned the lease ten years ago.

Question: Is this possible, and what must the landlord prove?

Answer:
Yes, the landlord can pursue the original tenant due to privity of contract. The landlord must show that the arrears arose during the lease term and that the original tenant has not been released. Privity of estate also allows action against the current tenant.

Worked Example 1.4

A landlord is aware of rent arrears on 1 March. On 3 March, the landlord accepts a quarterly rent payment covering the period when arrears accrued. The landlord then seeks to forfeit for non-payment relating to that period.

Question: Has the landlord waived the right to forfeit?

Answer:
Likely yes. Non-payment of rent is a once-and-for-all breach. Acceptance of rent after knowledge of the breach affirms the lease’s continuation and waives the right to forfeit for that breach, though future arrears may trigger a fresh right to forfeit.

Worked Example 1.5

A lease contains a Jervis v Harris clause. The tenant has failed to repair the roof, causing water ingress. The landlord is considering options.

Question: What is the advantage of relying on the clause?

Answer:
The landlord can enter, carry out repairs, and recover the costs as a debt, avoiding the s.18 Landlord and Tenant Act 1927 cap on damages. The debt-based claim also avoids the need to prove diminution in the reversion’s value.

Worked Example 1.6

A landlord of a new lease wants to recover a service charge arrear from a former tenant under an AGA. The arrear fell due on 1 February, and it is now 5 September.

Question: What steps and time limits apply?

Answer:
The landlord must serve a section 17 notice on the former tenant/guarantor within six months of the sum falling due. The time limit expired on 1 August in this scenario. Without a timely s.17 notice, the landlord cannot recover that fixed charge from the former tenant/guarantor.

Worked Example 1.7

A landlord has a CRAR right against an immediate tenant of wholly commercial premises. Part of the premises is sublet. The immediate tenant is in arrears of pure rent.

Question: Can the landlord collect rent directly from the subtenant?

Answer:
Yes. The landlord may serve a notice (generally 14 clear days) on the subtenant requiring rent to be paid directly to the superior landlord until the arrears are cleared. This is ancillary to CRAR and provides a practical recovery route.

Exam Warning

Forfeiture is only available if the lease expressly provides for it. For breaches other than non-payment of rent, a section 146 notice is required. Relief from forfeiture may be available to the tenant, subtenant, or mortgagee, so landlords should consider the likelihood of the breach being remedied and arrears paid before proceeding. For repairing covenants, be alert to the s.18 LTA 1927 damages cap and the Leasehold Property (Repairs) Act 1938 counter-notice procedure. Waiver can bar forfeiture for a once-and-for-all breach where rent is accepted after the landlord becomes aware of the breach.

Revision Tip

Be able to distinguish remedies for non-payment of rent (forfeiture, CRAR, debt, insolvency) from those for other breaches (s.146 notice, forfeiture, injunction/specific performance, damages, Jervis v Harris). Know the s.17 notice rule and overriding lease, and the difference between once-and-for-all and continuing breaches to avoid waiver traps.

Key Point Checklist

This article has covered the following key knowledge points:

• Leasehold covenants may be positive (to do) or negative (not to do); negative covenants are commonly enforced by injunction
• Liability differs for pre- and post-1996 leases: privity of contract/estate (old leases) vs automatic release and assignee liability (new leases); AGAs may be required on assignment of new leases
• Forfeiture requires a valid clause; for non-rent breaches, a section 146 notice is mandatory; section 146 notice is not required for non-payment of rent
• Waiver can bar forfeiture, particularly for once-and-for-all breaches; relief from forfeiture is available and often granted on terms
• Damages for repair are limited by s.18 LTA 1927; the LPRA 1938 may require leave to proceed after a tenant’s counter-notice
• Jervis v Harris clauses allow self-help and recovery of repair costs as a debt, avoiding the s.18 cap
• CRAR is available only for pure rent and wholly commercial premises; strict procedure and exemptions apply; landlords can collect subrent from a subtenant after notice
• Debt actions are subject to six-year limitation; consider insolvency routes (thresholds and abuse of process considerations)
• Section 17 notice is required before pursuing former tenants/guarantors for fixed charges under new leases; if paid, an overriding lease may be claimed
• Distinguish once-and-for-all breaches from continuing breaches when assessing waiver and forfeiture strategy

Key Terms and Concepts

• positive covenant
• negative covenant
• privity of contract
• privity of estate
• Authorised Guarantee Agreement (AGA)
• forfeiture
• section 146 notice
• waiver
• relief from forfeiture
• damages
• s.18 Landlord and Tenant Act 1927
• Jervis v Harris clause
• specific performance
• injunction
• Commercial Rent Arrears Recovery (CRAR)
• debt action
• section 17 notice
• overriding lease
• once-and-for-all breach
• continuing breach