"Deed of covenant" required for sale of leasehold

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  • "Deed of covenant" required for sale of leasehold

    Good morning all

    First time I have dealt with conveyancing in my role as director of the freeholder and management company. One of the flats is being sold, and I am being asked by the buyer's solicitor "is a deed of covenant required" (i.e. to transfer the lease)?

    I am competent enough to read the lease, and there is nothing that jumps out immediately to suggest there is such a requirement, but can those better informed suggest (a) what wording I should be looking for or (b) where else such a requirement might lurk?

    As a matter of intellectual interest, what would a separate deed of covenant do, and why is one required (or not, as the case might be).

    Thanks in anticipation

    A

  • #2
    Follow up to Deed of Covenant question!

    Just doing my own googling...am I right in thinking that Landlord and Tenant (Covenants) Act 1995 means that, on any demise (aka sale!) of a lease by Old Tenant to New Tenant, New Tenant is bound by the terms of the lease, without having to sign a deed of covenant?

    If this is so, and the (pre 1995) lease does specifically require a deed of covenant, is it safe to ignore the lease requirement?

    A

    Comment


    • #3
      Two related threads have been merged.
      I also post as Mars_Mug when not moderating

      Comment


      • #4
        We write our own.

        You wil find that solicitors will have them sign ther own deed, but
        I insist ours is signed.

        Our Copy below may be of use to you.

        You DO have a copy of ALL the flats leases, don't you ?
        ___________________________________________

         
         
        THIS LICENCE is made the day of 2013 between:
         
        xxxxMANAGEMENT COMPANY LIMITED of xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx ("the Freeholder")

        Sellersname
        of Flat x, addresss ("the Lessee")

        Buyers name
        ("the Assignee")

        WHEREAS
        :-
        This deed is supplemental to the Lease whereby the Landlord demised the Flat to the Term therein defined to the Original Lessee subject to the Lessee’s covenant and conditions therein contained and incorporates the definitions therein

        The Lease contains a covenant not to assign the Flat without the written consent of the Landlord and provides that on assignment the Assignee shall enter into a direct covenant with the Landlord to observe and perform the Lessee’s covenants and conditions therein
        The Lease is now vested in the Lessee who wishes to assign his estate and interest therein to the Assignee

        PARTICULARS
        :-
        Date
        The Flat x at address as registered at HM Land Registry under title number xxxxx

        The Freeholder xxxxxxManagement Company Limited
        The Lessee ( name )
        The Assignee ( name )The Lease dated ( this is the date the firat lease was made for the flat ) and made between (1) (original seller ) (2) (first person to buy flat )
         
        NOW THIS DEED WITNESSETH as follows:-
        The Landlord grants a Licence to the Lessee to assign the Lease to the Assignee for the residue of the term created thereby
        The Licence hereby granted is restricted to the particular assignment hereby authorised and the covenants contained in the Lease against assignment shall otherwise remain in full force and effect

        The Assignee hereby covenants with the Landlord that:-
        Following the date of the assignment hereby authorised and thenceforth during the remainder of the term created by the Lease the Assignee will pay the rent and perform and observe the covenants on the part of the Lessee and the conditions therein contained

        ( This Following para ensures any management agreement to input
        money or increases, prior to sale of flat , are payable by the new owner )

        In the event that following the date of the assignment hereby authorised any sum or sums shall properly fall due for payment by the Lessee to the Landlord pursuant to the Lease in respect of any period prior to such date whether by way of rent or otherwise the Assignee shall pay such sum or sums to the Landlord forthwith upon their falling due

        This Licence will cease to have effect unless the authorised assignment is completed within three months from its date
        In this Licence words importing the singular shall include the plural and vice versa and where the expression "the Assignee" comprises two or more persons the covenants entered into by them shall be joint and several

        SIGNED as a Deed by the said xxxxxxxx
        MANAGEMENT LTD
        acting by a Director and Secretary
         
        SIGNED AND DELIVERED as a
        Deed by the said ( buyers name )
        in the presence of:-
        Witness:-
        Signature

        Name

        Address

        Comment


        • #5
          >>> You DO have a copy of ALL the flats leases, don't you ?

          Sadly not, and have never managed to track down where they might be (granted back in the 90s, and probably mouldering in some lawyer's safe somewhere). Any ideas where I can obtain copies?

          Re the deed of covenant, various sources I am reading (in particular, the Land Registry at

          http://www.landregistry.gov.uk/profe...ctice-guide-48

          states that "Unless a contrary intention is expressed, there is implied into a transfer of a registered lease that is an old tenancy a covenant by the transferee that during the residue of the term granted by the registered lease the transferee and the transferee’s successors in title will: pay the rent; and comply with the covenants and conditions in the lease (etc.)...which is all we want really.

          Given this, is there any harm in NOT having a deed of covenant signed (for example, is the law more general and thus more beneficial)?...or if there is a requirement to have a deed per the lease and we *don't* get one, does the law somehow fall away?

          A

          Comment


          • #6
            Originally posted by aguila View Post
            One of the flats is being sold, and I am being asked by the buyer's solicitor "is a deed of covenant required" (i.e. to transfer the lease)?
            At which the solicitor deserves a punch in the face for not bothering to read the lease that he is supposed to understand and protect and advise his client. He shouldn't be asking you he should know. this may seem strong but its just laziness and taking someones money and not doing the work.

            Now, A , read the lease and look for the word assignment and see what the lease requires, if anything.


            You can get copy leases form the land registry.
            Based on the information posted, I offer my thoughts.Any action you then take is your liability. While commending individual effort, there is no substitute for a thorough review of documents and facts by paid for professional advisers.

            Comment


            • #7
              Originally posted by leaseholdanswers View Post
              At which the solicitor deserves a punch in the face for not bothering to read the lease that he is supposed to understand
              Hmm, yes, tempting...

              The lease seems fairly clear, now I have read it: "on any assignment or transfer and if so required by the Lessor...to procure that the assignee...enters into a direct covenant with the Lessor to pay the rents...perform and observe the covenants...in the form of the draft Deed of Covenant set out in [schedule X"]

              ...so in fairness to the buyer's lawyer, it does say "if so required by the Lessor"...but begs the question why is this optional and is or isn't it a good idea for the Lessor (i.e. me!) given statute which appears to protect me anyway?

              A supplemental question is that the lease was originally entered into by X, a third party from whom at some point the current freeholder (let's call it Aguila Management or AM) bought the freehold and presumably the benefit of the underlying leases? Clearly if we use the form as set out in the lease (which is about one paragraph!) it refers to X, rather than AM?

              Comment


              • #8
                Originally posted by aguila View Post
                1) and if so required by the Lessor

                2) the lease (which is about one paragraph!) it refers to X, rather than AM?
                1) If the buyer does NOT sign a deed to say he will obey the lease,
                to pay the service charges, to be quiet after 11pm etc, then
                don't be surprised when he says he does not have to pay you any
                service charges, as he made no promises to do so !

                You NEED a deed signed, same as mine above or very similar.

                2) The transfer of the lease always has the First named instigator
                of the lease on it, and the second name it was tansfered to.
                The lease cannot be changed to read "A.M."

                The buyer is purchasing the lease. The lease remains unaltered from
                when it was first sold.
                It's a series of papers, that gets handed over to every new flat
                purchaser. You buy the lease in it's original form, it does not change.

                The licence to assign is the only thing that proves the Lease
                ( the bundle of papers ) has been bought by the purchaser.
                The Deed to abide by the lease also shows the lease has changed hands.

                The lease is a commodity, an item, and entity, a series of paper
                that pases from one person to another, for a fee.
                You do not buy a flat, you buy the lease ( the bundle of papers ),
                that entitles you to "rent" the allocated rooms in the building, for
                the term stated, and paid in advance ( £ 150,000 )
                ( And on a 900yr remaining term lease, that's £ 13.88 per month rent,
                for 900 years )

                Think of the lease as a varnished box. The right to own that box,
                and to take care of that box, and to maintain the box in good
                condition is made legal via a deed, and licence to assign that
                box to someone else. The box does not change, the wording
                on it does not change.
                "Made by Chippendale, sold to Lady Ann Worthington-Smythe."

                Same with the lease. It gets transfered to a new owner complete
                with original instigator and first transfered name still written on
                it.
                "Lease sold by Chippendale, sold to Lady Ann Worthington-Smythe"
                but with deed and licence to re-assign sheet attached.

                You do not scratch out Chippendale, or Lady Ann Worthington-Smythe"
                and paint over with current sellers and buyers name on the box!
                and not on the lease either.


                Hope that helps.
                ( excuse spelling mistakes )

                R.a.M.
                Last edited by ram; 24-04-2013, 10:01 AM. Reason: many points added ( reload for latest )

                Comment


                • #9
                  Thanks, that's very helpful, I will get the Deed!

                  However, for my intellectual interest, is the new leaseholder not bound by statute/case law in any case (previous ref to Land Registry guidance etc.)...and if not why would the lease make getting a deed at the option of the lessor?

                  Comment


                  • #10
                    Originally posted by aguila View Post
                    However, for my intellectual interest, is the new leaseholder
                    not bound by statute/case law in any case (previous ref to Land Registry guidance etc.)...and if not why would the lease make getting a deed at the option of the lessor?
                    I cannot answer that.
                    In fact, forget case law, you just need a deed, and not discusions about
                    case law, when a deed is all you need.
                    No deed ,then no licence to assign to new owner.

                    Be very carefull though, as here we have had people just move in,
                    and
                    I never authorised a licence to assign, and solicitors sometimes forget.
                    I make sure they never forget me.

                    You must insist that in your letter to solicitors, that a licence to
                    assign, must, be procured from you before completion.
                    Also tell them that your charge to answer all questionsand to
                    supply the informaton,which can be lots of photocopying, will be
                    say, £ 50, and £ 10 per enquiry for any further questions over
                    their first 20 to 40 question sheet you will be receiving shortly.

                    R.a.M.

                    Comment


                    • #11
                      Originally posted by aguila View Post
                      However, for my intellectual interest, is the new leaseholder not bound by statute/case law in any case (previous ref to Land Registry guidance etc.)...and if not why would the lease make getting a deed at the option of the lessor?
                      To satisfy your curiosity...

                      The position in respect of a lease granted before 1996 is as follows:

                      1. Where A grants a lease to B there is "privity of contract". That means that the covenants are enforceable as a matter of contract and not because there is a relationship of landlord and tenant. The covenants are enforceable by A against B throughout the term of the lease, even after B has ceased to be tenant.

                      2. If B assigns to C then, without more, there is no privity of contract between A and C. However, there is "privity of estate" which arises because there is a relationship of landlord and tenant between A and C. The effect of that is that certain covenants (see 3) are enforceable by A against C, but only while C remains tenant. Once C assigns to D there is neither privity of estate nor privity of contract between A and C, though C will remain liable for any breach of covenant while he was tenant.

                      3. The covenants enforceable under privity of estate are those which "touch and concern the land". It is not necessary to enquire too closely what sort of covenants touch and concern the land because most, if not all, the tenant's covenants in a standard long lease of a flat will touch and concern the land.

                      4. It may be asked: "If on assignment all the covenants are going to be enforceable anyway, why set up privity of contract?". The answer is twofold. First, any doubt is removed as to whether any particular covenant touches and concerns the land. Secondly, the assignee is put on the same footing as the original tenant and made liable for the performance of the covenants even after he ceases to be tenant.

                      Comment


                      • #12
                        Thanks Lawcruncher, your analysis is exceptionally clear and exceptionally helpful...to summarise my understanding, without a deed the lessor still has 99% protection due to the privity of estate and (to demonstrate in this exam question that I have read around the subject!) there are unlikely to be any personal covenants that don't touch the land in the lease (e.g. not to set up a competing business as a property manager...). Getting a deed however, benefits lessor for the possible 1% and extends assignee's liability post his subsequent further assignment.

                        One further question if I may: in our case the original freehold was owned by X (who is the lessor named in the lease). At some point in the past our present company A bought the freehold. In drafting the deed, who should be named as lessor, X (as the named party on the actual piece of paper which is being assigned), or A, the party who now wants the benefit?

                        Is there some wording to capture both, e.g. defined term "Lessor, being A or its predecessor as owner of the freehold property as the case might be" or such like?

                        Guidance welcome

                        A

                        Comment


                        • #13
                          Who is the Lessor ( Freeholder ) now, today.

                          It is your company who is the freeholder / Lessor.

                          Thats the name that goes on the deed.

                          The deed is between the lessor, now, and the buyer.
                          The buyer agrees and promises to obey the lease, and his promise
                          is to the current freeholder/Lessor.

                          The person selling the flat is not the freeholder / lessor.
                          your company is.

                          Comment


                          • #14
                            Originally posted by aguila View Post
                            ...to summarise my understanding, without a deed the lessor still has 99% protection due to the privity of estate and (to demonstrate in this exam question that I have read around the subject!) there are unlikely to be any personal covenants that don't touch the land in the lease (e.g. not to set up a competing business as a property manager...). Getting a deed however, benefits lessor for the possible 1% and extends assignee's liability post his subsequent further assignment.
                            Correct.

                            Originally posted by aguila View Post
                            One further question if I may: in our case the original freehold was owned by X (who is the lessor named in the lease). At some point in the past our present company A bought the freehold. In drafting the deed, who should be named as lessor, X (as the named party on the actual piece of paper which is being assigned), or A, the party who now wants the benefit?

                            Is there some wording to capture both, e.g. defined term "Lessor, being A or its predecessor as owner of the freehold property as the case might be" or such like?

                            Guidance welcome
                            As ram says, you draft the deed with the current landlord named as landlord.

                            Comment

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