Every commercial lease contains provisions specifying the uses to which premises may and may not be put. An important point for draftsmen to consider is whether the user covenants should only prohibit specified uses by the tenant or whether they should also require it not to “permit or suffer” the premises to be used for any prohibited purpose.
In particular, if a tenant covenants “not to use” premises in a particular way, will a breach of headlease covenants by an undertenant place the tenant in breach, vicariously, of its headlease or is the tenant liable for the undertenant’s actions only where it has expressly covenanted not to breach covenants or to “permit or suffer” a breach to occur?
The issue in Roadside Group Ltd v Zara Commercial Ltd [2010] EWHC 1950 (Ch); [2010] PLSCS 222 was whether a tenant had breached a covenant not to park motor vehicles for sale on the forecourt of a petrol station as a result of the activities of its undertenant. In particular, what was the effect of section 79 of the Law of Property Act 1925, which, unless a contrary intention is expressed, deems covenants to be made by a covenantor on behalf of itself, its successors in title and the parties deriving title under them?
One view is that by creating a rebuttable presumption that covenants relating to the covenantor’s land are made on behalf of successors in title, section 79 creates one of the necessary conditions in which covenants can “run with land” (because the covenants are not personal only to the covenantor), but that the statutory provision does not make covenantors vicariously liable for breaches committed by others. However, others take the view that section 79 extends the original covenantor’s liability to the acts and omissions of successors, even though the original covenantor may have disposed of the land to another party.
For the purposes of the hearing before the judge, the tenant accepted that were section 79 to apply, it would make it responsible for the actions of its undertenant. None the less, the tenant argued that section 79 did not apply in the instant case because the wording of the parking covenant differed substantially from wording used elsewhere in the lease. In other provisions, the lease prohibited the tenant from engaging in certain prohibited activities or permitting them.
The judge accepted the tenant’s arguments. He ruled that the parties had intended the parking covenant to be narrower than the other covenants in the lease. Consequently, it would be contrary to their intentions if section 79 were to apply. This meant that the landlord could not hold the tenant to account for the activities of its undertenant – and it was left to enforce the parking covenant directly against the undertenant if it could.
Landlords can avoid the effects of this decision by including suitable boilerplate provisions in leases and by avoiding inconsistencies in the wording of tenants’ covenants.
Allyson Colby is a property law consultant
