• Practical Law

Why would a landlord insist on a deed of covenant from an assignee on the assignment of a new lease?

Practical law resource id a-130-3423  (approx. 4 pages).

  • Residential Tenancies
  • Leases and Licences to Occupy
  • Conveyancing Procedure

Deed of Covenant on a Leasehold Property?

Editor: Gill Laing

Buying a leasehold flat can often be more complex than buying a freehold property . The addition of a third party, ie; the freeholder or landlord, in the conveyancing process means that there are various extra documentary requirements involved, typically including the requirement to sign a deed of covenant.

The following guide looks at deeds of covenant within the conveyancing process for residential leasehold properties, from what these are to the consequences of breaching the terms.

What is a deed of covenant?

When buying a leasehold property, there will be a written agreement between the leaseholder (or tenant) and freeholder (or landlord). This will set out the term or length of the lease, together with various other conditions relating to the rights and responsibilities of each party.

Typically, the lease will include a condition that a deed of covenant is required upon any transfer, assignment or underletting of the property. This means that when the flat is sold, the buyer will need to sign a written agreement to carry out the obligations, or refrain from the acts, stipulated therein. In this context, a deed of covenant is essentially a form of legal agreement in which the incoming tenant promises to comply with the terms of the lease.

Why are deeds of covenant used?

Strictly speaking, under the provisions of the Landlord and Tenant (Covenants) Act 1995, there is no obligation on an assignee (the incoming tenant) to enter into a direct deed of covenant with the landlord (or freeholder) for leases granted on or after 1 January 1996. This is because, by law, both the benefit and burden of the covenants made between the previous tenant and landlord will automatically pass to the new tenant on assignment of the lease.

As every assignee automatically becomes liable on the tenant’s covenants, and able to sue on the landlord’s covenants, this mean that no deed of covenant is actually required. The net effect is that the new leaseholder will become liable for any ground rent and service charges, without the need for any additional agreement, and be bound by any restrictions as to the use of the property. They will also be able to enforce the landlord’s covenants.

Additionally, the provisions of the 1995 Act make clear, to the extent that the lease contains covenants conferring rights exercisable by or against a third party — such as a management company who has undertaken obligations for the repair and maintenance of the building — that the assignee will also be liable for, and have the right to legally enforce, those covenants.

Before the 1995 Act came into force, deeds of covenant were commonly used in respect of the assignment of tripartite leases, in order to ensure that assignees were in a direct contractual relationship with the management company. Even though the law relating to privity of estate ensured that assignees would be liable on tenant’s covenants, and able to sue landlords for breach of theirs, the position in respect of management companies was less clear. To this extent, deeds of covenant still serve some useful purpose for older leases.

Still, it remains common practice for new long residential leases to require the purchaser of a leasehold to enter into a direct deed of covenant with the landlord and, where applicable, the management company, despite the fact that this is a wholly redundant requirement.

In many cases, the seller’s solicitor is likely to include a specific condition in the contract of sale requiring the execution of a direct deed of covenant, where any failure to comply is likely to frustrate the whole process.

Further, if the lease stipulates that this is what is required then it must be acted upon — where any failure to do so would place the tenant in breach of the lease. In these scenarios, the landlord and management company may not accept any payments for service charges or ground rent until a deed is signed, as to do so would mean that their right to enforce any of the leasehold covenants at a later stage could be treated as waived. In the meantime, until a deed has been executed, arrears and penalties will accrue.

Examples of leasehold covenants

In basic terms, a covenant is a legal promise that you will either carry out certain acts or, alternatively, refrain from doing certain things. There are two types of covenants: positive and negative, where these basically dictate how parties to a lease must or must not act.

Positive covenants are acts that you must carry out, such as being responsible for paying ground rent or a service charge, or keeping the property in good repair. In contrast, negative covenants stop you from doing certain things, such as not to carry out structural alterations to your property, not to carry out illegal acts, not to run a business from your flat, not to cause a nuisance, not to sublet or not to keep pets.

These clauses are commonly referred to as restrictive covenants, because they limit or restrict what you can and cannot do whilst living in the property. Restrictive covenants are essentially designed to prohibit any conduct that could affect other tenants and/or devalue the property as a whole.

As a deed of covenant will include various positive obligations on you as the potential new occupier, together with an agreement to observe certain restrictions, it’s important that you carefully read the document, together with the lease to which it refers, before signing. In this way, you will fully understand your legal rights and responsibilities when you agree to buy a leasehold property. Most covenants remain in place for the duration of the lease, so they are permanent unless otherwise removed or varied with the agreement of the landlord.

It’s worth noting, however, that insofar as any deed of covenant purports to bind you for the entire lease term, even if you later sell the property, this should be treated as void under the provisions of the 1995 Act. This is because the Act specifically abolished the principle that the original tenant would remain liable on the lease covenants throughout the whole of the term. That said, signing a deed of covenant still serves as a stark reminder to anyone who buys a leasehold property that they will be bound by its terms, at least whilst in occupation.

What information does a deed of covenant include?

The deed of covenant will be set out in a fairly standard format and is usually annexed to the lease in question. Typically, the deed will include:

  • the property details, inclusive of the address, postcode and title number
  • the parties to the agreement, inclusive of the names and addresses for service
  • any relevant definitions, depending on how complex the deed is, and whether there’s a need for certain terms to be explained to avoid any doubt as to how these are to be interpreted
  • the agreed terms are then usually set out to stipulate exactly what the deed of covenant requires, and what is being agreed, when signing, although a basic deed may simply state that the assignee agrees to take over the tenant’s obligations under the lease
  • the appropriate execution clause will be included, to ensure that the document is signed as a deed, in order to make the same legally binding.

Sample wording for an assignee’s covenant could read: “To pay the ground rent and service charge, and to observe and perform the tenant covenants and other tenant obligations as set out in the lease from completion of the assignment for the residue of the term of the lease”.

Executing a deed of covenant

If a deed of covenant is required within the conveyancing process when buying a leasehold flat, the solicitors acting for the seller will usually provide a draft form of the deed to the buyer’s solicitors. The buyer’s solicitors will then create the final deed to be executed by the buyer to confirm that they agree to comply with the terms of the lease moving forward.

The document must be signed, as a deed, to make it legally binding. This must be done in the presence of an independent witness. This must be someone who is over 18, has no interest in the matter and is not related to either party, nor living at the same address as them.

Are there fees for deeds of covenant?

There are various costs involved when buying a leasehold flat, including the conveyancing costs for your own solicitor, but also certain disbursements or fees incurred by the landlord or management company. In the case of deeds of covenant, your own solicitor will complete this for you, prior to you signing, for which you will have to pay for their time in doing so.

The landlord and/or management company will often also charge a fee for updating their records. The cost of this can be anything between £100 to £300, although whether this is paid by the buyer or seller is often the subject of negotiation.

What happens if there is a breach of covenant?

As a deed of covenant is a legally binding document in which the buyer agrees to be bound by the terms of the lease, this means that action can be taken against the new leaseholder for any failure to comply with its terms — although even absent any executed deed of covenant, by law, the assignee is bound by the terms of the lease in any event.

This means that leasehold covenants are not mere guidelines that you can choose whether or not to follow, but rather you must abide by the terms set out in the lease. Where these covenants are breached, a landlord will be able to enforce them against you in court. There are various remedies available to landlords in the context of long residential leases, including:

Injunctive relief

Where the court prohibits the tenant from breaching agreed covenants.

Specific performance

Where the court orders the tenant to comply with agreed covenants

To financially compensate the landlord, in addition to or in lieu of an order for an injunction or specific performance

This will terminate the lease, giving possession of the property to the landlord.

Equally, however, the landlord will also be under various obligations, and restricted from doing various things, where you too could take legal action against your landlord where they have failed to comply with the terms of the lease — although this can be complex and costly.

Where a dispute arises, seeking legal advice at the earliest possible opportunity is often the best way forward. In this way, your legal advisor can help you to explore your options, either to sue or defend being sued, or other possible solutions without recourse to legal proceedings.

Deed of covenant FAQs

Is deed of covenant necessary.

Since the Landlord and Tenant (Covenants) Act 1995, every assignee automatically becomes liable on the tenant’s covenants and are able to sue on the landlord’s covenants. This means that, legally speaking, no deed of covenant is required on newer leases.

Who pays deed of covenant?

The management company will usually charge a fee for updating their records where a deed of covenant is required in a leasehold purchase, although who pays for this will often be the subject of negotiation between a buyer and seller.

What does covenant mean when buying a house?

When buying a house, a covenant typically refers to a binding legal obligation, created in a deed between two parties, as to what can and cannot be done on the land.

What is a deed of covenant for a flat?

A deed of covenant for a flat is a form of legally binding agreement in which the incoming leaseholder promises to carry out the obligations, or refrain from the acts, stipulated within the original lease.

Does a landlord need a deed of covenant?

Whether or not a deed of covenant is required will depend on the age of the original lease and whether the lease expressly provided for the new leaseholder to sign a deed.

Legal disclaimer

The matters contained in this article are intended to be for general information purposes only. This article does not constitute legal advice, nor is it a complete or authoritative statement of the law, and should not be treated as such. Whilst every effort is made to ensure that the information is correct, no warranty, express or implied, is given as to its accuracy and no liability is accepted for any error or omission. Before acting on any of the information contained herein, expert legal advice should be sought.

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As Editor of Lawble, Gill helps business and individuals become better informed about their legal rights. Gill is a content specialist in the fields of law, tax and human resources.

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deed of covenant on assignment of lease

  • Assignments of lease by a landlord or tenant – cov…

Assignments of lease by a landlord or tenant – covenants that run with the land vs personal covenants

deed of covenant on assignment of lease

An important matter which needs to be considered when a lease is assigned by either a landlord (selling the land) or tenant, is which lease covenants are enforceable against a purchaser of the land or an assignee of the tenant.

Generally, lease covenants that run with the land will bind a purchaser of the land or an assignee of the tenant, and covenants which are personal in nature will only bind the original landlord and tenant unless expressly assigned.

Covenants that run with the land

A lease covenant will bind a purchaser of the land or an assignee of the tenant if the covenant ‘touches and concerns’ the land.

Although there is no exhaustive test, generally a lease covenant will touch and concern the land if the covenant:

affects the nature, quality, or value of the land, or the mode of using or enjoying the land; and

is not otherwise expressed to be personal.

Some examples of covenants which 'touch and concern' the land are:

Covenants that are personal in nature

A covenant that is personal in nature will only bind the parties who first entered into the obligation, unless expressly assigned.

Side agreements (including incentive deeds) or licences which grant rights separate to the lease, are likely to be considered as personal and only bind the original landlord and tenant.

Some examples of lease covenants which have been held not to touch and concern the land are:

landlord’s covenant to sell its interest in the land

landlord’s covenant to purchase tenant's fixtures

landlord’s obligation to return the tenant’s security deposit at the expiration of the lease

tenant’s option to purchase the land

Each case will need to be considered depending on the particular facts and the legislation applying in the relevant state.

Assignments of lease by tenants

Most leases require tenants to obtain the prior consent of the landlord and enter into a deed of consent to assignment of lease (under which the tenant assigns its lease covenants to the assignee), before assigning a lease.

In such cases, all the lease covenants are expressly assigned to, and enforceable against, an assignee.

Assignments of lease by landlords

In contrast, leases do not usually contain any restriction on landlords selling the land or any obligation regarding assigning the lease covenants to a purchaser. Unless expressly assigned, only covenants that run with the land are enforceable against a purchaser of the land.

Recommendations

In order to avoid any uncertainty as to which covenants will bind a purchaser of the land or an assignee of the tenant, leases and side agreements should be carefully drafted.

If the parties intend for personal covenants to also bind a purchaser of the land or an assignee of the tenant, an obligation must be imposed on the assignor to ensure that the purchaser/assignee and subsequent purchasers/assignees enter into a deed with the remaining party, agreeing to be bound by and perform all relevant covenants.

Authors: Natasha Zusman and Stella Sun

Contributing author: Melissa Potter

Our expertise

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Deed of Covenant

  • 1. What is a Deed of Covenant?
  • 2. What Does Signing a Deed of Covenant Mean?
  • 3. Direct Deed of Covenant
  • 4. Deed of Covenant Fee
  • 5. Deed of Covenant Template
  • 6. Do I Need to Sign a Deed of Covenant?

What is a Deed of Covenant?

Largely affecting leasehold properties, a Deed of Covenant is a legal document which states that the leaseholder agrees to undertake an obligation or series of obligations laid out by the freeholder (or landlord).

The Deed is essentially the document that lays out the covenants (or promises) that should be adhered to when a new leasehold property owner takes control.

Having this document in place serves to protect the freeholder and management company as leaseholders are legally bound by the clauses.

Covenants are broadly divided into 2 types, positive and negative:

Positive Covenants

Leaseholders are required to carry obligations, often aimed at creating a pleasant living environment for all residing within the development.  These can include:

  • Agreeing to certain funds being spent on maintenance;
  • Agreeing to larger works (often subject to committee discussion);
  • Paying service charges promptly;
  • Keeping communal areas in good condition;
  • Agreeing that the external parts of the property are maintained (essential repairs and painting for example).

Negative Covenants

Leaseholders are effectively barred from certain acts across the property such as sub-letting, holiday or service accommodation lets.

Owning pets, subletting, running a commercial business, or making excessive noise after certain hours of the day are other common negative covenants.

There may also be restrictions on accessing certain parts of the development where the leasehold property is located.  These are known as easement restrictions.

What Does Signing a Deed of Covenant Mean?

When the Deed of Covenant is signed upon sale of a leasehold property, both the positive and negative covenants are passed from the seller to the new buyer (and leaseholder).

In effect, it’s a contract issued by the freeholder that obliges the new leaseholder to abide by the covenants.

Breaching any terms contained within the Deed of Covenant could result in a claim in damages and quite possibly a court injunction.

With leasehold properties within the freehold being so different, every Deed of Covenant may have its own nuances.

This is why it’s crucial to have a qualified conveyancer/conveyancing solicitor with suitable expertise to closely examine this and other legal documentation before you sign.

For example, it’s worth checking if there are any attached certificates of compliance and what the implications would be if so.

Problems could sometimes arise if one is dependent on the other.  For example, if there is a restriction on the Register of Title, a certificate of compliance be required before formal registration can happen.  Here, it must be demonstrated that specific clauses have been adhered to.

As with the house sale contract and other key legal documents, the Deed of Covenant must also be signed in the presence of an independent witness (over the age of 18).

Direct Deed of Covenant

If a leaseholder was to sublet their property (with the freeholder’s permission), the Deed of Covenant may state that a separate Deed of Covenant may be required between the subtenant and the landlord.

This is known as a Direct Deed of Covenant as it does not impose any obligations on all the other leaseholders.

Deed of Covenant Fee

You would need to check whether the freeholder will charge a fee for issuing a Deed of Covenant (to add to the other house sale costs ).

This may form part of the administrative charge that some make when forwarding the leasehold management pack to the conveyancer.

Unfortunately, there is not a set fee for this (but it usually does not exceed £300).

There are likely to be further fees charged by conveyancers.  These costs will often directly correspond to the complexity of the document itself.  For example, if the lease documentation is older, more detailed legal work may be necessary (at a proportionate cost).

The deed of covenant is likely to be considered a disbursement , or a supplementary cost to standard conveyancing fees .  Note that there may also be Notice of Transfer and Notice of Charge fees.

Deed of Covenant Template

During the conveyancing process , the seller’s solicitor will usually forward a draft Deed to the buyer’s solicitor to review.  On the back of any enquiries and ‘ironing out’ of any issues, the buyer’s solicitor will then create the final Deed.

Within the Deed, the freeholder would typically be referred to as the Covenantor and the leaseholder as the Covenantee.

Click on the image below to view a PDF sample template.  We would never advise copying and pasting the contents of this sample without qualified legal advice.

The Deed of Covenant will typically be attached to the lease or form part of the same documentation leasehold management pack.  It will be included in the leasehold management pack alongside the LPE1 Law Society Leasehold Form .

Broadly, the Deed of Covenant will contain the following (add more from doc) :

  • Freehold and leasehold details (address, postcode and HM Land Registry title numbers);
  • Background information on the contents of the Deed
  • Parties to the agreement (full names and addresses of the covenantor* and covenantee**);
  • Definitions and references are provided, particularly to terms that may be repeated or potentially ambiguous;
  • Details on the terms of the covenant which will be specifically drafted by the conveyancer which state what will be the requirements of the Deed.  Each clause will be drafted so there is nothing can legally be called into question;
  • An execution clause and signature area to ensure that the terms contained are legally binding.

*covenantor = the person(s) / company that agrees and signs the terms of the Deed of Covenant.

**covenantee = the person(s) / company that issues the Deed of Covenant.

Do I Need to Sign a Deed of Covenant?

Most leases state that a signed Deed of Covenant is compulsory upon any transfer, assignment, or underletting of a leasehold property.

A wet signature will typically be required (this may also need to be independently witnessed).

Not signing the Deed effectively means a breach of contract.  In such circumstances, the freeholder will often refuse to accept any service charges or ground rents (as this could affect their ability to enforce future covenants in the lease).

The consequence will be that these payments accumulate.  Furthermore, there could be additional financial penalties and interest charges down the line.  When it comes to selling the property, the freeholder can lawfully claim for this amount before allowing for things to happen.

Regardless of this, Property Solvers recommend that the document should only be signed after consultation with a suitable conveyancer / conveyancing solicitor .

Posts in this Series:

  • 1. Possessory Title
  • 2. Title Absolute
  • 3. Deed of Covenant
  • 4. Overage Clauses – The Complete Guide
  • 5. Restrictive Covenants – The Complete Guide
  • What You Need to Know">6. Squatters Rights – What You Need to Know

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Andrew Weir

Andrew Weir

Head of conveyancing, [email protected], leasehold flats – do you need a deed of covenant.

deed of covenant on assignment of lease

Navigating the world of real estate and property law can be complex, especially when it comes to understanding key terms like “covenants” and “deed of covenant”. In our comprehensive guide, we will delve deep into covenants, exploring their types, their role in leasehold titles, and the necessity of a deed of covenant.

What is a covenant?

In simple terms, a covenant is a legal promise that you will carry out certain acts or refrain from doing certain things.

How many types of covenants are there?

There are two types of covenants:

Positive covenants

Positive covenants are acts that you must carry out such as paying service charges, repainting every five years, keeping the property in good repair, and so on.

Negative Covenants

Negative covenants however stop you from doing certain acts with the property such as not allowing you to carry out illegal acts or cause a nuisance,  or not allowing you to sublet the property.

So it is important that you read the covenants in the lease carefully so that you understand what restrictions apply when you agree to buy a leasehold property.

What is the deed of covenant for?

With Freehold titles, positive covenants do not pass with the land and so are not enforceable upon any new owner of the property.

However, with leasehold titles positive obligations are automatically binding upon successors in title to both landlords and tenants.

When buying a leasehold property, the deed of covenant acts to confer rights between the parties or protect what is known as ‘Privity of Contract’. This principle provides that a contract cannot confer rights or impose obligations upon any person who is not a party to the contract.

The deed of covenant is therefore used to create a direct contract between the landlord/managing agents and the new leaseholder.

This way, the landlord/managing agents are able to go directly to the new leaseholder to collect ground rent and service charge payments, as well as being able to enforce the covenants on the new leaseholder directly.

Why is the deed of covenant needed?

Aside from the main reason mentioned above, the majority of leases today state that a deed of covenant is required upon any transfer, assignment or underletting of the property.

Since this deed forms one of the obligations in the lease, failure to enter into such a deed amounts to a breach of the lease.

In many cases, it also means that the managing agents/landlord will not accept any of your payments for service charges or ground rent until the deed is submitted since if they accepted the money when there has been a breach, this could waive the landlords’ right in future to enforce the covenants in the lease.

If this happens, even though a leaseholder is sending your service charge and ground rent payments as required, since the management agents/landlord will not accept this money due to a breach of the lease, you can end up getting into arrears with your payments which could lead to more substantial penalties and interest.

But is a deed of covenant still needed?

There has been much debate in the legal world as to whether deeds of covenant still have any useful application in modern-day law.

Under the Landlord & Tenant (Covenants) Act 1995, Section 12 essentially states that on any assignment of the Lease, the benefit and burden of covenants made by the tenant with the third party pass to the tenant’s assignee – so privity of contract is still maintained between the new leaseholder and the landlord/management company and so a deed of covenant will most likely be superfluous to the entire process.

There is also Section 78(1) of the Law of Property Act 1925 which states that in respect of all covenants entered into after the Act came into effect, it is implied that the covenants are to run with the land unless the covenant itself EXPRESSLY states that the covenant is EXCLUSIVELY for the current landlord/management company and the current leaseholder.

Conclusion – Deed of Covenant

Where your lease states that a deed of covenant is required, you need to sign this in order to comply with all of the obligations set out within the Lease you are now taking over.

While legally speaking providing for such a deed may be unnecessary, it has become common practice for leases to require this and the practical implications of not supplying this deed could cause you to be in breach of your lease.

If you are currently looking at buying a leasehold property , you are more than welcome to contact us here at Anthony Gold and one of our experienced conveyancing solicitors will be able to advise you on the process and implications of the property in question.

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4 thoughts on “ Leasehold Flats – Do You Need a Deed of Covenant? ”

I am current currently in a complaint position with the leaseholder/Management company for my daughters Lea should in Weymouth

There are differences in the annual reconcile between the main lease contract and the Deed of covenant I.e the main lease (landlord) states that in the event that an underspend of the SC gains the estimate is returned to the payee the attached Management Company states it goes to the MC sinking fund. Can I request a review / advise of the documents

You are welcome to contact us.

Love this information about property law absolutely Brilliant

great article

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COMMENTS

  1. What Is a Deed of Assignment?

    In real property transactions, a deed of assignment is a legal document that transfers the interest of the owner of that interest to the person to whom it is assigned, the assignee. When ownership is transferred, the deed of assignment show...

  2. Understanding Property Deed Transfers and Types

    A deed is a legal document that transfers property ownership from one person to another. Most deeds have covenants, or guarantees, that describe the legal promises the previous owners make to the new ones about the condition of the property...

  3. How Do You Make a Notary Letter?

    A notarized letter serves as an authoritative document for important transactions, such as a deed or a lease. A notary letter should be addressed in the same format of any letter: the sender’s address information on the right side of the pa...

  4. Deed of covenant by assignee of residential lease with landlord and

    This deed of covenant is for use where an "old" lease under the Landlord and Tenant (Covenants) Act 1995 is assigned and the landlord and the management

  5. Why would a landlord insist on a deed of covenant from an assignee

    Can you please confirm why a landlord's solicitors insist on requiring a deed of covenant upon assignment of a commercial lease from the new

  6. Deed of Covenant on a Leasehold Property?

    Typically, the lease will include a condition that a deed of covenant is required upon any transfer, assignment or underletting of the property.

  7. Assignments of lease by a landlord or tenant

    Most leases require tenants to obtain the prior consent of the landlord and enter into a deed of consent to assignment of lease (under which the

  8. Deed of Covenant

    Most leases state that a signed Deed of Covenant is compulsory upon any transfer, assignment, or underletting of a leasehold

  9. What is a Deed of Covenant for a Lease? Your Top Questions

    99% of deeds of covenant are deeds of covenant about a property, mainly being leasehold property. They are promises that the new tenant will

  10. Leasehold Flats

    When buying a leasehold property, the deed of covenant acts to confer rights between the parties or protect what is known as 'Privity of

  11. Deed of covenant by assignee of residential lease (old tenancy)

    The expression tenant covenants has the meaning given to it by the Landlord and. Tenant (Covenants) Act 1995. References to completion of the assignment (and

  12. Deed of covenant by assignee of residential ...

    The expression tenant covenants has the meaning given to it by the Landlord and. Tenant (Covenants) Act 1995. References to completion of the assignment (and

  13. DEED OF COVENANT

    the conditions contained in the Lease. 2.2. The Lease contains a proviso that on every assignment the Assignee shall enter into a covenant with the Landlord

  14. Deed of Covenant Sample Clauses

    . · in the case of an assignment, the assignee must execute a deed of covenant with the Lessor agreeing to perform the Lessee's obligations under this lease, but