Landlord and tenant — Lease — Covenant by surety — Voluntary winding up of original landlord — Assignment of reversion — No express assignment of benefit of surety covenant — Whether benefit passes to assignee
The appellant was the surety to an underlease granted by the original landlord to one of the surety’s subsidiary companies. The underlessee covenanted, inter alia, to pay the rent, and the surety guaranteed the performance of the underlessee’s obligations. The original landlord company was voluntarily wound up and its reversionary interest expectant on the underlease was assigned by conveyance to the respondent. The conveyance did not contain any express assignment of the benefit of the surety covenant. In due course the underlessee failed to pay the rent and then went into a creditors’ voluntary winding up. The appellant surety refused to pay the sums due. Judgment was given for the respondent landlord by Judge Oddie (sitting as a judge of the Queen’s Bench Division) who certified that a point of law of general public importance was involved; leave was given to appeal to the House of Lords.
Held The appeal was dismissed. The relationship between a landlord and a surety to a lease was in contract only; there was no privity of estate. An assignee of a reversion could not therefore rely on section 141 of the Law of Property Act 1925, which re-enacted the Grantees of Reversions Act 1540, as this only applied to the relation of landlord and tenant. However the claim to enforce the surety rested on the common law rule that the assignee had the legal estate and the covenant “touched and concerned” the land.
The common law has developed in the last four centuries, and despite there being no direct decision upon the point, “land” in 1988 must for the purposes of the common law rule now include a reversion to a lease. Whether a surety covenant “touched and concerned” land had to be decided by the principles that applied to tenants’ covenants. The correct principle was set down in Vyuyan v Arthur (1823) 1 B & C 410, 417: “… if the performance of the covenant be beneficial to the reversion, in respect of the lessor’s demand, and to no other person, his assignee may sue upon it; but if it be beneficial to the lessor, without regard to his continuing owner of the estate, it is a mere collateral covenant, upon which the assignee cannot sue”. Although the surety’s obligations were to pay money, and any action against it would sound in damages, the surety’s primary obligation was the same as the tenant’s; if that obligation of the tenant touched and concerned the land, that of the surety must equally do so.
A covenant touched and concerned land: (1) where it benefited only the reversioner for the time being; (2) the covenant affected the nature, quality, mode or user or value of the reversioner’s land; (3) the covenant was not expressed as personal; and (4) a covenant to pay money would still touch and concern land so long as the three foregoing conditions were satisfied and the covenant was connected with something to be done on, to or in relation to the land.
Kumar v Dunning
[1987] 2 EGLR 39 approved.
Michael Barnes QC and David Neuberger QC (instructed by Simmons & Simmons) appeared for the appellant; and John Colyer QC and Martyn Zeidman (instructed by Rose & Birn) appeared for the the respondent.