Leases: when does a variation amount to a surrender and regrant? Personal covenants and covenants that ‘touch and concern’ the land.

A deed of variation of a lease only amounts to a surrender and re-grant where the legal estate has been altered (perhaps this can only be done by altering either the premises or the term). An assignee of the lease might agree to significant variations of the terms of the lease. In principle, the original tenant remains liable for the personal obligation in the original lease terms (but in Hong Kong section 41(8) of the Conveyancing and Property Ordinance releases assignors from liability for post-assignment breaches of covenants that fall within section 41(2)). Of course an original tenant could agree to be liable for post-assignment breaches (of the original and / or varied lease terms).

In Friends Provident Life Office v British Railways Board ((1997) 73 P & C.R. 9, CA (Eng)) L owned the reversion of a lease granted to T. T assigned to A1 who entered into a deed of variation that increased the rent and altered the user and alienation clauses. A1 assigned to A2. A2 went into liquidation. L claimed from T the rent arrears that had accrued while A2 was in possession. T argued that it had no liability under the lease at all since the changes introduced by the deed of variation had been so significant as to amount to a new lease. This failed in the Court of Appeal. A deed of variation of a lease only amounts to a surrender and re-grant where the legal estate has been altered (perhaps this can only be done by altering either the premises or the term). Here the variation was not so significant as to give rise to a change in the estate.

T was liable to pay the original rent because of its personal covenant to do so (this must be read in the light of CPO s.41(8) in Hong Kong). It was not liable to pay the increased rent since the terms of its covenant did not cover any such increase.

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