Leasehold covenants

[edit] Introduction

Leasehold covenants are the undertakings made in contracts concerning the leasing of property. They may be express (verbal or written) or implied (in common law or by statute). The term ‘leasehold’ in property law describes a lease from the freeholder of a property that enables the leaseholder to use the property for a specified period subject to the covenants set out in the lease in return for the payment of rent.

Leasehold covenants are sometimes referred to as ‘positive covenants’ because they oblige the parties to do something, as opposed to a restrictive covenant which is an obligation not to do something.

Covenants differ from conditions, which hold that the lease cannot take effect until a condition is fulfilled, or that the lease will terminate should a condition on which it is granted cease to apply. A covenant is simply an agreement between the parties, although its breach may also give rise to a cause of action.

There are a wide range of commonly applied leasehold covenants, some on the part of the lessor (landlord) and some on the part of the lessee (tenant).

[edit] Lessor’s covenants

The most common covenants that apply to the lessor of a property include:

[edit] Not to derogate from grant

This is the general legal principle that if A agrees to give a benefit to B, then A should not proceed to do something that substantially deprives B of the enjoyment of that benefit. For example, if the landlord does something that makes the property less fit for the purpose for which the lease was granted to the tenant.

For more information, see Derogation from grant.

[edit] To allow the lessee quiet enjoyment

This provides the tenant with the right of possession during their tenancy, with the entitlement to enjoy the lawful use and benefit of the property free from the landlord’s interference.

For more information, see Quiet enjoyment.

[edit] To repair

A covenant to repair the property is fundamental to the lease of a building or part of a building. It depends on the nature of the repair required as to whether the burden of the covenant falls on the lessor or lessee.

In the case of ‘Warren v Keen’ (1954), Denning L.J. stated that a periodic tenant on a short lease must ‘do the little jobs about the place which a reasonable tenant would do. In addition, he must, of course, not damage the house…But…if the house falls into disrepair through fair wear and tear or lapse of time, or for any reason not caused by him, then the tenant is not liable to repair it.’

The Landlord and Tenant Act 1985 imposes a duty on the landlord (where the lease granted is less than 7 years) to keep the external structure in repair and certain items in good working order, such as the supply of utilities and for sanitation.

This is a complex area of law, and the courts have interpreted this covenant as not placing the landlord under an obligation to correct a defect in the design of the building’s structure which, for example, could result in excessive damp or condensation, as long as the structure itself was not in a state of disrepair. If installations such as water pipes do not perform properly, they are deemed to be of improper working order and so the landlord is liable.

The case of ‘O’Brien v Robinson (1973) established that the landlord’s liability is subject to proper notice being given by the tenant that remedial work is required and that they have had a reasonable opportunity to carry out such works.

[edit] Lessee’s covenants

The most common covenants that apply to the lessee of a property include:

• To pay rent.
• To repair (where it is reasonable to do so).
• To permit the landlord entry to inspect or repair.
• To insure.
• Not to alter the structure.
• To use the premises only for a specific purpose.
• Not to deny the landlord’s title.
• Not to assign or sublet (alienation).

[edit] Not to assign or sublet

A lessee may covenant not to assign or sublet the property, as this protects the landlord from unsuitable assignees or subtenants. This can be absolute, where the landlord prevents the tenant from assigning or subletting, or qualified, where the landlord’s consent is required. The Landlord and Tenant Act places the burden of proof on the landlord to demonstrate that the refusal of consent was reasonable.

The Landlord and Tenant (Covenants) Act (1995) amended the rules for new commercial leases. It provides that lessors and lessees may agree the circumstances under which consent to assignment may be given or refused. The courts in these cases may not enquire into how reasonable a refusal was.

For more information, see Alienation covenant.

[edit] Usual covenants

The phrase ‘usual covenants’ may be included in a lease agreement that is ‘informal’ or agreed orally. In this case, the law holds that the parties will be bound ‘by the usual covenants’ which will be implied in the contract for the lease.

The usual covenants that apply to landlords generally include:

• Quiet enjoyment and non-derogation from grant.
• Right of re-entry for non-payment of rent.

The usual covenants that apply to tenants generally include:

• To pay rent.
• To pay land taxes and other charges.
• To repair where reasonable.
• To allow the landlord access to inspect or repair.

[edit] Remedies for breach

If an undertaking in a lease is a condition then the landlord can repossess the land automatically if it is breached. There is no automatic right if the undertaking is a covenant. The landlord can sue for damages for loss or, if the circumstances are appropriate, can apply for an injunction to prevent certain actions from taking place, or apply for an order for specific performance.

In the case of non-payment of rent, the landlord must issue a formal demand for payment prior to them forfeiting the lease. However, some leases contain a term permitting the forfeiture of the lease for non-payment ‘whether formally demanded or not’.

Forfeiture for breach of other covenants can be avoided by the tenant remedying the problem and complying with the lease thereafter. If the tenant does not, or cannot, remedy the breach within a reasonable time, the landlord can apply for a possession order.

Damages and/or an injunction are remedies that may be available to both lessor and lessee depending upon the circumstances of the breach.

[edit] Related articles on Designing Buildings Wiki

• Alienation covenant.
• Breach of contract.
• Commonhold.
• Deed of easement.
• Derogation from grant.
• Forfeiting long residential leases.
• Freehold.
• Landlord.
• Landlord and Tenant Act.
• Lease Negotiations - Tenants Checklist.
• Leasehold.
• Leasehold enfranchisement.
• Leasing a property - what you need to know.
• Making good.
• Modifying a restrictive covenant.
• Quiet enjoyment.
• Restrictive covenant.
• Subletting.
• Tenant.
• Wayleave.

[edit] External resources

• ‘Land Law’ (5th ed.), GREEN, K., CURSLEY, J., Palgrave Law Masters (2004)