Leasehold covenants are promises made between landlord and tenant that are contained in a lease. They regulate the rights and obligations of each party during the term of the lease. Covenants may be positive (requiring a party to do something, such as pay rent or repair) or negative or restrictive (requiring a party not to do something, such as not to sublet without consent). Understanding how covenants bind and benefit parties after assignment of the lease is central to leasehold law.
Leasehold covenants are heavily tested in the SQE. The key is understanding the distinction between privity of contract (a personal relationship) and privity of estate (a property-based relationship), and how the Landlord and Tenant (Covenants) Act 1995 changed the common law rules. Focus on the pre-1996 versus post-1995 lease distinction.
A lease has a dual nature: it is both a contract and a property right. As a contract, it creates personal obligations between landlord and tenant (privity of contract). As a property right, it creates an estate in land that binds successors in title (privity of estate). This dual nature is fundamental to understanding how leasehold covenants operate.
Even where the lease does not expressly provide for certain matters, the law implies terms into the lease. The most important implied terms are the implied covenant of fitness for habitation (under the Landlord and Tenant Act 1985 for residential leases) and the implied covenant of quiet enjoyment. These implied terms exist to protect tenants and ensure basic standards.
The covenant of quiet enjoyment is implied into every lease. It means that the landlord will not interfere with the tenant's peaceful possession and enjoyment of the property. This does not mean the property must be quiet -- it means the tenant has the right to occupy without unlawful interference from the landlord or anyone claiming under the landlord. Breach can occur through physical intrusion, unreasonable demands, or actions that substantially interfere with the tenant's use.
Under the Landlord and Tenant Act 1985, s.8, there is an implied term that the dwelling is fit for human habitation at the start of the tenancy and during it. This applies to residential tenancies. The courts consider factors such as repair, stability, freedom from damp, natural light, ventilation, water supply, and facilities for cooking and sanitation.
Where a dwelling-house is let on a tenancy at a rent or period less than a certain amount, there is an implied term that the dwelling is fit for human habitation at the commencement of the tenancy and that the landlord will keep it fit during the tenancy.
Express terms are those specifically agreed and set out in the lease. They cover a wide range of obligations including rent payment, repair obligations, insurance, use restrictions, alienation controls, and service charge provisions. Express terms are interpreted according to normal rules of contractual interpretation. Where there is ambiguity, the contra proferentem rule applies against the party who drafted the clause.
Privity of contract is the principle that only parties to a contract can sue and be sued on it. In the context of leases, the original landlord and original tenant are in privity of contract. This means they can enforce the covenants of the lease against each other personally. The relationship is contractual and personal -- it does not depend on who holds the property.
The original landlord and original tenant are bound by all covenants in the lease, regardless of whether they are positive or negative. This binding effect continues even after the tenant assigns the lease. At common law, the original tenant remains liable to the original landlord (and their successors) for as long as the lease continues. This was the harsh common law rule.
Established the fundamental rule that the burden of a covenant does not run with the land at common law. In a lease, the burden of positive covenants remains with the original covenantee. The benefit, however, can run with the land if the covenant "touches and concerns" the land. This case is the foundation of leasehold covenant law and is still relevant today.
At common law, assigning a lease does not release the assignor (the original tenant) from their obligations under the lease. The assignor remains liable under privity of contract to the original landlord and their successors. This means the original tenant could be sued for breaches committed by an assignee many years later, even though they no longer occupy the property.
The common law rule that the original tenant remains liable after assignment was considered extremely harsh. A tenant who assigned a lease decades ago could still be pursued by a landlord for breaches by the current tenant. This was the main problem the Landlord and Tenant (Covenants) Act 1995 sought to address for new tenancies.
The original tenant can be released from privity of contract if the landlord agrees. This is typically negotiated as part of the assignment process. The landlord may agree to release the original tenant in exchange for a guarantee from the assignee. Without such agreement, the original tenant remains bound.
Privity of estate is the relationship between persons who hold successive estates in the same land. When a landlord grants a lease, the landlord (reversioner) and tenant have simultaneous estates in the same property. This relationship is property-based, not personal. It depends on who currently holds the landlord's reversion and who currently holds the tenant's leasehold estate.
For a covenant to run under privity of estate, it must "touch and concern" the land. This means the covenant must affect the land itself, rather than being purely personal. Covenants that touch and concern the land include: rent, repair obligations, use restrictions, and insurance obligations. Covenants that are purely personal (such as a promise to pay a specific debt) do not touch and concern the land.
Because privity of estate is a property relationship, covenants that touch and concern the land "run with the land." This means they bind successors in title. When the lease is assigned, the assignee (new tenant) is bound by the lease covenants under privity of estate. When the reversion is assigned, the new landlord can enforce the covenants under privity of estate.
A successor in title to the tenant is bound by covenants that touch and concern the land, provided the covenants are intended to run. Similarly, a successor in title to the landlord can enforce covenants that touch and concern the land. This is the mechanism by which lease covenants continue to operate after the original parties have parted with their interests.
A useful way to distinguish them: privity of contract is about the PEOPLE (the original parties), privity of estate is about the LAND (whoever currently holds the estate). Privity of contract is personal and cannot be escaped without the other party's agreement. Privity of estate is property-based and changes automatically when the estate is transferred.
The benefit of a leasehold covenant that touches and concerns the land passes to the successor in title of the tenant under privity of estate. This means the new tenant can enforce the landlord's covenants against the landlord. For example, if the lease contains a landlord's repair covenant, the assignee can enforce it against the current landlord.
When the landlord assigns the reversion, the benefit of the tenant's covenants passes to the new landlord. The new landlord can enforce the tenant's covenants under privity of estate, provided the covenants touch and concern the land. This is how the new landlord acquires the right to collect rent and enforce other tenant obligations.
The House of Lords confirmed that the benefit of a covenant in a lease passes to an assignee of the reversion. The covenant was an obligation to maintain the property in good condition. The new landlord was entitled to enforce this covenant against the current tenant. The case illustrates that the benefit of covenants runs with the reversion under privity of estate.
At common law, the burden of a leasehold covenant does not pass with the lease. The original tenant remains liable under privity of contract for the entire term of the lease. This means that even after assigning the lease, the original tenant can be sued by the landlord (or their successor) for any breach of covenant, including breaches committed by subsequent tenants.
Spencer's Case established the foundational rule that the burden of a covenant does not run with the land. Only the benefit runs. The original covenantee (tenant) remains personally liable. This rule applied to all lease covenants, whether positive or negative. It meant that the original tenant could be pursued for breaches by later tenants for the entire term of the lease.
Although the original tenant remains liable, the current tenant is also liable under privity of estate. The landlord can choose whom to sue. In practice, the landlord will usually sue the current tenant, as they are in occupation and more likely to be able to remedy the breach. However, the landlord may pursue the original tenant if the current tenant cannot pay.
An AGA is a contractual promise by an outgoing tenant to guarantee the obligations of the assignee under the lease. AGAs are commonly required by landlords as a condition of consent to assignment. They effectively recreate the old privity of contract liability but limited to the assignee's obligations. The AGA is separate from the lease itself.
Under s.16 of the Landlord and Tenant (Covenants) Act 1995, a tenant who gives an AGA is released from the AGA if the assignee subsequently assigns the lease with the landlord's consent. The landlord may require a new AGA from that assignee instead. This prevents chains of guarantors that existed under the old law.
The Landlord and Tenant (Covenants) Act 1995 fundamentally reformed the common law rules on leasehold covenants. However, it only applies to tenancies created on or after 1 January 1996. Pre-1996 leases continue to be governed by the old common law rules. This creates a dual system that is essential to understand for the SQE.
Section 3 provides that an original tenant of a tenancy to which the Act applies is released from covenant obligations on assignment of the tenancy. This is the key reform. For new tenancies (post-1995), the original tenant is no longer liable once they have assigned the lease. They walk away completely, subject to any AGA they may have given.
On an assignment of a tenancy to which this Part applies, the tenant under the tenancy is released from the tenant covenants of that tenancy. This applies to all covenants, whether express or implied.
Section 11 provides that a landlord under a tenancy to which the Act applies has the same rights and remedies against the current tenant as the original landlord had against the original tenant. This means the landlord can enforce all lease covenants against whoever is the current tenant, regardless of whether the covenant was originally made with the original tenant.
A landlord under a tenancy to which this Part applies has the same rights and remedies in respect of a breach of a tenant covenant as the original landlord would have had if the tenancy had not been assigned.
Section 16 sets out covenants that are excluded from the Act. If a covenant falls within the exclusion list, the old common law rules continue to apply. Excluded covenants include: covenants relating to the return of a rent deposit, covenants restricting assignment or underletting (alienation covenants), and covenants relating to the provision of a guarantee. Alienation covenants are a major exclusion.
The following covenants are excluded from Part II of this Act: (a) covenants restricting alienation, assignment, or underletting; (b) covenants relating to the return of a rent deposit; (c) covenants relating to the provision of a guarantee. For excluded covenants, the common law rules continue to apply.
The Act applies to tenancies created on or after 1 January 1996, provided they are for a term of more than seven years. There are specific exclusions: tenancies at a low rent, tenancies of agricultural holdings, mining leases, and tenancies under the Housing Acts. The Act does not apply to pre-1996 leases, even if they are assigned after 1996.
Confirmed that the 1995 Act applies only to tenancies granted on or after 1 January 1996. A lease granted before this date continues to be governed by the old common law rules on privity of contract, even if the assignment takes place after 1996. This case reinforces the dual system and the importance of checking when the lease was granted.
| Feature | Pre-1996 Leases (Common Law) | Post-1995 Leases (1995 Act) |
|---|---|---|
| Original tenant after assignment | Remains liable indefinitely (privity of contract) | Released on assignment (s.3) |
| Current tenant liability | Liable under privity of estate | Liable under s.11 (same rights as original landlord) |
| Landlord enforcement | Can sue original tenant or current tenant | Can only sue current tenant (unless AGA exists) |
| AGA required | Not required by law (common law) | Required by landlord on assignment (but limited) |
| AGA on further assignment | No automatic release | Released on further assignment (s.16) |
| Alienation covenants | Common law rules apply | Common law rules apply (excluded by s.16) |
| Landlord release of original tenant | Only by agreement | Automatic on assignment |
When answering a question on leasehold covenants, always ask first: when was the lease granted? If before 1 January 1996, the old common law rules apply. If on or after that date, the 1995 Act applies (unless the covenant is on the exclusion list). This single question determines the entire analysis.
Many commercial leases in existence today were granted before 1996 and have long terms (25 years or more). These leases continue to be governed by the old rules. Do not assume the 1995 Act always applies. Always check the grant date of the lease before applying the covenant rules.
Alienation covenants are clauses in a lease that control the tenant's ability to deal with the leasehold interest. They restrict the tenant's freedom to assign the lease or sublet the property. The purpose is to give the landlord control over who occupies the property. Alienation covenants are excluded from the 1995 Act by s.16, so the common law rules continue to apply regardless of when the lease was granted.
Section 19 of the Landlord and Tenant Act 1927 provides that in leases where consent to assignment or subletting cannot be unreasonably withheld, consent cannot be unreasonably withheld. Where the lease is silent on the reasonableness of consent, s.19(1) implies a reasonableness requirement. The landlord must have a reasonable basis for refusing consent.
Where a lease contains a covenant against assigning or subletting without licence or consent, the licence or consent is not to be unreasonably withheld in the case of an assignment or subletting. Where the lease does not specify the grounds for refusal, consent cannot be withheld if the tenant offers a suitable assignee.
A landlord cannot impose an absolute prohibition on assignment if the lease says consent cannot be unreasonably withheld. An absolute prohibition would make the reasonableness requirement meaningless. The landlord must give genuine consideration to the tenant's request. An unconditional refusal without any consideration of the proposal is unreasonable.
The Court of Appeal held that an absolute prohibition on assignment in a lease is incompatible with a requirement that consent cannot be unreasonably withheld. The two are mutually inconsistent. Where the lease contains an absolute prohibition, the court may read in a reasonableness requirement, effectively striking down the absolute prohibition.
If the lease contains an absolute prohibition on assignment (with no consent mechanism), the tenant cannot assign at all. This is a valid clause. The s.19 reasonableness requirement only applies where the lease requires consent to assignment. If the lease simply says "not to assign," the prohibition is effective. However, if the lease says "not to assign without consent," s.19 implies a reasonableness requirement.
The rules on subletting are similar to those on assignment. Where the lease requires landlord consent to sublet, consent cannot be unreasonably withheld (s.19 LTA 1927). The landlord can impose reasonable conditions on subletting. The tenant remains liable under the head lease even after subletting, as subletting does not transfer the tenant's leasehold estate.
Remember the distinction between an absolute prohibition ("not to assign") and a qualified prohibition ("not to assign without consent"). An absolute prohibition is effective and prevents assignment entirely. A qualified prohibition engages s.19, and consent cannot be unreasonably withheld. This is a classic SQE exam point.