Legal

Landlord and Tenant (Covenants) Act 1995

Legal

Estates Gazette

19 August 1995

Features

Bryan Emden and Terry Green of Fox Williams highlight some provisions of the new Act and its practical effects.

The Landlord and Tenant (Covenants) Act 1995 introduces some radical changes. It received Royal Assent last month, with an effective commencement date of January 1 1996, and applies to all residential and commercial leases.

The substance of the Act provides that landlords give up their rights to pursue the predecessors of their current tenants as well as of their guarantors, in return for which the landlords will then have more control over the assignability of leases than is currently available.

While all tenants are released on assignment, the landlord is released only if it makes a request to the tenant. The release does not affect any claims for breaches prior to the date of the assignment by the landlord or the tenant.

The “carrot” for the landlord is contained in section 22 of the Act. The landlord and the tenant can agree that the landlord can withhold consent to an assignment in certain circumstances and on certain conditions. In those cases, the landlord would not be unreasonable in refusing its consent.

In these circumstances, the Landlord and Tenant Act 1988 and section 19 of the Landlord and Tenant Act 1927 would have no effect.

The Act gives rise to a number of practical effects, some of which are as follows:

Landlords will no longer be able to rely on original tenant liability and will, or should, therefore be seeking greater security from the incoming tenant by way of guarantees or a rent deposit. The loss of the original covenantors as a target for the landlord may also arguably affect the investment value of the property.

Former tenants and guarantors will not be liable pursuant to variations in the lease which they could not anticipate at the time when they entered into the lease.

Former tenants will not have to apply for a vesting order if they pay off all liabilities due under the lease as they are entitled as of right to an overriding lease.

Landlords will need to remember that their release is not automatic on the sale of the reversion, as they need to apply for their release from the tenant. They must also remember when enforcing their rights against any former tenant that notice must be given to the former tenant within six months of the liability arising.

It will be interesting to see the case law that develops from the Act and the techniques which are used in an attempt to avoid it.

Bryan Emden and Terry Green of Fox Williams highlight some provisions of the new Act and its practical effects. The Landlord and Tenant (Covenants) Act 1995 introduces some radical changes. It received Royal Assent last month, with an effective commencement date of January 1 1996, and applies to all residential and commercial leases. The substance of the Act provides that landlords give up their rights to pursue the predecessors of their current tenants as well as of their guarantors, in return for which the landlords will then have more control over the assignability of leases than is currently available. While all tenants are released on assignment, the landlord is released only if it makes a request to the tenant. The release does not affect any claims for breaches prior to the date of the assignment by the landlord or the tenant. The “carrot” for the landlord is contained in section 22 of the Act. The landlord and the tenant can agree that the landlord can withhold consent to an assignment in certain circumstances and on certain conditions. In those cases, the landlord would not be unreasonable in refusing its consent. In these circumstances, the Landlord and Tenant Act 1988 and section 19 of the Landlord and Tenant Act 1927 would have no effect. The Act gives rise to a number of practical effects, some of which are as follows: Landlords will no longer be able to rely on original tenant liability and will, or should, therefore be seeking greater security from the incoming tenant by way of guarantees or a rent deposit. The loss of the original covenantors as a target for the landlord may also arguably affect the investment value of the property. Former tenants and guarantors will not be liable pursuant to variations in the lease which they could not anticipate at the time when they entered into the lease. Former tenants will not have to apply for a vesting order if they pay off all liabilities due under the lease as they are entitled as of right to an overriding lease. Landlords will need to remember that their release is not automatic on the sale of the reversion, as they need to apply for their release from the tenant. They must also remember when enforcing their rights against any former tenant that notice must be given to the former tenant within six months of the liability arising. It will be interesting to see the case law that develops from the Act and the techniques which are used in an attempt to avoid it.