Leasehold premises — Plaintiffs paying defendants sum on agreement to purchase — Consent of lessor to assignment necessary — Consent not obtained within contractual time — Plaintiffs rescinding contracts — Whether plaintiffs entitled to sums paid to defendants — Judgment for the plaintiffs
The plaintiffs, Baring Securities Ltd (BSL), occupied offices in Lloyds Chambers, 1 Portsoken Street, London E1, held under three leases from its lessor (Hogg). The term was due to expire 2008. BSL was directly liable to Hogg as covenantor under each lease. In 1991, BSL wished to move to new offices and accepted that from the outset it would have to pay a reverse premium in order to dispose of its existing leases. It entered into negotiations with the defendants (D1 and D2). There was concern whether they would be accepted by Hogg although a preliminary approach indicated there would be little difficulty. Thereafter Hogg gave agreement in principle pending formal licenses to assign although their letter stressed that “for the time being the matter remains subject to license”. By clause 6.2 of the contract between BSL and Durham if completion had not taken place within one month of the completion date through the default of Durham BSL was entitled to rescind the contract and Durham was to repay the reverse premium with interest.
If by clause 6.3 completion “shall not have taken place by 30 June 1992 through the default of BSL then either party may rescind and the defendants would be entitled to retain the reverse premium”. The agreement was conditional upon the grant of a license by the landlord permitting the assignment and “the vendor shall use all reasonable endeavours … to obtain such licence”. After exchange of contracts, Hogg’s position hardened. BSL offered additional surety and other backup, but Hogg appeared determined to obtain the guarantee from, inter alia, BSL’s parent company. In the event, Hogg refused licence to assign any of the leases except upon terms which BSL was not prepared to accept. In the proceedings BSL relied upon rescission on the footing that licence to assign had not been given within the stipulated date of the contract while the defendants relied upon rescission under clause 6.3 that completion had not taken place by June 30 1992 through the default of BSL.
Held Judgment for the plaintiffs.
1. The first issue to be considered was whether BSL used all reasonable endeavours to obtain licences to assign.
2. Using all reasonable endeavours gave BSL considerable latitude on how best to proceed.
3. It was not unreasonable of Hogg to act on the basis that it wanted to be protected by enforceable legal obligations backed by sufficient assets.
4. Even if BSL had extracted a refusal from Hogg at an earlier date and had applied to the court for a declaration that such refusal was unreasonable, it did not follow that it would have had any reasonable prospect of obtaining such a declaration. BSL was advised by leading counsel that the application was not reasonably likely to have been successful.
5. With regard to the argument that it should have put together a credit risk insurance package, there would have been formidable difficulties of such a package having satisfied Hogg. BSL was not under any obligation to pay such a premium or obtain a counterindemnity.
6. BSL did not manifest an intention to abandon or to repudiate its contracts. It acted honestly and in good faith and there was no contractual obligation for it to perform between the time when it purported to rescind and the time when it could have validly rescinded.
Simon Berry QC and John McGhee (instructed by Clifford Chance) appeared for the plaintiffs; Stuart Catchpole (instructed by Edward Lewis & Co) appeared for the defendants.
