Экзамен зачет учебный год 2023 / Sparkes, A New Land Law

3.Peripheral covenants

[27.39] Only central covenants were capable of running under the pre-1996 law. Almost all common covenants did run, but one which did not was a covenant to repay a tenant’s deposit.205 A spate of appellate decisions has begun to introduce coherence.206 Spencer’s case in 1583 used the phrase “touch and concern”207 which is exactly equivalent208 to the statutory phrase “having reference to the subject matter of the lease”.209 Cheshire’s test was this: does the covenant affect the landlord in his normal capacity as landlord or the tenant in his normal capacity as tenant.210 A more precise test was stated by Bayley J in Congleton Corporation v. Pattison;211 the covenant must either (1) affect the land itself during the term, or (2) be such as by itself, and not merely from collateral circumstances, affects the value of the land.

(1) Covenants affecting occupation of the land

[27.40] Obvious examples are rent,212 repair,213 to build,214 to insure against fire,215 use covenants,216 covenants against assignment,217 or against serving notice to quit,218 tied house clauses219 and landlords’ covenants for quiet enjoyment.220

(2) Money payments

[27.41] Rent is a money payment, and other sums could be reserved as rent.221 A heresy suggested that other money covenants were necessarily marginal, but this fallacy was extirpated by P & A Swift Investments v. Combined English Stores.222 The

205Hua Chiao Commercial Bank v. Chiaphua Industries [1987] AC 99, PC; R Thornton (1991) 11 LS 47, 63.

206C Harpum [1988] CLJ 180, 182.

207(1583) 5 Co Rep 16a, 77 ER 72 (negative form at 163 suggests that “and” is correct); Holdsworth’s History vol 7, 287–292; Dewar v. Goodman [1909] AC 72, 75, Lord Loreburn (“touch or concern”); HA Bigelow (1914) 30 LQR 319.

208Davis v. Town Properties Investment Corporation [1903] 1 Ch 797, 805, Cozens-Hardy LJ; Breams Property Investment Co v. Stroulger [1948] 2 KB 1, 7, Scott LJ, 9, Asquith LJ.

209LPA 1925 ss 141, 142.

210Cheshire & Burn (16th ed), 477; Hua Chiao [1987] AC 99, 107, Lord Oliver.

211(1810) 10 East 130, 103 ER 725; Hua Chiao at 107, Lord Oliver; P & A Swift Investments v. Combined English Stores Group [1989] AC 632, 640, Lord Oliver.

212Kumar v. Dunning [1989] 1 QB 193, 199H, Browne-Wilkinson V-C.

213Spencer’s case (1583) 5 Co Rep 16a, 77 ER 72; Moss Empires v. Olympia (Liverpool) [1939] AC 544, HL; Boyer v. Warbey [1953] 1 QB 234, CA.

214In esse test abolished: LPA 1925 s 79(1); LT (Covenants) A 1995 s 3(7).

215Vernon v. Smith (1823) 5 B & Ald 1, 106 ER 1094.

216Congleton; Gibson v. Doeg (1857) 2 H & N 615, 157 ER 253.

217Horsey Estate v. Steiger [1899] 2 QB 79, CA; Caerns Motor Services v. Texaco [1994] 1 WLR 1249.

218Breams Property Investment Co v. Stroulger [1948] 2 KB 1, CA; Prudential Assurance v. London Residuary Body [1992] 2 AC 386, HL.

219Clegg v. Hands (1890) 44 Ch D 503, CA; Manchester Brewery Co v. Coombs [1901] 2 Ch 608, Farwell J; Regent Oil v. Gregory [1966] Ch 402, CA.

220Middlemore v. Goodale (1638) Cro Car 503, 79 ER 1033; Campbell v. Lewis (1820) 3 Barn & Ald 392, 106 ER 706; compare Davies v. Town Properties Investment Corp [1903] 1 Ch 797, CA.

221Vyvyan v. Arthur (1823) 1 B & C 410, 107 ER 152; Lambeth LBC v. Thomas (1997) 74 P & CR 189,

CA.

222[1989] AC 632, HL; JE Adams [1989] 47 EG 24; Kumar v. Dunning [1989] 1 QB 193, 199H, CA; C Harpum [1988] CLJ 180, 180 (“remarkable and bold”); P Luxton [1987] JBL 299.

House of Lords decided that a surety covenant does touch and concern the land, and so passes to a new landlord on a sale of the reversion. Coronation Street Industrial Properties v. Ingall Industries applied the same rule to a covenant by a surety to accept a lease if the tenant was in liquidation.223 Hua Chiao Commercial Bank v. Chiaphua Industries224 decided that a promise by the landlord to return a deposit at the end of the lease was held to be personal, so that a buyer of the reversion escaped having to return the deposit to his tenant. The decision is borderline, that is to say, wrong.

Covenants to pay a collateral sum should not touch and concern land.225 Examples are to pay the landlord’s taxes on other land,226 to pay fees under a building licence, to pay extra rent if the landlord increased the size of the house, to account for profit on wine sold on the land, to pay an annual sum to churchwardens, to repay an unsecured loan and to provide a box in a theatre free of charge.227

(3) Covenants affecting neighbouring land

[27.42] Tenants covenants relating to neighbouring land are collateral.228 The same rule is less just when applied to landlords, since they often own neighbouring property, and it would be convenient for the covenants to run.229 They will do so where the covenant has a direct impact on the property let to the tenant, for example repair of an adjacent sea-wall.230 The whole purpose of leasehold developments is to make covenants run. Surely a covenant by an intermediate landlord to observe the covenants in his head-lease should exemplify this principle? The reverse decision in Dewar v. Goodman231 must be wrong.232 Restrictions on the landlord’s use of his adjoining property will often qualify as restrictive covenants and pass for that reason.

(4) Covenants affecting the value of the landlord’s reversion

[27.43] This is the second head of Congleton Corporation v. Pattison233 where a covenant affects the value of the land itself – where the covenant is of value to the land owner from time to time and to no other person.234 A tenuous effect on the value is not enough to make the covenant touch and concern – for example the covenant in Congleton not to employ workers from outside the parish, with the intention of reducing the poor rate levied on the landlord’s other property in the parish.

223[1989] 1 WLR 304, HL.

224[1987] AC 99, PC; Eden Park Estates v. Longman [1982] Conv 239.

225(1583) 5 Co Rep 16a, 16b, 77 ER 72.

226Gower v. Postmaster General (1887) 57 LT 527.

227Camden v. Batterbury (1860) 7 CBNS 864, 141 ER 1055.

228Spencer’s case (1583) 5 Co Rep 16a, 77 ER 72.

229Davis v. Town Properties Investment Corp [1903] 1 Ch 797, CA.

230Morland v. Cook (1868) LR 6 Eq 252.

231[1909] AC 72, HL

232Kumar v. Dunning [1989] QB 193, 205G, Browne-Wilkinson V-C; he thought it impliedly overruled by Dyson v. Forster [1909] AC 98, HL (restrictive covenant must touch and concern the neighbouring land).

233(1808) 10 East 130, 103 ER 725.

234Vyvyan v. Arthur (1823) 1 B & C 410, 107 ER 152; Vernon v. Smith (1821) 5 B & Ald 1, 9, 10, 11, 106 ER 1094, Best J; Forster v. Elvet Colliery Co [1909] AC 72, HL; Kumar v. Dunning [1989] QB 193, 204, Browne-Wilkinson V-C; Swift [1989] AC 632, 640–641, Lord Oliver.

H. TENANTS UNABLE TO PAY

1.Insolvent tenants

[27.44] Insolvency is not a defence to an action for rent,235 but in practice it prevents full recovery since the tenant does not have enough money to pay. The landlord is left to prove for rent in the tenant’s insolvency, claiming either against an individual’s trustee in bankruptcy or the liquidator of a corporate tenant.236 Usually only a proportion of the debts are paid and rent abates proportionately. Proofs may relate to existing arrears of rent and also to rent which will become due from the date of the insolvency until the term date of the lease; however future rent payments have to be discounted to take account of the fact that the landlord will receive early payment as well as the possibility of reletting.237 Actual payments may be appropriated to future rent payments, leaving the whole of the arrears untouched, and leaving sureties vulnerable.238

Sometimes a moratorium is enforced to try to give an opportunity for the company to recover from its debts, perhaps by an administration order239 or a voluntary arrangement between a tenant and his creditors. These procedures are designed to give a breathing space and so to ward off insolvency. Substitutes remain exposed to action.240

2.Liability for future rent

[27.45] In Re Park Air Services,241 the House of Lords had to decide whether the landlord could prove for the whole of the aggregate rents due for the remainder of the term, or whether a discount had to be allowed to reflect the fact that payments were accelerated by the tenant’s insolvency. In the particular case the liquidators of the tenant company had disclaimed the lease. The decision was that a discount had to be applied, though even so the landlord was awarded £1 million. Lord Millett observed that the right to rent was ended by the disclaimer to be substituted by a claim for compensation by a person suffering loss as a result of a disclaimer, who is deemed to be a creditor of the company and so is entitled to prove “for the loss or damage”. Damages should be assessed as if there was a contract that had been wrongfully terminated, and accordingly the landlord had to allow credit for rents that he would obtain from reletting the property and also a discount for early receipt of the rent. The landlord could not sell the lease and on disclaimer the right to end the lease had gone, a right that

235St Thomas’ Hospital v. Richardson [1910] 1 KB 271.

236A liquidator or trustee in bankruptcy can become personally liable for rent, eg by taking steps to sell the lease: Re Page (1884) 14 QBD 401; Re ABC Coupler & Engineering Co (No 3) [1970] 1 WLR 702, 709;

Re Downer Enterprises [1974] 1 WLR 1460.

237Re Park Air Services [2000] 2 AC 172, HL; Re Hide (1871) LR 7 Ch App 28.

238Milverton Group v. Warner World [1995] 2 EGLR 28, CA; M Haley [1995] JBL 181.

239IA 1986 part II; IA 2000 s 9.

240RA Securities v. Mercantile Current [1995] 3 All ER 581; Mytre Investments v. Reynolds [1995] 3 All ER 588.

241[2000] 2 AC 172, HL.

could not be described as a security.242 The decision would not necessarily have been the same had the contract provided for sums to become immediately payable on breach, nor if the question had been of entitlement to prove in an insolvency (as opposed to on a disclaimer).

3.Dissolution of a company without liquidation

[27.46] Commercial leases invariably provide that dissolution of the tenant company is a termination event entitling the landlord to forfeit the lease; however if he chooses to do so, he must retake possession from whoever is trading there.243 Very often the directors of the tenant company continue to trade as if nothing has happened, and later apply to restore the company to the register. This may prejudice the landlord, who may well lose the right to end the lease, but who can challenge the restoration of the company to the register.244

4.Forfeiture

[27.47] Landlords are best advised to control dealings, to vet prospective tenants for financial solvency, and to obtain guarantees. Commercial leases usually provide that on insolvency or incipient insolvency, the landlord shall have the right to terminate the lease by forfeiture, leaving the landlord free to relet the property. However, if the lease is valuable the trustee in bankruptcy or liquidator can generally obtain relief from the forfeiture and sell the property within one year.245

Subtenants are usually offered relief via the grant of a new lease246 with liability to the extent of an assignee. Lenders will also be entitled to claim relief after forfeiture by proceedings or by peaceable re-entry.247

5.Disclaimer

[27.48] Running of rent can be prevented for the future by disclaiming the lease on corporate liquidation or personal bankruptcy.248 It is possible even after the liquidator or trustee in bankruptcy has entered into possession, endeavoured to sell, or carried out other acts of ownership.249 Any onerous property250 can be disclaimed by notice,251 including any unprofitable contract,252 any property which is unsaleable,

242Re Lomax Leisure [1999] 2 EGLR 37, Neuberger J.

243Cromwell Developments v. Godfrey [1998] 2 EGLR 62, CA.

244Re Blenheim Leisure (Restaurants) [2000] BCC 554, CA.

245LPA 1925 s 146(4).

246Beegas Nominees v. BHP Petroleum [1998] 2 EGLR 57, CA.

247Barclays Bank v. Prudential Assurance Co [1998] 1 EGLR 44, Ch D.

248IA 1986 ss 178–182 (companies), 315–321 (bankruptcy).

249IA 1986 ss 178(1), 315(1); Re Lister [1926] Ch 149.

250Re Celtic Extraction [2001] Ch 475, CA (waste management licence); City of London Corp v. Bown (1990) 60 P & CR 42, CA (not short-term or statutory residential tenancy).

251IA 1986 s 178(1), 315(1); SI 1986/1925 rr 4.187–4.189.

252Re Gough (1927) 96 LJ Ch 233 (contract for sub-sale).

and any which may give rise to any liability.253 Leases may be onerous because of high rents or large repairing obligations.254

Disclaimer ends the leasehold estate future liability on the covenants, and all benefits.255 Sub-tenancies and other derivative interests end256 unless the holder exercises his statutory right to claim protection. Notice must be served on all people with known interests and in the case of a dwelling also on all occupiers.257 On an application for relief the court has power to make whatever order is just.258 A subtenant259 must accept liability at least to the extent of a buyer of the lease.260 Even forfeiture by peaceable re-entry after the disclaimer will not remove a lender’s right to relief.261 The landlord suffers loss from a disclaimer, but can prove in the insolvency,262 has 14 days to object to the disclaimer,263 and can force the liquidator or trustee in bankruptcy to decide whether or not he will disclaim.264 The landlord can enforce substitute liability in this situation.265

Similar provisions operate where a company is struck off the company register and dissolved, usually for failure to file company returns. Any property will vest in the Crown, and may be sold if valuable, or disclaimed if onerous.266 However, the landlord can apply for an order to restore the company to the register, enabling it to review the rent267 or sue any sureties for rent.268

I.SUBSTITUTES

[27.49] Landlords usually seek guarantees that the current tenant will pay the rent. Pre-1996 tenants remained liable on privity of contract, but privity of contract is abolished for new leases to be replaced by authorised guarantee agreements. Almost all commercial tenants are required to provide sureties.

253IA 1986 ss 178(3), 315(2).

254Eyre v. Hall [1986] 2 EGLR 95, CA; MEPC v. Scottish Amicable Life Assurance Society [1993] 2 EGLR 93, CA.

255Re Bastable [1901] 2 KB 518; Re Hyams (1923) 93 LJ Ch 184, CA; Re Wadsley (1925) 94 LJ Ch 215.

256Sterling Estates v. Pickard UK [1997] 2 EGLR 33; Re Cock ex p Shilston (1887) 20 QBD 343. For local land charges see Hackney LBC v. Crown Estate Commissioners (1996) 72 P & CR 233.

257IA 1986 ss 179(1), 317–318.

258IA 1986 ss 181, 320. A lender may be required to pay surplus proceeds to the tenant’s trustee in bankruptcy: Lee v. Lee [1998] 1 FLR 1018.

259IA 1986 s 320; Re Vedmay (1995) 69 P & CR 247; Beegas Nominees v. BHP Petroleum [1998] 2 EGLR 57, CA.

260IA 1986 ss 182, 321. ie not with privity of contract, only privity of estate liability.

261Barclays Bank v. Prudential Assurance [1998] 1 EGLR 44.

262IA 1986 ss 178(6), 315(5); Re Park Air Services [2000] 2 AC 172, HL (the landlord must allow discount to reflect the fact that he receives rent early).

263IA 1986 ss 179, 317.

264Ss 178(5), 316; A Waltham & P Cane [1992] 25 EG 19.

265IA 1986 ss 178(4), 315(5); see below [27.59].

266Companies Act 1985 s 656. Sureties are released unless the company is later restored: Re Yarmarine [1992] BCLC 276.

267Re Priceland [1996] EGCS 188, Ch D.

268Allied Dunbar Assurance v. Fowle [1994] 1 EGLR 122, Garland J; Stanhope Pensions T v. Registrar of Companies (1995) 69 P & CR 238, CA; A Belcher [1995] Conv 199.

1.Privity of contract: pre-1996 leases

(1) Original parties

[27.50] English landlords traditionally enjoyed two alternative remedies for rent, one founded on privity of estate and the other on privity of contract, this last casting a net for the original tenant or his estate. During the recession of the early 1990s many landlords sought to enforce this liability.269

After the Grantees of Reversions Act 1540 allowed the burden of covenants to pass, Walker’s case (1587)270 settled that the original tenant remained liable on privity of contract after the assignment of the lease. This point is clear under modern statute law.271 Hence the original tenant (or landlord) remains liable on the covenants throughout the term of the lease. Kenyon CJ once explained that having chosen his original tenant the landlord should not be deprived of this action by assignment to an untrustworthy tenant.272 Lord Templeman added in City of London Corporation v. Fell that:273

“The common law did not release the original tenant from liability for breaches of covenant committed after an assignment. . . . [T]he fortunate English landlord has two remedies after an assignment, namely his remedy against an assignee and his remedy against the original tenant.”

The landlord’s choice lay between the original tenant (T0)274 and the current tenant (TC). Contractual liability could be excluded275 or qualified, for example by making the tenant responsible only for his own personal acts.276

An original contracting party remains liable277 for the duration of the term of the (pre-1996) lease for which he contracted, but no longer. Continuing power to ensure compliance with the covenant is not necessary. An extension of the term of the lease agreed in advance is usually included.278 However, the original tenant is exonerated once the original term ends279 and the current tenant holds over. In City of London Corporation v. Fell a suite of offices in the City was taken by Wilde Sapte – a prominent firm of City solicitors – under a ten year lease. They sold the lease to Grovebell Group and those tenants (TC) remained in occupation when the lease expired in 1986,

269City of London Corp v. Fell [1993] QB 589, 603H, 604D, Nourse LJ.

270(1587) 3 Co Rep 22a, 76 ER 676; Baynton v. Morgan (1888) 22 QBD 74, 82, Lopes LJ.

271LPA 1925 ss 141(1), 142(2); Re King [1963] Ch 459, 481, Lord Denning MR; Friends’ Provident Life Office v. British Railways Board [1996] 1 All ER 336, 351a, Sir Christopher Slade.

272Auriol v. Mills (1790) 4 Term Rep 94, 99, 100 ER 912.

273[1994] 1 AC 458, 465F.

274Moule v. Garrett [1872] LR 7 Exch 101; Johnsey Estates v. Lewis & Manley (Engineering) [1987] 2 EGLR 69, CA.

275Eccles v. Mills [1898] AC 360, PC.

276Eg not to suffer or permit: Bryant v. Hancock & Co [1898] 1 QB 716; Wilson v. Twamley [1904] 2 KB 99, CA; Villiers v. Oldcorn [1903] 20 TLR 11.

277LPA 1925 s 79. On liquor see: Mumford v. Walker (1901) 71 LJKB 19; Holloway Bros v. Hill [1902] 2 Ch 612; Palethorpe v. Home Brewery Co [1906] 2 KB 5. Also Thames Manufacturing Co v. Perrotts (Nichol

&Peyton) (1985) 50 P & CR 1, 6, Scott J.

278Baker v. Merckel [1960] 1 QB 656, CA.

279Eg by surrender: Matthews v. Sawell (1818) 8 Taunt 270, 129 ER 387; but survives forfeiture: Weaver v. Mogford [1988] 2 EGLR 48, CA.

holding over under the business tenancies legislation.280 By the time the tenant vacated, the company was in arrears with the rent and was insolvent. The landlord pursued the original tenants, Wilde Sapte, for the unpaid rent, but they lost in each court right through to the Lords.281 Contractual liability was limited to the 10 year term of the lease, and was not extended by the business tenancies legislation.282 Contractual liability could be extended by clear wording.283

(2) Privity of contract after a sale of the reversion

[27.51] Until a dealing with the reversion, it is obvious that the original landlord (L0) can enforce the contract in the lease. After a sale, privity of contract exists between the current landlord (LC284 not L0285) provided that the covenant touches and concerns and so passes with the reversion.286 Arlesford Trading Co v. Servansingh287 concerned three simple transactions in a common sequence. A lease by L0 to T0, was followed in sequence by an assignment of the lease to TC, and a sale of the landlord’s reversion to LC. Although there was never any moment at which T0 was directly a tenant of LC, nevertheless an action lay between them in contract. T0 remained liable on his contract throughout the term to whoever was the current holder of the reversion.

(3) Intermediate tenants not privy

[27.52] An intermediate tenant was not liable once he had sold the lease. However landlords commonly sought to reinforce their position by insisting that a tenant who wished to divest himself of the lease should enter into the licence for assignment288 in order to provide a guarantee for the whole remaining term.289 This is additional to any indemnity covenant.290

280LTA 1954 part II.

281[1994] 1 AC 458, HL; M Haley [1993] JBL 473; PF Smith [1993] Conv 164; S Bridge [1994] CLJ 28; M Haley [1994] Conv 247.

282Similarly for sureties: GMS Syndicate v. Gary Elliott [1982] Ch 1; Junction Estates v. Cope (1974) 27 P & CR 482; A Plesser & Co v. Davis [1983] 2 EGLR 70.

283Herbert Duncan v. Cluttons [1993] QB 589, 605–608.

284Thursby v. Plant (1669) 1 Lev 259, 83 ER 359 (L1 could sue T0 in contract as well as covenant). The rules for landlords are a mirror image of those for tenants: LPA 1925 s 142(2); Stuart v. Joy [1904] 1 KB 362, 367; Bath v. Bowles (1905) 93 LT 801; Celsteel v. Alton House Holdings (No 2) [1986] 1 WLR 666, 672–673, Scott J; affirmed [1987] 1 WLR 291, 296D–E, Fox LJ; D Gordon [1987] Conv 103.

285Walker’s case (1587) 3 Co Rep 22a, 76 ER 676.

286Unless the covenant does not touch and concern: Bickford v. Parson (1848) 5 CB 920, 136 ER 1141; Allcock v. Moorhouse (1882) 9 QBD 366, CA; Eccles v. Mills [1898] AC 360, PC (TC can sue L0).

287[1971] 1 WLR 1080, CA (some relevant authorities not cited); D Gordon [1987] Conv 103.

288If an assignment must be registered with the landlord, liability on the covenants cannot be avoided by failing to register it: Cerium Investments v. Evans [1991] 1 EGLR 80, CA.

289Friends’ Provident Life Office v. British Railways Board [1996] 1 All ER 336, CA; Estates Gazette v. Benjamin Restaurants [1994] 1 WLR 1528, CA.

290Becton Dickinson UK v. Zwebner [1989] QB 208; P Mc Loughlin [1989] Conv 292; Re a Debtor (No 21 of 1995) [1996] CLYB 3750.

2.Post-1995 leases

(1) Abolition of privity of contract

[27.53] Privity of contract liability represented an unwarranted trap for tenants, who might be caught many years after selling the lease, especially if there was a recession, and for very large amounts after rents had been reviewed. Law Commission research revealed widespread public ignorance of the potential liability.291 Abolition was carried out by the Landlord and Tenant (Covenants) Act 1995, though only for “new tenancies”. The mechanism, already studied, is that a former tenant obtains a release when he sells on the lease.292 Any agreement excluding directly or indirectly the right to a release is void.293 In the short term this may be a small comfort, for the immediate previous tenant will usually be required to enter into an authorised guarantee agreement, but a full release will occur after a second sale.

(2) Authorised guarantee agreement (AGA)

[27.54] Where a tenant assigns a post-1995 lease and is granted a release from liability on a covenant, he may enter into an authorised guarantee agreement.294 This will not be offered voluntarily,295 so a landlord will only be able to insist upon it by restricting assignment of the lease so that entry into an AGA is stated in advance as a condition of giving consent.296 The previous tenant (TC – 1) guarantees the obligations of the current tenant (TC) as a principal debtor, and probably also agrees to take a new lease on a default by the current tenant.297 Since the current tenant is released when he sells, the AGA is also released.298 However, an “excluded assignment” – either a transmission or a sale in breach of covenant – offers no release, so the AGA remains in place until the next correct sale.299

3.Sureties – all leases (new and old)

[27.55] It is very common for the landlord to demand a surety whose function is to guarantee300 the performance of the tenant’s obligations, either on the grant of a new lease or on an assignment. A guarantee is formed by any promise to accept liability for the failure of another to perform legal obligations.301 It creates a primary or ultimate obligation (in TC) and a secondary or substitute liability on the surety for the same

291Law Com 174 (1988), [3.15]; R Thornton (1991) 11 LS 47, 61.

292LT (Covenants) A 1995 s 5; see above [27.22].

293S 25.

294S 16; MCE Wright [1997] LT Rev 52.

295Wallis Fashion Group v. CGU Life Assurance [2000] 2 EGLR 49, Neuberger J; B Dear [2000] 42 EG 167; M Haley [2000] Conv 566; London & Argylle v. Mount Cook Land [2002] 50 EG 111 (CS).

296LTA 1927 s 19(1A); see above [27.15].

297LT (Covenants) A 1995 s 16(7).

298S 16(4), (8).

299S 16(6).

300Although the terms are interchangeable, “surety” is usually restricted to a liability accepted under a

deed.

301Moschi v. Lep Air Services [1973] AC 331, 347H, Lord Diplock.

obligation. The surety is a substitute or twelfth man for the tenant’s team, who is subject to the same rules and regulations as the player he replaces.302

The scope is determined contractually, usually limited to the original contractual term, and extinguished by a holding over,303 though express wording could extend the duration.304 If the landlord sells the reversion, the benefit of surety covenants passes to the new landlord at common law,305 and LC should be the only possible claimant.306

Equity protects a surety with the rule that liability is discharged by any prejudicial variation in the primary contract.307 Insolvency of the tenant also discharges any surety, but sureties are commonly required to accept a new lease themselves if the original lease is disclaimed after insolvency.308

J.SUBSTITUTES LIABILITY

[27.56] Landlords have at least two potential defendants in an action for rent,309 and can choose the plumpest target.310 Satisfaction of any given debt can only be obtained once,311 but multiple actions are allowed.312 Sureties have various protections.

1.Arrears notice (new and old leases)

[27.57] Substitutes often complain that landlords had no incentive to chase the current tenant. This problem is addressed by sections of the 1995 Act, which apply both to old and new leases and to all forms of substitute liability. Restrictions apply to financial claims, that is for rent, service charge, and liquidated sums payable on a default.313 A default notice314 must be served within six months of the sum becoming due, a rule which prevents large arrears being built up without the knowledge of a surety. However, a landlord is not obliged to enforce his rights immediately, since he has the normal limitation period in which to sue and can add accumulating arrears. In

302P & A Swift Investments v. Combined English Stores Group [1989] AC 632, 638, Lord Templeman.

303GMS Syndicate v. Gary Elliott [1982] Ch 1, Nourse J; Junction Estates v. Cope (1974) 27 P & CR 482, MacKenna J; Plesser below; all three approved in Fell [1993] QB 589, 605D, Nourse LJ, CA, and presumably in HL

304A Plesser & Co v. Davis [1983] 2 EGLR 70, French J.

305Swift, HL

306R Thornton (1991) 11 LS 47, 55.

307See below [27.58].

308Coronation Street Industrial Properties v. Ingall Industries [1989] 1 WLR 304, HL (the reversion was assigned).

309Allied London Investments v. Hambro Life Assurance (1985) 50 P & CR 207, 210, Ackner LJ.

310Norwich Union Life Insurance Society v. Low Profile Fashions [1992] 1 EGLR 86, CA; S Bridge [1992]

CLJ 425.

311March v. Brace (1614) 2 Bulst 151, 153, 80 ER 1025 (T1 paid rent; L0 could not sue T0); Orgill v. Kemshead (1812) 4 Taunt 642, 128 ER 407; Sturgess v. Farrington (1812) 4 Taunt 614, 128 ER 471.

312House Property & Investment Co v. Bernardout [1948] 1 KB 314.

313LT (Covenants) A 1995 s 17; Commercial Union Life Assurance Co v. Moustafa [1999] 2 EGLR 44, Smedley J; HW Wilkinson [2001] NLJ 275.

314Prescribed form: SI 1995/2964; PH Kenny [1996] Conv 324. However, failure to serve notice is not a defence for other parties: Cheverell Estates v. Harris [1998] 1 EGLR 27.

Commercial Union Life Assurance Co v. Moustafa315 it was held that a default notice that misstated the amount of the arrears was valid to the extent that it did include genuine arrears.

2.Prejudicial variation of leases

[27.58] The current parties are free to vary the terms of the lease so as to relax the terms or to operate neutrally on sureties.316 What they cannot do is impose greater burdens on former tenants, since a prejudicial variation will normally destroy the guarantee.317 In Holme v. Brunskill a surrender of one field on a hill farm discharged the surety,318 and so do landlord’s improvements319 and agreed changes of use.320 Discharge can be prevented by a contractual provision, for example making a substitute liable for the reviewed rent.321 A release of the current tenant also allows all substitutes to escape.322

The Landlord and Tenant (Covenants) Act 1995 protects substitutes against any (immaterial) variation to which the landlord has the right to refuse his agreement.323

3.Disclaimer

[27.59] Substitute liability survives disclaimer of the lease324 – whether under privity of contract in a pre-1996 lease, as a surety, as a later assignee, his surety, or the surety of the current tenant. Similar principles apply under a voluntary arrangement or where a company that has been struck off the register for failing to file returns is later restored to the register or on forfeiture.

4.Overriding leases

[27.60] Commercial leases commonly ensure that if the lease is disclaimed the surety may be compelled to accept a new lease from the original or future landlords.325

315[1999] 2 EGLR 44, Smedley J.

316Friends Provident Life Office v. British Railways Board [1996] 1 All ER 336, CA; Metropolitan Properties (Regis) v. Bartholomew [1996] 1 EGLR 82, CA; HW Wilkinson [1995] NLJ 1141; JE Adams [1995] Conv 289; Beegas Nominees v. BHP Petroleum [1998] 2 EGLR 57, CA.

317Friends’ Provident 342e–345b, Beldam LJ, 350d–h, Sir Christopher Slade; M Davey (1996) 59 MLR 78,

82.Normal contractual principles of interpretation apply: BCCI v. Ali [2001] UKHL 8, [2002] AC 251, HL.

318(1877) 3 QBD 495, 505, Cotton LJ. Surely Brett LJ’s dissent was correct to suggest that the contractual variation which could only benefit the surety was immaterial.

319West Horndon Industrial Park v. Phoenix Timber Group [1995] 1 EGLR 77, Ch D; HW Wilkinson [1995] NLJ 1141; JE Adams [1995] Conv 289.

320Howard de Walden Estates v. Pasta Place [1995] 1 EGLR 79, Morland J (test potential prejudice);

Jaskel v. Sophie Nursery Products [1993] EGCS 42, CA; Averbrian v. Willmalight [1994] CLYB 2799.

321Selous Street Properties v. Oronel Fabrics [1984] 1 EGLR 50, Hutchison J; Herbert Duncan v.

Cluttons [1993] QB 589, 605–608, Nourse LJ; Friends Provident [1996] 1 All ER 336, 351c.

322Re EWA [1901] 2 KB 642, CA; Deanplan v. Mahmoud [1993] Ch 151; HW Wilkinson [1993] NLJ 28;

Friends Provident at 348h–349, Beldam LJ; Mytre Investments v. Reynolds [1995] 3 All ER 588; Morris v.

Wentworth-Stanley [1999] QB 1004, CA (discharge of one debtor discharges another unless there is a reservation of the right).

323LT (Covenants) A 1995 s 18. This applies to new and old leases.

324Hindcastle v. Barbara Attenborough Associates [1997] AC 70, HL; S Bridge [1995] CLJ 253; J Tayleur [1997] Conv 24. For the related case law see P Sparkes NLT, 786–787.

325Coronation Street Industrial Properties v. Ingall Industries [1989] 1 WLR 304, HL; Xey v. Abbey Life Assurance Co [1994] EGCS 190 (landlord’s refusal would discharge the surety); Re Spirit Motorsport [1996]

1BCLC 684, Laddie J (no right).