Appellant council bare trustees as well as lessees of site – Appellants not asserting lease and selling majority of site with vacant possession – Whether judge erred in finding appellants not entitled to share in principal sum under resulting trust – Whether judge erred in finding surrender of appellants’ leasehold interest in relation to entire site – Appeal allowed in part
A site (the playing fields) comprising 5.2 acres was used by the pupils of Queen Elizabeth’s Grammar School. The site was vested in Rochdale Borough Council for an estate in fee simple as bare trustees for trustees of Queen Elizabeth’s Foundation (the charity trustees). By virtue of a lease dated 12 February 1927s Middleton Corporation (as the charity trustee) granted to the council’s predecessor, as the local education authority, the residue of a term of 99 years in respect of the playing fields. As a consequence of local authority reorganisation in 1974, both the freehold and the term created by the lease were vested in the appellant council in their capacities as bare trustees and local education authority respectively. It was common ground that there was no merger. In 1990 the school closed. On 9 November 1994 the council sold and conveyed the freehold of 4.6 acres of the playing fields to Barratt Manchester Ltd for £675,000. In the course of investigation for the sale, the council’s solicitor found the 1927 lease but did not inform either the charity trustees or Barratt of its existence. The site was therefore conveyed with vacant possession.
The council claimed, as against the foundation: (1) that they were entitled to part of the proceeds of sale; and (2) that in respect of the remainder of the site, the 1927 lease still subsisted. Both claims were dismissed. The council appealed, contending that: (1) in respect of the sold land, the surrender by operation of law of the lease gave rise to a presumption of resulting trust; and (2) the lease still subsisted in respect of the unsold land, as the term was divisible on surrender in the same way as a term could be divided on assignment: see Earl Carnarvon v Villebois (1844) 13 M&W 313, which held that the extent of the surrender by operation of law was commensurate with what was necessary to give validity to the transaction.
Held: The appeal was allowed in part.
1. The term was surrendered by operation of law in order to validate the transfer of the freehold from the council to Barratt. The consequence of the surrender was that the term, a distinct legal estate in land, ceased to exist in law and in equity in respect of the land sold. As a result, the council were not able to trace their property into the hands of the charity trustees. The general proposition in Re Oatway [1903] 2 Ch 356, that if “A” was able to trace his property into the hands of “B”, he was entitled to its return, was distinguished. Furthermore, there was no basis for a personal action, as the charity trustees had no knowledge and no agreement in respect of the lease. The judge had therefore not erred in finding as he did on the first claim: Springette v Defoe (1993) 65 P&CR 1 distinguished.
2. In respect of the unsold land, the sale to Barratt rendered it impossible to comply with the user covenant, as not enough land was retained to enable its use as a playing field. However, a surrender of the term in respect of the retained land was not necessary for the validity of the sale. Though the council might have intended such a surrender had they considered it, a surrender by operation of law was not dependent on intention: Lyon v Reed (1844) 13 M&W 285 applied. Accordingly, the lease still subsisted in relation to the unsold land and the appeal was allowed on the second claim.
John McDonnell QC and Peter Keenan (instructed by Pannone & Partners, of Manchester) appeared for the appellants; Peter Smith QC and Nigel Burroughs (instructed by Temperley Taylor Chadwick, of Middleton) appeared for the respondent.
Sarah Addenbrooke, barrister
