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Deeds of Covenant - Why are they needed and what happens if one is not completed?

7th October 2022

In this Legal Update we consider an all too common scenario concerning freehold properties on managed estates that often sell without the incoming owner entering into a Deed of Covenant that is generally required under the terms of the Transfer governing the use of the property and, importantly, the payment of estate or service charges.

The consequence of the above to an estate management company tasked with managing a development of freehold properties, can mean that they are unable to recover estate management charges from the new owners that would ordinarily be payable under the terms of the Transfer.

In order to consider the options available to an estate management company in these circumstances, it is important to consider the applicable position in law.

Positive -v- Negative covenants

Similar to residential long leases, the Transfer deed that governs freehold properties contain a number of covenants, both positive and negative, that the owner of the property must abide by.

As the names suggest, a positive covenant places an obligation on the owner to do something, such as paying an estate maintenance charge, whereas a negative covenant, requires the owner to refrain from undertaking an action such as not to use the property for a specified purpose.

So far so good. However, how both covenants are treated in law is significantly different.

In its simplest form, a covenant is a form of contract. Generally, the rights and liabilities created by a contract can only be enforced by the parties to it but in the case of covenants relating to land, such covenants may be enforced by and/or against those who may not be an original party.

Negative covenants

In English property law, negative restrictive covenants “ run with the land ” and as such, can be enforced by those other than the original parties i.e. successors in title. Here, it does not matter whether or not a Deed of Covenant has been entered into.

Positive covenants   

In terms of positive covenants, and in complete contrast to negative ones, they do not “ run with the land ” and crucially, do not bind any successor in title. However, please note that the position is different where the management charges are payable as an estate rentcharge (see here ).

The Deed of Covenant

In most Transfer deeds for residential freehold properties, there will often be a requirement that the outgoing owner, upon an assignment, must procure that the incoming owner enters into a Deed of Covenant that is usually in a form annexed to the original Transfer.

The “procuring” of the entering into the Deed of Covenant is dealt with by the conveyancers acting on behalf of the parties upon a sale. A competent conveyancer will seek to ensure that the requirements for the Deed of Covenant are dealt with.

The purpose of the Deed of Covenant is a method used to compel a successor in title (the purchaser in a sale) to enter into a deed of covenant directly with the party who has the benefit of the positive covenant (often the management company with the obligation to manage the estate and, importantly, collect charges from the owners to facilitate that). The deed will contain a covenant in the same form as the original positive covenant. Each subsequent sale requires an obligation for the next successor in title to enter into the deed and so on.

More often than not, in order to compel compliance with the Deed of Covenant, the title to the property will usually have a restriction applied to it. The restriction will generally prevent a new owner from registering their interest unless a certificate is supplied to the Land Registry confirming that the requirements for the Deed of Covenant have been complied with. The form of restriction varies from property to property. Some will require a certificate signed by the management company confirming compliance whereas others are left to the conveyancer or a solicitor, usually of the purchaser, to certify that the Deed of Covenant has been entered into.

However, experience suggests that even in spite of the presence of a restriction, new owners frequently manage to register their interest without a Deed of Covenant having been entered into. When this happens, the chain of positive covenants is broken and it can be difficult to enforce the obligation due under a positive covenant.

So, when faced with such a scenario, what can be done to ensure that the estate management charges are paid:

Estate Rentcharges

First and foremost, it would be wise to consider how the maintenance charges are reserved under the terms of the Transfer. If they are reserved as an estate rentcharge, a Deed of Covenant may not necessarily be required as the obligation to pay in these circumstances attaches to the property and not the individual.

Provided that the Transfer obliges the estate management company to undertake a positive covenant to provide services, payment of the estate rentcharge may be enforced under the provision of Section 121 of the Law of Property Act 1925. See our legal update her e  

The previous owner

When the chain of covenants breaks, the last party to give the positive covenant will likely remain ‘on the hook’ to comply with the positive covenant to make payments. It would be most unusual for the chain of covenants to be broken on consecutive occasions so tracing the previous owner, whilst burdensome, is far from impossible.

Pursuing the previous owner will likely be a significant frustration for them when they are being asked to contribute towards charges for a property that they no longer own. Such a scenario will then likely compel the previous owner to at least seek to remedy the position concerning the Deed of Covenant or in the absence of doing so, a money claim could be made seeking a Judgment that could then be enforced against them.

The benefit and burden principle

Under common law, the “benefit and burden” principle provides that if a deed contains a positive covenant and a benefit, then it may be possible to enforce the burden of the positive covenant against a party who enjoys the benefit of it. For example, a new owner may have to contribute towards the maintenance of the estate roads because they enjoy a right of way over them, despite not having not entered into a Deed of Covenant to pay.  

However, the scope to pursue this is limited because:

  the benefit and burden have to be conferred in or by the same transaction;

there must be a reciprocal relationship between the benefit and the burden of the covenant;

a new owner must have the choice to enjoy the benefit and take on the burden of the covenant.

The requirement to enter into a Deed of Covenant upon the sale of a freehold property is very important, albeit it is largely out of the hands of the estate management company and the managing agents that act on their behalf.

Managing agents would be well advised to be fully aware of the transfer/assignment formalities for all of the units that they manage and ensure when responding to pre-sale enquires that they highlight the requirement to enter into a Deed of Covenant, if applicable, and to advise where the same should be sent.   We can assist with clarifying what is and is not required across each development should you/your managers require assistance - see here .

Should the estate management company or their managing agent become aware of a sale having completed and a Deed of Covenant has not been received, immediate enquiries should be undertaken immediately to ascertain the position whilst the transaction is still “fresh” and the parties can be prompted to deal with the formalities.

However, in circumstances where a Deed of Covenant has been missed, all is not lost. The estate management company has the option to either:

Pursue the previous owner under their covenant; or

Seek to establish the “benefit and burden” principle.

Should you have any queries in relation to this week’s Legal Update, please feel free to contact a member of the team on 01435 897297 or [email protected] .

This legal update is provided free of charge for information purposes only; it does not constitute legal advice and should not be relied on as such. No responsibility for the accuracy and/or correctness of the information and commentary set out in the article, or for any consequences of relying on it, is assumed or accepted by any member of KDL Law or by KDL Law as a whole. 

If you have received this update in error or wish to unsubscribe from future updates then please email us at [email protected] .

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• 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

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

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What is a deed of covenant? All your questions answered

It might sound intimidating, but a deed of covenant is a straightforward legal agreement used in millions of property sales across the UK. But what is a deed of covenant actually for? Who needs to have it, and what do you need to know about them. Read on to discover all the key details in our simple guide to deeds of covenant.

What is a deed of covenant?

A deed of covenant is a form of legal agreement between two parties. It takes various forms, but in conveyancing, it’s usually used to lay out legal responsibilities and obligations between a property freeholder and their leaseholder.

If you need more information on the difference between freehold and leasehold , click the link for our dedicated guide.

Why do you need a deed of covenant?

You may need a deed of covenant if you are buying or renting a leasehold property. This will set out all of the terms and conditions between the freeholder and you, the leaseholder.

What does a deed of covenant cover?

A deed of covenant will cover all the relevant obligations and responsibilities of the leaseholder to the freeholder. These include the length of the lease itself, followed by a list of ‘positive covenants’ and ‘negative covenants’.

Positive covenants are things that the leaseholder must do. They may include paying service charges , keeping communal areas in good condition, and agreeing to maintenance works being carried out on the property.

Negative covenants are things that the leaseholder must not do. These may include things like subletting, owning pets, making excessive noise or using their home as a place of business.

What does a deed of covenant look like? 

Deeds of covenant follow a fairly standard format. The document will lay out the property details, like its address, postcode and title number. It will then detail all the relevant parties involved.

Next, the deed will lay out all of the positive and negative covenants. This list can be long or short, simple or complex, depending on how the freeholder wants it arranged.

Finally, there will be an execution clause at the end. This provides details of who is signing, plus the date and any other relevant details.

How do you arrange a deed of covenant?

To arrange a deed of covenant, first you should see if the freeholder has a standard version that they prefer to use. If not, you can arrange for a general solicitor or conveyancer to draft one. Alternatively, you can draft your own using an online template provided by a reputable site.

Usually, you, the buyer/renter will receive the deed of covenant via your solicitors during the conveyancing process.

Who pays for a deed of covenant?

Deciding who pays for the drafting and execution of a deed of covenant is up to the freeholder and leaseholder. Usually, new leaseholders will pay for a deed of covenant. However, many freeholders will take the cost on themselves to build trust and make the transaction more appealing.

How much should a deed of covenant cost?

A standard deed of covenant should cost around £150-£200 to draft and execute. This cost may be higher if the deed is full of complicated clauses that require more legal work to explain and execute.

Is a deed of covenant legally binding?

If all mentioned parties in the document sign their names with witnesses, a deed of covenant is legally binding.

Can you refuse to sign a deed of covenant?

You can refuse to sign a deed of covenant, just like any other legal document involved in a monetary transaction. However, if you do refuse, you will almost certainly fail to complete the purchase or rental of the property.

Refusing to sign can be a perfectly legitimate response if you feel that the deed’s terms are too rigid or complicated. You can then raise any issue with the freeholder’s solicitors and hopefully come to an agreement or compromise.

Does a deed of covenant expire?

Generally, a deed of covenant will expire once the leaseholder gives up the lease. You can do this either by completing the tenancy or selling the property, if you are the owner.

How long does a deed of covenant take to produce?

A deed of covenant is usually a fairly straightforward document for solicitors to draw up. If all the details are clear and all parties are in agreement, a conveyancer may be able to produce a deed of covenant within two to three weeks.

Is a deed of covenant always needed for leasehold?

If you’re buying a leasehold property, you should expect to sign a deed of covenant as part of the purchase process. Most leases include mention of a signed deed of covenant as a compulsory step in the transfer, assignment or underletting of a leasehold property.

Freehold vs leasehold: What’s the difference?

What is a title deed? All your questions answered

Buying a Property: A 10-Step Guide to Owning a Home

Can you digitally sign a deed of covenant.

Most deeds of covenant tend to require a ‘wet signature’, or a signature actually signed onto a physical copy of the document. You may require an independent witness to observe your signature and countersign the document. If you fail to sign the deed of covenant with a physical signature, you may be in breach of the terms of the leasehold contract.

What happens if you ignore or break a covenant?

If you ignore or break any of the terms listed on a deed of covenant, you may be liable to be sued for damages. A court injunction is another possibility, where you may be subjected to further fines or even lose your home.

However, in most cases, breaches of covenant are solved by a conversation between the leaseholder and the freeholder or their property management agent. The breach is discussed, the leaseholder is notified of what they have to do to make things right, and if they do so, the matter is closed.

Do covenants show on Land Registry?

Details of covenants are usually kept by the Land Registry as part of the title register. Through them, you can usually find details of both personal covenants that apply to individual purchasers and ‘restrictive covenants’ that ‘run with the land’.

Consult this part of the Land Registry’s FAQs for more information on how these work.

We hope that this quick guide to deeds of covenant is useful. Remember, it’s always important to fully understand the terms of any legal document before signing it. For more advice on the legal terminology and processes involved in buying, renting and selling property, have a browse of our various guides .

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Deed of Covenant

Ruban Selvanayagam

Sell house fast and auction expert.

Ruban Selvanayagam is a professional cash homebuyer, private rented sector landlord, auction specialist, blogger and media commentator.

Founder, Property Entrepreneur and Sell House Fast Expert

James Durr is a passionate property entrepreneur with a strong foundation and background in business.

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 .

On This Page

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

We Are Regulated:

Deed of Covenant on a Leasehold Property?

• Last updated: 9 November 2021

IN THIS ARTICLE

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

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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.

Gill Laing is a qualified Legal Researcher & Analyst with niche specialisms in Law , Tax , Human Resources , Immigration & Employment Law .

Gill is a Multiple Business Owner and the Managing Director of Prof Services - a Marketing Agency for the Professional Services Sector.

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Key terms and definitions

Obtaining landlord permission, tenants and subtenants responsibilities and liabilities, protecting the tenant from sublease pitfalls, putting the agreement in writing, alternatives to subleasing, final takeaways, templates and examples to download in word and pdf formats, tenants and subtenants obligations under a sublease agreement.

From finding a new job in another state to returning home to care for a sick family member to taking the big step of moving in with a new partner, many people find themselves in a situation where they need to cancel their existing lease so they can move somewhere else. Unfortunately, many landlords are reluctant to cancel existing leases, since that puts them in the position of potentially losing money while they look for a new tenant to fill the space. However, there is a solution that is workable for tenants while also being amenable to many landlords: a Sublease Agreement , also known as a sublet. There are many misconceptions about how subleases work and the responsibilities of people involved. This guide will walk through the most important terms to know and the main issues to be aware of when creating a sublease arrangement:

1. Differences between a sublease and an assignment

2. How to get permission from a landlord to sublet

3. Responsibilities and liabilities of the tenant and subtenant

4. Protective measures for the tenant

5. Sublease alternatives

There are many terms used in subleasing that are often used interchangeably and in confusing ways. However, the key distinction is between subleases and assignments . Both of these can be easily created, but have different legal implications and responsibilities for the involved parties that will be explored further in this guide.

What is a "sublease"?

A Sublease Agreement involves a transfer of less than all of the lease . For example, if a person living alone in a leased two bedroom apartment decides to rent out the spare bedroom to a new roommate, that would be a sublease. Or, if a person rents their whole apartment to someone for a couple of months while they travel for the Summer, but then return to the apartment in the Fall, that would also be considered a sublease. The main parties involved in a sublease are:

1. the original tenant , also known as the sublessor , who is the person who first rented the property and plans to rent the space to a new renter, and

2. the subtenant , also known as the sublessee , who is the person who rents their property from the sublessor.

What is an "assignment"?

An Assignment Agreement involves the entire remainder of the lease being transferred to a new tenant. For example, if someone was required to move to a new state for their job and a new tenant takes over the remaining six months on their lease, that would be called an assignment. The main parties involved in an assignment are:

1. the assignor , who is the person who originally rented the property, and

2. the assignee , who is the person renting the property from the assignor and taking over the remainder of their lease.

The first, and most important step, in arranging a sublease or assignment agreement is getting permission from the landlord. The landlord must consent to the arrangement and put this consent in writing using a Consent to Sublease form. If a tenant does not get the consent of the landlord, they leave both themselves and their subtenant or assignee in danger. The landlord would have the option of evicting the tenant, in the case of a sublease, or evicting the assignee, in the case of an assignment, for violation of the original lease agreement. Further, the landlord would feel less obligated to correct defects with the property, such as fixing leaky faucets or broken appliances, given that they do not have a valid agreement with the subtenant or assignee to provide these services.

Unless it says otherwise, when the lease prohibits tenants from subletting or assigning without their landlord's consent, ordinarily the landlord can arbitrarily refuse to permit a sublease or assignment according to their own discretion . However, some states and many leases now provide that the landlord must not unreasonably refuse to give consent to a sublease or assignment. In these instances, if the tenant is able to find a new person who will be at least as good a tenant -- able to pay rent on time, not play the stereo too loud, and follow the other agreements in the lease -- the landlord must accept that person as a subtenant.

If a person's lease prohibits them from assigning the lease without permission from the landlord but does not mention anything about subletting, would that person still be able to sublet the apartment to their friend? Yes, if the lease states only that an assignment is forbidden, the person would still be able to sublet their apartment. Conversely, if the lease prohibits only subletting, the tenant would be able to assign the lease without their landlord's approval. Both actions are prohibited only if the lease says that the tenant cannot sublease the property OR assign the lease without the landlord's consent. Note, however, that some cities, such as New York, have ordinances regulating subleases that take precedence over private agreements.

When subleasing an apartment, the original tenant should try their best to find a person who they think is trustworthy and will continue to pay the rent. The main reason for doing this is that the original tenant remains responsible for making sure the rent gets paid . The subtenant usually does not have to answer to the landlord, only the original tenant; the landlord can generally only sue the original tenant for the rent . If the subtenant does not pay the rent on time, the landlord can start eviction proceedings against the original tenant. If the subtenant owes several months of back rent, the original tenant is responsible for making sure it is paid. In the same way, the original tenant is responsible for making sure the rental is in good shape even if they are not currently living there.

What can a tenant do if they end up paying for the outstanding rent or damage a subtenant did to the property? The tenant can then go to the subtenant to ask that they be reimbursed for this money and take them to small claims court if they refuse to pay.

Unlike in a sublease, in an assignment, if the assignee fails to pay the rent, the landlord can go directly after the assignee for the unpaid rent . The landlord can also sue the assignee for any damage to the apartment that they are responsible for. Be aware, however, that the landlord can still sue the assignor, or original tenant, as well, even if the landlord consented to the assignment. The landlord has their choice of who to go to when they are looking to get paid.

Before subleasing a property or assigning a lease, the original tenant should make sure their subtenant or assignee is a responsible person who will pay the rent on time and will not damage the apartment. In a sublease or assignment, the original tenant essentially steps into the role of landlord to their subtenant or assignee. Therefore, it's important for them to protect themselves the same way a landlord would. When entering into sublease or assignment agreements, the original tenant often puts protective measures in place , including requiring payment of a security deposit, often equal to at least one month's rent, and putting the terms and agreements of the sublease in writing, including details like the length of the sublease or assignment, the amount of rent, when and to whom it must be paid, late charges, payment for damages, and so on.

Since the original tenant is acting as a landlord when subleasing, they are bound by some of the same laws that apply to the landlord . For example, each state has different rules and guidelines about the maximum amount that may be charged for a security deposit. In most cases, the original tenant may not reenter the property without giving appropriate notice to the subtenant. However, particular to assignments, those agreements often include a provision that the original tenant has the right to reenter the property and retake possession of it if the assignee fails to pay the rent. This gives the assignor some additional protection if the assignee defaults on the lease.

Once all parties, including the original tenant, subtenant, and landlord agree to the sublease or assignment, it should be put in writing. A written agreement works to protect all of the parties and their rights and obligations under the lease agreement . An oral agreement is enforceable in some states, but in all cases is subject to potential misunderstandings and challenges in court. A written Lease Assignment Agreement is usually relatively brief since it incorporates all of the provisions included in the original Residential Lease Agreement or Commercial Lease Agreement . A Sublease Agreement is more extensive and includes specifics related to when and to whom rent payments will be made, whether the subtenant will pay a security deposit to the original tenant and if so the method and amount of that payment, who will receive notices related to the rental. Once a Sublease Agreement or Lease Assignment Agreement has been put into writing, it should be signed by all involved parties. The Agreement must always be signed by the tenant and subtenant or assignee. However, the document may also be signed by the landlord to serve as a written record that the landlord grants their permission and is aware of the arrangement.

What if a tenant must move out of their rental property for some reason, say, six months before the lease expires, but they don't want to worry about the potential hassle and risk of finding a subtenant or assignee? The lease may give the tenant the right to cancel their lease by giving a certain amount of notice, usually two to three months. In a month-to-month lease, the tenant usually must give only thirty days notice. If the lease does not allow for this, the tenant has the option of finding a new tenant, subject to their landlord's approval, and the tenant's own trouble and expense. When the tenant finds a suitable person, they can ask their landlord to sign a document releasing them from their original lease . The landlord will then have the new tenant pay a deposit and sign a new lease. If the landlord agrees to do this, the original tenant will no longer be liable for the rent or acts of the new tenant. This solution is often acceptable to reasonable landlords.

Subleasing can be a great option for someone looking to move somewhere else, either temporarily or permanently, while they are in the middle of their current lease term. Here are the most important things to remember when setting up a sublease or assignment agreement:

• A sublease is a transfer of less than all of the lease; an assignment is a transfer of the entire remainder of the lease.
• The landlord must grant their permission for the sublease or assignment in writing if the tenant wants to protect themselves from future liability.
• In a sublease, the landlord can only go after the original tenant for rent or damages owed by the subtenant; in an assignment, the landlord can go after either the original tenant or the assignee.
• The original tenant can use measures such as collecting a security deposit to protect themselves in case the subtenant or asignee fails to pay the rent or causes damages.
• The best way to protect all involved parties is to put the agreement in writing.

About the Author: Malissa Durham is a Legal Templates Programmer and Attorney at Wonder .Legal and is based in the U.S.A.

• Sublease Agreement
• Lease Assignment Agreement
• Consent to Sublease

Deed of covenant by assignee of residential lease (old tenancy) | Practical Law

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

Practical law uk standard document 1-505-4445  (approx. 10 pages).

Understanding Covenants Restrictions: A Comprehensive Guide to Property Restrictions and Legal Obligations

In the realm of real estate, understanding covenants and restrictions is paramount to maintaining a harmonious and legally compliant property ownership experience. These legal obligations and property restrictions, often outlined in a homeowner’s association (HOA) agreement or a deed, dictate what homeowners can and can’t do with their properties. 

This comprehensive guide is designed to demystify these terms, helping you comprehend how covenants and restrictions can impact your property ownership and what you can do to navigate them effectively and efficiently.

Table of Contents

What are Covenants and Restrictions?

Covenants and restrictions are simply legal obligations that homeowners agree to abide by when purchasing a property. These terms outline a set of rules and regulations that dictate what homeowners can or cannot do with their properties. They cover a wide range of aspects, including aesthetic guidelines, usage restrictions, and maintenance requirements.

Aesthetic guidelines often include specifications such as the approved exterior paint colors, architectural styles, and landscaping standards. These guidelines aim to create a visually cohesive and appealing neighborhood while preserving property values.

Usage restrictions encompass more restrictive provisions, such as prohibiting certain types of businesses from operating on the property. These restrictions ensure that the residential character of the community is maintained and that the activities within the neighborhood align with its intended purpose.

Additionally, covenants and restrictions may impose limitations on the size and number of structures, enforce noise regulations, or regulate the presence of certain animals. The ultimate goal is to create a harmonious living environment for all residents and protect the collective interests of the community.

By adhering to covenants and restrictions, homeowners play a crucial role in maintaining property values, preserving the neighbourhood’s character, and fostering a pleasant and cohesive living environment. It is important for homeowners to familiarize themselves with these guidelines to ensure compliance and a positive relationship with their neighbours and the governing authorities.

Purpose of Covenants and Restrictions

The primary purpose of covenants and restrictions is to protect the value and integrity of a neighborhood or community. By enforcing certain standards, these terms ensure that all properties within the area maintain a similar level of quality and appearance. This, in turn, can help maintain property values and attract potential buyers who are looking for a well-maintained and consistent neighborhood.

The following are 8 purposes of Covenants and Restrictions:

• Maintaining Property Values: Covenants and restrictions help maintain property values by enforcing guidelines on property aesthetics, maintenance, and usage. These provisions ensure that properties within the community are well-maintained and attractive, contributing to the overall value of the neighborhood.
• Preserving Neighborhood Character: Covenants and restrictions establish rules to preserve the character and visual appeal of the neighborhood. They typically include guidelines on architectural styles, landscaping standards, and exterior design elements, creating a consistent and harmonious environment.
• Promoting Quality of Life: These provisions work to create a peaceful and enjoyable living environment by regulating activities that could disrupt residents’ quality of life. Noise control measures, restrictions on commercial or industrial activities, and rules regarding the use of common areas are examples of provisions that promote a high quality of life within the community.
• Protecting Homeowners’ Interests: Covenants and restrictions protect homeowners’ interests by preventing actions that could negatively impact property values or the residential character of the community. They provide a level of assurance to homeowners that their investment will be safeguarded from undesirable developments or activities.
• Ensuring Safety and Security: Some covenants and restrictions include provisions for enhancing the safety and security of the community. This could involve enforcing regulations on the installation of security systems, maintaining well-lit common areas, or implementing guidelines for the presence of fences or gates.
• Managing Common Areas and Facilities: In communities with shared common areas and facilities, covenants and restrictions help establish guidelines for their use and maintenance. These provisions ensure fair and equitable access to amenities such as parks, swimming pools, and recreational facilities, promoting a sense of community and enhancing residents’ overall experience.
• Addressing Environmental Concerns: Some covenants and restrictions incorporate provisions focused on environmental considerations. This may include guidelines for sustainable landscaping practices, restrictions on the removal of trees, or regulations for the use of environmentally friendly building materials. These provisions aim to promote environmentally responsible behavior within the community.
• Promoting Community Cohesion: Covenants and restrictions contribute to community cohesion by establishing clear expectations for homeowners. They encourage residents to work together and respect the rights of their neighbors, fostering a strong sense of community, cooperation, and neighborly interaction.

Common Types of Covenants and Restrictions

While covenants and restrictions can vary from property to property, some common types include:

• Architectural Control: Architectural control covenants dictate specific guidelines and standards for the design, construction, and renovation of buildings within the community. These guidelines ensure a cohesive and aesthetically pleasing appearance for the neighborhood. They may include provisions on building materials, roof types, color schemes, and architectural styles to maintain consistency throughout the community.
• Landscaping Restrictions: Landscaping covenants establish rules regarding the maintenance and design of outdoor spaces. They may include guidelines on lawn care, tree planting, use of specific plants, and maintenance of common areas to maintain a consistent and attractive landscape. These restrictions promote a well-manicured and visually appealing environment that enhances property values.
• Use Restrictions: Use restrictions limit the type of activities that can be conducted on the property. They often outline residential use only and may restrict commercial activities or home-based businesses to preserve the community’s intended purpose and character. These restrictions aim to maintain the residential nature of the community and prevent incompatible land uses.
• Parking Regulations: Parking regulations govern the use of parking spaces within the community. They may include guidelines on the number of vehicles allowed per household, designated parking areas, visitor parking rules, and restrictions on parking certain types of vehicles like RVs or commercial vehicles. These regulations help manage parking availability and ensure an organized and functional parking system.
• Maintenance Requirements: Maintenance requirements outline the responsibilities of homeowners to maintain their properties in a proper and well-kept condition. They may include guidelines for home repairs, yard maintenance, exterior cleanliness, and the upkeep of common areas. Adhering to these requirements helps preserve property values and contributes to the overall appearance of the community.
• Pets and Animal Restrictions: Pets and animal restrictions establish rules related to the ownership and behavior of pets within the community. They may include limitations on the number and size of pets, breed restrictions, leash requirements, waste disposal regulations, and noise control measures to promote responsible pet ownership. These restrictions aim to ensure a safe and harmonious living environment for all residents and prevent pet-related conflicts.
• Restrictions on Short-Term Rentals: Restrictions on short-term rentals are becoming increasingly common in many communities. These restrictions regulate or prohibit the rental of properties for short periods, such as through platforms like Airbnb or VRBO. The goal is to maintain the residential character of the neighborhood, minimize disruptions caused by transient guests, and protect the interests of permanent residents.
• Sign Restrictions: Sign restrictions regulate the installation and display of signs within the community. They may limit the size, type, and location of signs to prevent visual clutter or offensive displays. These restrictions help maintain the aesthetic appeal of the community and minimize visual distractions.
• Environmental Protection Measures: Some covenants and restrictions incorporate provisions focused on environmental concerns. These may include guidelines for sustainable landscaping practices, restrictions on the removal of trees, or regulations for the use of environmentally friendly building materials. These provisions aim to promote sustainable living and minimize the environmental impact of the community.
• Homeowner Association (HOA) Rules and Bylaws: Homeowner associations often establish their own set of rules and bylaws that govern the community. These may cover a wide range of topics, including architectural guidelines, use restrictions, parking regulations, and more. HOA rules and bylaws are typically legally binding and enforced by the association. They play an essential role in maintaining the overall harmony and integrity of the community.

Understanding Your Property’s Covenants and Restrictions

When purchasing a property, it is crucial to thoroughly review all covenants and restrictions outlined in the HOA agreement or deed. It is also essential to understand that these terms are legally binding and can have consequences if violated. Some tips for understanding your property’s covenants and restrictions include:

• Review the governing documents: Start by obtaining a copy of your property’s governing documents, which typically include the declaration of covenants, conditions, and restrictions (CC&R). These documents outline the rules and restrictions for your community.
• Read through the documents: Carefully read through the CC&R and familiarize yourself with its contents. Understand the purpose of the covenants and the restrictions they impose on property owners, such as architectural guidelines, maintenance requirements, and usage restrictions.
• Seek clarification: If any clauses or terms are unclear, reach out to your homeowner’s association (HOA) or the organization responsible for managing the covenants. They can provide you with additional information and clarify any points of confusion.
• Note key provisions: Identify the key provisions that directly affect your property. These might include rules regarding property alterations, pet ownership, noise restrictions, parking, or restrictions on home-based businesses. Understanding these provisions will help you avoid potential violations.
• Consult professionals if needed: In some cases, the language used in the CC&R might be complex or legalistic. If you’re unsure about any aspect, it’s wise to consult with a real estate attorney who can help interpret and explain the covenants and restrictions to you.
• Attend HOA meetings: Participating in homeowner association meetings can offer valuable insights into the interpretation and enforcement of the covenants. It also provides an opportunity to engage with other property owners and voice any concerns or questions you may have.
• Adhere to the covenants: Once you understand the covenants and restrictions, make sure to adhere to them. Violating the rules can lead to fines, penalties, or legal actions. Being a responsible and informed property owner helps maintain a positive living environment for all residents.
• Familiarize yourself with enforcement procedures: It’s important to understand how the covenants and restrictions are enforced in your community. Review the procedures for reporting violations, the process for resolving disputes, and the potential penalties for non-compliance. Knowing these procedures will help you navigate any issues that may arise.
• Consider the impact on property value: Covenants and restrictions are often put in place to maintain property values and ensure a desirable living environment. Understanding how these rules contribute to the aesthetics and overall appeal of your community can provide insights into the long-term value and desirability of your property.
• Seek clarification on ambiguous terms: Some covenants and restrictions may include terms or language that is open to interpretation. In such cases, it’s a good idea to seek clarification from the HOA or a legal professional. Understanding the intended meaning behind these terms can help prevent misunderstandings and potential conflicts.
• Attend orientation sessions or workshops: Many communities offer orientation sessions or workshops specifically designed to educate new homeowners about the covenants and restrictions. These sessions can provide a comprehensive overview of the rules and regulations, as well as offer an opportunity to ask questions and seek clarification.
• Stay updated on changes and amendments: Covenants and restrictions can be modified or amended over time. It’s important to stay informed about any changes that may affect your property. Keep an eye out for notifications from the HOA or regularly check their website for updates.
• Document and communicate with neighbors: It can be helpful to document any violations or concerns with supporting evidence, such as photographs or written records. If a dispute arises, having this documentation can be valuable. Additionally, engaging in open communication with your neighbors about the covenants and restrictions can foster a respectful and cooperative living environment.
• Follow the process for requesting modifications: If you have a legitimate reason to request a modification to a covenant or restriction, familiarize yourself with the process for making such requests. This could involve submitting a formal application or seeking approval from the appropriate governing body.
• Consider consulting with a property management company: If you find it challenging to navigate the complexities of your property’s covenants and restrictions, you may consider hiring a property management company. They can provide guidance, handle administrative tasks, and ensure compliance with the rules and regulations.

Remember, each community may have its own unique set of covenants and restrictions, so it’s important to refer to your specific documents for accurate information.

Dealing with Violations

If a homeowner violates one or more covenants or restrictions, there can be serious consequences, such as fines, legal action, or even forced removal from the property. It is crucial to address any potential violations promptly and work with your HOA board or other homeowners to find a resolution. Some tips for dealing with violations include:

• Understand the process: Familiarize yourself with the process for addressing violations as outlined in your HOA agreement or deed. Each community may have specific procedures in place for reporting, documenting, and resolving violations. By understanding these processes, you can ensure that you navigate the situation correctly.
• Gather evidence: When dealing with a potential violation, collect substantial evidence to support your claim. Take photographs, record dates and times, and gather any relevant documentation that demonstrates the violation. This evidence will help strengthen your case when presenting it to the appropriate authorities.
• Communicate openly: Reach out to your HOA board or other homeowners in a respectful and open manner. Share your concerns regarding the violation and provide them with the evidence you have gathered. Engage in open discussion to find a solution that aligns with the best interests of the community.
• Seek resolution: Collaborate with the homeowner who has violated the covenants or restrictions to find a solution. If the violation was unintentional or due to a lack of awareness, educating the homeowner about the specific rules and regulations may be sufficient to resolve the issue. Discuss potential remedies or actions that can rectify the situation and bring the homeowner back into compliance.
• Involve the HOA board: If the homeowner refuses to cooperate or the violation persists, involve your HOA board or property management company. They have the authority to enforce the covenants and restrictions and may have additional tools at their disposal to address the situation. Provide them with the evidence you have gathered and collaborate with them to find an appropriate resolution.
• Seek legal advice if necessary: In some instances, violations may not be easily resolved through communication or HOA intervention. If the violation continues to cause significant disruption or if legal action becomes necessary, it is advisable to seek guidance from a real estate attorney. They can provide expert advice on your rights and the legal options available to address the violation.
• Promote community education: Encourage community-wide education and awareness about the covenants and restrictions. Host workshops or information sessions where homeowners can learn about their obligations and the importance of compliance. By promoting an informed community, you can help prevent future violations and foster a culture of adherence to the established rules.

In conclusion, covenants and restrictions play a vital role in maintaining the value, aesthetics, and overall quality of a neighbourhood or community. As a homeowner, it is crucial to understand these legal obligations and abide by them to avoid any potential consequences. By familiarizing yourself with the covenants and restrictions outlined in your HOA agreement or deed and communicating effectively with your HOA board or other homeowners, you can navigate these terms successfully and ensure a harmonious property ownership experience for all. 

So, it is important to carefully review and understand these terms before purchasing a property and to address any potential violations promptly and effectively.  As a homeowner, it is your responsibility to uphold the covenants and restrictions of your community in order to maintain the desired standards and protect the value of your property. By working together with your HOA board and fellow homeowners, you can ensure a harmonious and thriving community for all.  Remember, covenants and restrictions are in place to benefit everyone and promote a positive living experience, so it is vital to respect and abide by them at all times. 

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Understanding a Deed of Covenant

• By Amanda Salvis
• June 19, 2023

A deed of covenant is a crucial legal document in the context of UK leasehold properties. It is a binding agreement between parties, usually the leaseholder and the freeholder, outlining their respective rights and obligations. In this comprehensive Strangford Management guide, we will delve into the concept of deed of covenant, its purpose, and the various aspects associated with it.

What is a Deed of Covenant?

A deed of covenant is a legally binding document that sets out the rights and obligations between parties, typically the leaseholder (or tenant) and the freeholder (or landlord) in a leasehold property. It outlines certain terms and conditions that both parties must adhere to during the lease period. The deed is essential in establishing a direct contractual relationship between the leaseholder and the landlord or a management company such as Strangford Management ltd .

Types of Covenants in a Deed of Covenant

There are two primary types of covenants that can be set up

1. Positive Covenants

Positive covenants are promises made by the leaseholder to actively perform or carry out specific actions. Examples of positive covenants include:

• Paying ground rent and service charges
• Maintaining the property in good repair and condition
• Complying with lease terms and conditions

2. Negative (Restrictive) Covenants

Negative or restrictive covenants are obligations not to do something in relation to the property. These covenants are designed to protect the interests of other tenants and maintain the value of the property. Examples of restrictive covenants include:

• Not making structural alterations to the property without permission
• Not running a business from the property
• Not causing a nuisance to other tenants

Why is a Deed of Covenant Required?

A deed of covenant is required to create or modify the rights and obligations of parties concerning leasehold properties. It ensures that the new leaseholder complies with the terms of the lease and remains liable for any ground rent and service charges, it also allows the landlord or management company to enforce covenants directly on the new leaseholder.

Moreover, most leases specify that a deed of covenant is necessary upon any transfer, assignment, or underletting of the property. Failing to provide a deed may result in a breach of the lease, leading to potential penalties and legal consequences.

How a Deed of Covenant Works

When buying a leasehold property, the document acts as a legally binding agreement between the incoming tenant and the landlord or management company. The new leaseholder promises to comply with the terms of the lease, including both positive and negative covenants. By signing the deed, the leaseholder acknowledges and accepts the responsibilities and restrictions that come with that individual property.

A deed is typically annexed to the lease and includes the following information:

• Property details, including address, postcode, and title number
• Parties to the agreement, including names and addresses for service
• Relevant definitions and terms, ensuring clarity in interpretation
• Agreed terms, outlining the leaseholder’s obligations and restrictions

When is a Deed of Covenant Needed?

Whether one is needed depends on the terms of the lease and the age of the property. For leases granted on or after 1 January 1996, the Landlord and Tenant (Covenants) Act 1995 states that there is no obligation for an assignee to enter into a direct deed of covenant with the landlord. However, 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.

If the lease specifies that a deed is required, it must be acted upon to avoid breaching the lease. It’s essential to check the lease terms and consult with a conveyancing solicitor to determine if one is necessary for your leasehold property.

How to Obtain a Deed of Covenant

If a deed is required during the conveyancing process when buying a leasehold property, the seller’s solicitor will typically provide a draft form to the buyer’s solicitor. The buyer’s solicitor will then create the final deed to be executed by the buyer, confirming their agreement to comply with the lease terms.

The deed of covenant must be signed as a deed to make it legally binding. This involves signing the document in the presence of an independent witness who is over 18, has no interest in the matter, and is not related to either party or living at the same address.

Fees Associated with Deeds of Covenant

There may be costs involved when obtaining a deed of covenant, including conveyancing fees for your solicitor and disbursements or fees incurred by the landlord or management company. The landlord and/or management company may charge a fee for updating their records, which can range from company to company. The responsibility for covering these costs is often subject to negotiation between the buyer and the seller.

Consequences of Breaching a Deed of Covenant

Breaching a deed of covenant by not adhering to its terms can result in legal action taken by the covenantee. Remedies available to the covenantee may include injunctive relief (prohibiting further breaches), specific performance (ordering compliance with agreed covenants), damages (compensating for financial losses), and forfeiture (terminating the lease and regaining possession of the property).

It’s crucial to understand your rights and obligations under a deed of covenant to prevent breaches and potential legal consequences.

How Long Does a Covenant Last?

Covenants can potentially last indefinitely if no time limit is mentioned, unless the requirements in the covenant have been met and discharged, or the parties have agreed to modify or release the deed of covenant. Some covenants may become obsolete due to the passage of time and can be disregarded.

Seeking Legal Help

If you need assistance with a deed of covenant or have concerns about your leasehold property, it’s essential to consult with a qualified conveyancing solicitor. They can provide expert advice, help you understand your rights and obligations, and guide you through the process of obtaining or executing a deed of covenant.

In conclusion, a deed of covenant plays a significant role in UK leasehold properties, ensuring that new leaseholders comply with the terms and conditions of the lease. By understanding the purpose of a deed of covenant, its requirements, and the potential consequences of breaching its terms, you can make informed decisions when buying or selling a leasehold property.

Read more…

10 essential leaseholder rights you might not know, what does ‘forfeiture’ of a lease mean, what does ‘share of freehold’ mean.

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What is the liability of an outgoing tenant under an 'old' lease following assignment? Is a landlord obliged to pursue the current tenant for any arrears before pursuing a former tenant or guarantor to a former tenant?

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Related legal acts:

• Land Registration Act 2002 (2002 c 9)
• Landlord and Tenant (Covenants) Act 1995 (1995 c 30)
• Landlord and Tenant Act 1954 (1954 c 56)
• Law of Property Act 1925 (1925 c 20)

Key definition:

Tenant definition, what does tenant mean.

A person to whom a lease is granted.

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

Posted by david cammack on march 3, 2021.

Home / Blog / What is a Deed of Covenant for a Lease? Your Top Questions Answered

1. What is a Deed of Covenant for a Lease?

Where you have long leasehold property, this sort of deed may be required from the person to whom you are selling your property title. Generally the lease will state whether you require one. It is a short document which the new owner would sign to say that they agree to be bound by certain terms in the lease. For example, such terms might be:

• the requirement to pay the ground rent to the landlord and to pay the service charges levied each year to the management company; and / or
• various other ‘positive’ covenants with which the new tenant will have to comply (these are ones under which the tenant will need to spend money to comply with them).

2. What is the meaning of “Deed of Covenant”?

A deed of covenant might mean several different types of document. It is where one person agrees to do something or be bound by a contract or certain terms that they were not already a party to. In the context of a leasehold property, such a deed is generally the document you need when the lease requires the new owner to confirm that he or she agrees to certain terms in the lease.

Here’s a Wikipedia article on deeds of covenant that explains further: https://en.wikipedia.org/wiki/Covenant_(law)#England_and_Wales

3. When would you need a Deed of Covenant?

The lease to your leasehold property should state whether or not you need a deed of covenant. This would apply only when you are transferring the title to the flat to someone new. You will need to check the terms of the lease carefully. Otherwise when you tell the landlord you are transferring the title, he might ask for a deed of covenant. There might also be a small administration fee to pay the landlord at that point.

As a technical point, a deed of covenant should not be needed for a lease granted on or after 1 January 1996 (see section 12 of the The Landlord & Tenant (Covenants) Act 1995), but newer leases might state that they require them and certainly older leases will require them still. For a newer lease, it is easier to comply with the requirement, than to argue that you don’t need one.

4. What should you do if you need a Deed of Covenant for a Lease?

If you’ve been asked to produce a deed of covenant, the simplest way is using our Deed of Covenant template . You will find it easy to use to produce your own document in a few minutes. It comes with a guide to talk you through what you need to do. You can then submit it to the landlord and pay the administration fee charged, if there is one.

5. Who pays for a Deed of Covenant?

If the landlord has a standard version for a deed of covenant that it requires you to use, then usually the current owner of the flat will pay the fee (if there is one) to the landlord for the draft deed of covenant. It is often a good idea to enquire as soon as possible about the fee in relation to a Deed of Covenant and whether the landlord has a standard version for you to use. The fee for a draft Deed of Covenant from a landlord is typically around £150 to £200.

6. What are the advantages and disadvantages to a Deed of Covenant?

This really is not the right question. The right question to ask is simply do I need a deed of covenant? If you are a tenant, who has been required in your lease to provide such a deed before you can sell your flat, then you need one. A failure to sign the deed, when required by the terms of the lease to do so, can mean a breach of the lease and might prevent your selling the flat.

7. What are the five most common deeds of covenant?

99% of deeds of covenant are deeds of covenant about a property, mainly being leasehold property. They are promises that the new tenant will comply with certain positive obligations in the lease which might otherwise not be binding on the new tenant. Here are 4 common positive restrictions relating to (usually leasehold) property that would require a deed of covenant from the new tenant, so the new tenant was bound by them:

• An obligation about maintaining boundaries and boundary fences.
• A duty to pay towards the maintenance of estate roads.
• An obligation to maintain any shared walls.
• A situation where there is a “flying freehold” – where both parties agree to maintain different floors of the property and share the costs. This is a less common situation to the ones above.

The fifth most common use does not relate to leasehold property, but might be a situation where someone is lending a machine to someone so that person can evaluate whether to buy it, and the lender requires the borrower to sign a deed of covenant that they will not damage, steal or reverse-engineer the machine. You can imagine this situation is not all that common.

8. What homeowners can do if their landlord doesn’t give them covenants for their house?

Where there is a leased flat and the lease requires a deed of covenant from any new tenant who is buying the flat, if the landlord fails to send over its preferred version, then the tenant should (a) produce their own deed of covenant (perhaps using Legalo’s template ) (b) get it signed by the new tenant, and (c) submit it to the landlord, in order to comply with the terms of their lease.

9. How the lease is affected by giving or failing to provide a deed of covenant?

As mentioned above, ‘giving’ the deed of covenant will normally be a contractual requirement of the lease of your flat. A ‘failure’ to provide one will be a breach of the terms of the lease. A failure to provide such a deed can mean an inability to sell your flat to a new tenant.

10. What are some provisions that can be found in them?

The typical deed of covenant will typically have at least the following provisions:

• Listing the parties to the deed: e.g. the landlord, the current tenant and the new tenant.
• Identifying the property in question: the address of the property.
• The most important component: a clause stating that the new tenant agrees to the positive obligations in the lease.

Legalo’s template overs all of these essential points.

If you have further questions about Deeds of Covenant for Leases, please contact us and we’ll do our best to help you.

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• What we think

The beginning of the end for the residential long lease?

"One of the longest-term challenges that the country faces: fairness in the housing market."

In January 2023 Michael Gove indicated that the Government had plans to abolish the “feudal” leasehold system . This has been on the Government’s agenda for a while, following a White Paper published in February 2017 “ Fixing our broken housing market ”. In England and Wales almost all flats and many houses are owned through leasehold structures (for reasons discussed below). It is reported that there are around 4.98m leasehold homes in England and Wales, of which 70% are flats and that the proportion of new-build houses sold by way of a leasehold transaction increased by 8% between 1995 and 2016 . Accordingly, the property industry has been waiting for further details of Gove’s proposals with some apprehension.

In his first King’s Speech earlier this month , King Charles III announced a new Leasehold and Freehold Bill that will, according to the Government’s briefing notes, “reform the housing market” and make “the long-term and necessary changes to improve home ownership for millions of leaseholders in England and Wales”. 

We have created a summary of the key takeaways from the King’s Speech from a real estate and construction perspective . Most of the proposed changes are designed to empower leaseholders and improve their existing rights. However, these proposals appear to be far more modest than suggested by Gove’s comments to date. One of the most significant changes is the proposed ban on the creation and sale of new houses by way of lease.

It is worth noting that the current proposals would not prevent new flats being sold as leasehold properties, despite Gove’s original proposal to abolish the creation of new residential leases entirely. Some Tory MPs have indicated that they would challenge any failure by the Government to apply the “ban” to the sale of flats as well . A wide-ranging proposal to ban all residential leases would be incredibly challenging and require wholescale property law reform, which seems unlikely to be achievable before a general election. However, achieving a ban on residential leases for new houses may pave the way for the eventual end of residential leases.

Whilst we wait to see the detailed contents of the Bill and whether the ban on leasehold continues to apply only to new houses, at first sight, it appears that the proposals will grab headlines without fundamentally reforming the property landscape.

In recent years media coverage has described the leasehold system as a “ shambles ” and “ crumbling ”. There can be a perception of “ punitive service charges ”, regardless of the legislative protection for leaseholders. In addition, ground rent charges in certain leases have been structured to increase disproportionately throughout the term, which has made some residential leasehold properties unsaleable and unattractive security for mortgage providers. 

There has been piecemeal reform to address specific issues. For example, in June 2022 significant reforms were implemented through the Leasehold Reform (Ground Rent) Act 2022, limiting ground rent charges in new leases (subject to certain exceptions) to a peppercorn (i.e. effectively nil). The announcement of a consultation (which has now been launched) into capping existing ground rents in the King’s Speech may further improve the situation for existing leaseholders going forward. The consultation includes five proposals for reform of existing ground rents from the Government:

• capping the ground rent at a peppercorn;
• capping the ground rent at a maximum value to which ground rent could rise;
• capping the ground rents at a percentage of the property value (which was put forward by consultees following a 2017 consultation on “Tackling unfair practices in the leasehold market”;
• capping the ground rent at the original amount it was when the lease was granted; and
• freezing the ground rent at current levels.

However, this is only part of the story. In 2020, the Law Commission published a report on potential reforms to reinvigorate commonhold as an alternative to leasehold ownership alongside reports with recommended reforms to rights to manage and leasehold enfranchisement (which we discuss in more detail below). The Law Commission argued that structure of leases themselves (i.e. the time limited nature of leaseholds and a landlord’s retained control over the property) are the root causes of many criticisms of leaseholds as a form of home ownership.

From a technical legal perspective, leasehold title is a mechanism that ensures that both positive and negative covenants “run with” or bind the land, i.e. leases can impose obligations on future owners of the property. In contrast, positive freehold title covenants cannot automatically bind incoming purchasers. The simplest example is that an obligation to pay service charge contained in a long lease will bind all future owners of the leasehold property, but it would not bind future owners of a freehold property unless further steps are taken (as discussed below).  

In addition, the current landlord and tenant structure gives the landlord or management company (as a third party joined to the lease) responsibility for enforcing breaches of the lease. If there is no lease in place and no landlord, then the developer will need to consider how covenants could be enforced between the various homeowners in a development. For example, obligations not to make alterations to a property without consent would normally be enforced by the landlord. In the absence of a landlord, thought will need to be given to how and whether such covenant can be meaningfully imposed.

These principles of property law are some of the reasons that encourage developers to structure the sale of new houses, as well as flats which are invariably sold as leaseholds, on new developments as leasehold interests. Where developers have a mix of housing stock, i.e. houses and flats on the same estate, a uniform approach of selling all residential properties by long leasehold interest would have provided both developers and purchasers with consistency in terms of covenants, enforcement of such covenants and the mechanism to ensure future purchasers would continue to be bound by those covenants. Any change to houses only will necessarily complicate ongoing estate management for developers and homeowners.

In its 2020 report, the Law Commission suggested that commonhold (which was introduced as an alternative to leasehold in 2022) offers a number of advantages in comparison to leasehold ownership. However, the Law Commission recognises that a move towards commonhold would require a culture change in our mindsets and, as mentioned above, an overhaul of existing property law. We previously discussed the Government’s proposal to establish a Commonhold Council and the Law Commission’s proposals for reform to pave the way for commonhold as a form of tenure in the housing market.

If the Government’s proposals to ban the use of leases for new build houses comes into effect, we anticipate that this will have several implications.

1. Restrictive covenants on use and estate regulations As part of any new development, the developer will typically look to protect the overall aesthetic and amenity value of the development through estate regulations. These would typically include restrictions on alterations to the property, the permitted use and neighbourly behaviours, e.g. noise. Where sales are structured by way of a lease, the developer typically includes such regulations as part of the lease. Developers will likely want to retain these controls in order to maintain estate conformity and prevent damage to shared services or infrastructure. It will therefore become crucial that these restrictive covenants are incorporated on the title to the property. Restrictive covenants may also used by developers to ensure that certain ongoing planning conditions required to keep the development compliant are complied with by the homeowners. In practice these covenants may not always be enforced or expressed to be enforceable following a developer’s exit from a development. If this is the case it will be important to express such covenants to be for the benefit of and enforceable by neighbouring homeowners on the estate in the transfer documentation to enable them to enforce and manage issues with non-compliance and avoid potential legacy issues for the development. Restrictive covenants will only provide protection in respect of prohibitions and not positive obligations or “positive covenants”. To the extent that any regulations are positive in nature, such as payment into an estate service charge or rent charge, developers will need to use an alternative approach. It is most likely that developers will choose to add a title restriction to the title of each house, requiring purchasing homeowners to enter a deed of covenant on future sales. The deed of covenant would require the purchasing homeowner to commit to comply with positive covenants and such obligation would then be released on disposal.  

2. Management companies and service charge We would normally expect that new build houses that form part of a larger estate will benefit from common parts, such as private access roads, communal parking and electric charging points. The developer would normally transfer ownership of these common parts to an estate management company, which will be required to provide maintenance services at the expense of the various homeowners across the estate. Accordingly, in order to avoid a service charge shortfall homeowners will need to pay their share of the costs in respect of such estate services, whether or not their house is owned leasehold or freehold. Historically this was not a long-term concern because the estate common parts would typically be transferred to the local authority or other relevant authority which would then become responsible for the cost of their maintenance, which would be recovered through council tax. However, adoption is not always sought or achieved as readily now. The Competition and Markets Authority (CMA) recently identified a number of barriers to adoption of public amenities which include the costs to both housebuilders and local authorities and the discretionary nature of the framework for the adoption of certain amenities. These barriers were identified by the CMA following its the launch of a housebuilding market study earlier this year which looked into (amongst other things) the private management of public amenities. Earlier this month the CMA published for consultation a working paper on private management companies managing public amenities which includes possible measures that could be taken to address the CMA’s “ emerging concerns ” regarding the private management of public amenities on housing estates. We will wait to see the outcome of the CMA’s consultation in 2024. If a positive obligation on the homeowner to pay a service charge cannot be included in a lease, then homeowners should expect that restrictions will be placed on title preventing any disposition (which may exempt the grant of a charge) without a deed of covenant being provided by the purchaser to the management company to pay an estate rent charge or freehold service charge. In practice, this is akin to a sale of a lease which would likely require the consent of the landlord to an assignment and any such consent would be conditional on the incoming purchaser covenanting directly with the landlord to comply with the terms of the lease. As such, there is very little practical difference between a sale as a leaseholder or of a freehold title as homeowners will always need to covenant to pay their share of communal costs. In fact, a move away from leaseholds may be worse (at least in the short term) as the rent charge and freehold service charge system do not have the same level of protection for the paying party as the service charge regime for long residential leases (for example the consultation requirements contained within s20 Landlord and Tenant Act 1985). The Government has been indicating since 2018 that it considers that freehold maintenance charges should be reasonably incurred and ensure that freehold homeowners who pay estate rent charges have the right to challenge their reasonableness. The background notes to the King’s Speech indicate that these reforms will find their way into the Leasehold and Freehold Bill which would be helpful. However, the extent of such changes and whether they fully put freeholds and leaseholds on an equal footing in respect of any such protections remains to be seen.

3. Mixed tenure As we have indicated above, a move away from leasehold houses will add to the disparity between leaseholders and freeholders on the same estate. These mixed residential tenures will arise on developments with a mixture of houses and flats, as well as phased developments that may be ongoing when the ban commences, assuming that there will be no carve-out for such developments. Freeholders will, until the Government’s proposed changes to freehold service charges or estate rent charges, be less well protected by existing legislation designed to provide some protection to leaseholders. Conversely, if new estates are made up of a mix of long leasehold interests and freehold interests there will be disparity between how the homeowners are treated not only in terms of service charge as outlined above but also on sales of their respective interests.

4. Forfeiture To the extent that covenants are included as a covenant in a lease, there is normally a theoretical right for the landlord to re-enter or forfeit the lease in the event of non-compliance. In reality, it is very challenging for a landlord to forfeit a residential leasehold interest. However, this remedy is unique to leasehold title and will be totally unavailable in relation to property covenants that are attached to a freehold residential property. This may make it harder for property covenants (including the collection of service charge) to be enforced.

5. Existing leasehold houses If a ban comes into effect, this would only prevent the creation of new residential leasehold houses, which would leave large numbers of houses structured as leasehold properties on the market. We will need to wait to see whether these leasehold interests are enfranchised as part of the enfranchisement reforms and whether there are any further knock-on impacts on these types of houses.

The quote at the beginning of this article has been sourced from the background briefing notes to the King’s Speech .

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Deed of Assignment of Lease Agreement to transfer complete right to the Tenant.

Format of deed of assignment of lease agreement for transferring right to the tenant..

An assignment of a lease is a complete transfer of the right to be the tenant under the lease. The third-party assignee becomes the "tenant" under the lease, taking over all of the leased premises, substituting for the old tenant. When the lease is assigned, the assigner move out permanently and a new tenant moves in for the remainder of the lease term. An assignment of a lease differs from a sublet. With a sublet, the original tenant gives up an apartment temporarily. With an assignment, the original tenant gives up the apartment permanently. Assignment agreement should be legally binding, so it is necessary to prepare and sign a deed of assignment.

DEED OF ASSIGNMENT OF LEASE

THIS DEED OF ASSIGNMENT is made this ______ day of_____

Mr. _________________ son of _____________ Resident of _____________ hereinafter called "the Assignor" of the One Part:

Mr. _____________ Son of _____________ Resident of _____________ hereinafter called "the Assignee" of the Other Fart.

WHEREAS: 1. By a Deed of Lease dated_____________ and made between_____________ therein referred to as the Lessor of the One Part and the Assignor, therein referred to as the Lessee of the Other Part and registered with the Sub-Registrar of Assurances at _____________ under No _____________ of Book No. I on the _____________ the said Lessor demised unto the Assignor in perpetuity ALL that piece of land situate at_____________ and more particularly described in the Schedule thereunder being the same as described in the Schedule hereunder written together with the buildings and structures standing thereon at the rent and subject to the covenants and agreements therein contained;

2. By Clause_____________ of the said Deed of Lease it was in teralia provided as follows, "Not to assign the demised premises for the whole of the term hereby granted without the previous consent in writing of the Lessor his heirs, executors, administrators and assigns, which consent shall not be unreasonably withheld".

3. The Assignor has agreed with the Assignee for an assignment to him of the said demised premises for the remaining term in perpetuity free from all encumbrances at or for the price of Rs _____________.

4. The said Lessor by his letter dated_____________ has given his consent to the assignment of the demised premises.

NOW THIS DEED WITNESSETH that in pursuance of the said agreement and in consideration of the sum of Rs_____________ (Rupees) paid in the manner following viz. Rs_____________ on_____________ day of_____________ as earnest or deposit and Rs (Rupees) on or before the execution of these presents making together Rs _____________ (Rupees _____________ _____________. ) by the Assignee to the Assignor (the receipt whereof the Assignor doth hereby admit) He the Assignor hereby assigns unto the Assignee ALL that piece of land situate at_____________ in the Registration Sub-District of_____________ and more particularly described in the Schedule hereunder written TOGETHER WITH the buildings and structures thereon AND TOGETHER with all rights, liberties privileges, easements and appurtenances whatsoever to the said premises or any part thereof belonging or in anywise appertaining or usually held or occupied therewith or reputed to belong or be appurtenant thereto AND all the estate, right, title, interest property, claim and demand whatsoever of him the Assignor in and to the said premises or any part thereof TO HOLD the said land and other the premises hereby assigned unto the Assignee in perpetuity subject to the payment of ground rent of Rs_____________ reserved by the said Deed of Lease and to the performance and observance of the covenants and stipulations therein contained and on the part of the Lessee to be observed and performed and which henceforth on the part of the Assignee ought to be observed and performed.

AND THE ASSIGNOR COVENANTS WITH THE ASSIGNEE AS FOLLOWS - the said lease is now a valid and subsisting lease of the said premises hereinbefore expressed to be hereby assigned and is in no wise void or voidable that all the rents reserved and the covenants by the Assignor and the conditions contained in the said Deed of Lease have been paid, observed and performed upto the date of these presents; that the Assignor now has in himself good right and absolute power to assign the said premises unto the Assignee for the term and in the manner aforesaid that it shall be lawful for the Assignee from time to time and at all times hereafter during the said term to peaceably and quietly hold, possess and enjoy the said premises hereby assigned or expressed so to be with the appurtenances on and subject to said lease and receive the rents, and profits thereof for his own use and benefit without any eviction interruption claim or demand whatsoever from or by the Assignor or from or by any other person or persons lawfully or equitably claiming by, from, under or in trust for them. that the said premises are free and clear and freely clearly and absolutely acquitted, exonerated, released and forever discharged or otherwise by the Assignor well and sufficiently saved, defended, kepi harmless and indemnified of from and against all estates charges and encumbrances whatever made executed occasioned or suffered by the Assignor or by any other person or persons having or lawfully claiming by from under or in trust for him. that the Assignor and all persons having or lawfully claiming by. from, under or in trust for him shall and will from time to time and at all times hereafter during the said term at the request and costs of the Assignee do and execute or cause to be done and executed all such further and other lawful and reasonable acts, deeds, things, matters and assurances in the law whatsoever for further and more perfectly and absolutely assuring the said premises hereby assigned or expressed so to be and every part thereof unto and to the use of the Assignee for the residue of (he said term and in manner aforesaid as shall or may be reasonably required.

AND the Assignee doth hereby covenants with the Assignor that he the Assignee will henceforth during the said term pay the rents reserved by and perform all the covenants by the Lessee and conditions contained in the said Deed of Lease and keep indemnified the Assignor and his estate and effects from and against the payment of the said rent and the observance and performance of the said covenants and all actions, proceedings, costs, damages, claims, demands and liability whatsoever for or on account of the same or in anywise relating thereto.

IN WITNESS WHEREOF the parties hereto have hereunto set and subscribed their respective hands the day and year first hereinabove written.

THE SCHEDULE ABOVE REFERRED TO

Signed and Delivered by the within-named Assignor

Signed by the within-named Assignee

Received from the Assignee above-named a sum of Rs_____________ today which together with the sum of Rs_____________ paid on_____________ as earnest makes up the sum of_____________ Rupees (Rupees) being the full consideration money to be paid by him to me. Witnesses:

I say received.

Relevant Sections of Transfer of Properties Act 1882

Section 107 "Leases how made"

107. A lease of immovable property from year to year, or for any term exceeding one year, or reserving a yearly rent, can be made only by a registered instrument. All other leases of immovable property may be made either by a registered instrument or by oral agreement accompanied by delivery of possession. Where a lease of immovable property is made by a registered instrument, such instrument or, where there are more instruments than one, each such instrument shall be executed by both the lessor and the lessee: Provided that the State Government may, from time to time, by notification in the Official Gazette, direct that leases of immovable property, other than leases from year to year, or for any term exceeding one year, or reserving a yearly rent, or any class of such leases, may be made by unregistered instrument or by oral agreement without delivery of possession.

Section 108 "Rights and liabilities of lessor and lessee"

108. In the absence of a contract or local usage to the contrary, the lessor and the lessee of immovable property, as against one another, respectively, possess the rights and are subject to the liabilities mentioned in the rules next following or such of them as are applicable to the property leased :-

A. Rights and liabilities of the Lessor (a) the lessor is bound to disclose to the lessee any material defect in the property, with reference to its intended use, of which the former is and the latter is not aware, and which the latter could not with ordinary care discover; (b) the lessor is bound, on the lessee's request to put him in possession of the property; (c) the lessor shall be deemed to contract with the lessee that, if the latter pays the rent reserved by the lease and performs the contract binding on the lessee, he may hold the property during the time limited by the lease without interruption. The benefit of such contract shall be annexed to and go with the lessee's interest as such, and may be enforced by every person in whom that interest is for the whole or any part thereof from time to time vested. B. Rights and liabilities of the lessee (d) if during the continuance of the lease any accession is made to the property, such accession (subject to the law relating to alluvion for the time being in force) shall be deemed to be comprised in the lease; (e) if by fire, tempest or flood, or violence of any army or of a mob, or other irresistible force, any material part of the property be wholly destroyed or rendered substantially and permanently unfit for the purposes for which it was let, the lease shall, at the option of the lessee, be void : Provided that, if the injury be occasioned by the wrongful act or default of the lessee, he shall not be entitled to avail himself to the benefit of this provision; (f) if the lessor neglects to make, within a reasonable time after notice, any repairs which he is bound to make to the property, the lessee may make the same himself, and deduct the expense of such repairs with interest from the rent, or otherwise recover it from the lessor; (g) if the lessor neglects to make any payment which he is bound to make, and which if not made by him, is recoverable from the lessee or against the property, the lessee may make such payment himself, and deduct it with interest from the rent, or otherwise recover it from the lessor; (h) the lessee may even after the determination of the lease remove, at any time whilst he is in possession of the property leased but not afterwards, all things which he has attached to the earth : provided he leaves the property in the state in which he received it ;

Legal Formats, Alphabetical Order

Agreement Formats

• Housing Conditions & Repairs
• Repossession & Eviction
• Rehousing & Homelessness
• Challenging Councils & Public Bodies
• Regulation for Landlords & Agents
• Repossession
• Letting Agents
• Student Accommodation
• Property Ownership Disputes
• Rights of Way, Boundaries & Easements
• Party Wall Disputes
• Breach of Covenant
• Dilapidations
• Extend Your Lease
• Conversion to Freehold – Enfranchisement
• Missing Landlord Tracing Service
• Right To Manage
• Bona Vacantia
• Alterations
• Right of First Refusal
• First Tier Tribunal Litigation
• Guidance on Premiums
• Breach of Lease
• Freehold Disposals
• Counter Notice Assistance – Lease Extensions
• Brain Injury
• Spinal Cord Injury
• Psychiatric Injury
• Fatal Injuries & Inquests
• Surgical Claims
• Non-Surgical Claims
• Birth Injury
• Child Health & Paediatrics
• GP & Primary Care Treatment
• Private Healthcare
• Road Traffic Accidents
• Accidents Abroad
• Accidents At Work
• Faulty Products
• Public Liability & Other Accidents
• Pre & Post Nuptial & Civil Partnership Agreements
• Cohabitation & Property Agreements
• Divorce, Dissolution & Separation
• Financial Settlements
• Child Arrangements
• International Families & Children
• Relocation & Abduction
• Domestic Abuse & Injunctions
• Family Mediation
• Collaborative Practice
• Arbitration
• Private Judging
• Early Neutral Evaluation
• One Solicitor Solutions
• Buying & Selling your Home
• Buy to Let Investment
• Residential Property Development
• Buying off-plan
• Remortgages
• Transfers of Equity
• Leasing Business Premises
• Licences of Business Premises
• Office, Shop, Factory or Warehouse
• Pubs, Restaurants & Hotels
• Property Development, Acquisitions & Disposals
• Making a Will or Codicil
• Applying for Probate with Expert Probate Solicitors
• Administering Estates
• Administering Trusts
• Arranging Lasting Powers of Attorney
• Establishing & Advising on Trusts
• Inheritance Tax Planning & Advice
• Making an Islamic Will
• Contesting a Will
• Losses Caused by Trustees
• Removal of Trustees & Executors
• Appointing Deputies
• Changing Deputies
• Regaining Capacity
• Elderly Client Support
• Mental Capacity
• Litigation Support & Expert Witness Services
• Personal Injury Trust
• Funding for Care
• Special Educational Needs
• Statutory Wills, Gifts & Legacies
• Lasting Powers of Attorney – Professional Attorneys
• International Court of Protection
• Gifts & Legacies
• Welfare Authorisation
• Recovering Assets From Deputies
• Financial Abuse & Predatory Marriages
• Settlement Agreements
• Unfair Dismissal
• Redundancy & TUPE
• Bullying, Discrimination or Harassment Claims
• Employment Tribunal Claims
• Drafting Settlement Agreements For Employers
• Employment Contracts & Policies
• Dismissals & Redundancies
• Defending Tribunal Claims
• Restrictive Covenants & Confidentiality Agreements
• Assistance in Individual & Collective Negotiations
• Representing Trade Unions & Members
• Collective Disputes & Industrial Action
• Detriment on Trade Union grounds
• Rulebooks, Elections or Recognition
• Contract Disputes
• Claims Against Directors
• Building Disputes
• Debt Recovery
• Claims Against Solicitors
• Accountants & Financial Advisors
• Claims Against Surveyors
• Architects or Contractors
• Insurance Brokers
• Property Fraud
• Investment Fraud
• Buying or Selling a Company
• Dealing with Shareholders’ Agreements
• Reorganising a Group of Companies
• Reducing Share Capital
• Agency & Distribution Agreements
• Data Protection Act Registration & Compliance
• IP, Trademark Assignment, & Licensing
• Supplier & Customer Contracts
• Asset Finance Agreements
• Facility Letters
• Factoring or Invoice Discounting
• Conversion to a Limited Company
• Conversion to an LLP
• LLP Formation & Registration
• LLP Agreements
• Partnership Agreements

Andrew Weir

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

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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