Deeds of Covenant for Landlords UK

Leasehold Assignment — Why Deeds of Covenant Are Required

When a leaseholder sells (assigns) their lease to a buyer, the original terms of the lease continue to bind the parties. Under general leasehold law, the benefit and burden of leasehold covenants run with the legal estate — the freeholder can enforce the lease covenants against the current leaseholder (LPA 1925 ss.141 and 142). However, for pre-1996 leases (governed by old law), the original lessee remained personally liable on the covenants for the entire lease term even after assigning, unless specifically released. To protect themselves, freeholders required each incoming assignee to enter a deed of covenant directly with them — agreeing to observe the lease covenants for the remainder of the term. This gave the freeholder a direct contractual remedy against the current occupier without having to pursue the original lessee.

• Pre-1996 leases: original lessee remains personally liable on all covenants after assignment unless released
• Post-1996 leases (L&T(C)A 1995): automatic release of original lessee on assignment — direct covenant regime changed
• Deed of covenant at assignment: new leaseholder covenants directly with freeholder to observe lease obligations
• Purpose: gives freeholder direct contractual remedy against actual occupier; avoids need to pursue outgoing lessee
• Lease requirement: the vast majority of long residential and commercial leases contain a requirement for a deed of covenant on every assignment

Landlord and Tenant (Covenants) Act 1995 — Post-1995 Leases

The Landlord and Tenant (Covenants) Act 1995 (L&T(C)A 1995) fundamentally changed the position for leases granted on or after 1 January 1996. Under the 1995 Act, an outgoing leaseholder is automatically released from their lease covenants on assignment — they no longer remain liable for the rest of the term. The incoming leaseholder is directly bound by the covenants by virtue of privity of estate from the date of assignment. This reduced the need for formal deeds of covenant for the freeholder's protection. However, many modern leases still require a deed of covenant at assignment as a matter of good practice — and the lease terms may require the freeholder's consent to assign, with the deed of covenant as a condition of that consent. Authorized Guarantee Agreements (AGAs) — under which the outgoing lessee guarantees the performance of the incoming lessee — are available on first assignment only.

• L&T(C)A 1995: automatic release of original lessee on assignment for post-1995 leases
• Incoming lessee bound: by virtue of privity of estate — directly liable on covenants from the date of assignment
• Deed of covenant still required: many modern leases still require it as a condition of landlord consent to assign
• Authorized Guarantee Agreement (AGA): outgoing lessee guarantees performance of immediate assignee — on first assignment only
• AGAs: freeholder can require an AGA as condition of consent to assign; subsequent assignees are not bound by earlier AGAs

Freehold Positive Covenants — The Enforcement Problem

In freehold land, the burden of a positive covenant (an obligation to do something — maintain a shared driveway, pay an estate charge, repair boundary walls) does not run with the land at common law. Rhone v Stephens [1994] AC 310 (House of Lords) confirmed that the burden of a positive freehold covenant cannot be transmitted to successors in title — only the original covenantor remains personally bound. A deed of covenant from a successor cannot, on its own, make a positive obligation enforceable against that successor's purchaser. The principle from Halsall v Brizell [1957] Ch 169 offers a limited exception — mutual benefit and burden: if a person takes the benefit of a scheme (for example, using a private road), they must also accept the burden (for example, contributing to its maintenance). This principle is narrow and must be specifically applied to be effective.

• Rhone v Stephens [1994] HL: burden of positive freehold covenant does not run with land — cannot bind successors
• Halsall v Brizell [1957]: mutual benefit and burden — limited exception where successor takes benefit of scheme
• Estate charges: commonly used in new developments to enforce estate maintenance costs; protected by restriction on title register
• Rentcharges Act 1977: estate rentcharges can make positive covenants enforceable against successors — complex mechanism
• Chain of indemnity: successive owners each covenant to indemnify the original covenantor — chain breaks if any link insolvent or unreachable

Indemnity Covenant Chains

Where there is no direct deed of covenant with the freeholder (or other covenantee), the alternative is an indemnity covenant chain. When each owner sells, they require the buyer to covenant to indemnify them against any future breach of the original covenant. If the current owner is sued by the freeholder for a breach committed by a successor, they claim indemnity from the person they sold to, who claims from the person they sold to, and so on. The chain provides protection but has significant weaknesses: it breaks if any link in the chain is insolvent, dead, or untraceable; pursuing indemnity through a long chain is expensive; and the ultimate wrongdoer may be judgment-proof. A direct deed of covenant with the freeholder — where the lease requires one — is far more robust. Landlords who receive a lease assignment without taking a direct deed of covenant with the freeholder may find they cannot enforce rent or service charge arrears against a subsequent assignee without proving the full chain.

• How the chain works: each seller requires buyer to indemnify them; if breach occurs, liability passes back through chain
• Chain weakness: breaks if any link is insolvent, untraceable, or deceased
• Pursuing indemnity: expensive and time-consuming compared to direct remedy against the covenant-breaker
• Direct deed preferred: where the lease requires a deed of covenant, always obtain one — do not rely on indemnity chain alone
• Registered restriction: freehold developers often protect the obligation by a restriction on the title requiring the register to certify that a deed of covenant has been entered into before registering a transfer

Practical Implications for Landlords

For landlords who own leasehold investment property, the deed of covenant is a routine conveyancing requirement on every sale or purchase — instruct a solicitor to deal with it. For landlords who own freehold development land with shared maintenance obligations (estate roads, communal areas, boundary walls), the mechanism for making positive obligations enforceable against future owners must be designed at the outset — ideally using a combination of estate rentcharges, restrictions on title, and the Halsall v Brizell benefit-and-burden principle. Retrospective enforcement of positive freehold covenants against a successor who did not covenant is extremely difficult. Mortgage lenders routinely require evidence that any deed of covenant required by the lease has been obtained — a missing deed of covenant can delay or prevent mortgage registration.

• Leasehold acquisition: confirm whether the lease requires a deed of covenant on assignment; obtain it at completion
• Mortgage lenders: require evidence of deed of covenant where lease mandates one — missing deed causes registration delay
• Freehold maintenance obligations: design enforceable mechanism at outset — estate rentcharge; restriction; Halsall benefit-burden
• Management company: where a management company exists, the deed of covenant typically includes covenants with the management company as well as the freeholder
• Solicitor's role: conveyancing solicitor responsible for obtaining and executing the deed of covenant at the time of assignment — check this has been done for every leasehold investment acquisition

Frequently asked questions