When a tenant under a lease granted on or after 1 January 1996, transfers its interest to someone else that tenant is automatically released from liability to its landlord unless asked to give the landlord a guarantee (known as an ‘authorised guarantee agreement’) that the incoming tenant will carry out its obligations under the lease.
This is not the case for landlords…
The position is not quite so rosy when a landlord transfers its own interest in the property. A landlord’s contractual liability can continue throughout the whole contractual term of the lease, unless:
- The lease itself includes an express provision limiting the landlord’s liability to its period of ownership (known as an Avonridge clause following a 2005 case whereby a clause in the lease was held to be successful in limiting an original landlord’s liability);
- The tenant provides an express release to the landlord; or
- The landlord obtains a release by using the notice procedure .
The simplest way to obtain a release is to include a clause in the original lease. However, be careful! If the release provision in the lease is more wide-ranging than that used in Avonridge, it may fall foul of relevant anti-avoidance provisions . In Avonridge, the provision only limited the liability of the original landlord and not liability of successor landlords. Also, depending on the bargaining strength of the prospective tenant, a landlord might not be able to persuade the tenant to include such a clause.
An indemnity is only as good as the person giving it
It is usual on a sale for the buyer to agree to comply with the landlord covenants in the lease and to provide an indemnity to the seller in respect of any claims against it arising from a future breach of those covenants. However, an indemnity is only as good as the person giving it and selling landlords are therefore well advised to obtain a release, as highlighted by a recent case . Here, the current landlord of the property failed to insure the premises and because the original landlord had not been released from its obligations, the tenant successfully claimed against the original landlord when the premises were damaged by fire.
The obligation to insure the property against loss or damage is likely to be the primary concern for landlords selling commercial leases. However, if there is a superior lease, liability could also extend to paying the rents reserved by that superior lease (as in Avonridge).
Is there a solution for landlords?
If the lease does not contain an Avonridge clause and it is not possible or desirable to obtain an express release from the tenant, landlords may want to follow the procedure for obtaining a statutory release.
The landlord may serve a notice on the tenant in a prescribed form any time before or up to 4 weeks after the date of sale of the landlord’s interest in the property.
Upon receipt of a notice, the tenant may:
- do nothing; or
If the tenant does nothing, after a period of 4 weeks from service of the landlord’s notice, the landlord will automatically be released to the extent mentioned in the notice. If the tenant objects, a selling landlord may apply to the court for a release or else make a further application for release when the landlord’s interest in the premises is once again transferred.
This procedure is rarely used in practice because it puts tenants on notice of the former landlord’s liability, which might make it more likely that the tenant will object, although the optimistic selling landlord would hope that the tenant ignores the notice!
 Sections 6 – 8 of the Landlord and Tenant (Covenants) Act 1995
 In the Act
 Reeves & Downing –v- Sandhu (2015)