On 31 March 1993, responding to a parliamentary question about the government's plans to implement the Law Commission's 1988 report: 'Landlord and tenant law privity of contract and estate', the Lord Chancellor said: 'The government has decided to implement these recommendations for future leases but not for existing leases.

This decision will only affect those agreements entered into after the commencement date of the necessary legislation, which will also provide for a statutory requirement in respect of both future and existing leases to encourage landlords to act promptly when suing for arrears of rent or service charges.

Notice of any such claims against the former tenant will in future have to be served within nine months after the money becomes due.'At present, the grant of a lease has two consequences.

First, it creates a legal estate in land vesting the demised premises in the tenant for a defined term.

Secondly, it creates a contract between the two parties.

Thus, while the lease remains vested in the original parties, there is privity of contract and privity of estate.

The former continues for the duration of the contract.However, when one of the original parties disposes of his or her interest, the latter ends.

Instead there is privity of estate between the current landlord and the current tenant.

They are bound by the covenants in the lease which, in the case of tenant's covenants 'touch and concern' the land and, in the case of landlord's covenants, have 'reference to the subject matter of the lease'.

Covenants which are personal in nature will not bind the original parties' successors.This represents the simplest position.

In practice, other parties are involved.

First, there may be guarantors of the original tenant.

Secondly, on assignment, the landlord may require guarantors.

Thirdly, the landlord may require the assignee to covenant directly to perform all the tenant's covenants for the remainder of the contractual term, if not longer.

The practical result is that where a lease has been assigned, the landlord may have a wide range of potential defendants if the current tenant defaults.

In particular, of course, he or she will have the original tenant as a potential defendant.The position of the original tenant has been described as an example of 'responsibility without power' and the law has been the subject of criticism.

The Law Commission's reforms address the position of both original tenant and original landlord and deal with assignments of the whole and of part of the demised premises.In June 1986, the commission published a working paper which examined the criticisms made of the privity of contract rule and made alternative proposals for reform.

The provisional conclusion was that the rule should be totally ab olished.

Consultation was carried out on the working paper.

A clear majority of those who responded agreed that the present position was unsatisfactory and favoured a change in the law.

There was considerable support for the provisional proposal to abolish the rule but a significant number of those who responded were opposed to that proposal.In the light of the consultation response, the Law Commission reconsidered its provisional proposal and no longer recommended that the rule should be totally abolished.

In summary their recommendation in the 1988 report was that a tenant should cease to be liable to perform his or her obligations under a lease after he or she parted with his or her interest in the property unless it was reasonable that he or she should be liable to guarantee the performance of the covenants by his or her immediate successor.In formulating their proposals for reform in the 1988 report, the Law Commission recognised the importance of two principles: 'First, a landlord or a tenant of property should not continue to enjoy rights nor be under any obligation arising from a lease once he has parted with all interest in the property'.'Secondly, all the terms of the lease should be regarded as a single bargain for letting the property.

When the interest of one of the parties changes hands, the successor should fully take his predecessor's place as landlord or tenant, without distinguishing between different categories of covenant.'The majority of those who responded to the working paper believed that the effect of transferring property which has been leased should be the 'clean break' which results from applying the two principles.

Nevertheless, the consultation convinced the Law Commission that there were cases in which, for good reason, landlords could only agree to a proposed assignment if they were assured that their existing tenant would continue to be responsible for complying with the lease terms.

The commission therefore proposed a scheme based on the general abrogation of the rule, but which stopped short of abolishing it in all cases.In particular what was recommended was that, when a tenant assigned the whole of the property demised by a lease, as a general rule his or her responsibility to comply with the covenants in the lease after the assignment should cease.Similarly, he or she should cease to benefit from the lease.

The benefit and burden of the lease obligations would pass to the assignee.

This would be an automatic consequence of the assignment: no additional action by any of the parties would be needed.

This would be the effect whether the assignment was by the original tenant or by a subsequent assignee.

Accordingly, the duty to perform the tenant's covenants would always be the responsibility and, subject to the exception outlined below, only the responsibility, of the tenant for the time being.

That person would be the only person then deriving a benefit as tenant.

This rule would apply to all the covenants in the lease whatever their subject matter.This would mean that the distinction between covenants which touch and concern the land and those which do not would be abolished and this was recommended by the Law Commission.However, it was recognised by the Law Commission that there would be cases in which the landlord was anxious to have the assurance of a continuing guarantee from his or her tenant and where it was, objectively, reasonable for him or her to do so.Consequently, it was recommended that a landlord whose consent had to be obtained should be able to impose a condition t hat the assignor guaranteed the immediate assignee's performance of the lease covenants.

This would contrast favourably with the present position of the original tenant because it would follow from the nature of a guarantor's liability that the former tenant would be released when the current tenant was released or by a material change in the current tenant's obligations without the guarantor's consent.This would avoid the tenant finding him or herself responsible for obligations more onerous than those he or she originally assumed.

The liability of the guarantor would last until, but only until, the date of the next assignment.

Thus, where it was reasonable for the landlord to insist, the tenant would guarantee the performance of the assignee he or she chose but not that of subsequent assignees in whose choice he or she would normally take no part.

Where the covenant against assignment was qualified, the landlord would only be able to impose this condition where it was reasonable for him or her to do so.As the assignor would be a guarantor of the assignee's covenants, the assignor/guarantor would have a common law right of indemnity from his or her assignee/principal.

This would mean that any express or implied indemnity covenant would add nothing to the assignor's position.

It was therefore recommended that indemnity covenants, both implied and express, be abandoned.As to guarantors for tenants, the recommendation was that whenever the liability of a tenant would be wholly cancelled under the above recommendations, then liabilities which had been undertaken in parallel and were essentially to the same effect should also be terminated.

The recommended position for landlords' guarantors was different; their position was to be regulated by the terms of the obligations they undertook.A crucial matter for consideration was whether the proposals for reform should be a voluntary rule for parties to adopt if they wished.

The view was taken that, for reform to be effective, it was necessary that the proposals should apply notwithstanding any contract between the parties.

To that end, there was to be a general provision aimed at invalidating all contracts to the extent that they had the effect of subverting the proposed rules.It is useful to try to clarify the effect of the Lord Chancellor's statement that the Law Commission's recommendations will be implemented.

Since making it, the Lord Chancellor has made a speech to the British Property Federation from which it is clear that the statement of 31 March 1993 relates to both residential and commercial leases.

The nine-month notices will apply to existing leases as well as to future leases; the rest of the legislation will not be back dated in any way.

For example, it will not be backdated to 31 March 1993.In terms of effect, first, the Act will only apply to future leases and will be dependent upon parliamentary time.

Future leases mean those granted after the commencement date of the legislation.

Therefore, for many years, the old law will continue to apply.

As to parliamentary time, it has been suggested by some that the relevant legislation should be combined with legislation on other landlord and tenant matters, eg upwards only review clauses and confidentiality.

If that happens the delay will be lengthy.

Secondly, assuming the Act is passed, it is apparent that applications for licences to assign will now be even more closely scrutinised by landlords who will seek wherever possible to impose a condition that the current tenant is to guarantee the performance by the assignee o f the tenant's covenants.If the landlord can demonstrate that that condition satisfies the test of reasonableness under the Landlord and Tenant Act 1988, then he or she will be able to keep the former tenant on the hook for the duration of the assignee's interest.

Thirdly, there may be cases where, when the first assignee seeks to assign to a second assignee, the landlord can establish that it is not reasonable that he or she should lose the guarantee of the original tenant.In such a case, the landlord can decline to give consent and the original tenant would remain on the hook until an assignee was found and the circumstances were such that the landlord could not reasonably complain of losing the original tenant's guarantee.

Fourthly, the last two matters which I have mentioned may well lead to the greater use of sub-lettings instead of assignments so as to secure landlord's consent.If this happens then not only is the head tenant still on the hook but also he or she will have all the attendant management problems of dealing with a sub-tenant.

Indeed, what we may see is draft leases being put forward with no right to assign.

It is clear from the 1988 report that such provisions would not fall foul of the proposed anti-contracting out provisions.Fifthly, there is the position of guarantors of the original tenant.

It is the case that under the Law Commission's recommendations the release of the original tenant would entirely release his or her guarantors.

However, it may be possible by appropriate drafting to provide in the guarantee given by the guarantors of the original tenant that if the original tenant is required to give a guarantee on assignment, then either the original guarantors will join in that guarantee or their liability as original guarantors shall extend for the duration of the original tenant's guarantee.

Such provisions would have to be tested against the contracting out provisions but such provisions will probably be put forward in draft leases once the proposals become law.

In this way guarantors may be further locked in.

Sixthly, the proposals do not apply to assignments by operation of law.While individually these six reasons might not appear significant, taking them all together it would seem that there will still be many cases where tenants and others remain on the hook.To all those unaffected by any legislation, there may seem to be a crumb of comfort in the Lord Chancellor's statement that there will be a statutory requirement to encourage landlords to act promptly when suing for arrears of rent or service charge, namely that notice of any such claims against former tenants will in future have to be served within nine months after the money becomes due.Such comfort is illusory.

The well- advised landlord will no doubt issue precautionary notices against his or her former tenants well within the nine-month period so as to preserve his or her position.

The former tenant may then have a period of uncertainty while the landlord exercises other remedies against his or her current tenant before deciding whether or not to rely upon the nine-month notice he or she has served on his or her former tenant.

It would seem therefore that the former tenant may be served with notices which he or she may or may not eventually be called upon to comply with.

To that extent his or her position will be even more uncertain and unsatisfactory.While the proposed reforms will plainly improve the tenant's lot, it may not be to such a great extent.