Landlord and tenant — Underlease — Privity of contract — Whether headlessor can enforce covenants in underlease against original subtenant and its assignee
In October 1975 USF granted K a headlease
of premises for a term of 99 years less three days from July 31 1973. In
November 1987 USF transferred the reversion to the headlease to Amsprop Ltd. In
December 1987 K granted an underlease to the first defendant for a term
expiring in January 1994 pursuant to a licence granted by Amsprop Ltd. In
February 1993 the first defendant assigned the underlease to the second
defendant following a licence to consent to the assignment granted by Amsprop
Ltd to K. The plaintiff, Amsprop Trading Ltd, acquired the reversion to the
headlease from Amsprop in May 1993. In February 1996 the plaintiff gave notice
to the second defendant, purportedly pursuant to a provision of the underlease,
requiring the second defendant to carry out repairs. The covenants in the
underlease permitted the landlord and superior landlord to enter to carry out
repairs following notice and to recover the costs. In March 1996 the second
defendant gave up possession and the plaintiff forfeited the headlease. The
plaintiff claimed against the defendants damages for breach of the repairing
covenants in the underlease and reimbursement of the costs of repair.
relevant covenants of the underlease under section 56 of the Law of Property
Act 1925, notwithstanding the references therein to the superior landlord; the
relevant covenants were made with K and no one else was mentioned who might
benefit. It followed that the plaintiff could not enforce the covenants in the
underlease against the defendants. If Amsprop Ltd could have enforced the
relevant covenants in the underlease: (1) the plaintiff could have enforced the
covenants by reason of section 78 of the 1925 Act; (2) the second defendant
would not have been liable to the plaintiff; and (3) because the underlease
came to an end before the expiration of the three months’ notice period under
the covenant to repair on notice, the defendants would not have been liable to
the plaintiff.
The following cases are referred to in
this report.
Aspden v Seddon (1876) 1 ExD 496
Beswick v Beswick [1968] AC 58; [1967] 3
WLR 932; [1967] 2 All ER 1197, HL
Drive Yourself Hire Co Ltd v Strutt [1954] 1 QB
250; [1953] 3 WLR 1111; [1953] 2 All ER 1475, CA
Dyson v Forster [1909] AC 98, HL;
[1908] 1 KB 629, CA
Forster v Elvet Colliery Co Ltd [1908] 1
KB 629
Foster, Re [1938] 3 All ER 357; (1938) 54 TLR 993
Lyus v Prowsa Developments Ltd [1982]
1 WLR 1044; [1982] 2 All ER 953; (1981) 44 P&CR 213
Miller’s Agreement, Re; Uniacke v Attorney-General
[1947] Ch 615; [1947] 2 All ER 78
Norval v Pascoe (1864) 34 LJCh 82; 10
Jur(NS) 792; 10 LT 809; 12 WR 973
Rhone v Stephens (Executrix) [1994] 2
AC 310; [1994] Ch 310; [1994] 2 WLR 429; [1994] 2 All ER 65; [1994] 2 EGLR 181;
[1994] 37 EG 151, HL
Shaw’s Application, Re (1994) 68 P&CR 591, LT
Stromdale & Ball Ltd v Burden [1952] Ch
223; [1952] 1 All ER 59; (1951) 2 TLR 1192
Swift (P&A) Investments v Combined English Stores
Group plc [1989] AC 632; [1988] 3 WLR 313; [1988] 2 All ER 885; [1988] 2
EGLR 67; [1988] 43 EG 73, HL
Tito v Waddell (No 2) [1977] Ch 106;
[1977] 2 WLR 496; [1977] 3 All ER 129
White v Bijou Mansions Ltd [1937] Ch
610
Wiles v Banks (1984) 50 P&CR 80
This was the hearing of a preliminary
issue in a claim by the plaintiff, Amsprop Trading Ltd, for damages or expenses
under the provisions of an underlease against the first and second defendants,
Harris Distribution Ltd and TDG Ltd.
Christopher Cant (instructed by H
Montlake & Co, of Ilford) appeared for the plaintiff; Judith Jackson QC
(instructed by Burges Salmon, of Bristol) represented the first and second
defendants.
Giving judgment, NEUBERGER J said:
This is a preliminary issue as to whether the plaintiff, the headlandlord by
assignment, can claim directly against the original subtenant, the first
defendant, and its assignee, the second defendant, on the covenants contained
in the underlease. It raises points of some general interest in the field of
landlord and tenant.
Facts
On October 10 1975 USF Nominees Ltd
(‘USF’) granted a lease (‘the headlease’) of a warehouse at Josselin Road,
Basildon, Essex, (‘the premises’) to GJ Keddie & Sons Ltd (‘Keddie’) for a
term of 99 years less three days from July 31 1973. On November 23 1987, USF
transferred the reversion to the headlease to Amsprop Ltd (‘Amsprop’). On
November 27 1987, Amsprop granted Keddie licence (‘the licence’) to grant an
underlease (‘the underlease’) of the premises to the first defendant.
Clause 2 of the licence required the
underlease to be:
[M]ade subject to the lessees covenants
and conditions (other than the covenant to pay rent) … contained in the
headlease and should contain a covenant by [the first defendant] with [Keddie]
not to assign underlet or part with the possession of the premises or any part
thereof without the consent in writing of [Amsprop] or its successors in title
and a condition for re-entry on breach of such covenant …
Clause 4 of the licence contained a
covenant by Keddie with Amsprop:
not to waive the covenant … so to be
contained in the … underlease … but on any breach of the said covenant to
re-enter the premises … and otherwise to enforce such covenant …
On December 21 1987 Keddie granted the
underlease to the first defendant for a term expiring on January 1 1994.
In the underlease it was stated that any
reference in the underlease to ‘Superior Landlords’ was to be a reference to
USF or its successors in title, and that the expressions ‘the Landlords’ and
‘the Tenants’ were defined as respectively meaning Keddie and the first
defendant, and their respective successors in title. The underlease contained
express grants and reservations in familiar form relating to the passage of
water, gas, electricity and other services. Clause 3 of the underlease
contained the covenants by the first defendant. It opened with these words:
The Tenants hereby covenant with the
Landlords as follows.
Clause 3(4) was a covenant to keep the
premises in repair. Clause 3(33) was a covenant to deliver up the premises at
the end of the term in good repair. There were two other covenants, of central
relevance to the issue before me, in the following terms:
(7) To permit … the Superior Landlords
and the Landlords their [agents] at all reasonable times after at least 24
hours previous notice (except in emergency) to enter upon the … premises … for
the purpose of ascertaining that the covenants … herein contained have been
duly observed … and to view the state and condition of the … premises and of
all … wants of repair … there found to give or leave on the … premises notice
thereof in writing to the Tenants
(8) At the Tenants’ own cost … within 3
months next after every such notice referred to in the last preceding
sub-clause (or immediately in the case of emergency) well and substantially to
repair and make good all such defects … and wants of reparation … as required
by such notice … and if the Tenants shall fail to comply with the requirements
of such notice as aforesaid [it] shall be lawful for the Superior Landlords and
the Landlords … or their [agents] to enter upon the … premises to execute such
works as may be necessary to comply with the same And in the event of the
Superior Landlords or the Landlords so entering the … premises and carrying out
such works to pay their costs and expenses of executing such works … on demand
as liquidated damages such sums should be recoverable forthwith by action or by
distress as if such monies formed part of the rents payable hereunder.
Comparison of the covenants in the
headlease with those in the underlease show that, to a very substantial extent,
the covenants in the underlease reflected those in the headlease with minor
appropriate adaptations. Thus, clauses 2(9) and (10) of the headlease are
effectively identical to the two subclauses of the underlease which I have
quoted, save that there is no reference to ‘the Superior Landlord’ in the
covenants in the headlease.
On February 2 1993 Amsprop gave licence
to Keddie to consent to an assignment of the underlease, and the assignment of
the underlease by the first defendant to the second defendant took place
shortly thereafter. On May 7 1993, the plaintiff acquired the reversion to the
headlease from Amsprop. After its contractual expiry date the underlease
continued pursuant to section 24 of the Landlord and Tenant Act 1954.
On February 20 1996 the plaintiff served
notice on the second defendant purportedly pursuant to clause 3(7) of the
underlease requiring the second defendant to carry out certain repairs within
three months of the service of that notice (‘the plaintiffs’ notice’). On March
24 1996 the second defendant vacated the premises and it is common ground that
the underlease was surrendered on or about that date. On April 24 1996 the
plaintiff forfeited the headlease.
On March 27 1996 these proceedings were
issued against the first and second defendants. In the prayer for relief the
plaintiff seeks a declaration to the effect that the first and/or the second
defendant is liable to pay the plaintiff the cost of remedying any disrepair in
the premises or, alternatively, damages. In the statement of claim it is
contended that the disrepair constitutes a breach by the defendants of the
obligations in the underlease to keep the premises in repair and to deliver
them up in repair at the end of the term. The plaintiff also contends that,
quite apart from any claim for damages for breaches of these covenants, it is
entitled to recover the costs of carrying out the remedial works pursuant to
clause 3(8) of the underlease.
Preliminary issues
In order to succeed in establishing claim
in principle against the defendants on the covenants in the underlease, the
plaintiff has to establish that:
1. if Amsprop had not assigned its
reversion to the plaintiff, Amsprop could have so claimed against the
defendants; and
2. any such right that Amsprop had became
vested in the plaintiff when it acquired Amsprop’s reversionary interest to the
headlease.
In order to succeed against the second
defendant, the plaintiff also has to establish that:
3. by taking an assignment of the
underlease from the first defendant, the second defendant became liable to
Amsprop.
In order to succeed in any claim under
clause 3(8) of the underlease, the plaintiff will also have to establish that:
4. the plaintiff is entitled to recover
under clause 3(8) notwithstanding the fact that the underlease expired in March
1996.
I shall consider these four issues in
turn. Before doing so, it is right to refer to the point that neither the
plaintiff (nor indeed Amsprop) nor the second defendant is a party to the
underlease.
In common law, a contract cannot normally
be enforced by or against a stranger to it. This is, of course, because of the
doctrine of privity of contract. Two important exceptions to this rule in the
field of property law are, first, restrictive covenants and, second, covenants
which are enforceable by virtue of privity of estate. The covenants upon which
the plaintiff seeks to rely on the present case cannot be restrictive covenants
because they impose positive obligations. That is clear from the fact that the
plaintiff’s case is that the defendants should have carried out substantial
works of repair and, because they had not done so, they should pay the
plaintiff a substantial sum of money.
Privity of estate existed between Amsprop
(and then the plaintiff) and Keddie, and also between Keddie and the first
defendant (and then the second defendant). However, there is no privity of
estate between a superior landlord and a subtenant. This is clear from Megarry
& Wade The Law of Real Property 5th ed at p740:
Privity of estate means that there is
tenure between the parties, ie that the relationship of landlord and tenant
exists between them; cases in this category are thus confined to leases and
tenancies.
Could Amsprop have sued the defendants on
the covenants in the underlease?
In light of the above considerations, Mr
Christopher Cant, on behalf of the plaintiff, accepts that he must find some
statutory provision which warrants his contending that Amsprop, as the superior
landlords, should be entitled to enforce the covenants in the underlease
directly against the defendants. He relies on section 56(1) of the Law of
Property Act 1925, which provides:
A person may take an immediate or other
interest in land or other property, or the benefit of any condition, right of
entry, covenant or agreement over or respecting land or other property,
although he may not be named as a party to the conveyance or other instrument.
He contends that the rights contained in
clauses 3(7) and (8) of the underlease are either an ‘interest in land’ or a
‘covenant’. He contends that Amsprop would be entitled to enforce the covenants
contained in the underlease and, in particular, those in clauses 3(7) and (8)
because of the specific reference to ‘the Superior Landlords’ therein.
I accept that the provisions contained in
clauses 3(4), (7), (8) and (33) constitute ‘covenants’ within section 56.
However, I do not consider that clauses 3(7) or (8) could be said to be an
‘interest in land’. The argument to the contrary is based on the proposition
that the two subclauses effectively constitute a reservation. As I have
mentioned, the underlease contains reservations and, while the right of a
person (be the landlord or a superior landlord) to enter premises could be
conferred by a reservation or a covenant, it seems to me that in the present
case the parties to the underlease have chosen the latter alternative. Indeed,
that is emphasised by the fact that the rights contained in clauses 3(7) and
(8) are not merely rights of entry, but include the right to recover money.
If one construes section 56 as widely as
the words allow, one might conclude that it:
[left] the courts free, in cases
respecting property, to go back to the old common law, whereby a third party
can sue on a contract made expressly for his benefits only: and rid also of the
old rule about deeds inter partes.
These are the words of Denning LJ in Drive
Yourself Hire Co Ltd v Strutt [1954] l QB 250 at p274, which
summarise the conclusion that he reached.
However, I consider that that view cannot
stand in light of the reasoning of the House of Lords in Beswick v Beswick
[1968] AC 58. In that case, Lord Upjohn discussed the history and ambit of
section 56 in some detail at pp102F–107A. Although he described his views as ‘obiter
and tentative’ (at p105G) he cited with approval (at p106D) the view of Simonds
J in White v Bijou Mansions Ltd [1937] Ch 610 at p625:
under s 56 … only that person can call it
in aid who, although not named as a party to the conveyance or other
instrument, is yet a person to whom that conveyance or other instrument
purports to grant something or with which some agreement or covenant is
purported to be made.
Lord Pearce took the same view and indeed
expressly agreed with Lord Upjohn (at pp92D–94E). Lord Guest, at p87B, was ‘not
satisfied’ that the limitations put on section 56 by Simonds J could be
justified, but the extent of his disagreement is unclear. The views of Lord
Reid and Lord Hodson appear to be somewhat more equivocal. However, Lord
Hodson’s agreement (at p80C) with the judgment of Crossman J in Re Foster (1938)
54 TLR 993 at p995 (cited by Lord Pearce at pp93G–94C, from which it can be
seen that Crossman J agreed with Simonds J) appears to me to show that Lord
Hodson also agreed with Lord Upjohn. Lord Reid’s observations at p74E/F and his
quotation of, and reference to, the view of Simonds J on p75 coupled with his
disagreement at p76A with the view of Denning LJ that Re Miller’s Agreement
[1947] Ch 615 (where Wynn-Parry J quoted and approved the views of Simonds and
Crossman JJ) was wrongly decided manifest at least an inclination towards the
same view as Lord Upjohn.
In the present case, the covenants in
clause 3 of the underlease are expressed to be made with ‘the Landlords’, which
means Keddie and, at least where the context admits, its ‘successors in title
and assigns’. Amsprop, Keddie’s own landlord, clearly does not fall within that
expression. Accordingly, it seems to me that the plaintiff’s argument on this
point faces a substantial hurdle, in that the parties to the underlease have
expressly agreed that the covenants of the ‘Tenants’ are with ‘the Landlords’ and
no one else is mentioned as a person for whose benefit the covenants are made.
However, clauses 3(7) and (8) of the
underlease are covenants which, in terms, state that the first defendant will
do certain things which could be said to benefit ‘the Superior Landlords’: the
first defendant will permit them to enter in order to inspect, to view, to
leave notice, and to carry out works and will also reimburse them the cost of
the works. These rights, it is contended, were clearly meant to be for the
benefit of the superior landlords, and therefore, even in light of the
observations in Beswick, may be enforced directly by the superior
landlords, by virtue of section 56. I do not accept that argument for three
reasons.
First, it seems to me that the provisions
of clauses 3(7) and (8) of the underlease, even in so far as they relate to the
superior landlords, operate perfectly satisfactorily if they are treated as
imposing obligations which can be enforced only by ‘the Landlords’ against ‘the
Tenants’. As I have mentioned, the headlease entitled the superior landlords to
enter the premises, to carry out works, and to recover the cost of such works,
in substantially the same terms as are to be found in clauses 3(7) and (8) of
the underlease. The reason for extending the covenants in clauses 3(7) and (8)
of the underlease to the superior landlords was, as it seems to me, to benefit
Keddie as against its direct tenant, the first defendant. Thus, if, in exercise
of their rights under the equivalent provisions in the headlease, the superior
landlords entered the premises for inspection and left a schedule, Keddie
would, as against the superior landlords, be obliged to carry out the necessary
work under the terms of the headlease. By extending clause 3(7) to the superior
landlords, Keddie ensured that the liability for carrying out such works, as
between Keddie and the first defendant, would be that of the first defendant.
Similarly, if neither Keddie nor the first defendant carried out such work, and
the superior landlords exercised their right under the headlease to do so,
Keddie would be liable, as between it and the superior landlords, to reimburse
the cost of such work: accordingly, by clause 3(8) Keddie ensured that, as
between it and the first defendant, it was the first defendant who was liable
to effect such reimbursement.
It was suggested on behalf of the
defendants that it would also be necessary to extend clause 3(7) of the
underlease to cover entry by the superior landlords, because otherwise, were
the superior landlords to exercise their rights under the equivalent provision
of the headlease, Keddie might be liable for breach of covenant, quiet
enjoyment or trespass to the first defendant. This may well be wrong, because
by exercising a right which had already been granted to them, the
superior landlords, who had a higher title than Keddie, could well be said to
be exercising a right which was enforceable against anyone with an inferior
interest to Keddie, even in the absence of a provision such as clauses 3(7) or
(8). None the less, the draftsman of the underlease may not have been wholly
confident of this conclusion, and may have included rights of entry for the
superior landlords out of an abundance of caution.
Second, in light of the observations in Beswick,
to which I have referred, I consider that, particularly in a case, such as
clause 3 of the underlease, where the identity of the covenantee is clear and
unambiguous, section 56 does not operate to confer the benefit of the covenant
on a party who is not within the ambit of the expressly identified covenantee.
Only two cases have been cited to me which call that view into question.
The first is the decision of the Court of
Appeal in Strutt, to which I have already referred. The decision and
reasoning of Denning LJ is inconsistent with my conclusion, but I consider that
the whole of his judgment, in so far as it was based on section 56, cannot be
regarded as authority in light of the observations in Beswick, to which
I have referred. This point is of some significance because it appears that the
editors of at least one of the two leading text books on the law of landlord
and tenant consider that at least some of the observations of Denning LJ in Strutt
as to the effect of section 56 survive: see Hill & Redmans’ Law of
Landlord and Tenant, vol 1, paras 2587–2590, note 10; Woodfall on
Landlord and Tenant, vol 1, at para 11.123 is more circumspect. The point
is of some importance, not only in relation to the type of covenant with which
I am here concerned, but also in connection with the type of covenant before
the court in Strutt, namely a covenant in an underlease against
alienation without the consent of the landlord or the superior landlord. The
reasoning of Denning LJ, based on section 56, led him to conclude that the
superior landlord could effectively enforce the requirement for consent
contractually against the subtenant, provided the underlease contained a
proviso as between landlord and tenant that the tenant would not assign without
the superior landlord’s consent.
I do not consider that this view can
survive the reasoning of the majority of the House of Lords in Beswick,
particularly in light of the approval therein of the reasoning of Simonds J in White.
The other case which might be said to be
inconsistent with the conclusion I have reached is the recent decision of Judge
Marder QC in Re Shaw’s Application (1994) 68 P&CR 591. To my mind,
he decided that case on the basis of reading observations of Sir Wilfred Greene
MR in White v Bijou Mansions [1937] Ch 610 (upholding the
decision of Simonds J) out of context. In my opinion, the observations of Sir
Wilfred Greene were intended to have the same effect as the observations of
Simonds J, and that view is supported by the fact that they are both cited as
having the same effect by Lord Reid and Lord Guest and, inferentially, Lord
Pearce in Beswick: see pp75A-D, 86B-C, and 94B.
Mr Cant relied on Stromdale & Ball
Ltd v Burden [1952] Ch 223 and Wiles v Banks (1984) 50
P&CR 80. I consider that both these decisions are distinguishable on two
grounds. First, the court was in each case concerned with whether a purported
grant to a person who was not a party to the deed could be enforced by that
person; in the present case, as I have mentioned, I am concerned with the
covenant, and not a grant. Second, it appears that in neither case was the
covenantee expressly identified (in such a way as to exclude the person who is
seeking to enforce the covenant).
I consider that the ambit of section 56
is accurately summarised in the current, 5th edition, of Megarry & Wade
on The Law of Real Property at p763:
The true aim of section 56 seems to be
not to allow a third party to sue on a contract merely because it is made for
his benefit; the contract must purport to be made with him. Just as,
under the first part of the section, a person cannot benefit by a conveyance
unless it purports to be made to him (as grantee), so he cannot benefit
by a covenant which does not purport to be made with him (as
covenantee).
See also the notes to section 56(1) on
p133 of Wolstenholme and Cherry’s Conveyancing Statutes, 13th ed, vol 1.
Quite apart from this, I agree with Miss
Judith Jackson QC, in her submission that the observations of Dillon J in Lyus
v Prowsa Developments Ltd [1982] l WLR 1044 at p1049C-E are consistent
with the view I have formed. Indeed, I accept her submission that if I were to
decide this point in favour of the plaintiff, my decision would be inconsistent
with the conclusion of Dillon LJ in the passage I have referred to in Lyus.
Third, there are two further points upon
which the defendants can fairly rely in the instant case to support their
contention that the provision of clauses 3(7) and (8) of the underlease were
not intended to be enforced by the superior landlords. The first arises from
the closing words of clauses 3(8): the superior landlords would have no right
either to recover ‘the rents payable hereunder’ or to effect distress as
against the first defendant. Second, the terms of the licence, and in
particular clause 2 thereof, indicate that the only provisions of the
underlease in respect of which the superior landlords were concerned to reserve
themselves rights of some sort were the alienation provisions. That, of itself,
indicates to my mind that the provisions in the underlease in respect of which
Amsprop was concerned to retain some sort of direct rights were the alienation
provisions. Further, the provisions of the licence indicate that Amsprop did
not anticipate being able to enforce the requirement for its consent to
alienation of the sublease directly against the first defendant: Amsprop was
anticipating enforcing the need for its consent by virtue of its relationship
with Keddie, and its right to forfeit the headlease in the event of Keddie
failing to ensure that Amsprop’s consent to an alienation of the underlease was
obtained.
In the event, therefore, I consider that
it would not be open to Amsprop to enforce the covenants contained in clauses
3(7) and (8) directly against the first defendant, even though there is express
reference to ‘the Superior Landlords’ in those two subclauses. From this it
must follow that it would not be open to Amsprop to enforce the covenants
contained in clauses 3(7) and (22) of the underlease, because there is not even
any reference to ‘the Superior Landlords’ in those two subclauses. It must also
follow that the plaintiff cannot enforce any of these covenants in these
proceedings. That makes it strictly unnecessary to consider the other points
which have been argued before me. None the less, as they have been fully argued
and the matter may go further, I will deal with them.
If Amsprop could have enforced the
covenants, can the plaintiffs do so
It seems to me that this issue is more
easily disposed of. There are two reasons why I consider that the plaintiff, as
the superior landlords, at the date of expiry of the underlease, and as
successor in title to Amsprop, would have been entitled to enforce the various
covenants which are the subject of the present proceedings, if Amsprop could
have done so.
First, I consider that the benefit of the
covenants, if they were vested in Amsprop, would have become vested in the
plaintiff when Amsprop transferred the reversion to the headlease to the
plaintiff, by virtue of the provisions of section 78(1) of the Law of Property
Act 1925. This provides:
A covenant relating to any land of the
covenantee shall be deemed to be made with the covenantee and his successors in
title … and shall have effect as if such successors and other persons were
expressed.
The plaintiff is clearly one of the
‘successors in title’ of Amsprop. In light of the decision of the House of
Lords in P&A Swift Investments v Combined English Stores Group
plc [1989] AC 632*, it appears to me that the relevant covenants in the
underlease, if they could have been enforced by the superior landlords, would
be covenants ‘relating to any land [of the Superior Landlords]’.
*Editor’s note: Also reported at [1988] 2
EGLR 67
The defendants contend that section 78
cannot be relied on because the plaintiff is not a ‘covenantee’. If I were
wrong in my conclusion in
as having been entered into for the benefit of Amsprop by virtue of the
provisions of section 56, then I think it must follow that Amsprop would be a
‘covenantee’ within the meaning of section 78. That conclusion derives
assistance from the decision of the Court of Appeal in Forster v Elvet
Colliery Co Ltd [1908] 1 KB 629 (affirmed under the name of Dyson v Forster
[1909] AC 98).
Second, even if for some reason the
plaintiff could not have relied on section 78, I consider that the plaintiff
would have been able to rely upon the decision in Swift itself. In that
case the House of Lords held that an assignee of the original landlord could
claim against a surety of the tenant on the basis of the suretyship covenant
‘touched and concerned’ or related to the landlords interest: accordingly,
irrespective of section 78, an assignee of the landlord had the benefit of the
suretyship covenant. To my mind, the same reasoning would apply in the present
case as between the plaintiff and the first defendant, if, contrary to my view,
Amsprop had the benefit of any of the first defendant’s covenants in the
underlease.
If the first defendant were liable, could
the second defendant be liable
It is, of course, because of the doctrine
of privity of estate that the second defendant would have been liable under the
subject covenant to Keddie, notwithstanding that there was no privity of
contract between them. There is however no privity between the plaintiff and
the second defendant.
Faced with this difficulty, Mr Cant, on
behalf of the plaintiff contends that the second defendant would none the less
be liable as assignee of the underlease for two reasons. The first reason is
that the covenants are annexed to the underlease, and therefore they are
enforceable against the person in whom, for the time being, the underlease is
vested. As a matter of commonsense, that argument has its attractions. First,
if, contrary to my view, clause 3(8) of the underlease were enforceable by the
landlord and the superior landlord, then it could be said to be somewhat
surprising at first sight if, after an assignment of the lease, it could only
be enforced by the landlord, and not by the superior landlord against an
assignee. Second, it is an argument which has obvious convenience in practice:
eg in the case of multi-occupied buildings with landlord, tenant and management
company, it would be somewhat unsatisfactory if the management company could
not enforce the obligation to pay service charges against a successor in title
to the original tenant.
These points do not, however, justify my
accepting the plaintiff’s argument. It is not particularly surprising that, if
a covenant is entered into with two persons who have different capacities, an
assignment has different results as regards each of them. As to the management
company point, a well drafted lease of the sort I have contemplated will ensure
that the tenant covenants with the landlord as well as with the management
company to pay service charges, and also may require any tenant who wishes to assign
to cause an assignee to enter into a fresh covenant with the management
company.
I was not referred to any English
authority which, to my mind, assisted the plaintiff’s argument. Norval v
Pascoe (1864) 34 LJCh 82 and Aspden v Seddon (1876) 1 ExD
496 both appear to be examples of an application of a benefit and burden
principle, to which I now turn.
The second argument relied on by Mr Cant
was the benefit and burden principle. This was most recently considered by the
House of Lords in Rhone v Stephens (Executrix) [1994] 2 AC 310*,
where Lord Templeman disapproved the ‘pure’ benefit and burden principle
suggested by Sir Robert Megarry V-C in Tito v Waddell (No 2)
[1977] Ch 106 at p301 et seq. Lord Templeman, after accepting that there
was a limited benefit and burden principle, said at p322G:
*Editor’s note: Also reported at [1994] 2
EGLR 181
It does not follow that any condition can
be rendered enforceable by attaching it to a right nor does it follow that
every burden imposed by a conveyance may be enforced by depriving the
covenantor’s successor in title of every benefit which he enjoyed thereunder.
The condition must be relevant to the exercise of the right.
Mr Cant argues that in the present case
the benefit and burden principle assists him: the second defendant has the
benefit of the underlease, and therefore has the burden of covenants contained
therein, and in particular the burden of any covenants of which the plaintiff
has the benefit. In my judgment, that argument relies on what Lord Templeman
called the ‘pure’ benefit and burden principle and which he expressly
disapproved. It cannot, in my view, be said that any obligation to the superior
landlords under clause 3(8) is ‘linked’ or is ‘relevant’ to any benefit which
the second defendant has obtained.
Accordingly, on the basis of the
authorities and arguments advanced to me, I would find in favour of the second
defendant on the third point, even if I had found in favour of the plaintiff on
the first point.
Reliance on clause 3(8) of the underlease
Even if the plaintiff were entitled in
principle to claim under the provisions of clause 3(8) of the underlease, the
defendants contend that, on the present facts, the plaintiff must fail.
Less than three months expired between
service of the plaintiff’s notice and the underlease coming to an end by
surrender. In those circumstances, it is submitted on behalf of the defendants
that they were not even in default under clause 3(8), because the obligation
thereunder to carry out work is an obligation which only has to be fulfilled
within three months of the service of the notice under clause 3(7). On the face
of it, that appears to be right. To meet this point the plaintiff advances two
arguments. The first is that once the clause 3(7) notice is served, the tenants
under the underlease have three months in which to do the work and if the work
is not done the landlords can go in, carry out the work and recover the cost.
The fact that the underlease determined sometime during the three months is,
according to the plaintiff, irrelevant.
As a matter of construction, I reject
that argument. It seems to me that the right of the landlords to carry out work
under clause 3(8) only accrues once three months has expired from the service
of the notice under clause 3(7). If the underlease comes to an end before the
expiry of the three months, then the obligation to comply with the notice falls
away. That view is reinforced by the fact that only once the three months has
expired do the landlords have the right to enter and do the work. As was
pointed out by Miss Jackson, that right is quite inapt to cover the period
after the underlease has come to an end, when the landlords have the right to
come in to do whatever they want.
To my mind, the right to recover the cost
of any work, contained in the end of clause 3(8), is limited to the cost of
work which is described in the earlier part of the subclause, and that is work
which the landlords effect pursuant to the right contained in the same covenant
to go in and do it. If the underlease has come to an end then any work they
carry out cannot be said to be pursuant to clause 3(8) of the underlease; it
would be pursuant to their right of possession and occupation of the premises.
It is said that this involves giving
clause 3(8) an unduly restricted meaning. To that I would give two answers.
First, I believe that the above construction gives the clause its natural
meaning. Second, even if that is not right, a provision such as clause 3(8),
which gives the landlords substantial powers and in particular the power to
carry out work at the tenant’s expense, should be construed narrowly rather
than widely.
The second point raised by the plaintiff
is that it is not open to the defendants to rely upon the underlease having
been determined within three months of the service of the notice, because it
was by the act of the defendants (namely the negotiated surrender) that the
underlease determined, and it is not open to a party to a contract to rely upon
his own act as frustrating the other party’s rights. In this connection, I was
referred to para 518, vol 9 of Halsburys Laws 4th ed.
I have no hesitation in rejecting that
argument. First, it seems to me that the principle on which this argument
relies hardly ever applies unless the act complained of is in itself wrongful:
see footnote 4 to para 518, and also footnote 8 to para 359 in the same volume.
In the present case, the surrender of the underlease was effected by agreement,
as I understand it, between the second defendant and
determined within three months of the plaintiff’s notice by virtue of the
plaintiff forfeiting the headlease. Accordingly, even if there had been no
surrender of the underlease, the plaintiff would have faced exactly the same
argument.
Conclusion
In these circumstances, I decide the
first, third and fourth points in favour of the defendants and, for what it is
worth in these proceedings, I am in favour of the plaintiff on the second
point. Subject to the submissions of counsel, I believe that it follows that
this action should be dismissed.