The Running of Covenants in Equitable Leases and Equitable Assignments of Legal Leases

It has long been established that covenants in legal leases are enforceable where there is privity of contract or privity of estate. Privity of contract exists where the litigants are the original parties to the lease and where the benefit of the covenant has been assigned. Privity of estate applies where the parties are in the relationship of landlord and tenant. Thus an assignee of the landlord's freehold reversion and an assignee (but not sub-lessee) of the lease are in privity of estate. The traditional view is that privity of estate requires a legal lease. This limits the running of covenants in equitable leases (there will be an equitable lease if the necessity for a deed has been overlooked or if there is merely an agreement for a lease). The principle that an equitable lease does not give rise to privity of estate has several important exceptions. Before these are considered, however, it is expedient to examine the general principle. In recent years the principle has come under attack. The source of the attack emanates from the celebrated dicta of Jessel M.R. in Walsh v. Lonsdale , describing the effect of the Judicature Act 1873: There are not two estate as there were formerly, one estate at common law by reason of the payment of the rent from year to year, and an estate in equity under the agreement. There is only one Court, and the equity rules prevail in it. The tenant holds under an agreement for a lease.