An End To Privity Of Contract?

A Hand Morgan & Owen Fact Sheet

What liabilities does a Tenant under a new Lease actually expose himself to?

Until 1995, although many Tenants did not know this, by signing a Lease a Tenant agreed to be responsible for payment of the rent and performance of the other covenants (eg to keep the premises in repair) for the whole length of the Lease even if a new Tenant had taken it over, and no matter how many times it had changed hands. This principle was commonly known as "Privity of Contract".

Considerable hardship was caused, particularly in the 1980's. Landlords, looking for someone to sue for their rents (often the new Tenant had gone bankrupt and was therefore not worth suing), reverted to original Tenants, many of whom believed their responsibility for premises they once occupied had long since ended. It had not - because of Privity of Contract.

In 1995 the law was changed. It was first intended that the Privity rule would be abolished altogether, but eventually a compromise was reached with Landlords' lobbying organisations. The new law, set out in the clumsily-named Landlord and Tenant (Covenants) Act 1995, allows Leases to contain provisions for a Tenant to agree to guarantee the rent and covenant performance during the period of one subsequent Tenant's holding of the Lease, but for no longer.

Although there is no obligation on new Tenants to agree to include such provisions in their Leases, the forces of the market have dictated that in at least 80% of cases since the new law came into effect, Leases have, in fact, contained them.

So, if you are a Tenant taking on new leasehold premises, you need to make sure you know what your continuing obligations will be. Ensure that your solicitor checks your new Lease thoroughly for you, so that you can take an informed decision for your business and those who work in it.

For further advice on buying, selling or letting homes and business premises, contact our property team at Hand Morgan & Owen on Stafford (01785) 211411 or Rugeley 01889 583871.

Published on web site - January 2007

The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. The law may have changed since this article was published. Readers should not act on the basis of the information included and should take appropriate professional advice upon their own particular circumstances.