To what extent (and in what circumstances) will the burden of a leasehold covenant be binding on a successor in title?
The burden of a covenant in a lease may be passed to an assignee of that lease. It will not automatically pass to a subtenant. An assignment of a lease is a transfer of the whole interest in the land assigned (ie the whole of the unexpired term held by the tenant, or the whole of the reversion held by the landlord). A sublease arises when a tenant creates a shorter term than that which he himself holds, retaining a reversion over the term which he himself has granted.
Both as a contract and an estate in land a lease will bind the parties for a “term of years”. Since it is unreasonable and unrealistic to tie the parties to each other for long periods, every landlord and every tenant has the right to assign his interest if the lease does not contain an express covenant against assignment (see Mainly for Students, May 2 1987).
A lease creates two types of tie (called “privities”) between the landlord and the tenant. First there is “privity of contract”, based on mutual contractual obligations (as in other types of contract). Second, there is “privity of estate”, existing independently of contract and arising out of the fact that the same piece of land “belongs” to two persons, or — strictly speaking — that two inter-related estates are recognised to exist in the same land: the landlord’s estate being the reversion and the tenant’s estate being a term of years in possession.
As long as the original lease subsists, the two privities continue to endure between the two contracting parties and there is no need (and no opportunity) to distinguish them. After an assignment (whether it is made by the landlord or by the tenant) the two privities are split. Thus, if we consider the assignment by the tenant, there will still be privity of contract between the landlord and the original tenant (the assignor), but there will no longer be any privity of estate between the landlord and the assignor because the latter privity exists only between the landlord and his tenant-for-the-time-being (the assignee). Conversely, privity of contract does not exist between the landlord and his new tenant, but it continues to exist between the landlord and his original tenant. A similar situation arises if the landlord assigns his reversion.
When the lease or reversion has been assigned, an important problem arises (which baffled medieval lawyers for many years) — namely: what happens to the contractual covenants (mutual rights and obligations) which were binding on the original parties? It was clear that the landlord or the tenant ought not to be prejudiced by an assignment by the other party to an assignee who failed to observe the covenants in the lease; but, on the other hand, it was a general rule of common law that a person was not bound by contractual obligations undertaken by some other person who was not his agent.
This problem was confronted by the Court of Queen’s Bench in Spencer’s Case in 1583: [1558-1774] All ER Rep 68.
Covenants contained in a lease were classified by the Court of Queen’s Bench as follows:
(1) Covenants which “touch and concern the land”; and
(2) Personal covenants.
This classification has now been replicated in the Law of Property Act 1925. Section 78 refers to covenants “relating to any land”, and sections 141-142 refer to covenants “having reference to the subject matter of the lease”. These phrases are modern alternatives to the phrase in Spencer’s Case (covenants which “touch and concern the land”).
Covenants which fall within the first category (touching and concerning the land, etc) were held by the Court of Queen’s Bench to be binding on an assignee because of privity of estate alone. Neither the decision in Spencer’s Case nor the Law of Property Act 1925 contain any clear division of covenants into one category or the other. Only one covenant (to pay rent) is clearly shown by the Law of Property Act 1925 (section 141) as “having reference to the subject matter of the lease”. In order to find out which covenants “touch and concern” the land and which do not, it is necessary to refer to case law.
Accepted covenants
The following are some examples of covenants which have been accepted as “touching and concerning the land” (and, therefore, as also “running with the land” to bind future assignees):
Landlord’s covenants
(1) The covenant for quiet enjoyment. (This covenant may be express or implied. If it is implied by law it will mean that the landlord covenants that he is entitled to grant the tenancy and that the tenant will therefore enjoy quiet possession without intervention by the landlord or by others claiming title through him. As this implied covenant does not impose liability on the landlord for actions of persons claiming by a paramount title, an express covenant is often used extending the obligation of the landlord to the persons claiming a title superior to his own.)
(2) The covenant for further assurance. (This means that whenever any testimony of the landlord, or any document in his possession, is necessary to defend the rights of the tenant, the landlord will supply it.)
(3) A covenant to grant a renewal of the lease: Weg Motors Ltd v Hales [1] 3 All ER 181.
(4) A covenant permitting the tenant to terminate the tenancy by notice (a “break clause”).
Tenant’s covenants
(5) The covenant to pay rent: section 141, Law of Property Act 1925.
(6) A covenant to reside on the premises: Lloyds Bank v Jones [5] 2 QB 298.
(7) A covenant against assignment: McEacharn v Colton [2] AC 104.
(8) A covenant to insure the premises against fire: Vernon v Smith (1821) 5 B & Ald 1.
(9) A covenant not to carry on a particular trade on the premises: Congleton Corporation v Pattison (1808) 10 East 130.
(10) A repairing covenant (including a covenant to put the premises in repair): Anon (1533) Bro NC18.
The following covenants have been held not to “touch and concern” the land and, as such, they do not directly bind any assignees. (However, such covenants do not, upon assignment, release the original parties from their obligations to each other, or the assignee from his obligations to the assignor, because the law of contract allows obligations to be enforced notwithstanding the absence of privity of estate.)
Landlord’s covenants
(1) A covenant giving a tenant the right of pre-emption of adjoining land owned by the same landlord: Charles Frodsham & Co Ltd v Morris (1972) 229 EG 961.
(2) A covenant giving the tenant an option to purchase the reversion: Woodall v Clifton [5] 2 Ch 257.
(3) A covenant to keep another house in repair (even if it is in the same district): Dewar v Goodman [9] AC 72.
(4) A covenant permitting the tenant to display advertising signs on other premises: Re Number 1, Albermarle Street, London W1 [9] 1 All ER 250.
Tenant’s covenants
(5) A covenant to pay rates in respect of other land: Gower v Postmaster General (1887) 57 LT 527.
(6) A covenant to build a house on other land (even if it belongs to the same landlord): Spencer’s Case (1583).
(7) A covenant to repair or renew chattels (not being fixtures): Gorton v Gregory (1862) 3 B & S 90.
As may be seen from the above examples, it will not always be easy to decide whether a covenant is personal in nature or whether it is one which “touches and concerns the land”. The situation has been summarised by the editors of Atkin’s Landlord and Tenant as follows:
If a covenant has direct reference to the land and requires that something should be done or shall not be done upon the land, and if it affects the landlord in his capacity as landlord, or the tenant in his capacity as tenant, it may touch and concern the land.
Privity of contract
As privity of contract continues to subsist between the landlord and the original tenant (assignor) after the assignment has been concluded, the assignor must be careful in selecting his assignee. If the assignee defaults in performing a covenant the landlord may sue to original tenant unless he has released him from that obligation. If the covenant is one which touches and concerns the land, the landlord will also be able to sue the assignee who is in possession. By section 77 (1) (c) and Part IX of Schedule 2 of the Law of Property Act 1925, the assignor has the benefit of an indemnity against his assignee for any breach of covenant. However, if the assignee has become insolvent or otherwise a man of straw, this indemnity will be worthless and the original tenant will be left to suffer the loss, vis a vis the landlord.
Where part only of the land is assigned by a tenant, the assignor remains liable for the payment of the whole rent, but he has a right of contribution against the assignee under section 190(3) and (4) of the Law of Property Act 1925.
Although the landlord may assign his reversion and the tenant his lease if there is no covenant prohibiting this, many leases do contain against assignment because it is not a matter of indifference to the landlord whom he has in exclusive possession of the land demised.
Finally, it should be noted that there is no privity of contract and no privity of estate between the following persons:
(1) a landlord and his tenant’s subtenant;
(2) a tenant and his landlord’s superior landlord;
(3) a landlord and an erstwhile assignee of the tenant’s interest who has himself assigned that interest;
(4) a tenant and an erstwhile assignee of the landlord’s interest who has himself assigned that interest;
(5) a former landlord and any assignee of his original assignee;
(6) a former tenant and any assignee of his original assignee: however, if the original tenant is called upon to pay arrears of rent incurred as tenant in possession — even if he is not his own assignee — he can sue to recover that amount from the defaulter: Moule v Garrett (1872), 1861-73 All ER Rep 135.
