Avonridge Property Co Ltd v Mashru [2005] UKHL 70; [2006] 01 EG 100 considered the question of whether a landlord can avoid liability on disposal of its revision. The Court of Appeal (see [2004] EWCA Civ 1306, [2005] 1 EGLR 15; [2005] 05 EG 204) adopted the view that any attempt by a landlord to seek an automatic release from covenants following transfer was void and that the procedure set out in the Landlord and Tenant (Covenants) Act 1995 must be followed. The statutory mechanism for release requires the landlord to make an application to the tenant and the tenant may object if it is reasonable to do so.
The key question was whether the landlord’s covenant had frustrated the operation of the 1995 Act.
The House of Lords held that the object of the legislation was that, upon a lawful assignment of a tenancy or reversion, the tenant or the landlord should be able to relinquish their future liabilities. The 1995 Act was not intended to prohibit other exit routes available to the parties; for instance, where they had agreed that their liability could be curtailed from the outset or later released or waived. The court held that there was nothing in the language or scheme of the 1995 Act to suggest that the statute was intended to exclude the parties’ ability to limit liability under their covenants in whatever way they may agree. An agreed limitation of this nature does not impinge upon the operation of the statutory provisions.
The decision was a surprise to those who thought that the 1995 Act had specified the only way that landlords could secure a release from their lease obligations. Landlords and their advisors must now insist upon clauses that provide for automatic release on sale of the reversion. If a tenant is particularly desirous of retaining a landlord’s specific liability, or concerned about the performance of a specific landlord’s covenant, then we can expect negotiations to become more contentious on this issue than they have been previously.
Maria Connolly is an associate in the real estate group at TLT Solicitors
Avonridge Property Co Ltd v Mashru [2005] UKHL 70; [2006] 01 EG 100 considered the question of whether a landlord can avoid liability on disposal of its revision. The Court of Appeal (see [2004] EWCA Civ 1306, [2005] 1 EGLR 15; [2005] 05 EG 204) adopted the view that any attempt by a landlord to seek an automatic release from covenants following transfer was void and that the procedure set out in the Landlord and Tenant (Covenants) Act 1995 must be followed. The statutory mechanism for release requires the landlord to make an application to the tenant and the tenant may object if it is reasonable to do so.
The key question was whether the landlord’s covenant had frustrated the operation of the 1995 Act.
The House of Lords held that the object of the legislation was that, upon a lawful assignment of a tenancy or reversion, the tenant or the landlord should be able to relinquish their future liabilities. The 1995 Act was not intended to prohibit other exit routes available to the parties; for instance, where they had agreed that their liability could be curtailed from the outset or later released or waived. The court held that there was nothing in the language or scheme of the 1995 Act to suggest that the statute was intended to exclude the parties’ ability to limit liability under their covenants in whatever way they may agree. An agreed limitation of this nature does not impinge upon the operation of the statutory provisions.
The decision was a surprise to those who thought that the 1995 Act had specified the only way that landlords could secure a release from their lease obligations. Landlords and their advisors must now insist upon clauses that provide for automatic release on sale of the reversion. If a tenant is particularly desirous of retaining a landlord’s specific liability, or concerned about the performance of a specific landlord’s covenant, then we can expect negotiations to become more contentious on this issue than they have been previously.
Maria Connolly is an associate in the real estate group at TLT Solicitors
