Learning Outcomes
By the end of this article, you will be able to identify and explain the legal requirements for creating a valid lease, outline the standard structure and main covenants within a lease, distinguish between landlord and tenant obligations, and assess the enforceability of lease provisions, including the operation of privity and key remedies for breach—all essential for SQE2 assessment.
SQE2 Syllabus
For SQE2, you are required to understand leasehold law from both legal and practical standpoints. You should focus your revision on:
- The structural elements and required content of a commercial or residential lease.
- The legal formalities for lease creation and validity.
- The typical covenants and their function within a lease.
- The distinction between landlord and tenant obligations.
- Privity of contract and privity of estate in leasehold relationships.
- Remedies and consequences for breach of leasehold covenants.
- The operation and effect of alienation covenants.
Test Your Knowledge
Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.
- What are the essential features that must be contained in a valid lease?
- What is the effect of a qualified covenant against assignment, and how is this affected by statute?
- Give one key difference between privity of contract and privity of estate in the landlord–tenant relationship.
- What is usually the immediate remedy available to a landlord for non-payment of rent?
Introduction
When advising clients on taking or granting a leasehold interest, it is critical for practitioners to understand the fundamental structure and content of a lease. For SQE2, you must be able to recognise essential requirements for validity, the significance of key covenants, and practical aspects that arise from the ongoing relationship between landlord and tenant. This article sets out the typical organisation of a lease, essential covenants, and principal problems that arise in practice.
Structure of a Lease
A lease is a legal estate carved from a freehold or superior leasehold. To be valid, a lease must satisfy statutory requirements for its form and set out all agreed terms. A typical lease generally starts with the parties and the "prescribed clauses" (for leases granted over registered land), then sets out the main operative provisions.
Formal Requirements
Key Term: lease
A lease is a legal estate or interest granting exclusive possession of defined premises for a specified or ascertainable term, usually in exchange for rent.
A valid lease for more than three years must be created by deed, executed by the necessary parties, and comply with statutory formalities. Leases of three years or less may be created orally provided they comply with statutory exceptions (such as s 54(2) Law of Property Act 1925).
Standard Structure
A lease typically contains the following:
- Identifying details of the parties, premises, term, start date, and rent.
- Definitions and interpretations of key terms.
- Main body provisions, including the grant of the lease, rights granted and reserved, and key covenants.
- Schedules for complex provisions (such as service charges or break options).
- Execution clauses for signature by both landlord and tenant.
Key Term: covenant
A covenant is a legally binding promise in the lease, either to do (positive) or refrain from doing (negative) something in relation to the premises.
Main Leasehold Covenants
Landlord's Covenants
The lease may expressly require the landlord:
- To let the tenant enjoy quiet possession (quiet enjoyment) of the premises.
- To insure the structure or building (with the tenant contributing towards the premium).
- To repair or manage common parts, especially in multi-let buildings.
Key Term: quiet enjoyment
The tenant's right to possess the premises without substantial interference by the landlord or those claiming through the landlord.
Tenant's Covenants
Common tenant obligations include:
- Paying rent and other sums due (such as insurance and service charge).
- Keeping the premises in repair (according to the lease's wording).
- Not to part with possession or assign the lease without landlord's consent (alienation).
- Permitting landlord inspections (upon notice, and for limited purposes).
- User restrictions, e.g. to use as offices only or not to carry out business on the premises without consent.
Key Term: alienation covenant
A lease provision restricting the tenant's ability to assign, sublet, or otherwise dispose of their interest without consent.
Privity in Leasehold Law
Lease covenants bind the original parties by privity of contract. In addition, covenants may bind successors in title by privity of estate if the covenant "touches and concerns" the land.
Key Term: privity of contract
The continuing contractual relationship between original landlord and tenant for the duration of the lease, regardless of assignment.Key Term: privity of estate
A legal relationship between current landlord and tenant, making them liable to each other for covenants in the lease that relate to the land and are not expressed to be personal.
Alienation and Statutory Modification
Leasehold alienation covenants are frequently included to control dealings by the tenant with their lease. By default, a "qualified covenant" (where assignment/subletting is only allowed with consent) is automatically modified by statute.
Key Term: qualified covenant
A lease term permitting disposal (assignment/subletting) only with landlord's written consent, which cannot be unreasonably withheld.Key Term: fully qualified covenant
A lease term expressly stating that landlord's consent to disposal cannot be unreasonably withheld, and usually sets out procedures for obtaining and giving/refusing consent.
The Landlord and Tenant Act 1927 and 1988 require that consent to a qualified covenant not be unreasonably withheld or delayed, and oblige the landlord to provide written reasons for refusal. The 1995 Act further allows for specified conditions to be included, especially for commercial leases—such as requiring outgoing tenants to enter into an Authorised Guarantee Agreement (AGA).
Worked Example 1.1
Maria takes a ten-year commercial lease that contains a covenant not to assign "without landlord's consent." She wishes to assign to John. The lease was granted in 2019.
How is the landlord permitted to respond?
Answer:
Statute alters qualified covenants so that landlord's consent to assign must not be unreasonably withheld or delayed, and refusal, if any, must be given in writing with reasons. Assignment can still be prohibited if certain specified conditions set out at the time of grant are not satisfied (e.g., if the lease allows the landlord to require an Authorised Guarantee Agreement).
Enforcement of Covenants and Remedies
Leasehold covenants may be enforced by the original party (under privity of contract) or by successor landlord/tenant (privity of estate). The 1995 Act provides rules for automatic release from liability on assignment for new leases, but assigns liability for the current party in occupation.
Breaches of tenant covenants are commonly remedied by:
- Action for debt or damages (not ending the lease).
- Forfeiture—landlord's right to reenter and terminate if properly reserved by the lease.
- Commercial rent arrears recovery (CRAR) as a statutory procedure for unpaid rent (commercial property only).
Breaches of landlord obligations may be remedied by:
- Action for damages (for loss caused).
- Application for specific performance (court order to compel repair etc.), rarely awarded.
Worked Example 1.2
A tenant falls into serious arrears of rent. The landlord wishes to recover the outstanding rent and, if necessary, terminate the lease. The lease is for business premises and expressly includes a forfeiture provision.
What can the landlord do?
Answer:
The landlord may use CRAR to recover commercial rent arrears (if applicable) and/or sue for the debt. Forfeit the lease by peaceable re-entry or by court proceedings (for residential leases, possession proceedings are required). The lease must expressly reserve a right of re-entry for forfeiture to be available for breaches other than non-payment of rent.
Exam Warning
Practitioners should take care: acceptance of rent after a breach may amount to waiver of the right to forfeit for that breach.
Remedies for Breach of Repair or Other Covenants
For breach of tenant repair obligations:
- Service of a section 146 notice prior to forfeiture (for breaches other than non-payment of rent).
- Claim for damages (limited by legislation to the reduction in value of landlord's reversion).
- Self-help remedies (e.g., entering to carry out repairs and claiming costs) if expressly provided in the lease.
For breach of landlord covenants (e.g., for repair in common parts):
- Action for damages or specific performance (court-mandated remedy).
- Self-help by tenant, e.g., carrying out repairs and deducting costs from future rent, is available only after sufficient notice and, typically, only if expressly allowed.
Worked Example 1.3
Under a lease, the tenant must "keep the premises in good repair." The tenant does not repair serious structural defects, and the lease expressly gives the landlord a right to enter, repair, and recover costs.
What options does the landlord have?
Answer:
The landlord can enter, make the necessary repairs, and recover the costs as a debt from the tenant, provided the lease includes such a right (a "Jervis v Harris clause"). Otherwise, damages or forfeiture may be available subject to due notice.
Execution and Schedules
A lease must be executed as a deed (for leases over three years). Schedules are included at the end for supplemental provisions (e.g., detailed service charge arrangements, plans, regulations).
Key Term: schedule
An appendix to the lease setting out detailed or supplementary provisions, such as rent review procedures or plans of the premises.
Key Point Checklist
This article has covered the following key knowledge points:
- Lease creation requires strict formalities for validity, usually a deed for terms over three years.
- Key lease provisions address the identity of the premises, term, rent, parties, and main covenants.
- Landlord and tenant covenants define ongoing responsibilities, including repair, payment, use, alienation, and inspection.
- Privity of contract and estate determine who is bound by covenants after assignment.
- Qualified alienation covenants are statutorily modified to restrict unreasonable refusal of consent.
- Breach of tenant covenants is remedied by debt actions, forfeiture by re-entry, or CRAR for rent.
- Breach of landlord covenants allows actions for damages or, rarely, specific performance by court order.
- Schedules in leases supplement the main contract with detailed procedures or supplementary information.
Key Terms and Concepts
- lease
- covenant
- quiet enjoyment
- alienation covenant
- privity of contract
- privity of estate
- qualified covenant
- fully qualified covenant
- schedule