Landlord and Tenant (Covenants) Act 1995

Citation

Dowden, M. (2001), "Landlord and Tenant (Covenants) Act 1995", Journal of Property Investment & Finance, Vol. 19 No. 3. https://doi.org/10.1108/jpif.2001.11219cab.003

Landlord and Tenant (Covenants) Act 1995

Landlord and tenant update

Landlord and Tenant (Covenants) Act 1995

Tenants' solicitors quickly fastened onto the decision of Neuberger J in Wallis Fashion Group Limited v. CGU Life Assurance Limited [2000] 27 EG 145. The case has been widely commented upon, and many tenants' solicitors have taken it to mean that a landlord cannot require an AGA as of right, but only where it is reasonable to do so.

It is important to stress that the case concerned a lease renewal under the 1954 Act, and not the negotiation and grant of a lease. The original lease was an "old" tenancy for the purposes of the 1995 Act. The renewal lease would create a "new" tenancy. Being an "old" lease the existing form contained no reference to AGAs. Section 35 of the 1954 Act, as amended by the 1995 Act, provides:

1. 1.

   The terms of a tenancy granted by an order of the court under this Part of this Act (other than terms as to the duration thereof and as to the rent payable thereunder) shall be such as may be agreed between the landlord and the tenant or as, in default of such agreement, may be determined by the court; and in determining those terms the court shall have regard to the terms of the current tenancy and to all relevant circumstances.

2. 2.

   In subsection (1) of this section the reference to all relevant circumstances includes (without prejudice to the generality of that reference) a reference to the operation of the provisions of the Landlord and Tenant (Covenants) Act 1995.

The House of Lords provided authoritative guidance as to the proper approach to adopt when applying section 35 in O'May v. City of London Real Property Co Ltd [1983] 2 AC 726. Commenting on the requirement that the court should "have regard to" the terms of the current tenancy, Lord Wilberforce observed that the "elastic" nature of those words compel something between an obligation to reproduce existing terms and an unfettered right to substitute others. In his view (agreed with by the other three Law Lords hearing the case) the effect was to impose an onus upon a party seeking to introduce new, or substituted, or modified terms, to justify the change, with reasons appearing sufficient to the court.

The Wallis case arose because the landlord was seeking to introduce alienation provisions to reflect the fact that the 1995 Act had come into force since the previous lease was granted. While the previous lease had created an "old" tenancy for the purposes of the 1995 Act the renewal lease would give rise to a "new" tenancy. Consequently, rather than remaining on the hook throughout the term of the renewal lease the tenant might, on an assignment, obtain a release by virtue of section 5 of the 1995 Act.

In order to mitigate the impact of the provisions that effect a complete release of the tenant on a permitted assignment, the 1995 Act permits the landlord to obtain an authorised guarantee agreement (AGA) under which the former tenant guarantees the obligations of its immediate assignee.

Section 16 of the 1995 Act stipulates that a landlord's requirement for an AGA must be "lawfully imposed". The landlord argued that the new lease should contain terms which would allow it to require an AGA as of right on any assignment. The tenant argued that an AGA should be required only "where reasonable".

In support of its argument the landlord pointed to the fact that, of the other 15 tenants who had agreed new tenancies in the centre, 14 had consented to alienation provisions which allowed the landlord to require an AGA. Consequently, the landlord argued that such a requirement represented market practice.

Neuberger J concluded that in this particular case the words "where reasonable" ought to be included as contended by the tenant. It is undoubtedly possible for a landlord negotiating a new lease under the 1995 Act to include a provision that allows it to require an AGA as an absolute precondition to giving consent to an assignment. The Wallis case does not cast doubt upon the validity of such provisions and so it should not be regarded as a fetter on the landlord's ability to negotiate for such a provision on the grant of a new lease. However, it does provide an indication of the way in which the courts are likely to approach the issue when considering the terms of a renewal lease where provisions applicable to a new tenancy need to be brought into a lease based upon an old tenancy.