Leasehold Covenants

Leasehold covenant

Promise in a lease made by landlord or tenant

Tenant freedom rule

Tenant can do anything unless lease restricts it

Lease drafting

Covenants usually negative (what tenant cannot do)

Repair covenant

Tenant must keep premises in condition of a reasonably minded owner

Proudfoot v Hart

Standard depends on age, character, and wording of lease

Repair includes putting into repair

Even if property was in disrepair at start

Schedule of condition

Limits obligation to condition at start of lease

Repair vs renewal

Repair = replacement of subsidiary parts, renewal = replacement of whole or substantially whole

Lurcott v Wakely

Rebuilding wall can still be repair

Brew Brothers

If cost ≈ value of property → likely renewal not repair

Alterations covenant

Tenant may alter unless lease restricts it

Doctrine of waste

Tenant cannot damage or devalue property

User covenant

Restricts how premises may be used

Purpose of user covenant

Landlord controls type of use (e.g. residential/business)

Alienation

Disposal of lease (assignment, subletting, parting with possession, charging)

Assignment

Transfer of whole remaining lease to assignee

Effect of assignment

Assignee becomes tenant without changing lease document

Registered lease assignment

Must update Proprietorship Register

Assignment if lease silent

Freely assignable

Restriction on assignment

Usually requires landlord consent

Construction in tenant’s favour

Assignment restriction ≠ subletting prohibition (Church v Brown)

Subletting whole restriction ≠ subletting part prohibition (Wilson v Rosenthal)

Formalities for assignment

Must be by deed (s52 LPA 1925)

Land Registry

Must register assignment if lease registered

New lease

Lease granted after 1 January 1996

AGA

Outgoing tenant guarantees immediate assignee’s obligations

AGA scope

Only applies to next tenant, not future assignments

Subletting

Tenant grants lease out of own lease (underlease)

Headlease

Original lease above underlease

Reason to sublet

Tenant keeps lease but generates income

Subletting formalities

Must be by deed and registered if >7 years

Consent for subletting

Usually required from landlord

Absolute covenant

Total prohibition (no consent possible)

Qualified covenant

Requires landlord consent but landlord can refuse freely

Fully qualified covenant

Consent required and cannot be unreasonably withheld

Reasonableness test

Must relate to landlord and tenant relationship

International Drilling Fluids

Refusal must be based on relevant factors (e.g. financial reliability) not personal preference

Statutory intervention

Law modifies user, alteration and alienation covenants

Effect of statutes

Limits landlord’s ability to refuse consent in some cases