At the Heart of the Lease
At the heart of all leases lie the covenants which are promises made in a deed. They are what leaseholders contract to do (as the lease is a contract) and what the freeholder is bound to do.
Historically there are distinct differences in the rules governing the enforceability of covenants in freehold law to those governing the covenants in leasehold law, particularly when it comes to the use of ‘real covenants’ concerning land use. The real covenant has two variants – the ‘positive’ covenant (meaning to ‘do’ something such as to pay rent or to repair the property) and the ‘restrictive’ covenant (meaning ‘not’ to do something, such as cause a nuisance to neighbors). Both of these covenants had in turn a further two aspects to them – the ‘burden’ to either perform or not to perform by one party and the ‘benefits’ received by the other party as a result, who could then enforce them if they were not complied with.
Land covenants can be very important to both the burdened and the benefiting land and have a significant impact on land values. Why? Because a piece of land containing a covenant preventing the use of that land (except as a single residential dwelling) burdens it and may well reduce its value as it cannot be developed for anything else. On the other hand this covenant will benefit the value of the adjacent land because of the burden on its neighbour.
In terms of leases, privity of contract means that the covenants are enforceable by and against the original parties. This means that in certain circumstances the original leaseholder remains liable even after the lease is sold (assignment) but this depends on when the lease was granted.
Leasehold covenants will either be expressly stated (written into a lease) or implied by law and it is important to note that if applied by law they are equally binding.
So, for leases granted before 1st January 1996, the original tenant can be sued for a breach of contract committed by the new tenant but some implied covenants may be that the new tenant will:
- Pay the rent;
- Comply with the covenants and conditions in the lease;
- Keep the original landlord and the landlord’s successors indemnified for failure to pay rent or comply with the covenants and conditions
For leases granted after 1st January 1996, the original tenant cannot be sued for a breach of contract committed by a new tenant so the covenants implied into leases before 1st January 1996 are therefore not implied into these leases.
In essence leaseholders covenant to pay for the maintenance and repair of the common areas through the payment of service charges and in return, the freeholder covenants to carry these out on their behalf.
Leaseholders will also covenant to pay buildings insurance, which the freeholder covenants to purchase on their behalf because leases do not allow leaseholders to place the buildings insurance themselves.
Another covenant by leaseholders is to pay ground rent, and there are other covenants such as keeping the flat in good repair, and not playing loud music.