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Landlord Releases - The Pressure is On!
As a landlord, you might expect that once you have assigned your interest in a lease you will no longer be liable for any of the landlord covenants that you entered into when granting the lease. Unfortunately, the recent case of Reeves & Downing v Sandhu (2015)Ch D 13/01/2015 has demonstrated that unfortunately landlords are not.
In the case of Reeves, the tenants sued their original landlord for losses arising out of a fire at the property and a failure by the current landlord to insure the premises in accordance with their obligation to do so under the lease. The tenants obtained judgment by default against their original landlord and petitioned for their bankruptcy. The landlord was initially able to have the judgment and petition set aside but, on appeal, the decision and petition were both reinstated!
The original landlord’s main argument was that he was no longer the landlord of the demised property and, as such, it should be the current landlord that bears the liability.
This argument was not accepted by the appellant Judge who stated that their position overlooked two crucial facts. As the original landlord, he had assumed a contractual liability relating to the landlord covenants of the lease for the entire duration of the term and, at the time of assignment, the landlord had not obtained a release from his liability under the Landlord and Tenant (Covenants) Act 1995.
Given this continued liability, how can landlords ensure that they won’t remain liable for the landlord covenants once they have assigned their interest in the lease? In post-1995 Act leases, a landlord can obtain release from their liability in two ways.
Firstly, it is possible for provision to be made in the landlord covenants of a lease that the landlord will be released from their liability on assignment.
The second way to obtain a release is provided for under sections 6 and 8 of the 1995 Act. Either before, or within four weeks of an assignment, notice in a prescribed form must be served on the tenant informing him that the assignment is taking place. The notice should request a release for the landlord from the landlord covenants. The tenant has the right to serve a counter-notice within 4 weeks of service of the landlord’s notice.
The landlord will be released from liability as from the date of assignment if the tenant does not serve a counter-notice within the required time, accepts the landlord’s request, or the landlord obtains a declaration from the Court that it is reasonable for him to be released.
If the landlord fails to obtain a release in one of the above ways, he will remain jointly and severally liable for the landlord covenants with the new landlord. As we can see from the case of Reeves, failure to obtain a release can have potentially disastrous effects
We at Hughes Paddison can help with ensuring Landlords get this right and avoid such disastrous consequences.