Leasehold Assignment — Why Deeds of Covenant Are Required
When a leaseholder assigns (sells) their lease, the incoming owner must directly covenant with the freeholder to observe lease obligations. For pre-1996 leases, the original lessee remained personally liable for the whole term — the deed of covenant gave the freeholder a direct remedy against the current occupier. Most long residential and commercial leases contain a requirement for a deed of covenant on every assignment as a condition of the freeholder's consent.
L&T(C)A 1995 — Post-1995 Leases
Landlord and Tenant (Covenants) Act 1995: for leases granted on or after 1 January 1996, the outgoing lessee is automatically released from covenants on assignment. The incoming lessee is directly bound by privity of estate. Many modern leases still require a deed of covenant as a condition of assignment consent. Authorized Guarantee Agreements (AGAs) — guarantee of immediate assignee's performance — are available on first assignment only.
Freehold Positive Covenants
Rhone v Stephens [1994] AC 310 HL: burden of positive freehold covenant does not run with land. A deed of covenant alone cannot make a positive obligation enforceable against a freehold successor. Workarounds: Halsall v Brizell mutual benefit-and-burden (narrow exception); estate rentcharges; restrictions on title requiring certification of deed of covenant before registration of transfer.
Indemnity Covenant Chains
Each seller requires buyer to indemnify them against breach of the original obligation. If breach occurs, liability passes back through the chain to the original covenantor. Chain weakness: breaks if any link is insolvent or untraceable. A direct deed of covenant with the freeholder is far more robust where the lease requires one.
Practical Implications for Landlords
Leasehold acquisition: confirm whether the lease requires a deed of covenant; obtain it at completion. Freehold maintenance obligations: design enforceable mechanism at outset — estate rentcharge or restriction. Mortgage lenders require evidence of deed of covenant where lease mandates one. Conveyancing solicitor responsible for ensuring deed is obtained and executed at the time of assignment.