Beware the hazards when offloading a freehold, say Mark Paget Skelin and David Firth

Published: 01/07/2004, Volume II3, No. 5912 Page 33

NHS organisations often make the mistake of assuming that once they sell or otherwise dispose of a freehold interest in a tenanted property, all their potential liabilities flowing from the landlord's covenants will pass to the new landlord.

This could prove to be an expensive oversight as a landlord's lease covenants can run for the lifetime of the lease - even if the original landlord sells the freehold to a new landlord.

Conversely, any tenant who receives a request to release the landlord from their covenants because they have disposed of their interest in the property needs to know the implications of this situation and how to protect their position.

What is the landlord's liability?

The Landlord and Tenant (Covenants) Act 1995 regulates landlords' liability to their tenants both before and after disposing of a freehold interest.

For leases entered into before 1 January 1996, a landlord entering into a lease with a tenant remains bound by his covenants in the lease for the remainder of the lease term. If they sell or otherwise dispose of the property, they will remain bound by their covenants until the end of the lease; however, the new landlord will only be bound by the landlord's covenants as long as they retain their interest in the property.

For leases entered into on or after 1 January 1996, a landlord entering into a lease with a tenant still remains bound by their covenants for the remainder of the term.However, they may ask the tenant to release them from their continuing liabilities if they dispose of their freehold interest.

Subsequent landlords acquiring the property also have the right to apply for the tenant's consent to release them from their liabilities in the same circumstances.

Applying for release Unfortunately, the 1995 act prohibits the landlord and the tenant agreeing in the lease to allow for the landlord's automatic release.

If a landlord wants to be released from their liabilities, they must write to the tenant in the prescribed form, preferably before disposal of their interest, but in any event no later than four weeks after disposal, requesting to be released from their liabilities on assignment of the lease. If the tenant wishes to object, they must serve notice of their objection within four weeks of receiving the landlord's request or be deemed to have consented to the release.

If the tenant refuses consent, the landlord must apply to the court if they wish to pursue their request. If the court finds that it is reasonable for the tenant to rely on the incoming landlord's covenant, the outgoing landlord will be released; however, if the court finds that the tenant's refusal is reasonable (for example if there are doubts about the new landlord's financial status), then it may hold that the landlord should not be released.

The law in practice: a fictional example

A trust wants to dispose of its freehold interest in a site. The interest is subject to a 10-year lease relating to advertising hoardings at the site, granted to Happy Hammers on 1 April 1998. The trust wants its potential liabilities as Happy Hammer's landlord to cease on disposal of its freehold interest, with the potential transferee to take over as landlord.

During the course of the marketing exercise for the land disposal, the trust's solicitors are instructed to make contact with Happy Hammers' solicitors to apply for a formal release.

The trust's legal advisers receive no response from the tenant's solicitors, and therefore four weeks after making the request, the trust's solicitors advise the trust that Happy Hammers are deemed to have consented to the release.

In this scenario, silence on the part of the tenant's solicitors may simply be recognition that no reasonable grounds exist for refusing consent to the release being sought.

In any event, with the fourweek deadline having passed, the trust can now dispose of its freehold interest in the surplus land secure in the knowledge that it will not remain liable for the landlord's covenants for the remainder of the lease. l Mark Paget Skelin and David Firth are partners at law firm Capsticks.

Asbestos: the requirements of a dutyholder

On 21 May this year, regulation 4 of the Control of Asbestos at Work Regulations 2002 imposed a duty upon the 'dutyholder' to assess, manage and provide information on the risks from asbestos.

The dutyholder is required to ensure that a sufficient assessment is carried out on whether asbestos is or is liable to be present in the premises:

Consider the amount and condition of asbestos which is present, or is assumed to be present.

Presume that material contains asbestos unless there is strong evidence that it does not.

Take account of building plans, the age of the building and other relevant information.

Make and keep up to date a record of the amount, location and condition of asbestos-containing materials.

Ensure that where the assessment shows asbestos is present or is liable to be present, risk is assessed.

Prepare a written plan, which is regularly revised.

Ensure that information is provided to anyone liable to work on or disturb material, and is available to emergency services.

Ensure that measures specified in the plan are implemented and actions recorded.

If the asbestos is in good condition and is not likely to be damaged, worked on or disturbed, the Health and Safety Executive has advised that it is safer to leave it in place and manage it. If the asbestos is in poor condition or is likely to be damaged or disturbed, the dutyholder will need to decide whether it should be repaired, sealed, enclosed or removed.

David Wood is a partner at law firm Bevan Ashford.