What is a Leasehold Covenant?
A lease imposes certain rights and obligations on both the landlord and the tenant. These are known as leasehold covenants.
Two Types of Liability: Contractual and Estate-Based
Leasehold covenants can be enforced contractually between the original tenant and landlord, because they have privity of contract. Additionally, those who own the relevant estate (the freehold for the landlord and the leasehold for the tenant) also have an ‘estate-based’ cause of action to enforce covenants.
By owning the relevant estate, the landlord and tenant are said to have ‘privity of estate‘. If one of the parties assigns their estate to another, then they lose privity of estate and give it to the assignee.
Assigning the Estate: Inheriting Covenants
An assignee therefore gains privity of estate, but not privity of contract. But does this mean they gain the burdens and benefits of all the covenants? This depends on when the lease was created:
- If an original party to a pre-1996 lease assigns their interest, the assignee inherits both the benefits and the burdens of all leasehold covenants: see Law of Property Act 1925, ss.141-42; Spencer’s Case (1583) 5 Co Rep 16a. This only applies to covenants which ‘touch and concern’ the land, however: P&A Swift Investments v Combined English Stores  AC 632.
- However, pre-1996 tenant-assignees do not inherit the burden of leasehold covenants if the lease/assignment is solely equitable – Purchase v Lichfield Brewery  1 KB 184; Thomas v Hayward (1857) LR 4 Ex 311.
- The benefit and burden of both legal and equitable leases passes to assignees of post-1996 leases unless the covenants are expressed to be purely personal: Landlord and Tenant (Covenants) Act 1995, ss 2-3.
Pre-Assignment Breaches: Who Can Sue or be Sued?
Example: B grants a lease to C. C fails to pay the rent, but assigns their leasehold estate to D before B can sue for arrears. Who should B sue?
A person cannot be sued in estate-based liability for breaches which occurred before they gained privity of estate: Landlord and Tenant (Covenants) Act 1995, s.23; Onslow v Corriw (1817) 2 Madd 330. The assignee will not have privity of contract with the original party, meaning they cannot be sued in contract either. So, B can only sue C.
Example: B grants a lease to C. C fails to pay the rent. Before B takes any action, B assigns their freehold to D. Who can sue C for the rent, B or D?
This depends on when the lease was created:
- Pre-1996 (breach of tenant covenants): a landlord cannot sue for breach after they have assigned their interest: Re King  Ch 459. So, only D can sue C for the missing rent.
- Pre-1996 (breach of landlord covenants): By contrast, a tenant who assigns their interest retains the right to sue for breaches which occurred prior to the assignment: City and Metropolitan Properties v Greycroft  1 WLR 1085. So, if a landlord breaches a covenant and the tenant assigns their leasehold, the landlord remains liable to the old tenant, not the new one.
- Post-1996: both landlords and tenants retain the right to sue for existing breaches after they assign their estate: Landlord and Tenant (Covenants) Act 1995, s.23. The new landlord/tenant does not have the right to sue for breaches that occurred before they obtained privity of estate.
Post-Assignment Breaches: Who Can Sue or be Sued?
Example: B grants a lease to C. C assigns their interest to D. D fails to pay the rent. B does not want to sue D for arrears, as D is unlikely to have the money to pay. Can B sue C instead?
A person cannot be sued in estate-based liability for breaches which occur after they lose privity of estate: Landlord and Tenant (Covenants) Act 1995, s.23; Onslow v Corriw (1817) 2 Madd 330. So, B cannot sue C for estate-based liability because C no longer owns the relevant estate.
However, B and C are still parties to the original lease contract. Whether contractual remedies can be pursued against an original party who no longer has privity of estate depends on when the lease was entered into:
Before 1996: both original parties to the lease remain contractually liable for breach of covenant even if they have assigned their estate interest to another and so no longer have privity of estate: Hindcastle v Barbara Attenborough  AC 70. This means, for example, that the original tenant who assigns their interest can be sued in contract if the new tenant does not pay the rent. B can therefore sue C for breach of contract.
After 1996: If the original tenant assigns their interest, they are relieved of both contractual and proprietary liability: Landlord and Tenant (Covenants) Act 1995, s.5. The landlord is also released if they assign their interest, unless the liability is expressed to be personal: s.6. For personal liabilities, landlords can rely on contractual limitation clauses: London Diocesan Fund v Phithwa  UKHL 70. B cannot sue C for breach of contract.
Types of Leasehold Covenant
Covenants are often expressly included in the lease, but many are implied by the common law or statute if not expressly mentioned. Covenants can be ‘positive’ or ‘restrictive/negative’. A positive covenant requires a party to do something: such as pay the rent. A negative covenant requires a party not to do something: such as the covenant not to interfere with the tenant’s peaceful enjoyment of the property.
The following covenants are commonly imposed on landlords:
If a landlord agrees to allow the tenant a benefit, they must not do anything that substantially deprives the tenant of that benefit.
A landlord is required to allow the tenant to possess and benefit from the property without interference.
Landlords are commonly obliged to repair some or all of the property. For example, the Landlord and Tenant Act 1985 obliges landlords of short leases to repair the external structure.
The following covenants are commonly imposed on tenants:
The most common covenant is for the tenant to pay the agreed rent.
Many covenants allow the landlord to enter the property for specific purposes, such as to inspect for repairs or compliance.
The tenant may covenant that they will not sub-let or assign their interest to another.
Some repair obligations may be placed on the tenant.
Remedies for Breach
Many of the usual contractual remedies are available for breach of covenant, such as damages, specific performance or an injunction. Landlords also have a power to seize the tenant’s property to recover the rent – this used to be ‘common law distress’ but is now governed by the Tribunals, Courts and Enforcement Act 2007. This is only available for leases of commercial properties, however, so it has no application to domestic property.
The most significant estate-based remedy, however, is forfeiture of the lease. This applies to both commercial and domestic property. Forfeiture is where the landlord exercises their right to re-enter the property, retake possession and extinguish the lease.
When can the Landlord Forfeit the Lease?
While the forfeiture right is generally implied into all leases, there will normally be an express covenant setting out the circumstances under which the landlord can trigger the forfeiture procedure. The standard forfeiture power is exercisable on failure to pay the rent or comply with leasehold covenants.
The landlord will lose the right to forfeit if they expressly agree or licence the breach of covenant, or if they have waived their right of re-entry. A landlord waives their right if, knowing of the breach, they continue to recognise (by words or action) the lease’s continued existence (e.g., continuing to demand the rent – Thirunavukkrasu v Brar  EWCA Civ 2032). Where the breach is continuing, however, the landlord will be able to rely on subsequent breaches to gain a new right to forfeit the lease: Segal Securities Ltd v Thoseby  1 QB 887.
If a landlord chooses to pursue forfeiture, they must follow the correct procedure:
- Firstly, the landlord must give the tenant notice of the breach. The notice must precisely identify the breach and what is demanded of them, if anything: Horsey Estate Ltd v Steiger  2 QB 79. If the tenant complies with the notice, the landlord cannot forfeit the lease.
A formal demand for the rent must be made if non-payment of rent is the issue, unless the lease says otherwise or the rent is 6 months in arrears: Common Law Procedure Act 1852, s.210.
For other breaches, formal notice under s.146(1) of the Law of Property Act 1925 is required. This must identify the breach, and demand that the tenant remedy it, if possible. It can also require the tenant to compensate the landlord, with additional compensation for failure to remedy the breach within a reasonable time.
The courts tend to view positive covenants as capable of remedy. For example, a failure to repair can be remedied by carrying out the repairs: Expert Clothing Services & Sales Ltd v Hillgate House Ltd  Ch 340. Some negative covenants are unlikely to be capable of remedy, such as breaching a sub-letting clause: Scala House & District Property Co Ltd v Forbes  QB 575. Otherwise, negative covenants can be capable of remedy: Akici v LR Butlin Ltd  EWCA Civ 1296.
- Secondly, if the lease is for an occupied dwelling, the landlord must obtain a court order before attempting to re-enter. Failure to obtain a court order may lead to criminal liability under s.6 of the Criminal Law Act 1977 or the provisions of the Protection from Eviction Act 1977. For empty or commercial property, the landlord can attempt to re-enter without permission from the court.
Effect of Forfeiture
The lease is extinguished as soon as the landlord decides to re-enter the property: Canas Property Co Ltd v KL Television Services Ltd  2 QB 433. Once they have done so, the tenant’s continued occupation there is as a trespasser. Since the lease is terminated, the tenant is no longer bound to pay rent and neither party is bound by leasehold covenants.
Relief from Forfeiture
A tenant can apply to the court to prevent or reverse the effects of forfeiture. This restores the lease as if it had never been forfeited. The requirements for relief depend on whether the covenant breached is non-payment of rent or some other covenant:
Relief is available under s.212 of the Common Law Procedure Act 1852, provided the tenant pays all outstanding rent and costs before trial. Alternatively, there is discretionary relief under s.210 where the application is made within six months of an order for possession being executed. See also s.138(2) of the County Court Act 1984 for claims brought in the county court. The statute only applies if the rent is six months in arrears, a claim for distress is unavailable or ineffective, and the landlord has not been able to re-enter peacefully.
If the statutes are unavailable, the court has a general equitable jurisdiction to grant relief if it would be equitable to do so. They will typically only exercise this jurisdiction if all that is due in terms of rent and costs is paid: Gill v Lewis  2 QB 1. However, relief may be refused if the tenant delays excessively in bringing the application (Gibbs v Lakeside Developments  EWCA Civ 2874) or if there are exceptional circumstances (Gill v Lewis).
There is a statutory power to grant relief from forfeiture for breach of other covenants under s.146(2) of the Law of Property Act 1925. The court has a discretion to grant relief if it ‘thinks fit’ having regard to all the circumstances. Common factors include the breach’s severity and whether it can be remedied, the relative losses to each party, and whether the breach was intentional: Ropemaker Properties v Noonhaven  2 EGLR 50; Central Estates (Belgravia) Ltd v Woolgar (No 2)  1 WLR 1048.
The court may impose terms on relief, such as payment of damages, costs or compensation. It may also include an injunction to restrain future breach.
This power is available even if the landlord has re-entered peacefully, but not if they re-entered under a court order: Billson v Residential Apartments  1 AC 494. So, if a landlord pursues a court order, the tenant must claim relief during those proceedings, not after.
Forfeiture of a lease will automatically forfeit any derivative interests which rely on the lease, such as sub-leases. Derivative interest holders have several options to apply for relief.
- The court has jurisdiction under s.146(6) of the Law of Property Act 1925 to grant relief to derivative interest holders. Relief has the effect of vesting some or all of the head lease to the derivative interest-holder. This can be contingent on conditions, such as damages or security.
- Sub-lessees can also apply for relief under s.146(2) of the Law of Property Act 1925, the Common Law Procedure Act 1852 or the County Court Act 1984, applying the same principles applied above. Success grants them a new lease between themselves and the landlord.
- It is not clear whether the court retains any equitable jurisdiction to grant relief to derivative interest holders: see the discussion in Shiloh Spinners v Ltd v Harding  AC 691.
The derivative interest-holder is normally expected to remedy the breach if they are to get relief: Chatham Empire Theatres (1955) Ltd v Ultrans Ltd  1 WLR 817.