Land Law- Leasehold Covenants

In old leases the original covenantor remains liable on covenants despite assigning the estate. The 1995 Act provides release from their covenants for both tenant and landlord. For the tenant release is automatic, subject to certain exceptions. For the landlord, release is obtained with the consent of the tenant or on a court order. 

Release of the original tenant- 

Where a tenant assigns the lease, s.5 of the 1995 Act provides that, from the assignment, he is released from the burden of his covenant and ceases to be entitled to the benefit of the landlords covenant. 

However, assignees have always been freed from future liability on the covenants in the lease when they inturn assign (City of London Corporation V Fell) and the principal beneficiary from this provision will undoubtedly be the original tenant and the covenantor, who is thus freed from the continuing liability on his covenants. To accord with the major change in the law, the 1995 Act includes two consequential provisions, which are:

a) It provides that LPA 1925, S79 (by which the covenantor is deemed to covenant on behalf of himself, his successors in title, and the persons dervining title under him), shall not apply to new tenancies (1995 Act, s30 (4)(a)). 

b) The statutory provisions which insert implied indemnity covenants into assignments of leases are replealed in respect of new tenancies (1995 Act, s.30(2)-(3)). Nevertheless, as we shall see, there may be occassions where the assigning tenant is not released from his liability under the covenants, and it might therefore be wise for the tenant to include an express covenant for indemnity in the assignment , since he can no longer rely on the implied one. 

Circumstances where the tenent remains liable:

The tenant continues to be liable in the case of 'excluded assignments', which are defined in s.11(1) LT(C)A 1995

A) assignments in breach of a covenant in the tenancy, i.e, assignment of the lease by a tenant in breach of an absolute or qualified covenant against assignment; and 

b) Assignments by operation of law, for example, on death, where the estate vests in the deceased's personal representatives, or on bankruptcy , where the estate vests in the trustee in bankruptcy.

Authorised guarantee agreement-

Although the tenant may be freed automatically from continuing liability on covenants, it should be noted that the landlord may require the tenant to enter…