Leasehold / Remedies for breach of covenant / OLD LEASE enforceability PDF

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Revision on leaseholds (the basics), remedies for breaches of covenants (including forfeiture) and the old lease rules for enforceability for breach of covenant ...

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LEASEHOLDS: TERMS: o LEASE / LEASEHOLD ESTATE / TERM OF YEARS ABSOLUTE o LEASE / TENANCY o LANDLORD / LESSOR o TENANT / LESSEE GRANTING A LEASE – a lease is carved out of a freehold estate – it can be granted for any set period of time (but can be less than a year despite the name terms of years) – after the lease is granted – the landlord owns the freehold reversion and the tenant owns the lease. ASSIGNMENT OF A LEASE – the correct term is assignment of a lease but means the same as the transfer or sale of a lease. o Document on the assignment – original lease (granted by deed in most cases) – when the tenant assigns that to another person then the document is called a transfer document and must be created by deed (cannot be done by the S.54 exception as it is to do with the creation of a short lease not the transfer of a lease). o The assignment of a freehold reversion – this is the sale of a freehold estate – the new owners becomes the new landlord to the tenant. GRANTING OF A SUB LEASE – a sublease is carved out of the original head lease – the sublease is not acquiring the original 50 years lease – a sub lease is an entirely new leasehold estate: has to be for a shorter period of time than the head lease (evenif only by one day) otherwise it would be the assignment of a lease. There is no relationship between the head landlord and the sub-tenant. o ONCE a sub lease is granted – two separate leases are created – head lease is between the landlord and tenant. The sub-landlord and the sub-tenant create a new original sub-lease. MAIN TYPES OF LEASE: o FIXED TERM LEASE – granted for a pre-fixed period (e.g. 5 years / 10 years / 6 months etc) o PERIODIC TENANCY – granted for a period of time which automatically recurs until L or T give notice to end the tenancy. o Creation: express or implied – may be implied where a person is in occupation with the owner’s consent and pay rent on a periodic basis. o The issue of periodic tenancy went to the HoL, to decide whether it actually created a legal estate – they said it is a legal leasehold estate as it is a monthly / quarterly period etc (due to when rent is paid) but it automatically recurs until either party give notice to end the tenancy. REQUIREMENTS FOR A LEASE TO HAVE – LEGAL OR EQUITABLE STATUS: o Legal status = S.1 (1) LPA 1925, a lease is capable of being a legal estate o For actual legal status – you need a DEED (S.52 LPA 1925) AND in registered land when registration essential to acquire legal status (S.27 LRA 2002) LEGAL? Is a deed essential? TO ASSIGN: TO GRANT? s.52 LPA 25 – ALWAYS s. 52 LPA 25 – YES Crago v Julian 1992 1 All ER744  S.1 LP (MP) Act 89 contains the requirements of a deed s.54(2) LPA 25 – EXCEPT  3 years or less  In possession  Best rent reasonable obtainable  No initial premium LEGAL? IN REGISTRATED LAND IS REGISTRATION ESSENTIAL? 1ST REGISTRATION (s.4): GRANT OF A LEASE BY DEED – o Of +7 years; or o Which takes effect in possession +3 months from date of grant; ASSIGNMENT OF A LEASE BY DEED WITH +7 YEARS LEFT AT TIME OF TRANSFER DEALING WITH REGISTERED LAND (S.27): Grant of a lease by deed – AS ABOVE

ASSIGNMENT OF THE REGISTERED LAND (WHATEVER PERIOD IS LEFT TO RUN) REQUIREMENTS FOR EQUITABLE STATUS: HOW CAN AN EQUITABLE LEASE ARISE? In registered land – a legal lease that fails to be registered under S.27 LRA 2002 Where there is a contract to create a legal lease? NOTE – there may be an actual contract, but also, a lease which is made without a deed / valid deed is also treated as a contract to create a legal lease – the contract must of course be valid, comply with S.2 LPMPA 1989 and the remedy of specific performance must be available --- equity will then treat the contract as an equitable lease (WALSH v LONSDALE) LEASES AND THE ISSUE OF PRIORITY – WHEN WILL A LEASE BIND A PURCHASER FROM THE LANDLORD? Registered land: EQUITABLE LEASES LEGAL LEASES • Which were completed by registration • Which have been protected by entry of a notice on OR charges register of L title OR • Which are overriding under Sch.3 para 1 = • Which are overriding under Sch.3 para 2 = T in granted for 7 years or less (subject to para actual occupation (subject to para 2 conditions) 1 exclusions)

TERMINATIONS OF LEASES: 1) EFFLUXION OF TIME – for a fixed term lease. 2) BREAK CLAUSE – within a fixed term lease 3) NOTICE – for a periodic tenancy 4) SURRENDER – T gives up lease to L with L’s consent 5) MERGER – L and T interests come into single ownership 6) FORTFEITURE – action by L to end lease for T breaching a covenant

LEASEHOLD COVENANTS: leasehold covenants are those terms agreed in a lease that relates to the parties obligations to each other in their capacity as Landlord and Tenant. COVENANTS CAN BE: Express or Implied (via common law / statute) COMMON EXPRESS COVENANTS: FOR THE TENANTS – o To pay rent – tenant has made the promise, this has to be an express term o Not to assign or sublet (without consent of the landlord) –important covenant with regards to enforceability: o Absolute – not to assign or sublet o Qualified – includes the words in the brackets – WITHOIT CONSENT OF THE LANDLORD  S.19 LANDLORD AND TENANT ACT 1927 – wherever you have a qualified covenant expressly written – this section then implies the landlord cannot reasonably refuse consent.  S.1 LANDLORD AND TENANT ACT 1988 – dealt with the issue of the landlords just not making decision for refusal or consent – imposes a duty to make a decision in a reasonable time and has to give reasons for their refusal. o Permitted use of the premises COMMON EXPRESS COVENANTS: FOR THE LANDLORD: o To allow the tenant quite enjoyment – this doesn’t mean noise, it is just the right to enjoy the land without interruption for the duration of the tenancy o OWEN v GADD (1956) – Lease of a shop – the landlord put scaffolding up in front of the shop blocking access to the window and it was held that this interfered with quiet enjoyment of the premises. o Not to derogate from his / her grant – if the landlord gives lease for a particular purpose and then the landlord behaves in a way that prevents the individual using the land in the intended way – has to have knowledge of the particular purpose of the land. o ALDIN v LATIMER CLARK LTD (1894) – tenant was a timber merchant (and the landlord knew this), the landlord retained the adjoining land, then he built on his neighbouring land and this interfered with the airflow to the timber drying shed and therefore hindered his use of the property. COMMON EXPRESS COVENANTS: FOR LANDLORDS AND TENANTS:

o To repair – there are landlord repair obligations that are requirements implied by statute. o To insure – can be the duty of either the landlord or the tenant. LANDLORD REMEDIES – where a tenant is in breach of a covenant in the lease: Forfeiture – also known as a “right of re-entry” – landlord takes back the let premises and the lease is terminated prematurely – this generally arise when there is a clear breach of covenant – e.g. not using the premises for residential as contracted but running a business from there. FORTFEITURE PROCEDURE: 1) Preliminary points that L must check o Must have an expressed forfeiture clause – the tenants must check whether there is one of these clauses allowing for such a remedy to be used.  EXAMPLE: “if at any time the rent hereby reserved or any part thereof…is 21 days in arrears (Whether formally demanded or not) or if T has failed to observe or perform any of the T covenants herein contained, L may re-enter upon the demised premised and thereupon the term hereby granted shall absolute determine…” o Then you must check that the landlord has not WAIVED his/her power to forfeit the lease – this means that the landlord has knowledge of the breach but excuses it. o WHAT TWO THINGS ARE NEEDED FOR A WAVIER?  1) Landlord has knowledge of the breach; and  2) Landlord (or agent) then does some clear and unequivocal act that confirms the existence of the lease (e.g. demanding or accepting rent) 2) Required procedure – there are two different procedures for different covenants FOR BREACH OF COVENANT TO PAY RENT - L must make a formal demand for rent unless: o 1) The lease dispenses with the requirement (forfeiture clause illustrates this); or o 2) S.210 COMMON LAW PROCEDURE ACT 1852 applies – rent at lease 6 months in arrears and insufficient good available for distress. FOR BREACH OF COVENANT OF ANY OTHER TYPE OF COVENANT: L must serve a notice under S.146 LPA 1925 –  S.145 LPA 1925 – the notice must do THREE THINGS – specify the breach of covenant complained of (AKICI v LR BUTLIN), ask for the breach to be remedied if it is capable of remedy and ask for financial compensation if the landlord requires it.  CONTENTS OF S.146 NOTICE: whether a breach is capable of remedy: o EARLIER APPROACH – a distinction was made between positive and negative breaches – positive = when you have to do something (aka repairs – which could be done after remedy) and negative = you do something you were not supposed to do (this generally meant that you couldn’t go back on what was breached) o RUGBY SCHOOL v TANNAHILL (1935) – there was a covenant in the lease, saying that you cannot use the premises for any illegal or immoral purposes –but the tenants ran a brothel in the premises and were eventually caught and L made a S.146 notice to forfeit the premises. Tenants argued that the S.146 notice was invalid because the landlord hadn’t asked for a remedy in the notice.  COURT SAID that the breach wasn’t capable for a remedy and so the notice was a valid S.146 notice, it was said that the house had a stigma, as everyone knew it was used as a brothel and would have bought down the value of the property.  WHETHER A BREACH IS CAPABLE OF REMEDY? CURRENT APPROACH – EXPERT CLOTHING SERVICES AND SALES LTD v HILLGATE HOUSE LTD (1986) – Came up with a new way of looking at breaches – looked at the harm to the landlord – about a positive covenant so wasn’t really needed to decide the case but they came up with the new test which was as followed “where the late compliance with the covenant, together with financial compensation would remedy the harm to the landlord” o SAVVA v HUSSEIN – applied the test from EXPERT CLOTHING SERVICES AND SALES LTD v HILLGATE HOUSE LTD (1986)  IRREMEDIABLE HARM? Assignment or sub-letting without consent – SCALA HOUSE – looked at relief to the tenant. Stigma attaching to the premises – RUGBY SCHOOL – this is subject and depends on what the property was used for and the location of the property (ROPE MAKER v NOONHAVEN 1989 – used the same covenant; illegal or immoral – uses the premises for prostitution – but the difference was that the rugby school case was in a nice residential areas, this case was a London nightclub so it was seen to have less of a stigma about it and therefore was seen to be a remedy. o Van Haarlam v o Rugby School (Governors) v Tannahill [1935] Kasner [1992] o Dunraven Securities v Holloway [1982]  CONTENT REQUIRED FOR A o Glass v Kencakes [1966] S.146 NOTICE – o Scala House & District Property Co Ltd v Forbes ADDITIONAL REQUIREMENT FOR A [1974] BREACH OF TENANT o Expert Clothing Service and Sales Ltd v Hillgate

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House Ltd [1986] Savva v Hussein [1996] 47 EG 138

COVENANT TO REPAIR – only applies where there is a tenant breach of repair covenant – LEASEHOLD PROPERTY REPAIRS ACT 1938 – applies to any lease (residential or commercial): o Granted for more than 7 years o Which has at least 3 months left to run This tried to stop termination of lease on the basis of minor disrepair – e.g. need for painting or some tiles needing replacing.  EFFECTS OF SERVICE OF S.146 NOTICE: o If the breach is capable of remedy, then the Landlord must allow a reasonable time for Tenant to carry out the remedy. o If tenant does and pays ant compensation required then that is an end of the matter. o If tenant doesn’t remedy the breach, L can go to the next stage. o And if the Landlord reckons the breach cannot be remedied then Landlord can go on to the next stage very shortly after serving the notice. 3) Does L need to apply for a court order to enter?  RESIDENTIAL LEASE: YES o S.2 Protection from Eviction Act 1977 – where ‘any person is lawfully residing’ in the premises. o PATEL v PIRABAKARAN (2006)  COMMERCIAL LEASE: PEACEABLE RE-ENTRY (WITHOUT A COURT ORDER) is available but risky – peaceable re-entry DOESN’T NEED a court order o S.6 CRIMINAL LAW ACT 1977 – “It is a criminal offence to use or threaten violence for the purposes of securing entry into any premise where, to the knowledge of the entrant, there is someone present who is opposed to the entry” – e.g. cannot break the door o BILLSON v RESIDENTIAL APARTMENTS (1992) 4) T’s application to the court for a relief from forfeiture – ask to not terminate the lease, if the courts grant relief then the tenant can continue to else the property – generally, if T pats the arrears and L costs, then the court will grant relief from forfeiture. o FOR BREACH OF COVENANT TO PAY RENT o FOR BREACH OF ANY OTHER TYPE OF COVENANT – T can apply under S.146 (2) LPA 1925 – doesn’t apply to rent covenants but applies to ALL other covenants.  Time up to which T can apply for relief = BILLSON v RESIDENTIAL APARTMENTS – court said that the tenant can still apply for relief even after to landlord has “taken possession” – this only applies to commercial property remedies where no court order was needed and given.  Relief is possible even though breach is irremediable: SCALA HOUSE v FORBES Damages Injunction Specific Performance

LEASEHOLD – ENFORCING LEASEHOLD COVENANTS: to enforce a covenant = to sue someone because the covenant has been broken. THE BENEFIT AND BURDEN OF COVENANT: each covenant has a benefit and a burden. Somebody has the benefit of it and someone has the burden of it.  A party with the benefit of a covenant has the ABILITY to sue  A party with the burden of a covenant is LIABLE to be sued. BENEFIT + BURDEN = ENFORCEABILITY TO COVENANT RULES OF ENFORCEMENT – there are 2 sets of rules – ONE SET is for leases granted before 1/1/1996 and another SET is for leases granted on or after 1/1/1996 OLD LEASES – LEASES GRANTED BEFORE 1/1/1996 – A SCENARIO – Kim owned a freehold property, which she rented out to Sven – NOW:  Sven has started keeping a greyhound and 3 cats at the property  Kim has failed to pay last year’s council tax and Sven has had to pay it instead, following the threat of council action. THE PARTIES = Kim (the landlord) and Sven (the tenant) THE PROPERTY = 7 Gospel Oak, Hampton THE TERM OF THE LEASE:= 25 years from 10th October 1994

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The tenant covenants: a. Not to keep any pets in the property b. To pay rent of £400 per calendar month c. Not to assign the lease without the Landlord’s consent The landlord covenants: a. To pay all council tax on the property b. To insure to property against fire c. To keep the structure of the property in repair

ISSUE OF ENFORCEMENT: CAN KIMMAKE SVEN GET RID OF HIS GRETHOUND AND CATS? CAN SVEN GET THE MONEY HE PAID OUT IN COUNCIL TAX BACK FROM KIM? ISSUE 1: can the original parties sue and be sued while they are tenant and landlord? Yes, because it is a contract, the original parties have entered them covenants in to a document, which can constitute a contract between them. ISSUE 2: can an original party be sued when a successor breaches a covenant? FOR EXAMPLE:  In 2012, Sven assigned the lease to Ted  Since June 2017, Ted has failed to pay any rent.  Can Sven be sued for the rent that Ted owes? YES, Sven (T1) can be sued for a breach of covenant by any later tenant (T2, T3, T4 ETC) under the lease, it was an express covenant not to assign – S.79 LPA 1925 (UNLESS EXCLUDED), same applies for T3 etc. ANOTHER EXAMPLE:  In July 2014, Kim assigned the freehold reversion to Lyn  In September 2017, high winds caused damage to the property roof. Lyn has still not had any repairs done.  Can Kim be sued for cost of the repair that Lyn should have carried out? YES, Kim (L1) can be sued for a breach of covenant by any later landlord (L2, L3, and L4 ETC) under the lease because of S.79 LPA 1925 S.79 LPA 1925: “A covenant…shall be deemed to be made by the covenantor on behalf of himself his successors in title and the persons deriving under him or them…”  Only applies to the original covenantor – so, the original tenant bound by later breaches of covenant by successor.  Will be liable for the WHOLE time. CAN THE ORIGINAL TENANT GET BACK WHAT HE HAD TO PAY OUT? Yes, if there is an indemnity covenant – you can use these indemnity covenants – problem with them is there must be an unbroken chain of them between every successor. E.G. Sven – assignment and INDEMNITY ----- TED ------ assignment and indemnity ----- WILL IF SVEN IS SUED BECAUSE WILL FAILS TO PAY THE RENT MONEY THEN THE MONEY WILL MOVE BACK DOWN THE LINE FROM WILL TO TED TO SVEN. RULES OF INDEMNITY: Implied by statute:  (S.77 LPA 1925; S.134 / SCH 12, PARA 20 LRA 2002) – s.77 automatically implies an indemnity covenant by statute.  Maybe expressly stated in the deed of assignment between tenants IT EXISTS IN THEORY BUT IN PRACTICE IT IS NOT ALWAYS THAT USEFUL. COVENANT FOR INDEMNITY: e.g. if T2 doesn’t carry out repairs and T1 is sued, then the indemnity covenant from T2 to T1 promises to reimburse T1 RULE IN MOULE V GARRETT: where one person has to pay damages because of the legal default of another, he is entitled to recover what he had paid from the other person. AN EXAMPLE OF AN INDEMNITY COVENANT: “the transferee covenants with the transferor that during the residue of the term granted by the lease the transferee and the persons deriving title under him will – a) Pay the rent reserved by the lease b) Comply with the covenants and conditions in the lease, and c) Keep the transferor and the person deriving title under him indemnified against all actions, expenses and claims on account of any failure to comply with paragraphs A and B”

ISSUE 3: can successors directly sue and be sued? FIRST YOU MUST DISTINGIUSH BETWEEN: A) SUCCESSOR TENANTS B) SUCCESSOR LANDLORDS SUCCESSOR TENANTS – e.g. t2, t3, t4 – can Ted be sued directly for the rent he owes the landlord? IT MAY BE POSSIBLE FOR A SUCCESSOR TENANT TO BE SUED, AND TO SUE, DIRECTLY IF CERTAIN CONDITIONS ARE MET. Certain conditions need to be met to work out whether an assignee / successor can sue or be sued for a breach of covenant. TENANT SUCCESSORS – so can ted take the landlord to court if he fails to insure and be sued if he doesn’t repair? YOU MIGHT THINK OF COURSE – but the issue is: lease is a contract and Ted wasn’t a party the original contract. HAS THE BENEFIT AND BURDEN PASSED TO HIM? RE SPENCERS CASE (1583) RE: SPENCERS CASE (1583): The condition comes from this case – these rules tell us whether or not an assignee tenant has the benefit or burden of covenants under a lease, 3 thinks to check (all 3 must be satisfied):  The lease must be a legal lease  There must be privity of estate – a current relationship of landlord and tenant in respect of the same leasehold estate – DEAL WITH PRIVITY OF CONTRACT LAST – If you have an assignment of a lease then you will have it (it is not the same for a sub-lease) o EXAMPLE:  KIM ---- SVEN – Kim and Sven has privity of estate AND privity of contract  LYN ---- TED – Lyn and Ted have privity of estate.  The covenant must touch and concern the land – P & A SWIFT INVESTMENTS v COMBINED ENGLISH STORES PLC (1989) – A covenant will touch and concern the land if:  1) It benefits covetee only while he has the reversion – if covetee sold the reversion it would cease to benefit him / her, and  2) It affects the nature, quality, mode of user or value of the land, and  3) It is not personal in nature – (that is to say not being given only to a specific L, nor in respect of the obligations only of a specific T) o EXPLAINED: the covenant must affect the land itself and must not be personal to the original tenant. Lord Oliver came up with a working test for it – he said that a covenant will touch or concern the land if (must satisfy all 3): it benefits the coventee while he still has the reversion – will benefit him while he owns the land, when he sells it he doesn’t take the benefit with him. It ...