A recent case decided by the Court of Appeal has struck down attempts by a Landlord using provisions in a Lease, to guarantee for itself an absolute release from liability on transfer of its reversionary interest.
In the case in question a Landlord who was itself a tenant under a long headlease had sublet at a substantial premium. In the sublease it covenanted to pay the rent reserved by the headlease. That sublease limited the Landlord's covenants with wording "but not … so as to be liable after the Landlord has disposed of its interest in the property".
Shortly after the grant of the sublease the Landlord assigned the headlease to a third party who failed to pay the rent. Faced with an action from the head landlord for forfeiture the sub-tenant sued the original Landlord for damages for all losses arising out of the forfeiture.
The Court of Appeal ruled that the wording in the sub-lease was ineffective to protect the Landlord from being sued. Its reasoning was that the covenant was not a personal covenant by the Landlord and that there were relevant anti-avoidance provisions in the Landlord and Tenant (Covenants) Act 1995.
It is now clear that the only way a Landlord can avoid continuing to be liable after transferring its reversion to a third party is either to use the Landlord and Tenant (Covenants) Act 1995 mechanism of tenant controlled and court supervised release or to legitimately classify a covenant as personal to that Landlord only – for example a Landlord's development obligation in an Agreement for Lease.
