Sublease — Covenant to pay rent reserved — Appellant seeking to terminate its liability on disposal of reversion — Whether limitation of liability contrary to anti-avoidance rules — Appeal dismissed
The appellant property company was the lessee (by assignment) of a headlease of premises for a term of 99 years from 24 June 1968, at a rent of £16,700 pa. In 2002, it granted three subleases to the respondents in consideration of substantial premiums. Clause 6 of the subleases contained a landlord’s covenant to pay the rent reserved by the headlease. However, the appellant sought to limit its liability by including the words “but not, in the case of [the appellant] only, so as to be liable after the landlord has disposed of its interest in the property”.
In 2002, the appellant assigned the headlease to a third party. In due course, the landlords, under the headlease, commenced proceedings against the third party for forfeiture for non-payment of rent. Since forfeiture would automatically bring the subleases to an end, the respondents applied for relief against forfeiture.
The respondents claimed damages against both the third party and the appellant, inter alia, for breach of the covenant in clause 6. The respondents contended that the appellant remained liable on the covenants in the subleases notwithstanding that it had parted with its reversion by the time the breaches of covenant occurred. They alleged that the clause 6 covenant amounted to a covenant to pay rent under the headlease at the times and in the manner required thereunder and that the appellant had not taken the necessary steps to obtain release from its covenants.
Those allegations were denied by the appellant, which argued that covenants applied only after it to take since it had not given the covenants in clause 6. The appellant appealed against the judge’s award of damages to be assessed.
Held: The appeal was dismissed.
The provision in the lease purporting to limit the liability of the original lessor under the lessor’s covenant so that the liability come to an end on the lessor’s disposal of the reversion fell foul of the anti-avoidance provision in section 25 of the Landlord and Tenant (Covenants) Act 1995.
In the light of the background to the 1995 Act, and its very clear wording, there was no basis for the proposition that a provision in a lease providing that a landlord’s liability under its covenants would terminate on an assignment of the reversion was not caught by section 25(1). This was a clear case of an attempt to contract out of the 1995 Act. The clause 6 provision was tantamount to an agreement to release in advance, and, as such, was caught fairly and squarely by section 25(1).
It could not be said that the effect of the words that appeared in parentheses in clause 6 was to convert the appellant’s covenant into a personal covenant, notwithstanding that the covenant would continue to be binding on the appellant’s successors in title. The distinction between a personal covenant and a “landlord’s covenant”, within the meaning of section 6 of the 1995 Act, was that the latter was binding on the landlord’s successors in title, whereas a personal covenant attached to the landlord and did not bind its successors: BHP Petroleum Great Britain Ltd v Chesterfield Properties Ltd [2002] EWCA Civ 1797; [2002] 2 EGLR 121 considered.
* Editor’s note: This case is an appeal from London Diocesan Fund v P, where the present appellants and respondents were Pt 20 parties
Mark Warwick (instructed by Philippsohn Crawfords Berwald) appeared for the appellant; Nathan Wells (instructed by Gattas Denfield) appeared for the respondents.
Eileen O’Grady, barrister
