Overriding lease

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An overriding lease is a form ofconcurrent lease, or 'lease of the reversion'. Unlike a true lease, it creates no immediate right of occupation. A person who is granted such a lease obtains the right to exercise the powers of the landlord. Consider a situation in which Landlord L grants a lease to tenant T1, and tenant T1 assigns his lease to tenant T2. T2 then assigns to T3. L and T1 remain in Privity of contract, and consequently (owing to s.79 of the Lpa (1925)) T1 remains liable to L for any breaches of covenant during the life of the lease. This is unfortunate for T1, because he has no control over who T2 assigns to, and if T3 is a rogue T1 could be in trouble, and for some time after he assigned.

Under the landlord and tenant covenants act (1995), if the lease was granted after 1996, L's rights against T1 are significantly reduced. However, it was not considered fair to take away the landlord's rights retrospectively for leases granted before the Act came into force. At the same time, the former unjust situation could hardly be allowed to continue. So the 1995 adopts a compromise position: L can enforce against T1, even after T1's assingnment, but not until he has served a statutory notice to that effect. On receipt of such notice, T1 can require L to grant him an overriding lease (a concurrent lease, in effect). This means that T1 can now take over the landlord's rights against T3. One of these rights will very likely be the right to bring T3's lease to an end, and revert it to himself. T1 can then sell the remainder of the lease term and raise money to offset the loss he has suffered to L.

Is this right -- the right to take an overriding lease -- of much benefit to T1? In one sense it is. While T1 could always proceed against T3 to recover his own losses to L, the reason L proceeded against T1 in the first place was most likely because T3 was insolvent. The new provisions give T1 increased rights against T3, including the right to recover the property and boot him out (giving due regard to statutory rules against eviction, of course). On the other hand, if T1 does exercise this power, whether it avails him depends on the state of the property market. In a falling market the remainder of the term might not be worth all that much (if it was, T3 could have capitalized on it himself).

For all that, the right to take an overriding lease gives some protection to a former tenant, in circumstances where he would have had none at all.

Land and Property Law