Leasehold real estate law and practice - Structure and conte...

Learning Outcomes

This article sets out the structure and content of a lease, including:

• The formal requirements for creating legal and equitable leases, deed execution, short-term exceptions, and compliance with LP(MP)A 1989
• Registration rules under the LRA 2002, registrable leases, overriding interests, and the role of prescribed clauses
• The standard components of a professionally drafted lease: parties, definitions, operative grant, rights granted and reserved, covenants, provisos, schedules, and execution
• Principal landlord and tenant covenants and their operation in practice, including quiet enjoyment, repair, insurance, user, rent, service charge, inspections, and yield up
• The classification and control of alienation covenants (absolute, qualified, fully qualified), reasonableness of consent, and statutory frameworks in LTA 1927 and LTA 1988
• Privity of contract and estate for old and new leases, releases on assignment, AGAs, indemnities, and post-assignment enforceability
• Enforcement and remedies for breach: debt, damages, forfeiture and relief, injunctions, specific performance, CRAR, s 146 LPA 1925 notices, and Jervis v Harris clauses
• Termination of leasehold interests by effluxion, surrender, forfeiture, notice to quit, merger, and break clauses
• Practical risk management in advising on grant, assignment, variation, and registration, and the impact of defects on proprietary and contractual rights

SQE2 Syllabus

For SQE2, you are required to demonstrate knowledge and application of both substantive and procedural law relating to leasehold property, with a focus on the following syllabus points:

• The structural elements and required content of a commercial or residential lease, including fixed-term and periodic tenancies, headleases, and underleases.
• The statutory and common law formalities for creating, varying, and assigning legal and equitable leasehold estates, including deed execution, registration requirements and exceptions, and implications for validity.
• The effect of registration under the Land Registration Act 2002, and the distinction between registrable leases, overriding interests, and notice mechanisms for protecting equitable estates.
• The typical covenants in leases—repair, insurance, alterations, user, planning, rent, service charge, and alienation—and their drafting, operation, and enforceability.
• The differences between absolute, qualified, and fully qualified covenants, and how legislative intervention modifies them (particularly the Landlord and Tenant Acts 1927, 1985, 1988, and the Landlord and Tenant (Covenants) Act 1995).
• The distinction between positive and negative covenants, assignment and subletting provisions, and the management of restrictive alienation and control of use in leasehold settings.
• Principles of privity of contract and estate, including statutory release upon assignment, retention or loss of original party liability, indemnities, AGAs, and the enforceability of covenants post-assignment.
• The mechanisms, requirements, and consequences of assigning, subletting, or varying leases—including the necessity and format of landlord's consent, application of licences, and registration.
• Breach of leasehold covenants: legal and equitable remedies (debt action, forfeiture, relief, injunction, specific performance), the operation and strict requirements of s 146 LPA 1925, the effect of waiver, and the application of the Leasehold Property (Repairs) Act 1938.
• Methods and requirements for terminating leasehold interests by effluxion of time, surrender, forfeiture, notice to quit, merger, and operation of landlord’s break clauses.
• Practicalities of preparing and reviewing prescribed clauses, schedules (supplementary provisions, plans, break options, service charges), and execution requirements for deeds.

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. What are the essential features that must be contained in a valid lease?
2. What is the effect of a qualified covenant against assignment, and how is this affected by statute?
3. Give one key difference between privity of contract and privity of estate in the landlord–tenant relationship.
4. What is usually the immediate remedy available to a landlord for non-payment of rent?

Introduction

A sound knowledge of the structure and content of legal leases is necessary for effective client advice in property law. Practitioners must be able to identify how legal and equitable leasehold estates are created, transferred, and terminated, as well as assess the formalisms that underpin the enforceability and validity of leasehold transactions.

At the heart of this area of law is recognising the core distinction between an estate in land (freehold or leasehold) and mere rights to use or occupy (licences). The rights, duties, and liabilities that arise between landlords and tenants under a lease depend critically on the drafting and compliance with formalities at the outset and at every major transactional stage—including the creation of estates, assignment, registration, and the recording of covenants. Understanding the allocation of responsibilities—including for repair, insurance, user, and occupation—enables the practitioner to evaluate risk, ensure compliance, and structure protection for both landlords and tenants. Enforcement, transfer, and termination of leases each require different approaches, depending on the type and date of lease, the nature of the interests, the covenants involved, and the relationships of contract or estate.

Key Term: lease
A lease is a proprietary estate in land granting exclusive possession of specifically defined premises for a certain or ascertainable period, usually for rent, arising by express grant, deed, or operation of statute, but distinguished from a mere licence, which conveys no proprietary rights.

Structure of a Lease

A lease is an estate in land, defined and limited by the grantor (typically the freeholder, or landlord) who grants to a tenant the right to exclusive possession for a definite term in return for rent or other consideration. The distinction between a lease and a licence is fundamental: a lease carries with it proprietary rights capable of binding successors (subject to registration if in respect of registered land), while a licence is merely a personal or contractual permission to occupy or use land and does not bind third parties.

Formal Requirements

A valid legal lease must comply with prescribed formalities. A lease for more than three years must be created by deed (s 52 LPA 1925), which must be duly executed and valid on its face (s 1 Law of Property (Miscellaneous Provisions) Act 1989). Leases granted for three years or less may be created orally (subject to s 54(2) LPA 1925) provided the tenancy takes effect in immediate possession, is at the best rent obtainable, and precedes no premium or fine. Where a lease fails to meet the legal formalities, an equitable lease may arise if a valid written contract exists compliant with s 2 Law of Property (Miscellaneous Provisions) Act 1989 and the remedy of specific performance is available.

Key Term: deed
A formal, written document, executed with specific formalities indicating it is a deed, signed and witnessed, creating or transferring a legal estate in land.

With registered land, legal leases of more than seven years must be substantively registered (s 27(2)(b) LRA 2002) to take effect as legal estates; otherwise, only equitable interests arise. Leases not exceeding seven years may still bind as overriding interests (Sch 3, para 1 LRA 2002). The existence and effect of prescribed clauses for registration, as required by the Land Registration (Amendment) (No 2) Rules 2005, are compulsory for registrable leases granted out of registered land since 19 June 2006.

Key Term: prescribed clauses
Standardised introductory pages required for registrable leases (typically granted out of registered land after 19 June 2006), capturing key parties, dates, term, property, rights, and financial summary, used by HM Land Registry to accelerate the registration process and ensure completeness.

Standard Structure

A professionally-drafted lease, particularly in the commercial context, typically consists of the following elements:

• Prescribed clauses (for registrable leases), detailing the parties, property, term, rent, and other particulars required by the Land Registry.
• Parties clause: designating the landlord, the tenant, and any guarantor.
• Definitions and interpretation: providing precise meanings for key terms including rent, premises, insured risks, term, and others. These facilitate clarity and consistency throughout the lease, ensuring correct and uniform application of the relevant provisions.
• The operative grant: specifying the demised premises, duration, commencement date, and the estate conveyed. The lease should always be clear as to whether the grant covers whole or part of a building.
• Rights granted and reserved: ancillary rights to the tenant (e.g., access, use of shared areas) and reservations to the landlord (e.g., rights of entry, service media, support, or airspace).
• Main body: setting out covenants made by both parties and stipulating all the mutual obligations essential to the ongoing operation of the lease.
• Provisos and conditions: including provisions for forfeiture, insurance, break clauses, service charges, and termination mechanisms.
• Schedules: containing part-specific arrangements (e.g., statutory compliance, insurance, service charge, break options, regulations, and plans).
• Execution: formal signing and witnessing provisions as per the law governing the execution of deeds.

In all leases, but especially in multi-occupancy buildings or larger developments, schedules provide for procedural and mechanical detail (such as service charge allocation, regulations, and rights over common parts) and plans demarcate the premises and any shared or appurtenant rights.

Key Term: schedule
An appendix or annex to a lease setting out specific, supplementary, or detailed procedures, conditions, or plans (such as break option processes, service charge calculations, or demise plans).

Main Leasehold Covenants

Landlord's Covenants

Leases will typically impose some or all of the following covenants on the landlord:

• To permit quiet enjoyment, i.e. to ensure the tenant's possession and use of the premises is not interfered with by the landlord or anyone lawfully entitled through them. The tenant is entitled to pursue damages or seek an injunction for breach.
• To insure the premises (often the structure in multi-let buildings, or the entirety in commercial contexts), maintain adequate cover for reinstatement value, and account to tenants for insurance proceeds (with rent suspension where full enjoyment is lost due to damage).
• In multi-occupancy premises, to repair and maintain the structure, roof, foundations, and any common parts under the landlord's control, passing costs to the tenants via a service charge. The landlord may also covenant to enforce covenants against other tenants, particularly in blocks of flats or shopping centres.

Key Term: quiet enjoyment
The tenant's right, implied or expressly covenanted, to possess, occupy, and use the premises without interference by the landlord or any person claiming through or under the landlord.

Key Term: covenant
A legally enforceable promise, either positive (to do something, e.g. repair, pay rent) or negative (to refrain, e.g. not alter or sublet), contained in a lease and enforceable according to the rules of contract and property law.

Practical requests for implied covenants also include:

• The landlord's implied obligation not to derogate from grant (i.e. not act in a way that frustrates the purpose of the lease).

The boundary between the landlord's and tenant's obligations for repair, insurance, and statutory compliance are often debated in practice and must be clearly specified in the lease.

Tenant's Covenants

Tenant obligations are extensive and are at the core of the ongoing contractual and proprietary relationship. Landlords typically require sufficiently comprehensive covenants to protect their reversionary and investment interest.

• Payment of rent and, where applicable, insurance rent and service charge.
• Making timely payment of all taxes, rates, and outgoings in respect of the demised premises.
• Keeping the premises in repair, with the standard of repair ("good and substantial repair", "good and tenantable condition", "put and keep in repair") defined expressly (with courts interpreting these terms in light of the condition at the grant, age, and purpose of the premises—see Proudfoot v Hart and subsequent authority).
• Compliance with statutes and regulations affecting the premises.
• Not to part with possession, assign, underlet, or charge without the landlord’s consent, subject to the lease’s provisions and the application of relevant statutes (see below).
• To use the premises only as permitted (user clause)—e.g., for residential use only, or for a specified commercial purpose—and not for illegal or prohibited activities.
• To permit landlord's inspections by prior notice, at reasonable times.
• To yield up (return) the premises in the condition required at the end of the term, including removing alterations if required.
• Not to cause nuisance or annoyance to neighbours.

Key Term: rent
Rent is a regular payment (often, but not necessarily, monetary), usually reserved quarterly or monthly, due from the tenant to the landlord as consideration for the grant of the lease.

Key Term: rent review
Rent review is a provision allowing adjustment of the rent during the lease term, commonly at intervals (e.g., every 3 to 5 years), by applying a specified formula or determination method (such as open market value or indexation).

The party in breach of a covenant—whether landlord or tenant—may face remedies both at law and in equity, including damages, injunctive relief, debt recovery, forfeiture, or, exceptionally, specific performance for certain covenants.

Key Term: alienation covenant
A clause restricting or controlling the tenant’s right to assign, sublet, or share possession of the premises, with varying strictness (absolute, qualified, or fully qualified), and express statutory overrides as to reasonableness and consent.

Alienation covenants may be absolute (prohibiting assignment or subletting altogether), qualified (permitting assignment/subletting only with landlord’s consent, not to be unreasonably withheld - s 19(1) LTA 1927), or fully qualified (requiring landlord’s consent, which must not be unreasonably withheld and setting out process and conditions in detail). Legislation influences the reasonableness, timing, and process for giving or withholding consent, particularly in commercial leases where a tenant seeks flexibility in the ability to assign or underlet.

In the context of consent, the Landlord and Tenant Act 1988 sets out procedures and timeframes for landlord decisions, including the requirement for reasoned, written responses to requests for consent (with remedies for unexcused delay or unreasonable refusal). For new leases, the 1995 Act permits the landlord to require a tenant entering an assignment to provide an Authorised Guarantee Agreement (AGA) as a condition of consent if the lease so provides. The landlord may seek further security (personal or rent deposit) where reasonable grounds exist to doubt the financial standing of an assignee.

Additional Key Tenant Covenants

• Observance of planning and building regulation consent, particularly for use and alterations.
• Restrictions on alterations (structural or non-structural), reflecting concerns for business operations or the physical condition of the premises.
• Compliance with health and safety requirements, environmental laws, and any relevant statutory schemes operating on the premises.

Worked Example 1.1

A tenant in a modern commercial lease covenants to keep the property in good repair, including making good all damage caused by the tenant’s activities. At the end of the lease, the landlord submits a schedule of dilapidations requiring substantial expenditure.

Answer:
The obligation to "keep in good repair" requires the tenant to remedy disrepair and maintain the premises at the appropriate standard, assessed in light of the age, locality, and state at commencement. However, the tenant is not required to put the premises into a better state than at the grant. The tenant is liable for any deterioration occurring during the term, except for damage covered by excluded risks (such as insured perils, unless caused by the tenant’s own act or default). Expenditure required will be limited to what is necessary to remedy the disrepair, but will not include improvements unless lease wording so requires.

Privity in Leasehold Law

Enforceability of covenants depends crucially on the relationship of privity—of contract and of estate—between landlord, tenant, and their successors.

Key Term: privity of contract
The continuing contractual bond between the original parties to the lease, rendering them liable to each other for all covenants, positive or negative, unless and until replaced or released by statutory mechanism.

Key Term: privity of estate
The proprietary connection between landlord and current tenant based on holding of the relevant legal estates, making both liable for covenants that 'touch and concern' the land (i.e., are not merely personal), but only for the duration that each holds their estate.

Old Leases (granted before 1 January 1996)

For leases entered before 1 January 1996, both the original landlord and tenant remain liable for the duration of the term even after assignment—unless formally released or subject to a contrary contractual intention. On assignment, the assignee becomes liable for all 'real covenants', i.e., those that 'touch and concern the land,' but is only liable for the period when vested with the lease. Direct indemnities between outgoing tenant and incoming assignee are common to allocate risk for post-assignment defaults.

New Leases (granted on or after 1 January 1996)

The Landlord and Tenant (Covenants) Act 1995 introduced automatic release from liability on assignment for both landlord and tenant, unless otherwise agreed. The outgoing tenant can be required to enter into an Authorised Guarantee Agreement (AGA) only when expressly required by the lease or as a reasonable occupational condition. Upon a proper assignment, liability ceases; the immediate assignee is now liable for the balance of the term. Subsequent assignments release the outgoing party from further liability.

Worked Example 1.2

Ashley is the original tenant of a 99-year lease granted in 1992, which she assigned (with landlord’s consent) in 2019. Her successor defaulted on the repair and rent covenants in 2022. The landlord sues Ashley.

Answer:
As the lease was granted pre-1996, Ashley remains personally liable under privity of contract for the duration of the lease—even after assignment—unless contractually released (s 79 LPA 1925). The landlord is entitled to recover losses arising from breaches of covenant from Ashley, as well as from the current tenant (privity of estate). Ashley would have recourse to any indemnity covenant received from her assignee.

Worked Example 1.3

Alex holds a 10-year business lease granted in 2018. Two years in, he assigns to Carly, with landlord’s consent and in accordance with the lease, and is required to give an AGA. Carly breaches the rent covenant.

Answer:
The lease is governed by the LT(C)A 1995. Alex's liability for future breaches is released upon the lawful assignment, but as he executed an AGA, he guarantees Carly's compliance for so long as she remains the tenant. If Carly fails to pay rent, the landlord may claim against Alex pursuant to the AGA, but Alex is released automatically on any further lawful assignment of the lease by Carly.

Alienation and Statutory Modification

Alienation clauses regulate the tenant's right to dispose of its interest:

• Absolute restraint: Flat prohibition on assignment or underletting—valid at law but strictly construed.
• Qualified covenant: Assignment/subletting allowed only with landlord's written consent. Section 19(1) LTA 1927 upgrades qualified covenants (for assignment, underletting, charging, parting with possession) to require that landlord's consent cannot be unreasonably withheld.
• Fully qualified covenant: Consent not to be unreasonably withheld, with further process or specified grounds for refusal (often common in institutional commercial leases).

Key Term: qualified covenant
A covenant that prohibits an assignment or other disposition without the landlord's consent, but with statutory overlay that such consent is not to be unreasonably withheld.

Key Term: fully qualified covenant
Expressly requires landlord’s consent, not to be unreasonably withheld, and sets out process or criteria to be observed.

By LTA 1988, where a tenant applies in writing for consent to a qualified covenant, the landlord is under a legal duty: (a) to give consent except when reasonable to refuse, (b) to respond within a reasonable time, and (c) to provide written reasons for withholding consent. Failure to comply gives rise to a claim for damages. In commercial leases, s 19(1A) LTA 1927 permits pre-agreement on bona fide conditions for assignment, such as tenant providing an AGA on assignment (automatically reasonable).

• The landlord can impose reasonable conditions—such as financial standing or requiring a rent deposit from the assignee.
• Any absolute ban on assignment will be strictly construed; any ambiguity is resolved in favour of the tenant.

Worked Example 1.4

Landlord Julia grants a ten-year lease to Olly “not to assign without landlord’s consent.” Olly applies to assign; Julia refuses without reason.

Answer:
Julia's refusal must be reasonable and made within a reasonable time, giving written reasons if consent is withheld. To deny consent without reason is unlawful under s 1 LTA 1988 and s 19 LTA 1927. Olly may apply to court for consent, claim damages or (rarely) an injunction.

Enforcement of Covenants and Remedies

Covenants may be enforced by original parties (privity of contract), by successors in title (privity of estate), or under direct deed covenants (especially for tenants’ or landlords' indemnities). The 1995 Act released outgoing tenants from further liability on assignment (subject to AGAs where provided).

Remedies for breach of tenant covenants include:

• Action for debt or damages for sum due, including rent, insurance rent, or service charge.
• Forfeiture—where expressly reserved by the lease (right of re-entry), permitting landlord to terminate the lease for breach.
• Commercial rent arrears recovery (CRAR)—enables commercial landlords to recover rent arrears by taking and selling tenant’s goods after serving notice.

Remedies for landlord breaches (such as failure to repair or insure as contractually required) include damages for breach, and (rarely) a claim for specific performance (court order requiring fulfilment of contractual obligations), although such orders remain exceptional where ongoing supervision by the court is impracticable.

Worked Example 1.5

Thomas leases commercial premises, but the landlord repeatedly fails to repair the roof despite a clear repairing covenant. Thomas wants to compel the landlord to repair.

Answer:
In addition to claiming damages for loss, Thomas may seek an order for specific performance (s 17 LTA 1985 for residential tenants; at equity for other cases). However, English courts are reluctant to supervise performance of ongoing repair obligations and may only grant specific performance if damages are inadequate and the obligation clearly defined.

If the landlord’s breach causes loss of enjoyment or financial harm, a claim for abatement or set-off (rent deduction), or for an injunction to restrain continuing breach, may also be possible.

• Acceptance of rent after a breach may constitute waiver of the right to forfeit: timing and notice are therefore critical for landlords when considering remedies.

Remedies for Breach of Repair or Other Covenants

For tenant's failure to repair:

• Service of a section 146 LPA 1925 notice (other than for non-payment of rent), specifying the breach, requiring remedy, and claiming compensation prior to forfeiture.
• Special requirements under the Leasehold Property (Repairs) Act 1938: tenants of leases over seven years with three years to run may serve a counter-notice restricting forfeiture unless court leaves are obtained, offering further tenant protection.
• Damages for landlord’s loss (subject to s 18 LTA 1927, which limits damages for repair and restricts claims where property will be redeveloped or loss is negligible).
• Entry to repair and action for debt (“Jervis v Harris clause”)—rights are available only if expressly reserved by the lease.

For landlord's breach (such as failure to keep common parts in repair):

• Tenant may claim damages or seek specific performance.
• Tenant abatement or set-off (deducting cost of self-help repairs from rent) is only possible if expressly permitted by the lease, or exceptionally at common law (e.g., where landlord neglect is severe and urgent works were needed).

Worked Example 1.6

The tenant of a 15-year commercial lease discovers serious structural damage that the landlord is failing to address, while the lease makes the landlord responsible for structure. The tenant undertakes the repair and seeks to deduct the cost from the rent.

Answer:
Unless the lease expressly permits deduction (abatement or set-off), the tenant cannot lawfully withhold rent. The tenant may recover the cost of repairs through an action for damages, or seek specific performance. If the lease contains a self-help clause, such as a "Jervis v Harris clause," the tenant may deduct these costs if the clause so provides.

Execution and Schedules

For legal validity, a lease term exceeding three years must be executed as a deed, signed, witnessed, and dated. In practice, both parties sign duplicate engrossments, with each holding a fully executed copy. For registration, the lease (with executed prescribed clauses for registrable leases) is lodged with the Land Registry, including any required supporting plans certified to Land Registry standards.

Schedules appended to the lease support main provisions and may be important for operational matters (defining the premises, management regulations, rent review, break options, service charge arrangements, or allocations). In modern commercial practice, schedules and corresponding definitions are central to clarity and risk allocation, particularly where the property is part of a larger development or shares facilities with others.

Key Point Checklist

This article has covered the following key knowledge points:

• A lease is a proprietary estate requiring exclusive possession for a fixed or ascertainable term, usually created by deed and capable of being either registrable or an overriding interest.
• The structure of a modern lease includes prescribed clauses (if registrable), operative grant, parties, precise definitions, rights granted and reserved, main covenants, provisos (including forfeiture, CRAR, break options), schedules, and execution provisions.
• Landlord covenants concern quiet enjoyment, insurance, and repair of common areas, with risk allocation for maintenance and compliance generally set out in the lease.
• Tenant covenants cover a range of positive and negative obligations—key areas being payment, repair, statutory compliance, user restrictions, control of demolition/alterations, alienation, and inspection.
• The enforceability of covenants turns on privity of contract and estate, and, for leases after 1996, the operation of the LT(C)A 1995.
• Qualified and fully qualified alienation covenants are modified by statute to prevent a landlord unreasonably withholding consent, and the process and conditions for refusal are highly prescribed.
• On assignment, statutory mechanisms release (or retain, by AGA or indemnity) outgoing party liability, impacting future enforcement and recovery.
• Remedies for tenant breach include debt, forfeiture, CRAR, and (where specified) action for damages; for landlord breach, damages or, more rarely, specific performance.
• s 146 notices are compulsory prerequisites for forfeiture for non-rent breaches; tenants’ statutory and equitable protections are heightened where the lease is long, valuable, or for residential occupation.
• Schedules in leases deal with procedural matters, service charge rules, break clause machinery, and definition of the premises, and are essential to managing practical operational risks.

Key Terms and Concepts

• lease
• deed
• prescribed clauses
• schedule
• covenant
• quiet enjoyment
• rent
• rent review
• alienation covenant
• privity of contract
• privity of estate
• qualified covenant
• fully qualified covenant