Leasehold covenants

§01 Overview

The enforceability of leasehold covenants is a central concern in landlord and tenant law, raising issues of contractual privity, proprietary transmission, and statutory reform. Unlike the free alienability of freehold land — where covenants are subject to the restrictive rules in Tulk v Moxhay (1848) and Rhone v Stephens [1994] — leasehold covenants benefit from more robust transmission mechanisms, reflecting the inherently reciprocal and durational nature of the landlord-tenant relationship.

This topic sits at the intersection of contract and property. At common law, two doctrines govern enforceability: privity of contract (binding the original parties throughout the lease term) and privity of estate (enabling successors in title to enforce covenants that 'touch and concern' the land). Equity supplements these with its own rules for covenants not enforceable at law, subject to notice requirements. The Landlord and Tenant (Covenants) Act 1995 (LT(C)A 1995) fundamentally reformed the law for leases granted on or after 1 January 1996, abolishing original tenant liability (subject to authorised guarantee agreements) and introducing a unified transmission regime based on whether the covenant is a 'landlord covenant' or 'tenant covenant'.

Key themes include:

• The distinction between old leases (pre-1996, governed by common law and equity) and new leases (post-1995, governed by LT(C)A 1995).
• The requirement that covenants touch and concern the land (or satisfy the 1995 Act definitions) to run with the reversion or leasehold estate.
• The operation of indemnity covenants and authorised guarantee agreements (AGAs).
• The interplay with registered and unregistered title: leasehold covenants bind successors as incidents of the lease itself, not as separate third-party interests.
• The tension between freedom of alienation and security for landlords, especially concerning guarantor liability and the anti-avoidance provisions in s.25 LT(C)A 1995.

This note integrates the doctrinal architecture, statutory interpretation, and critical perspectives necessary for FHS-level analysis.

§02 Historical Context

The common law rules governing leasehold covenants developed incrementally from the late medieval period, shaped by the dual nature of leases as contracts and estates in land. Early law recognised that privity of contract bound original landlord and tenant, but the transmission of obligations to assignees required a property-based doctrine. By the sixteenth century, the courts had articulated privity of estate: a relationship between the current holder of the reversion and the current tenant that allowed enforcement of certain covenants as incidents of the estate.

The foundational case is Spencer's Case (1583) 5 Co Rep 16a, which established that covenants would run with the land (i.e., bind assignees) only if they 'touched and concerned' the demised premises. This test was refined over centuries, requiring a real and substantial connection between the covenant and the land — not merely a collateral personal obligation.

Equity developed parallel rules. Where a covenant did not satisfy the strict common law requirements (e.g., a covenant not under seal before 1989, or one failing the 'touch and concern' test), equity permitted enforcement against assignees with notice under the doctrine in Tulk v Moxhay (1848) 2 Ph 774, though this was less significant for leases than for freeholds.

By the late twentieth century, the common law framework was widely criticised. Original tenant liability persisted indefinitely: even after assignment, the original tenant remained liable on all covenants by virtue of privity of contract, leading to harsh results where tenants faced insolvency decades after parting with the lease. The Law Commission Report No. 174 (1988) ('Landlord and Tenant Law: Privity of Contract and Estate') identified this as unjust and economically inefficient, prompting the LT(C)A 1995.

The 1995 Act does not apply retrospectively; thus, leases granted before 1 January 1996 remain governed by the old law. This bifurcation requires practitioners and students to master both regimes. The 1995 Act's core innovation was to release the original tenant (and original landlord) from liability upon assignment, subject to limited exceptions such as authorised guarantee agreements.

§03 Key Principles

Privity of Contract and Privity of Estate

Two conceptually distinct relationships underpin enforceability:

1. Privity of contract exists between the original landlord and original tenant. At common law, this privity persists for the duration of the lease, binding the original parties even after assignment (Thursby v Plant (1669) 1 Wms Saund 230). This rule applies to old leases but is abolished by s.5 LT(C)A 1995 for new leases.

1. Privity of estate arises between the current landlord (reversioner) and current tenant. It enables enforcement of covenants that 'touch and concern' the land, treating them as incidents of the estate rather than purely personal obligations. Privity of estate requires a valid legal lease (Boyer v Warbey [1953] 1 QB 234 — equitable lease insufficient at common law for privity of estate, though equity may give relief).

The 'Touch and Concern' Test

For covenants to run under the old law, they must touch and concern the land. This means:

• The covenant must affect the nature, quality, or value of the land (not be merely collateral or personal).
• It must be for the benefit of the reversioner or tenant qua owner, not in some other capacity.
• The test is objective: courts assess the covenant's inherent character, not the parties' intentions.

Leading formulation: P & A Swift Investments v Combined English Stores Group [1989] AC 632, per Lord Oliver:

§11 Practice Questions

(Minimal as requested; detailed answers available in tutorial sessions)

Foundation

1. Explain the difference between privity of contract and privity of estate in the context of leasehold covenants. Why did the common law develop both doctrines?

2. What is the 'touch and concern' test, and how does it differ from the transmission rules under the Landlord and Tenant (Covenants) Act 1995?

Standard

3. In 1992, L granted a 25-year lease to T1. In 2015, T1 assigned the lease to T2. In 2023, T2 fell into rent arrears. Advise L as to the parties against whom L may enforce the covenant to pay rent.

4. Critically assess the extent to which the Landlord and Tenant (Covenants) Act 1995 protects former tenants from liability for breaches of covenant committed by their assignees.

Challenge

5. 'Authorised guarantee agreements allow landlords to achieve by consent what the Landlord and Tenant (Covenants) Act 1995 purported to abolish by statute. They represent a failure of legislative policy.' Discuss.

§12 Further Reading

Essential

• Law Commission Report No. 174, Landlord and Tenant Law: Privity of Contract and Estate (1988) — the foundational policy document.
• Peter Sparkes, A New Landlord and Tenant (Hart Publishing, 1999) — comprehensive analysis of the LT(C)A 1995.
• Harpum, Bridge & Dixon, Megarry & Wade: The Law of Real Property, 9th edn (Sweet & Maxwell, 2019), ch 17 — authoritative doctrinal treatment.

Academic Articles

• Susan Bright, 'Landlord and Tenant Law: Past, Present and Future' in J Getzler (ed), Rationalizing Property, Equity and Trusts (LexisNexis, 2003) — critical evaluation of the 1995 reforms.
• M Bridge, 'Former Tenants, Future Liabilities and the Privity of Contract Principle: The Landlord and Tenant (Covenants) Act 1995' (1996) 55 CLJ 313 — doctrinal and policy analysis.
• Nicholas Hopkins, 'The Landlord and Tenant (Covenants) Act 1995: A Legislative Folly?' [1996] Conv 432 — critical perspective.
• Sarah Nield, 'Leasehold Covenants and the Landlord and Tenant (Covenants) Act 1995: A Decade of Change' [2006] Conv 11 — retrospective assessment.

Case Notes

• *Note on Scottish & Newcastle plc v Raguz*** [2008] UKHL 65 in (2009) 125 LQR 25 (A Zacaroli) — analysis of s.17 notice requirement.
• *Note on P & A Swift Investments v Combined English Stores Group plc*** [1989] AC 632 in [1989] CLJ 328 (S Bridge) — the 'touch and concern' test.

Comparative

• S Bright & G Gilbert, Landlord and Tenant Law: The Nature of Tenancies (OUP, 1995) — includes comparative discussion.
• New Zealand Law Commission, A New Property Law Act (NZLC R29, 1994) — background to Property Law Act 2007.

Advanced

• M Pawlowski, 'The Demise of the Former Tenant: The Landlord and Tenant (Covenants) Act 1995' [1996] JBL 313 — critical perspectives on policy choices.
• Martin Dixon, 'The Reform of Property Law and the Land Registration Act 2002: A Risk Assessment' [2003] Conv 136 — integration with registration principles.