Landlord and tenant – Agreement for lease – Commencement – Claimants and defendants allegedly entering into oral agreement including grant of lease of property to third party – Second claimant agreeing to refurbish property – Defendant failing to grant lease – Claimants seeking damages for breach of contract – County court finding in favour of claimants – Defendant appealing – Whether agreement void for uncertainty – Appeal dismissed
The defendant and his wife were freehold owners of 2 and 4 High Street, Sunninghill, near Ascot. The defendant ran a restaurant there. In September 2014, he sold the restaurant business for £67,000 to a company incorporated for that purpose (M).
As part of the sale, the defendant intended to grant a lease of the property but, despite the preparation of a draft lease and the exchange of signed counterpart leases, the formalities were never completed.
On 8 August 2016, the claimants orally agreed to buy out the M shareholders and refurbish the property. The defendant was to grant a new 20-year lease to a third party. If the lease was not granted, the defendant agreed to pay the claimants for the works undertaken. The lease was not granted and the claimants sought damages of £92,071.22.
The county court accepted that this was not an agreement for lease but an agreement to grant a lease in favour of a third party, more in the nature of an agreement to offer a lease or a right of first refusal.
In any event, the judge considered that the date for commencement of the lease could be ascertained by reasonable inference from the language used, ie that the lease was to commence when a new company was set up. Therefore, the lease was not void for uncertainty in that respect. The defendant was in breach of the agreement since he did not offer a lease to a third party. The defendant appealed.
Held: The appeal was dismissed.
(1) In order for there to be a valid agreement for lease, agreement as to the parties, property, lease term, rent and lease commencement date was essential. If the commencement of the term was not defined, the agreement was uncertain. Where nothing was said in the agreement for lease to indicate when it was to commence, the law would imply that the term was to commence within a reasonable period after the agreement (or at the date of the agreement itself): Harvey v Pratt [1965] 1 WLR 1025 applied.
Leases were required to be of certain duration when created. The agreement could not be enforced unless the commencement date of the lease could be discovered within the four corners of the agreement. There was no authority for the proposition that the lease began to run from the date of the agreement itself. It was essential to the validity of a lease that the commencement date should appear either in express terms, in some writing that would make it certain or by reasonable inference from the language used: Marshall v Berridge (1881) 19 ChD 233 applied. Prudential Assurance Co Ltd v London Residuary Body and others [1992] 2 AC 386, Liverpool City Council v Walton Group plc [2002] 1 EGLR 249 and Mexfield Housing Co-operative Ltd v Berrisford [2011] UKSC 52, [2011] 3 EGLR 115 considered.
(2) The question was whether, taking into account all those matters that could properly be considered when construing the agreement and the draft lease, the court could with reasonable certainty be satisfied as to the date the parties intended the lease to start. An agreement for lease could be valid even if the commencement date was defined by a future event which might not occur or, if it did, the day on which it occurred might be uncertain.
Faced with a document executed by parties who clearly intended it to have legal effect, the court would lean in favour of upholding the document, provided it could properly do so. Whether there was a binding contract, and if so, its terms, would depend on whether what was communicated between them led objectively to the conclusion that the parties intended to create legal relations and had agreed upon all the terms which they regarded, or the law required, as being essential for the formation of legally binding relations.
However, if the time from which the lease was to begin was uncertain, the agreement was incomplete and there was no binding contract. The uncertainty of the lease start date was also a strong pointer that the parties did not intend to be bound. Where it was clear the parties intended to be bound, it was possible to conclude by reasonable inference from the language used that the parties had agreed the term start date: Pretoria Energy Co (Chittering) Ltd v Blankney Estates Ltd [2023] EWCA Civ 482; [2023] PLSCS 79 and RTS Ltd v Molkerei Alois Muller GmbH & Co AG [1987] 2 Lloyd’s Rep 601 considered.
(3) In the present case, the agreement reached by the parties was not an agreement for lease. Rather, it was akin to an agreement between the parties for the defendant to offer a new lease to a new entity. That followed from the fact that: (i) the new entity was not a party to the agreement; (ii) that new entity did not exist at the date of the agreement; (iii) the agreement could not therefore have created any obligation on that entity to take the new lease; and (iv) although the agreement was expressed in terms of an obligation on the part of the defendant to grant a lease, it also recognised that, for whatever reason, that outcome might not, in fact, come about. As such, section 2(1) of the Law of Property (Miscellaneous Provisions) Act 1989 was not engaged such that the agreement did not fail for want of writing.
(4) As the agreement was neither the grant nor an agreement for the grant of a term of years absolute, the principle stated in Marshall and Harvey did not apply here such that the agreement did not fail for uncertainty on that basis. Although there had to be certainty, an agreement of this nature that failed to specify at the outset the commencement of any term that might be granted in due course would not fail on that account.
It was also open to the judge, based on the agreement found, the surrounding circumstances and commercial sense, to conclude that the lease would commence when the new entity was formed. The scheme of the agreement showed that the parties intended to be commercially bound by their agreement when it was made, having agreed on what they regarded as the essential terms.
Kerry Bretherton KC (instructed by Taylor Fordyce Solicitors) appeared for the appellant; Aaron Walder (instructed by Mills Chody LLP) appeared for the respondents.
Eileen O’Grady, barrister
