Leases - Covenants

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This article is a topic within the subject Property, Equity and Trusts 2.

Contents

Required Reading

Edgeworth et all, Sackville and Neave's Property Law Cases and Materials, 8th edition, Lexis Nexis, 2008, pp. 761-771 [8.52-8.71]; 773-784[8.76-8.91]; 792-798 [8.103-8.117].

Introduction

[1] A covenant (in the context of a lease) refers to any promise in a lease or agreement for lease rather than a promise under seal. They are the rights and obligations of the landlord and tenant in a lease. Covenants in leases may be derived from:

  1. Covenants implied by law.
  2. Covenants implied by statute.
  3. Covenants by necessary implication.
  4. Express covenants.

Covenants implied by law

[2] There are certain covenants which are automatically implied by law. These can be divided for those covenants enforced on the landlord and those enforced on the tenant.

  • Covenants enforced on the landlord:
    • Covenant for quiet enjoyment.
    • Covenant not to derogate from a grant.
    • Covenant that furnished dwellings be fit for habitation (now overridden by legislation, see below)
  • Covenants enforced on the tenant:
    • Covenant to use the premises in a tenant-like manner.
    • Covenant to yield up the premises at the expiry of the lease.
    • Covenant to cultivate agricultural land in a husband-like manner (agricultural leases only).

Covenants implied by law will not apply if either an express covenant or a covenant implied by statute to the contrary (ie, they can be overridden).

Covenants enforced on the landlord

Covenant for quiet enjoyment

[3] A tenant has the right to occupy and enjoy the premises without disturbance or interference from the lessor or those for whom they are responsible.[4] This duty arises in all leases.[5]

Acts which have been held to break this covenant are:

  • Trespasses such as the removal of the windows/doors of the premises.[6]
  • Cutting off the tenant’s gas and electricity.[7]
  • Overflow of water from blocked pipes on the landlord’s adjacent property.[8]
  • Repeated threats to move the tenant.[9]
  • Erection of hoarding outside a shop for structural repairs which caused damage to the business.[10]

Acts which are not a breach of covenant include:

  • Writing letters demanding that the tenant vacate.[11]
  • Interference with the tenant’s privacy by way of an external staircase of a building.[12]

Covenant not to derogate from a grant

[13] Derogation from grant refers to when a landlord leases a part of the premises to a tenant (the grant), and then uses the remaining premises in a way which makes the leased premises unfit (or less fit)[14] for carrying out the business it was intended for.[15] In other words, it is when a landlord uses the rest of his property in a way which undermines the business of his tenant.

A landlord will be at fault for breach of this covenant if this two part test is satisfied:

  1. Landlord must own adjoining premises
  2. Landlord must have knowledge at the time of the lease that the demised (leased) premises were to be used for some special purpose and the use of the retained (his own remaining) premises interfered with this special purpose.

Acts which have been held to break the covenant include:

  • Where landlord granted a lease for the purpose of storing explosives, and then granted a lease over adjoining premises for a purpose which jeopardized the tenant’s statutory license.[16]
  • If landlord uses retained premises in a way which blocks the flow of air to the adjacent tenant’s premises, if the tenant requires ventilation for the ordinary conduct of his/her business.[17]
  • If landlord demolished buildings on adjacent land and tenants have goods stolen because the work has rendered the tenants vulnerable to burglary.[18]

Liability for acts of others

[19] The question arises whether a landlord is liable for the actions of his other tenants (ie, is a landlord liable if one tenant disturbed the other's right to quiet enjoyment/made the other's premises less fit for the intended business).

This was discussed in Aussie Traveller v Marklea:

  • A landlord will be responsible for acts done on his land if they were reasonably foreseeable.

This principle was qualified in Fanigun Pty Ltd v Woolworths Ltd,[20] which held that the landlord will only be responsible if he is in a position to take some remedial action against the covenant-breaking tenant (ie, no liability if there is nothing the landlord can do).

Landlord's obligation to repair

[21] At common law, the landlord has no obligation to repair.[22]

  • However, there has been an increasing tendency to imply an obligation to repair where this is seen to be necessary to give business efficacy to the agreement.[23]
  • The more detailed and comprehensive the contract the less ground there is for supposing that the parties have failed to address their minds to the question at issue. It is not enough that it is reasonable to imply a term; it must be necessary to do so to give business efficacy to the contract.[24]
  • The landlord may be under an implied obligation to repair the common areas of the building which have been reserved for the use of all tenants such as common access ways and stairs.[25]

Duty to take reasonable care for the safety of occupants

[26] Although there is no general duty on the part of the landlord to provide premises fit for the purpose of the lease or to provide premises fit for habitation, the landlord is under a duty to take reasonable care for the safety of the tenant and members of the household.[27] This is a duty in negligence, and is distinct from covenants etc.

This was discussed in Jones v Bartlett:

  • The landlord has a duty to repair defects that are known or that should reasonably have been known.
  • An object will be defective if it is dangerous when being used in a regular fashion, and ordinarily would not be dangerous when so used.
  • The landlord does not need to make regular inspections for defects during the tenancy. The steps a landlord is required to undertake are only those that would be taken in the course of "ordinary reasonable human conduct".
  • In regards to dangerous defects of which the landlord had known or reasonably should should have known, the landlord will be responsible not only for tenants but also third parties.

Covenants enforced on the tenant

Covenant to use the premises in a tenant-like manner

[28] The tenant is required to use the premises in the manner of a reasonable tenant.[29]

  • This is not not a general repair responsibility, but rather about simply taking care of the house in an ordinary manner (eg, keeping it clean, not damaging it etc).

However, this covenant appears to be overridden by s 84 (1)(b) of the Conveyancing Act 1919 (NSW), which implies a covenant in every lease, subject to any contrary agreement between the parties, for the tenant to keep the premises in “good and tenantable repair”. See implied covenants by statute below for more details.

Covenant to yield up possession

[30] At the expiration of the term, the lessee is bound to deliver vacant possession to the lessor.

  • This obligation extends to subtenants and other occupiers and thus the tenant must see that all such persons have vacated the premises.

Covenants Implied by Statute

[31] Implied covenants at common law have been modified by ss 84 and 85 of the Conveyancing Act.

  • Under s 74 the covenants implied by statute operated unless expressly negatived, varied or extended by an express declaration.
  • However, some statutes, such as the Residential Tenancies Act, specify that their provisions cannot be overridden by express covenants.

The covenants implied by statute are as follows:

  • s 84 - covenant to repair:
    • A general obligation to keep the premises in “good and tenantable repair”.
    • Exceptions include situations which involve war damage, fire, flood, lightning, storm and tempest, and reasonable wear and tear.
  • s 85 (1) (a-c) - covenant to allow landlord to inspect and repair:
    • s 85 (1) (a): the landlord may only enter twice a year and then only at a reasonable time of the day upon giving the tenant two days previous notice.
    • s 85 (1) (b): the landlord may also serve a notice in writing on the tenant requiring any repairs to be carried out within a reasonable time. If the tenant fails to repair, the landlord has an implied right to enter and repair.
    • s 85 (1) (c): where repairs are of a structural nature or required by statutory authorities, the landlord may enter and carry them out at any time.
  • s 85 (1) (d) - covenant to re-enter for non-payment of rent:
    • Landlord may re-enter and forfeit the lease if the rent is in arrears for at least one month.
  • s 85 (1) (d) - covenant to re-enter breach of non-rental covenants:
    • A landlord may re-enter the premises and forfeit the lease when:
      1. Where the tenant has breached any covenant, whether express or implied, for a period of two months; or
      2. The tenant has failed to repair the premises after notice.

Other statutes impose further covenants.

Covenants by necessary implication

[32] Covenants may need to be implied in order to give effect to the intention of the parties gathered from the instrument as a whole. The general rule is (as is the usual for implied terms for contracts) that a term can only be implied if it is something so obvious that it goes without saying.[33]

Express covenants

The parties can have an express covenant agreeing to pretty much anything. Some of the common express covenants are discussed below.

Covenant to Repair

[34] Both the landlord or the tenant may covenant to repair. In assessing the extent of the repair obligation, the factors that are taken into account include:[35]

  • The nature and locality of the premises
  • Their age
  • The condition of the premises at the commencement of the lease.
  • A number of other commonsense considerations.

There is a distinction between repair and renewal. Unless explicitly stated, a covenant to repair does not oblige the covenantor to renew or replace things.[36]

Covenant against subletting

[37] A lessee is entitled to grant a sublease or to assign the lease to another. However, by making the tenant sign a covenant against assignment or subletting, a landlord may restrict the tenant’s right to do so (this is usually done because they care about who is in occupation of the premises).

The covenant may be absolute or qualified.

Absolute

An absolute covenant against subletting prohibits any dealing with the lease by the tenant.

  • The landlord may always waive the covenant by specifically consenting to a particular assignment if he desires.
    • Unlike in the past, such a consent will now not constitute the waiving of the covenant completely. The landlord only consents to the particular assignment, thus retaining his rights for the future.[38]
  • This covenant is strictly construed, meaning that it will only be breached if the tenant breached it willingly. If the leasehold is disposed of through a will or because of bankruptcy etc, it will not constitute a breach of covenant.

Qualified

Usually, a covenant against subletting or assignment is a qualified prohibition which prevents the right to assignment or sublet without the consent of the lessor.

  • At common law, the a landlord can be completely arbitrary in denying subleases and assignments.
  • However, the Conveyancing Act 1919 (NSW) has changed that:
    • s 133B - consent cannot be withheld unreasonably.
    • s 128 - no fine or sum of money can be charged for the granting of consent.


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References

Textbook refers to Edgeworth et all, Sackville and Neave's Property Law Cases and Materials, 8th edition, Lexis Nexis, 2008.

  1. Textbook, p. 761 [8.52-8.53].
  2. Textbook, p. 762 [8.54].
  3. Textbook, pp. 762-4 [8.55-8.59].
  4. Hudson v Cripps [1896] 1 Ch 265.
  5. Markham v Paget [1908] 1 Ch 697.
  6. Lavender v Betts [1942] 2 All ER 72.
  7. Perera v Vandiyar [1953] All ER 1109.
  8. Martins Camera Corner v Hotel Mayfair [1976] 2 NSWLR 15.
  9. Kenny v Preen [1963] 1 QB 499.
  10. J C Berndt Pty Ltd v Walsh [1969] SASR 34.
  11. David Jones v Leventhal (1927) 40 CLR 357.
  12. Browne v Flower [1911] 2 Ch 219.
  13. Textbook, pp. 764-6 [8.60-8.64].
  14. Lend Lease Development v Zemlicka (1985) 3 NSWLR 207.
  15. Aldin v Latimer, Clark, Muirhead [1921] 2 Ch 437, 444.
  16. Harmer v Jumbil (Nigeria) Tin Areas Ltd [1921] 1 Ch 200.
  17. Cable v Bryant [1908] 1 Ch 259.
  18. Lend Lease Development v Zemlicka (1985) 3 NSWLR 207.
  19. Textbook, pp. 766-71 [8.65-8.71].
  20. [2006] QSC 28.
  21. Textbook, pp. 773-4 [8.76-8.77].
  22. Liverpool City Council v Irwin [1977] AC 329.
  23. Barrett v Lounova [1990] 1 QB 348; Homebush Abattoir Corporation v Bermia (1991) 22 NSW 605.
  24. Codelfa Construction v State Rail Authority of New South Wales (1982) 149 CLR 337 (LAWS1075 - Contracts case).
  25. Liverpool City Council v Irwin [1977] AC 329.
  26. Textbook, p. 774 [8.78].
  27. Jones v Bartlett (2000) 205 CLR 166; Northern Sandblasting v Harris (1977) 188 CLR 313.
  28. Textbook, p. 781 [8.82].
  29. Warren v Keen [1954] 1 QB 15.
  30. Textbook, p. 781 [8.83].
  31. Textbook, pp. 781-2 [8.84-8.87].
  32. Textbook, p. 783 [8.88].
  33. Karaggianis v Malltown Pty Ltd (1979) 21 SASR 381.
  34. Textbook, pp. 783 [8.90].
  35. Holding & Management Ltd v Property Holding & Investment Trust plc [1990] 1 All ER 938, 945.
  36. Lister v Lane [1893] 2 QB 212; Lurcott v Wakely @ Wheeler [1911] 1 KB 905.
  37. Textbook, pp. 792-6 [8.103-8.111].
  38. Conveyancing Act 1919 (NSW), s 120, s 123.
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