Landlord and tenant — Collateral agreements to remedy defects and give rent concession — Whether section 2 of Law of Property (Miscellaneous Provisions) Act 1989 applied — Whether obligations of collateral agreements binding on successor in title to reversion
By leases
dated October 26 1993 the defendant granted 25-year terms of two units to,
respectively, the first and second plaintiffs. Prior to the grant of the leases
damp was found in the units and the defendant, by collateral agreements,
undertook to use reasonable endeavours to rectify certain specified defects
within six months; in the case of one of the units rent was to be reduced while
works of repair were being carried out, and in the case of the second unit the
second plaintiffs alleged that there was an oral agreement that it would be
entitled to a rent-free period while any remedial work remained uncompleted.
The plaintiffs, who contended that the defendant was in breach of its
obligations under the collateral agreements, sought injunctions until trial
restraining a proposed sale of the freeholds and protecting the plaintiffs’
claims for dispensation from payment of rent until repairs were completed if a
sale took place. The issues raised at the hearing of the notice of motion were
whether the plaintiffs would be prejudiced by the proposed sale and, if so, the
existence of such prejudice would entitle them to the relief claimed.
were valid because they did not themselves dispose of an interest in land,
though they did not comply with section 2 of the Law of Property (Miscellaneous
Provisions) Act 1989. The obligations assumed by the defendant under the two
collateral contracts to carry out repairs were plainly obligations assumed by a
lessor with reference to the demised premises and accordingly run with the
reversion under section 142 of the Law of Property Act 1925. A tenant’s right
to set off (against any liability to make payment to the landlord due under the
lease) his claim for damages for breach of a provision in a collateral contract
which runs with the reversion is exercisable (equally with his right of set off
a claim for damages for breach of such covenant contained in the lease) not
merely against the person entitled to the reversion at the date of the breach,
but also against any successor in title. Accordingly, no sale by the defendant
would prejudice the plaintiffs’ rights to set off any claim for breach of
obligation under the collateral contracts. In any event the plaintiffs were not
entitled to the relief claimed.
The following
cases are referred to in this report.
Breams
Property Investment Co Ltd v Stroulger
[1948] 2 KB 1; [1948] 1 All ER 758; (1948) 64 TLR 292, CA
Grace
Rymer Investments Ltd v Waite [1958] Ch 314
& 831; [1958] 2 WLR 200 & 3 WLR 337; [1958] 1 All ER 138; [1958] 2 All
ER 777, CA
Reeves v Pope [1914] 2 KB 284
Tootal
Clothing Ltd v Guinea Properties Management Ltd
(1992) 64 P&CR 452; [1992] 2 EGLR 80; [1992] 41 EG 117, CA
Weg
Motors Ltd v Hales [1961] Ch 176; [1962] Ch
49; [1961] 3 WLR 558; [1961] 3 All ER 181, CA
This was a
hearing under Ord 14A of the RSC following notices of motion issued by the
plaintiffs, Lotteryking Ltd and Rollerball Ltd, in proceedings for damages and
injunctions against the defendant, AMEC Properties Ltd.
Richard Fawls
(instructed by Cornish & Co, of Ilford) appeared for the plaintiffs;
Anthony Trace (instructed by Berwin Leighton) represented the defendant.
Giving
judgment, LIGHTMAN J said: I have before me two motions by the
plaintiffs in two actions seeking injunctive relief against the common
defendant. The common defendant AMEC Properties Ltd (‘AMEC’) is the registered
proprietor of units M and N, Hainault Business Park, Peregrine Road, Hainault,
Essex. By leases dated October 26 1993 AMEC granted leases for 25 years from
October 15 1993 of unit M to Rollerbowl Ltd (‘Rollerbowl’) and of unit N to
Lotteryking Ltd (‘Lotteryking’). In each case there is a rent-free period until
June 15 1995 and thereafter market rents are reserved. Prior to the date of
grant of the leases damp was found at the units (there is a dispute as to what
damp was found and where) and the plaintiffs as prospective tenants required
AMEC’s assurance that it would be remedied. Accordingly, by collateral
agreements of the same date expressly entered into in consideration of
Rollerbowl and Lotteryking entering into their respective leases, AMEC agreed
to carry out certain works of repair to the demised premises. In the case of
unit N, AMEC agreed as follows:
We undertake
to use our reasonable endeavours to rectify the defects referred to in the
attached schedule relating to Unit N at our own cost within six months of
today’s date. To enable us to carry out and complete such works you will allow
us on to the Premises with all necessary workmen and equipment.
We agree that
notwithstanding the rent expressed to be paid in accordance with clause 2.3.1
of the Lease the rent payable from 15th June 1995 shall for such period as
shall represent the number of days we are on the Premises rectifying the defect
referred to in paragraph 2 of the attached schedule relating to the Premises be
calculated on a yearly rent of £13,864 …
Except as varied herein this letter shall incorporate the provisions of the
Lease.
The relevant
provision in the attached schedule reads as follows:
2.
Investigate and undertake complete remedial works in order to rectify dampness
in the concrete groundfloor along the perimeter of the southern external wall
and the internal wall
In the case of
unit M, AMEC agreed as follows:
We undertake
to use our reasonable endeavours to rectify the defects referred to in the
attached schedule relating to Unit M at our own cost within six months of
today’s date. To enable us to carry out and complete such works
The attached
schedule did not include the obligation included in respect of unit N, but AMEC
Developments Ltd (an associate company of AMEC) on behalf of AMEC amended this
by letter dated November 5 1993 in which it wrote as follows:
I confirm
that item 2 appertaining to Unit N is in respect of the concrete ground is
respect of the concrete groundfloor to this unit, together with the Southern
and Eastern external wall.
Rollerbowl
contends that shortly after November 5 1993 there was an oral agreement between
officers of AMEC and of Rollerbowl that Rollerbowl should be entitled to a
rent-free period while any remedial work remained uncompleted. AMEC challenge
the existence of this alleged agreement, which I shall refer to as ‘the
disputed agreement’.
A dispute
exists between the plaintiffs and the defendant whether AMEC is in breach of
its obligations to repair under the collateral contracts. The plaintiffs not
merely claim that works remain to be done, but that past breaches have resulted
in loss giving rise to claims for damages. The plaintiffs assert that they are
good for the cross-undertaking in damages which they must be required to give
if the injunctions sought by them are granted. The quality of their
cross-undertaking is to a large degree attributable to the agreement by Mr
Stack, a director with substantial personal wealth, who has given his own
cross-undertaking in addition to that proffered by the plaintiffs. On the other
hand, the plaintiffs assert that AMEC’s solvency is highly questionable and
that AMEC may not be good for any award of damages at the trial of this action.
This no doubt is the primary reason why the plaintiffs are applying for interlocutory
relief.
AMEC on
February 22 1995 arranged to hold next Monday April 3 1995 an auction sale of
the freehold reversion on both leases. Rollerbowl and Lotteryking fear that the
sale will prejudice their rights under and in respect of the collateral contracts
and in particular their rights to rent-abatement periods and to set off their
claims in damages for breaches of AMEC’s obligation to repair against rent and
other sums payable under their leases as they fall due, for (they say) their
rights may not be enforceable against the purchaser. Accordingly, on March 22
1995 Rollerbowl and Lotteryking commenced proceedings seeking: (1) damages for
breach of contract and interest; (2) an order that AMEC carry out the repairs;
(3) a declaration of their rights to the rent-abatement periods; and (4) a
declaration that they are entitled to set off all damages and interest awarded
to them against all sums due under the leases. By notice of motion of the same
date the plaintiffs sought in the alterative: (1) injunctions until trial
restraining sale of the reversion; (2) injunctions restraining sale of the
reversion save on terms that the purchasers irrevocably confirm in writing the
entitlement of the plaintiffs to the rent-abatement periods and set-off; and
(3) an order that AMEC indemnity them against all sums which they may pay to
the purchaser of the reversion in respect of which the plaintiffs have a right
to set off against AMEC.
Issues
The issues
raised on these motions are twofold. The first is concerned with the question
whether the plaintiffs can be prejudiced by the proposed sale. There are two
elements: (a) whether the obligations of AMEC under the two collateral
contracts will run with the land and bind a purchaser of the reversion; and (b)
whether the plaintiffs’ rights as tenants to set off their claims for damages
for breaches of such contracts by AMEC are available as against a purchaser of
the reversion. If the answer is that the plaintiffs cannot be prejudiced and
they will have all like rights against the purchaser as they have against AMEC,
the plaintiffs can have no need for any such relief as they claim. The second
issue only arises if the plaintiffs can be prejudiced in either of these
respects and raises the question whether the existence or possible existence of
such prejudice can entitle them to the relief claimed.
There is great
urgency in a speedy resolution of the issues raised since the auction is so
close at hand. The parties are naturally anxious that the issues of law as to
the status of the obligations under the collateral contracts so far as they
can, be resolved at once and definitively, so that the decision may operate as res
judicata and bind not merely the parties but also AMEC’s successors in
title on any sale. In these circumstances, at the request of both parties, I
have agreed to determine under Ord 14A the following issues of law:
(1) whether
the collateral agreements fall foul of section 2 of the Law of Property
(Miscellaneous Provisions) Act 1989;
(2) whether
the terms of the collateral contracts relating to repair and the existence of
rent-abatement periods constitute covenants which run with the reversion under
section 142 of the Law of Property Act 1925;
(3) whether
the plaintiffs are entitled to set off any claim for damages for breach of the
repairing term of the collateral contracts against any sums due under the
leases after a sale of the reversion by AMEC. I cannot and do not purport to
resolve any issue of fact, eg the existence of the disputed agreement or
whether AMEC is in breach of its obligation to repair or indeed the extent of
its obligation to repair. These issues can subsequently be determined in these
proceedings, if necessary or if appropriate, with the joinder of the purchaser
once the sale is completed.
Law of Property
(Miscellaneous Provisions) Act 1989
The question
has been raised whether the collateral contracts relating to unit N may be void
for non-compliance with section 2 of the Law of Property (Miscellaneous
Provisions) 1989. This section requires contracts for the sale or other
disposition of an interest in land to be made in writing. The collateral
contracts do not themselves dispose of an interest in land: they merely modify
or supplement the covenants contained in the leases, which make the relevant disposition.
Prior to the 1989 Act, when section 40 of the Law of Property Act 1925 required
contracts for the disposition of interests in land to be evidenced in writing
if they were to be enforceable, such a collateral contract for this reason did
not need to comply with this requirement. The position is, I think, the same
under the 1989 Act: consider Tootal Clothing Ltd v Guinea Properties
Management Ltd (1992) 64 P&CR 452* at p456 per Scott LJ. The
collateral contracts are valid though they do not comply with the section.
*Editor’s
note: Also reported at [1992] 2 EGLR 80.
Section
142 of the Law of Property Act 1925
Section 142 of
the Law of Property Act 1925 provides that the obligation of a covenant entered
into by a lessor with reference to (or touching and concerning) the
subject-matter of the lease shall be annexed and incidental to and shall go
with the reversionary estate immediately expectant on the term granted by the
lease and may be taken advantage of and enforced against any person from time
to time entitled to that reversionary estate. The term ‘covenant’ in this
context is not confined to a contract under seal, but applies to a contract
under hand and the covenant need not be contained in the lease provided that it
touches and concerns the demised premises. Thus, in Weg Motors Ltd v Hales
[1962] Ch 49 at pp73 and 76 a contract under hand collateral to a lease
granting an option to renew the lease was held to be a covenant which ran with
the land under section 142 and accordingly bound a successor in title to the
original lessor.
The
obligations assumed by AMEC under the two collateral contracts to carry out
repairs on the two units are, in my view, plainly (as are covenants for repair
contained in the leases themselves) obligations assumed by the lessor with
reference to the demised premises and accordingly run with the reversion. The
position is the same in respect of the provisions agreed (so far as they were
agreed between AMEC and the plaintiffs) for a rent-abatement period. Such a
provision incorporated in the lease itself would touch and concern the land and
it can make no difference that the provision is contained in a separate
collateral contract. Thus, a collateral agreement qualifying a covenant
touching and concerning the land contained in a lease, eg suspending for three
years the right to serve a notice to quit (see
pp7–9) or accepting an alternative method satisfaction of such a covenant (see Grace
Rymer Investments Ltd v Waite [1958] Ch 831 at p847) runs with the
reversion and binds the successor in title to the reversion irrespective of
notice.
Right to
set off
A tenant’s
right to set off (against any liability to make payment to the landlord due
under the lease) his claim for damages for breach of a provision in a
collateral contract which runs with the reversion is exercisable (equally with
his right to set off a claim for damages for breach of such a covenant contained
in the lease) not merely against the person entitled to the reversion at the
date of breach, but also against any successor in title. The successor in title
acquires the reversion and the benefit of all covenants contained in the lease
subject to all equities existing at the date of his acquisition. The much
debated decision in Reeves v Pope [1914] 2 KB 284 in nowise
stands in the way of this conclusion. In that case, the Court of Appeal held
that a tenant could not set off against a successor in title to the reversion a
claim for damages for breach of his contract with the original landlord for the
grant of the lease. The Court of Appeal categorised this as a claim to damages
for breach of a purely personal obligation as distinguished from an obligation,
which touched and concerned the land, ie ran with the reversion.
Accordingly,
no sale by AMEC can in law prejudice the plaintiffs’ right to set off any claim
for breach of obligation under the collateral contracts against sums due to the
landlord under the leases.
Generally
In my opinion,
therefore the plaintiffs cannot be prejudiced by any sale by AMEC and the basis
relied on for the grant of an injunction and the other relief sought does not
exist. But I should add, in case I am wrong and some prejudice can arise, that
I do not think that the potential or indeed actual existence of such prejudice
can found any claim for the injunction sought. The plaintiffs disclaim any
suggestion that a contractual obligation has been assumed (expressly or
impliedly) by AMEC not to dispose of the reversion. The plaintiffs maintain
that none the less the status quo should be maintained to prevent the
threatened damage (namely loss of the right available only against AMEC to a
reduced or nil rent or to a set off against future rent) being occasioned to
the plaintiff. In my view, there is no jurisdiction to grant the injunction
sought on this basis: the plaintiff would have to establish some legal or equitable
right to prevent a sale to obtain an injunction restraining sale and no such
right can be established. The plaintiffs’ rights would remain personal rights
against AMEC and give rise to a claim for damages for breach of contract
against AMEC to the extent that such rights were not honoured by the successor
in title. A fetter on the disposal of property, and in particular the reversion
on a lease, is not lightly to be imposed. Nor could the plaintiffs have any
right to the indemnity claimed. There is no reason or need to order the
indemnity sought. The plaintiffs have, and have only, the right to AMEC’s
performance of the obligations assumed or damages for breach.
Conclusion
For the
reasons set out in this judgment, I hold that the plaintiffs’ rights against
AMEC will on any sale likewise be exercisable against any successor in title.
For these reasons, and indeed in any event, the plaintiffs are not entitled to
the relief claimed or any relief on these motions. I propose to order, unless
persuaded otherwise, that the plaintiffs pay to the defendant the defendant’s
costs of the motions in any event.
