Covenants in a Lease

A covenant in a lease is an agreement or promise by the parties in which either of them pledges himself to the other that something is either done, shall be done, shall not be done or provides for the truth of certain facts. Covenants may be implied, express or usual.

A. Implied Covenants

The law is that there are certain covenants that are implied or inferred by law in a lease or landlord and tenant relationship, depending on the circumstances, in the absence of an express provision in a lease.

B. Usual Covenants

A lease may provide that the lease is subject to the usual covenants. Usual covenants are those that are proper and common in a lease based on the facts or evidence presented before the court. In deciding what covenants are usual, the court pays regard to the general conveyancing practice, the type of lease in question, the custom of the locality in which the property is situated, the purpose and usage of trade for which the property is let and other prevailing circumstances.

The following covenants have been held to be usual covenants in a lease;

a. covenant of the lessor for quite possession of the property;

b. covenant of the lessor that the property is fit for habitation;

c. covenant of the lessee to pay rent;

d. covenant of the lessee not to commit waste of the property; and

e. covenant of the lessee to use and keep the premises in a          tenantable condition

C. Express Covenants

Express covenants in leases, like the name implies are expressly stated. There is a definite agreement between the parties to a lease on express covenants. Some of the express covenants are as follows;

1. Covenants to pay rates, taxes and other outgoings;

2. User covenants or covenant of usage;

3. Covenants to insure or insurance covenant;

4. Covenants to repair;

5. Covenant against subletting, assigning or parting with possession;

6. Covenant to pay rent and rent review clause

7. Renewal covenant.

We shall attempt a brief examination of the reasons why this covenants are desirable in leases.

(1) Covenant to Pay Rent

A lease should provide for the payment of rent because rent is not one of the implied covenants in leases. The lessor cannot enforce payment of rent so long as the lease is silent on the obligation and the amount of rent that is payable and the manner of payment. Rent is the payment made by the lessee to the lessor by virtue of the leasehold contract to use and occupy the land of the lessor.

(2) Rent Review Clause

It is common to provide in leases a clause for the review of rent. The rent review clause is inserted in a lease to enable the landlord (or the tenant) to reconsider or reassess the rent periodically to meet with the prevailing market rent that the property commands at the time of the review. The landlord under this clause may vary the reserved rent in the lease, and unless this right is expressed in the lease, the landlord cannot unilaterally review the rent.

(3) Covenants to Pay Rates, Charges, Taxes and other Outgoings

The liability to make these payments depends on the agreements of the parties but if the tenant is responsible for the outgoings, the law implies that it is in respect of impositions subsisting at the commencement of the lease. This means that if in the course of the tenancy or lease, a fresh imposition is made on the demised premises, the tenant will not be responsible.

For this reason, a good draftsman or a good solicitor who acts for both the landlord and the tenant must make this covenant as wide as possible so as to take care of any dispute which may arise between the landlord and the tenant as a result of new Government property charges. A provision in these terms may be appropriate; The tenant hereby covenants to pay all rates, assessment, duties, land charges or outgoings charged now or hereafter imposed on the demised premises or on the landlord or tenant of the demised promises.

(4) Covenant against Subletting, Assigning or Parting with       Possession

A tenant in the absence of any agreement to the contrary has the right to assign or sublet or part with possession of the demised premises: Inuwa Wada v. Thomas Bryne (1973) 3 CCHCJ 59. However, if there is a provision prohibiting assignment or under-letting or sub-letting, it is enforceable by action for injunction or damages. Its breach may also result in the forfeiture of the lease. The emphasis in covenant against assignment is on its phraseology or tenure. It may read as follows; “A tenant covenants not to assign, or otherwise part with possession of the demised premises, except with the written consent of the lessor, such consent not to be unreasonably withheld in the case of a reasonable and responsible person”.

Thus, the covenant is not absolute. It is conditional on the consent of the landlord being obtained. In this situation, the covenant is broken only where there is a legal assignment for the entire residue of the term, thus, a declaration of trust in favour of a 3rd party or the deposit of the lease as security for mortgage or the sub-letting of part of the premises will not be construed as a breach of the covenant.

On the other hand, a covenant not to assign or part with possession of the premises goes further and is broken if the owner makes an equitable assignment of the lease and places the assignee in possession. A tenant who retains the legal possession of the whole of the premises at all material times does not commit a breach of the covenant if he allows other people to use it: Ishola William v. T. A. Hammonds Project Ltd (1988) INSC 342

(5) User Covenant or Covenant of Usage

In the absence of anything in the agreement between the landlord and the tenant, the law is that the tenant should use the demise premises for lawful purposes. But when there is a restriction on the user covenant, and there is breach of it, the tenant can enforce and the landlord can also enforce by injunction or damages. Restriction on usage may be for any of the following reasons:

i. To prevent annoyance or nuisance to neighbours;

ii. To preserve the demise premises;

iii. To protect the reversion;

iv. To prevent a residential building from being used for business          transactions and vice versa;

v. To prevent the premises from being used for immoral purposes          like prostitution or criminal acts.

If you as a solicitor or lawyer is acting for the tenant, it is important and advisable while not refusing the user covenant, to seek qualification by way of requirement of the landlord’s consent for a change of user covenant and that such consent should not be unreasonably withheld: Vee Gee Nig Ltd v. Contract Overseas Ltd (1992) 9 NWLR (Pt. 266) 503. Again, if the tenant wants exclusive use for that purpose, he must ensure that the landlord covenant not to use the premises for a similar purpose.

(6) Insurance Covenant

This is necessary where it is a long lease. Again both the landlord and tenant have insurable interest in the demise premises. So it is desirable to have a clause that will clarify the position of the parties, viz-a-viz the negative circumstances that may affect the demise premises. Therefore, a good insurance covenant should contain the following;

i. Who is to insure;

ii. What insurance company to use;

iii. Who is to pay premium;

iv. Who bears the risk;

v. What should be the amount of cover;

vi. The covenant should also disclose how the insurance money would be applied in the event the property is destroyed.

Please note that where the landlord insures, the tenant has no equity to compel him to spend the money from insurance company to restore the property: Mount Ford Hotel Ltd v. Wheeller (1964) 16 HL 117. Therefore, it is proper for a good draftsman or solicitor to seek to alter this general rule by making the landlord or the tenant as the case may be to covenant that he would use the insurance money to restore the property. It is instructive to note that section 67 of Insurance Act – provides to the effect that; where a house or other building insured against lose by fire is damaged or destroyed by fire; the insurer may on the request of any person interested in the insured house or buildings use the insurance money to reinstate the building.

Furthermore, the insurer shall also have the right to elect between reinstatement and paying the insurer for the loss suffered. Where the tenant contributes to the insurance and the property is destroyed by fire, the tenant can apply to be insurer or as interested person in the insured house for reinstatement. This is an exception to the general rule of privity of contract. A solicitor or draftsman should also provide for a situation where reinstatement is impossible. Hence, a provision should be made that insurance money be divided between the landlord and tenant. Whichever party takes out the insurance, it is proper for the other party to have a provision in the insurance clause giving him a right to call for the payment of premium receipts and insurance policy.

(7) Repair covenant

In most cases, a tenant covenants to keep the premises in a tenantable repair form. However, problems usually arise as to the scope of obligation between the landlord and tenant. In Lurcott v. Wheelers (1911) IKB 905, the tenant covenanted that from time to time he will keep the demise premises at his own cost in good condition and substantial repair and paint the house in such a way that the landlord will always like it. When there was a problem, the country counsel asked the occupiers and owners to take down the front external wall of the house because it was dangerous. The landlord was reluctant and the tenant was also reluctant to do so. When the country counsel wanted to use force, the landlord then used his own money to remove the wall and effect the necessary repairs. Subsequently, he sought for reimbursement from the tenant. The tenant declined. The landlord went to court. The court held that the tenant was liable to reimburse in view of the tenant’s covenant to repair.

The most important issue before the court is what constitutes repairs? Beckley C. J. attempted a definition as follows: “Repair is restoration or replacement of subsidiary part of a whole; renewal as distinguished from repairs is the re-construction of the entirety but not necessarily the whole”. When a tenant covenants to repair, the determination of whether or not a particular act required to be done by him comes under the covenant depends on whether it relates to a subsidiary or substance of the house. In most cases, this will take a protracted litigation to resolve or decide. A way out is to as much as possible state the kinds of repairs to be undertaken by the tenant and the ones to be undertaken by the landlord. Where the premises constitute of a block of flat, it is usual for the landlord to be maintaining the external parts or repairs of the house while the tenant will take the internal repairs. However, the landlord may make the tenant to covenant not to make alternations to the building. If such restriction is absolute, it may affect the train of business of the tenant. This is why a good solicitor or draftsman should qualify the covenant by seeking the consent of the landlord before such alternation will be carried out. It may also be a condition for the grant of such consent that the tenant should at the end of the term restore the building or the property in the state in which it was at the beginning.

(8) Renewal Covenant

A lease may contain a covenant on the landlord’s part that he will at the end of the present term, grant a further term if required by the tenant. Such lease confers on the tenant an immediate term with a right to call for a further term which right is enforceable even by his personal representatives. The covenant usually requires the tenant to give notice of his intentions to seek renewal before the expiration of the present term.

Again, it also requires that the tenant must not be in breach of any covenant in the lease. If the lease does not state what would be the term of the new lease, it will be deemed that the terms will be similar to the subsisting lease, meaning a replica of the old lease. It is for this reason that a good draftsman or solicitor must state that the rent and covenant for renewal as contained in the original lease should be exempted from the new lease. In other words, that the rent should be further negotiated. If this is not done, it means that the tenant will pay the same rent and this may not be economically convenience for the landlord in view of the rate of inflation arising from corruption in the society. Secondly, it will also avoid the creation of a perpetually renewable lease which occurred in the case of Re Hopkins (1972) 1 AER 248. In this case, the lease contained an option to renew subject to the same terms and conditions as are contained in the original lease. A dispute arose between the landlord and tenant when the landlord refused to renew. The court held that, that provision created a perpetually renewable lease, hence the landlord must renew. Therefore, it is important to provide a good model of renewal covenant as follows;

Subject to the performance of all the tenants covenant herein contained, the landlord shall on a written request made by the tenant within three months before the expiration of the term hereby created grant to the tenant a lease of the demise premises for another term of ten years, two years, three years as the case may be at a rent to be agreed on containing all the terms and conditions of this lease except the option to renew.

(9) Provisos in a Lease

Provisos are conditions which may lead to the suspension, modification or derogation from the main lease. Examples include:

i. Proviso for forfeiture and re-entry for non-payment of rent;

ii. Proviso for breach of other covenants.

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