18.5 Passing and Enforcing Leasehold Covenants

Privity of contract, privity of estate, and passing of covenants

Privity of contract is the original landlord–tenant bargain. Privity of estate is the current relationship between the holder of the reversion and the holder of the term. The rules then split by date of grant.

Old tenancies (granted before 1 January 1996). The original tenant remains liable for the whole term by privity of contract, even after assignment. An assignee is liable, while they hold the term, by privity of estate on covenants that touch and concern the land (Spencer's Case (1583) 5 Co Rep 16a). On the landlord's side, section 141 LPA 1925 passes the benefit of tenant covenants to the assignee of the reversion, and section 142 passes the burden of landlord covenants. After a further assignment, the former assignee generally drops out of privity of estate (though an express indemnity or a direct covenant in the licence to assign may keep them on the hook).

New tenancies (granted on or after 1 January 1996), Landlord and Tenant (Covenants) Act 1995 (LTCA 1995). The benefit and burden of tenant covenants pass automatically on assignment of the term; the benefit and burden of landlord covenants pass on assignment of the reversion. The touch and concern filter is largely replaced by the Act's own exclusion of covenants expressed to be personal. The assigning tenant is released from the tenant covenants on assignment (s.5), which is the policy heart of the Act. The landlord may require an authorised guarantee agreement (AGA) under section 16, guaranteeing the immediate assignee's performance, not that of every later assignee. Former tenants and guarantors who remain liable (for example under an AGA) are entitled to a section 17 notice within six months if the landlord wants to recover a fixed charge, and they have an overage right under section 18.

The transactional shape of an AGA and of a licence to assign is Property Law and Practice. The land-law point is: on a new tenancy the original tenant is not still on the contract for the whole term, unless they have given an AGA (or a later authorised guarantee on an excluded assignment).

Alienation covenants

An absolute covenant against assignment or underletting means the tenant has promised not to alienate; any consent is a matter of grace. A qualified covenant ('not to assign without consent') is converted by section 19(1) of the Landlord and Tenant Act 1927 into a fully qualified covenant: consent is not to be unreasonably withheld. Section 19(1A) lets a commercial lease specify circumstances in which the landlord may withhold consent and conditions (including an AGA) that may be imposed. The Landlord and Tenant Act 1988 then imposes a statutory duty on the landlord, where consent is required, to give written consent or written reasons within a reasonable time; the burden of proving reasonable withholding is on the landlord. Reasonableness is judged against the landlord's property interests: the proposed assignee's means, the use they will make of the premises, and whether the assignment would damage the letting scheme (International Drilling Fluids Ltd v Louisville Investments (Uxbridge) Ltd [1986] Ch 513). Personal dislike, or a wish to recapture the premises, is not a reasonable ground.

A tenant who assigns in breach still passes the estate (a disposition in breach is not void), but the assignment is a forfeiture trigger and may be incapable of remedy for s.146 purposes if it is a once-and-for-all breach of that kind. Do not collapse that into Property Practice drafting of the licence; the land-law consequences are estate passing plus a possible right of re-entry.

Remedies, including forfeiture

Action in debt for rent and other quantified sums. Damages for other breaches. Specific performance of a landlord's repairing covenant is possible in a proper case. CRAR (Commercial Rent Arrears Recovery, Tribunals, Courts and Enforcement Act 2007) replaced distress for commercial premises and rent; it is not a general covenant remedy and it is not available against a dwelling. Enforcement agents and a minimum notice period are required.

Forfeiture depends on a right of re-entry in the lease. For non-payment of rent, section 146 LPA 1925 does not apply (s.146(11)); the landlord proceeds under the old rent rules, usually a formal demand unless the lease excuses it, then peaceable re-entry (if empty and lawful) or a possession claim. For other breaches, section 146 requires a notice specifying the breach, requiring remedy if it is capable of remedy, and requiring compensation in money if the lessor wants it. Expert Clothing Service & Sales Ltd v Hillgate House Ltd [1986] Ch 340 asks whether the harm to the landlord can still be put right. Unlawful assignment or parting with possession has often been treated as a once-and-for-all breach; Akici v LR Butlin Ltd [2005] EWCA Civ 1296 warns against an automatic 'incapable of remedy' label for every occupancy complaint. Residential occupiers are protected by the Protection from Eviction Act 1977: no lock-change against a residential occupier without a court order. Relief from forfeiture is available in the High Court and County Court, including after peaceable re-entry (Billson v Residential Apartments Ltd [1992] 1 AC 494), on terms that usually include remedying the breach and paying costs.

Ways a lease can be terminated

• Expiry of a fixed term (subject to any statutory continuation, which is more property-practice / housing than core land-law doctrine).
• Notice to quit for a periodic tenancy. Common law requires a full period's notice ending on the correct day; section 5 of the Protection from Eviction Act 1977 superimposes a written four-week minimum for residential occupiers.
• Break clause, exercised strictly in accordance with its terms.
• Surrender: express (best by deed) or by operation of law (unequivocal conduct by both sides, such as delivery and acceptance of keys with intention to end the term).
• Merger, where the tenant acquires the reversion and the estates unite.
• Forfeiture, as above.
• Disclaimer by a liquidator or trustee in bankruptcy (Insolvency Act 1986), which ends the lease but can leave a surety exposed.
• Frustration, theoretically possible (National Carriers Ltd v Panalpina (Northern) Ltd [1981] AC 675) but rare for land.
• Enlargement of a very long term into a fee simple under LPA 1925 s.153 is exceptional.

Worked example

L granted T a 15-year lease of a shop in 2018 (a new tenancy). The lease contains a qualified covenant against assignment, a forfeiture clause for breach, and a rent covenant. In 2024 T assigned to A with L's written consent and an AGA. A is now six weeks in arrears of rent and has changed the use to a nightclub in breach of a user covenant.

L can sue A as current tenant on both covenants (LTCA 1995 automatic passing). L can also look to T under the AGA for A's default, but a section 17 notice is needed for the rent as a fixed charge if L wants T as former tenant. L cannot treat T as still liable by old-style privity of contract for the whole term. For the user breach, L must serve a section 146 notice before forfeiting. CRAR, if used, is only for the commercial rent, not the user breach. A licence-to-assign file would have been the 2024 Property Practice story; the 2026 question is who is bound and which remedy is open.

Exam traps

Do not let a 'licence' heading outweigh exclusive possession for a term. Do not apply LTCA 1995 to a 1994 grant. Do not keep the original tenant of a new tenancy on the hook without an AGA or similar. Do not forfeit for a repairing or user breach without a section 146 notice. Do not use CRAR against a flat. Do not treat this section as a second property-practice chapter: if the question is about searches, completion, or who drafts the licence to assign, go to those materials; if it is about Street, privity, AGAs as a matter of liability, forfeiture or termination, stay here.