Landlord and tenant — Agreement subject to contract for surrender of lease and regrant — Negotiations reached stage where new lease on the one hand and surrender and counterpart on the other had been executed — Landlords then withdrew — Whether lease delivered as escrow — Whether a lease can be completed without an exchange — Court’s criticism of landlords’ actions — Discussion of ways in which a deed can be delivered — Authorities reviewed
appellant, the tenant of a property on the Cadogan Estate, wished to extend her
leasehold interest and agreed in principle to the landlords’ proposals — These
were to surrender her two leases expiring in the year 2027 and receive the
grant of a term expiring in 2076 for a premium of £20,000 and an annual ground
rent of £200, subject to 10-year reviews — Negotiations tended to drag on, one
cause of delay being the need to rectify an error as to a boilerhouse under the
tenant’s property, which required a deed of variation of a neighbour’s lease —
Eventually the stage was reached when the landlords’ solicitors had in their
possession the new lease in
held the executed surrender and counterpart and the completion money — The only
thing awaited was news of the completion of the neighbour’s deed of variation —
At this point the landlords’ withdrew their offer and cancelled the proposals,
at the same time making a revised offer — This was a premium of £160,000 and a
rent of £2,000 per annum, respectively amounting to 700% and 900% increases on
the original proposals — Protests proving in vain, the tenant commenced
proceedings nearly a year later — The neighbour’s deed of variation had in the
meantime been executed
asked for an order requiring the landlords to complete the grant of the new
lease — The landlords’ answer was that the matter had never passed out of the
realm of negotiation, being expressly ‘subject to the completion of a formal
surrender and new lease’ and/or ‘subject to contract’ — The tenant’s action was
dismissed by His Honour Andrew Blackett-Ord, sitting as a deputy judge of the
High Court — He rested his decision on the general practice of conveyancers —
The intention in cases like the present, which are in essence of daily
occurrence, is that neither party should be bound until the lease and
counterpart are agreed, engrossed, executed and exchanged — The tenant
appealed, her contention being that the lease was delivered by the landlords as
an escrow, of which the conditions, now fulfilled or capable of fulfilment,
were the execution of the deed of variation, the execution and handing over by
the tenant of the counterpart and surrender, and the payment of the premium of
£20,000 plus the rent up to date
pointed out that a deed is not ‘executed’ in the strict sense until it has not
merely been signed and sealed but also delivered, and having discussed the
three ways in which it can be delivered, Nourse LJ examined the cases on which
the tenants based their arguments, Beesly v Hallwood Estates Ltd,
Vincent v Premo Enterprises (Voucher Sales) Ltd and D’silva v Lister House
Development Ltd — He found that the first two proceeded on their own facts and
the last on a particular view held by Buckley J on the effect of section 74(1)
of the Law of Property Act 1925 — None of them supported the tenant’s
submissions —- In particular, Nourse LJ rejected the submission that where
there was no evidence of a party’s intention he must be presumed to have
intended to deliver the lease or counterpart as an escrow and that the burden
was on the landlords to prove a contrary intention — There was nothing in the
authorities or the pleadings which took the present case out of the ordinary
conveyancing practice — Nourse LJ also rejected a suggestion that delivery by one
of the methods which he described could only be effected by a solicitor or
other agent who was himself authorised by deed to deliver it — On the effect of
section 74(1) of the Law of Property Act 1925, he disagreed with the view that
it dispensed with delivery in the case of a deed executed by a corporation; it
merely dispensed with the need for a purchaser to require proof of formal
compliance with the corporation’s governing constitution — Appeal dismissed —
Severely critical comments by Taylor LJ on the actions of the landlords
The following
cases are referred to in this report.
Beesly v Hallwood Estates Ltd [1960] 1
WLR 549; [1960] 2 All ER 314
Cohen v Nessdale Ltd [1982] 2 All ER
97; [1982] EGD 1169; (1982) 262 EG 437, [1982] 1 EGLR 160, CA
D’silva v Lister House Development Ltd
[1971] 1 Ch 17; [1970] 2 WLR 563; [1970] 1 All ER 858; (1970) 231 P&CR 230;
[1970] EGD 60; 213 EG 373
Eccles v Bryant [1948] 1 Ch 93; (1947)
177 LT 247; [1947] 2 All ER 865, CA
Foundling Hospital (Governors and
Guardians) v Crane
[1911] 2 KB 367, CA
Hollington Brothers Ltd v Rhodes [1951] WN
437; [1951] 2 TLR 691; [1951] 2 All ER 578n
Powell v London & Provincial Bank
[1893] 2 Ch 555; (1893) 62 LJ Ch 795; 69 LJ 421; 9 TLR 446, CA
Sherbrooke v Dipple (1980) 41 P&CR 173;
[1980] EGD 888; 255 EG 1203, [1980] 2 EGLR 140, CA
Vincent v Premo Enterprises (Voucher Sales)
Ltd [1969] 2 QB 609; [1969] 2 WLR 1256; [1969] 2 All ER 941; (1969) 20 P
& CR 519; [1969] EGD 334; 210 EG 457, CA
Windsor Refrigerator Co Ltd v Branch Nominees Ltd
[1961] Ch 88; [1960] 3 WLR 108; [1960] 2 All ER 568
This was an
appeal by the plaintiff, Mrs Katherine Elizabeth Longman, from the dismissal by
His Honour Andrew Blackett-Ord, sitting as a deputy judge of the High Court, of
her action against the landlords, Viscount Chelsea, The Chelsea Land &
Investment Co Ltd and Cadogan Holdings Co (compendiously described by the judge
as the Cadogan Estate), claiming that the defendants (the present respondents)
should take all necessary steps to complete the grant of a new lease to her of
42 Chelsea Square, London SW3.
David
Neuberger QC and Patrick Eyre (instructed by Charles Russell Williams &
James) appeared on behalf of the appellant; Anthony Radevsky (instructed by Lee
& Pembertons) represented the respondents.
Giving the
first judgment at the invitation of Kerr LJ, NOURSE LJ said: It is axiomatic
among conveyancers that negotiations for the sale of land which are expressed
to be ‘subject to contract’ cannot mature into a concluded agreement unless and
until there is an exchange of contracts in accordance with ordinary
conveyancing practice, before which either party can withdraw; see Eccles
v Bryant [1948] Ch 93. Broadly stated, the question in the present case
is whether an analogous rule applies to negotiations for the grant of a lease
which are expressed to be ‘subject to the completion of a lease’, so that
either party can withdraw before there has been an exchange of lease and
counterpart. So stated, the question would appear to be readily susceptible of
an affirmative answer. But it is said that that simple view of the matter
cannot withstand the consequences of a lease being granted not under hand but
by deed. It is said that authority requires us to hold that here the lease, on
its execution by the landlord before an exchange had taken place, was delivered
as an escrow, the later fulfilment of whose conditions made it binding on the
parties.
In 1983 the
plaintiff, Mrs Katherine Elizabeth Longman, was the tenant of 42 Chelsea
Square, London SW3, under two leases, granted in 1933 and 1935 respectively,
which were due to expire at Christmas 2027. In March 1983 her agents made an
approach to the landlords, who can at this stage be compendiously described as
the Cadogan Estate, with a view to obtaining an extension of her leasehold
interest in the property. By a letter dated June 3 1983 the estate put forward
provisional proposals for a surrender and regrant for a term expiring at
Christmas 2076, ie an extension of 49 years, at a premium of £20,000 and an
annual ground rent of £400 (later negotiated down to £200) payable from June 24
1983, subject to 10-year reviews on a specified formula. In the penultimate
paragraph of that letter it was stated:
This offer, which is not assignable, is
subject to the completion of a formal surrender and new lease.
The proposals
having been accepted in principle by Mrs Longman, solicitors were instructed on
both sides, each of whom soon made it clear to the other that the negotiations
were proceeding ‘subject to contract’. On November 16 1983 a draft lease was
submitted for approval by the estate’s solicitors and on December 21 1983 it
was returned approved as amended in red by Mrs Longman’s solicitors. Not having
heard anything further, on May 3 1984 they sent a reminder. In August 1984 the
estate became aware of a difficulty which had arisen in relation to the
property next door, 41 Chelsea Square. Originally nos 41 and 42 had been one
property. Then they were divided into two separate houses, the tenant of no 42
making a surrender in favour of the estate, who granted a new lease in favour
of the tenant of no 41. But at that time it was overlooked that the boilerhouse
serving no 42 stood beneath the garage of no 41, so that it had been included
in the surrender by the tenant by mistake. What was therefore wanted was a
surrender by the tenant of no 41 quoad the boilerhouse, so that it could
be included in the new lease of no 42 to Mrs Longman. On August 7 1984 the estate’s
solicitors spoke on the telephone to Mrs Longman’s solicitors and said that
they were arranging for a deed of variation of the lease of no 41 so as to
exclude the boilerhouse. They said that they and their clients were very
embarrassed and full of apologies and that there was no question of their
clients’ withdrawing the offer.
The matter
dragged on through the remainder of 1984 and 1985. On January 1985 the estate’s
solicitors returned the draft lease reamended in green. There was then some
to-ing and fro-ing between the two sides on outstanding points. On December 20
1985 the estate’s solicitors said that they were having the lease and the
counterpart engrossed in readiness for execution, but the deed of variation in
regard to no 41 had not yet been completed. On January 24 1986 they submitted a
draft deed of surrender for approval and this was returned approved as amended
in red on February 4. On February 13 1986 the estate’s solicitors wrote and
said that they had in their possession the new lease executed by their clients.
On April 8 1986 they said that they were ready to complete, although they were
still waiting to hear from the solicitors acting for the tenant of no 41 as to
the completion of the deed of variation. The next day they learned that there
was still a difficulty over no 41. On April 10 Mrs Longman’s solicitors wrote
to say that they were holding the executed surrender and counterpart lease and
the completion money, and that they were therefore in a position to complete
when they heard that the deed of variation relating to no 41 had been
completed.
Nothing much
happened until July 31 1986, when the estate’s solicitors wrote as follows:
Owing to the time that has elapsed since
our clients’ original offer to you as of 1983, we regret to inform you that we
have received instructions from our clients to withdraw their offer and thus
the proposed lease will not now proceed. We appreciate that the delay has not
been due to your client, and we regret the inconvenience that will have been
caused. However, our clients are prepared to make a revised offer and should
your client wish to consider this, may we suggest that either she or her agents
contact the Cadogan office.
On August 21
1986 a director of Cadogan Holdings Co wrote to Mrs Longman’s agent stating
that the figure that had been agreed in 1983 was totally unrealistic and that
it was not reasonable to expect the estate to complete on that basis. In other
words, they wanted more money. He then said that it was not current policy to
grant new longer leases but, because of the circumstances of this particular
case, they were prepared to make a revised offer to Mrs Longman. On December 17
1986 the offer was made, at a premium of £160,000 and an annual rent of £2,000
from Christmas 1986, ie at 700% and 900% increases respectively. It is hardly
surprising that that offer was not acceptable to Mrs Longman. In spite of
protests, which included a very temperate letter written by Mrs Longman to Lord
Chelsea personally, the estate was not willing to make any further concession.
At that stage they did not even volunteer to pay Mrs Longman’s costs of
protracted and abortive negotiations which had been occasioned by circumstances
wholly outside her control. It is more pleasant to record that some disparaging
comments made by the court during the hearing of this appeal have now provoked
the making of such an offer, which will of course be implemented only if Mrs
Longman is unsuccessful in these proceedings.
The deed of
variation between the estate and the tenant of no 41 Chelsea Square was finally
executed on September 4 1986, after Mrs Longman’s negotiations with the estate
had broken down. Mrs Longman issued the writ in this action on June 10 1987.
The defendants are Viscount Chelsea, The Chelsea Land & Investment Co Ltd
and Cadogan Holdings Co. The precise interests of these three parties in the
freehold of 42 Chelsea Square have not been made clear to us, except that the
legal estate is vested in Lord Chelsea. The best view which I have been able to
form of the position is that the two companies have equitable interests in the
freehold, perhaps under an uncompleted contract or contracts, and either as
joint purchasers or as purchaser and subpurchaser respectively. It may be a
case where the legal estate remains in Lord Chelsea in order that stamp duty is
payable only on a sale or lease to an outsider, when it will be paid by him and
not by the estate. Although it is hardly satisfactory for the court to be left
in this state of uncertainty, we have been spared further speculation by Mr
Neuberger’s acceptance that it is Lord Chelsea who must be treated as having
been the lessor or prospective lessor of the property.
The statement
of claim alleged (by para 3) that the parties began negotiations in or about
March 1983; (by para 6) that in or about December 1985 the parties agreed in
correspondence the terms of the new lease; (by para 7) that in or about
February 1986 the defendants executed the new lease; (by para 8) that in or
about the same month the plaintiff executed the counterpart of the new lease
and a deed of surrender in the terms required by the defendants, and had at all
times remained willing to complete; and (by para 9) that on September 4 1986
the defendants and the tenant of 41 Chelsea Square executed the deed of
variation varying the terms of the lease of that property. The prayer for
relief claimed an order that the defendants should forthwith take all such
steps as were necessary to complete the grant of the new lease of no 42,
further or other relief and costs.
Para 1 of the
amended defence contained an admission of all but two of the paragraphs of the
statement of claim, including para 7, which had alleged that in or about
February 1986 the defendants executed the new lease. However, para 1 continued
as follows:
The negotiations pleaded in paragraph 3
of the Statement of Claim were expressed to be ‘subject to the completion of a
formal surrender and new lease’ and/or ‘subject to contract’.
Para 3
included an assertion that the defendants, as they were entitled to do,
withdrew their offer of a new lease by the letter dated July 31 1986, which was
sent before the condition in relation to the deed of variation had been
fulfilled.
The action
came on for trial before His Honour Andrew Blackett-Ord, sitting as a deputy
judge of the Chancery Division. No oral or affidavit evidence was adduced on
either side. The evidence consisted only of agreed documents and
correspondence. On February 3 1988 the learned judge dismissed the action with
costs. Against that dismissal Mrs Longman has appealed to this court. Shortly
stated, her contention is that in or about February 1986 the lease was
delivered by Lord Chelsea as an escrow, of which the conditions, now fulfilled
or capable of fulfilment, were: (1) the execution of the deed of variation, (2)
the execution and handing over by her of the counterpart and the surrender and
(3) the payment of the premium of £20,000 plus rent to date.
The
negotiations for the grant and acceptance of the new lease not having reached
the stage of exchange of lease and counterpart, the estate have throughout
contended that the parties never became bound to a relationship of landlord and
tenant on the terms of the new lease, so that it was open to the estate to
withdraw from the negotiations by their solicitors’ letter of July 31 1986.
However much we may fear that their conduct in this case fell below the
gentlemanly standards which we would otherwise have assumed of them, we must
recognise that the negotiations did not differ in substance from those which
are conducted between solicitors all round the country every day of the week.
In an area where there has already been some tendency to allow hard cases to
make bad law we must recognise that our decision will have equal effect on
everyday transactions of varying and unpredictable merits, in respect of which
settled and expedient practices ought to be more highly regarded than the
merits of individual cases.
The
negotiations in the present case were expressed to be ‘subject to the
completion of a formal surrender and new lease’. By analogy with negotiations
for the sale of land, it cannot be doubted that such a qualification, having
once been imposed on the negotiations, cannot be thrown off unless and until
both parties expressly or impliedly agree that it should be; see Cohen v
Nessdale Ltd [1982] 2 All ER 97 (CA), applying the earlier decision of
this court in Sherbrooke v Dipple (1980) 41 P&CR 173. As to
the effect of the qualification, Mr Neuberger, for Mrs Longman, was at first
disposed to accept that what was intended was that the parties should not
become bound on the terms of the new lease unless and until there had been an
exchange of lease and counterpart. However, his considered submission was that
a lease can be ‘completed’ without an exchange. I reject that submission.
Dealing only with the language of the qualification, I think it clear that Mr
Neuberger’s first thoughts were best.
Wherever
parties intend to enter into the relationship of landlord and tenant without a
preliminary contract for the grant and acceptance of a lease, and their
negotiations are expressed to be ‘subject to the completion of a lease’,
‘subject to lease’, ‘subject to contract’ or the like, then, so long as the
qualification remains in force, the relationship does not become binding on
them unless and until there is an exchange of lease and counterpart, before
which either party can withdraw. The parties intend to be bound at one
ascertainable point of time, conventionally at a completion meeting where, if there
is to be a mortgage, the mortgagee will also be represented and where all
necessary formalities and exchanges will take place. With advances in modern
technology it may increasingly be possible to dispense with a physical
encounter between the parties, but in the absence of evidence to the contrary
it is not possible to dispense with the common intention that the parties shall
become bound at one ascertainable point of time.
We have been
fortunate to have at our disposal the great experience in these matters of His
Honour Andrew Blackett-Ord. He rested his decision on the general practice of
conveyancers. At p 6D of the transcript of his judgment, he cited with approval
the following observations of Harman J in Hollington Brothers Ltd v Rhodes
[1951] 2 TLR 691 at p 694:
In my opinion no agreement can be spelt
out of the acts in question; they are only the ordinary acts of business
between persons intending to take, and the solicitors for those intending to
grant, a lease. It is a commonplace that in many, indeed in most cases, where a
lease is to be granted everything remains in negotiation until the lease and
its counterpart are finally exchanged between the parties, and it seems to me
impossible to spell out of the course of business which I have described, and
which appears from the correspondence, anything more than the ordinary course
of negotiations.
Harman J then made reference to the facts
of that case, and continued:
In my judgment such a contract cannot be
spelt out of this state of things. There was, I think, no intention on either
side to be bound by the course which negotiations took until the lease was
exchanged with the counterpart, and this was never done.
At p 7A of the
transcript, His Honour stated his own view of the position thus:
Even in the case of a substantial
property, where there are negotiations for the grant of a lease it is common to
have no preliminary formal contract. The reason, I suppose, being that if you
are going to have a formal contract, if it is going to be worth anything you
have to schedule a form of lease to it and you have not yet agreed what the
form of lease is going to be, and so people go ahead without. The intention is
that neither party should be bound until the lease and counterpart are agreed,
engrossed, executed and exchanged between the solicitors. This means in
practice that parties are sent documents by their solicitors to sign and have
witnessed and at the top of the document where the date ought to be it is
written in bold letters in pencil ‘Do not date’. The parties sign, as they are
told to do, and send the documents back to their solicitors, and when both
sides are ready the two documents, the lease and the counterpart, are exchanged
and dated and treated as coming into force as of that date. Neither side
intends to be bound until this stage is reached. In the case of individuals, it
is clear, in my judgment, that they are not bound to proceed until this last
stage is carried out.
The documents, in my judgment, do not
reach the state of becoming escrows. They go from nothing to a complete
delivering.
Had the matter
been free from other authority, I would have had no hesitation in straightaway
affirming the learned judge’s decision of the case on the ground on which he
decided it. But earlier he had said that he did not think that it was a
particularly easy point and that he had been referred to a number of other
cases. Those which have caused the difficulty are: Beesly v Hallwood
Estates Ltd [1961] Ch 105; Vincent v Premo Enterprises (Voucher
Sales) Ltd [1969] 2 QB 609 and D’silva v Lister House Development
Ltd [1971] Ch 17, in each of which the decisive consideration was that a
lease is not granted under hand but by deed.
A writing
cannot become a deed unless it is signed, sealed and delivered as a deed. Having
reached that stage, it is correctly described as having been ‘executed’ as a
deed. Having been signed and sealed, it may be delivered in one of three ways.
First, it may be delivered as an unconditional deed, being irrevocable and
taking immediate effect. Second, it may be delivered as an escrow, being
irrevocable but not taking effect unless and until the condition or conditions
of the escrow are fulfilled. Third, it may be handed to an agent of the maker
with instructions to deal with it in a certain way in a certain event, being
revocable and of no effect unless and until it is so dealt with, whereupon it
is delivered and takes effect: as to this method, see Governors and
Guardians of the Foundling Hospital v Crane [1911] 2 KB 367 (CA) and
Windsor Refrigerator Co Ltd v Branch Nommees Ltd [1961] Ch 88, at
pp 100 to 102, per Cross J. It is implicit in the ordinary conveyancing
practice now under consideration that it is the third method which there
applies. But in reliance on the authorities to which I now turn, Mrs Longman
has contended that it was the second method which was adopted by Lord Chelsea
in this case.
In Beesly
v Hallwood Estates Ltd the plaintiff, the lessee under a 21-year lease,
purported to exercise an option for renewal which had not been registered as an
estate contract at the Land Charges Registry. The freehold reversion having
been acquired by the defendant company for money before the option was
exercised, the option was held to be void and unenforceable against it. The negotiations
between the parties had proceeded to a stage where the seal of the defendant
had been affixed to the lease and the tenant had executed the counterpart, but
they were broken off before there had been an exchange. So far as material, it
was found by Buckley J [1960] 1 WLR 549 that the letters between the parties
which were written after the purported exercise of the option were written with
the mutual intention of giving effect to what were believed on both sides to be
the existing rights of the plaintiff; and, further, that the defendant, by
sealing the lease, had intended to deliver, and did deliver, it as an escrow,
the sole condition of which was the execution of the counterpart by the
plaintiff. That had already been done and, the plaintiff being ready and
willing to exchange, the defendant was held to be bound. On the defendant’s
appeal to this court it was argued that, where an exchange is contemplated, the
parties are not bound until exchange takes place. But in the light of the
judge’s finding that the defendant had intended to deliver the lease as an
escrow, that argument was bound to fail. At p 116, in delivering the leading
judgment, Harman LJ said:
Of course, if there had been no delivery,
as was pleaded, the matter would be wholly different; but that, by the time the
action came to this court, had been decided as a fact by the judge and accepted
by the defendants.
In my view the
decision in Beesly v Hallwood Estates is one which proceeded on
its own facts. Both parties assumed that their negotiations were taking place
in a state of affairs where the defendant was bound to grant the plaintiff a
new lease. The negotiations were not ‘subject to contract’ in the normal sense.
It was therefore well open to the judge to find, as he did, that the defendant
had intended to deliver the lease as an escrow without waiting for an exchange.
In Vincent
v Premo Enterprises the negotiations between the parties must be taken
to have been ‘subject to contract’. They reached a stage where the plaintiff
landlords had executed the lease and the seal of the defendant company had been
affixed to the counterpart in the presence of two of its directors who had
attested it accordingly. Before the latter step had been taken one of the
directors had told the defendant’s solicitor that he would sign the counterpart
provided that certain matters were agreed with the plaintiffs and that the
lease and counterpart should not be exchanged until those matters had been
agreed. The judge found as a fact that the defendant had intended to deliver
the counterpart as an escrow. But agreement on the outstanding matters was
reached only at the hearing, and the judge held that that was too late for the
condition to be fulfilled. On the plaintiffs’ appeal to this court the judge’s
finding as to the escrow was upheld, but it was also held that the condition
had not been fulfilled too late. The appeal was accordingly allowed. As to the
first point, again there was a clear finding that by sealing the lease the
defendant had intended to be bound before an exchange had been made, subject to
agreement on the outstanding matters. Although the negotiations had been
‘subject to contract’, thus taking it a stage further than Beesly, this
was another decision which proceeded on its own facts.
In D’silva
v Lister House Development Ltd the negotiations for the lease were
conducted by correspondence and were expressed to be ‘subject to contract’.
They reached a stage where the plaintiff tenant had executed the counterpart
and had sent it to the defendant company’s solicitors. The defendant’s seal had
thereafter been affixed to the lease and duly attested. In holding that the
correspondence had not created any binding contract, Buckley J said, at p
28F-G:
It is, I think, clearly established by
authority that negotiations subject to contract for the grant of a lease remain
in a state of negotiation until exchange of lease and counterpart. The
authority for that is Eccles v Bryant and Pollock. Accordingly,
that letter is a bar to any claim by the plaintiff that there was a contract by
correspondence for the correspondence must, I think, be taken as correspondence
in the course of negotiations which were conducted upon the footing that
everything would remain in a state of negotiation until exchange of lease and
counterpart.
At pp 29C-D to 30A-B the learned judge
considered the effect of section 74(1) of the Law of Property Act 1925 in
relation to the sealing of the lease by the defendant. Repeating a view which
he had expressed in Beesly v Hallwood Estates, he held that the
effect of that subsection was that the document sealed by the defendant was to
be deemed to have been not only sealed but also delivered as an executed
document, either to take effect immediately as a deed immediately binding or to
take effect subject to some condition as an escrow. At p 29G-H he continued:
Once a document has been sealed by a
company in circumstances satisfying the requirements of the section it is not,
in my judgment, in the same position
own library and then put into a drawer without any further act showing that he
intended it to be treated as a deed immediately binding upon him, or a deed
signed and sealed by an individual and handed to his solicitors to await
delivery at some later date; it is a deed which has to be treated as executed
and, therefore, it must be treated as a deed binding upon the company either
immediately, or as an escrow.
Having considered the evidence, the judge
found that it did not establish that the lease had been delivered as an escrow.
He held that it had taken immediate effect. On the facts it made no difference,
because the counterpart had already been executed by the plaintiff and sent to
the defendant’s solicitors, a fact which the learned judge appears to have
overlooked; see p 31A-B.
In D’silva v
Lister House Development Ltd there was no evidence that the defendant
company had intended to deliver the deed as an executed document. Relying only
on section 74(1), Buckley J held that there had been a deemed delivery. It is
important to note that the decision of Cross J in Windsor Refrigerator Co
Ltd v Branch Nominees Ltd does not appear to have been cited to him.
In that case, Cross J [1961] Ch 88 at p 98 clearly did not think that section
74(1), which had been cited to him in argument, made any distinction between
the deed of a corporation and the deed of an individual. He said:
A deed, whether executed by a corporation
or by an individual, does not necessarily bind the grantor as soon as it is
sealed. It only becomes binding when it has been ‘delivered’ by the grantor as
his deed, ie when the grantor has indicated by words or conduct that he intends
the deed which he has executed to be binding on him.
I shall revert
to this point later.
Whether
Buckley J’s view of section 74(1) was right or wrong (see below), he clearly
thought that the defendant company’s deemed intention to deliver the deed as an
executed document had overtaken the ‘subject to contract’ qualification. Although
not spelled out in the judgment, his reasoning must have been to that effect.
Accordingly, the decision is properly to be regarded as depending entirely on
the judge’s view of section 74(1).
The two
principal submissions which Mr Neuberger has based on these authorities, and my
comments on them, are these. First, Mr Neuberger submitted that if the evidence
establishes that one party intended to deliver the lease or counterpart either
unconditionally or as an escrow before any exchange was made, he will be held
to be bound and effectively to have put himself in the hands of the other
party. In accepting that submission, I would emphasise that it is only in
exceptional cases that a ‘subject to contract’ qualification will thus be
overtaken. Second, Mr Neuberger submitted that where, as here, there is no
evidence of the party’s intention, he must be presumed to have intended to
deliver the lease or counterpart as an escrow. He said that the burden here was
on Lord Chelsea to prove a contrary intention. That is a submission which I
wholly reject as being at variance both with the effect and with the purposes
of the qualification. Its effect has already been discussed. One of its main
purposes is to make it unnecessary for the solicitor on either side to worry
his head over the intention of his own, or the other’s, client before there has
been an exchange. The system would be unworkable if a party who wished to
withdraw from the transaction after signing and sealing the lease and
counterpart was required to show that he had not intended to deliver it as an
escrow. If the qualification did not protect him against that, its value would
be very greatly reduced.
Mr Neuberger
also submitted, although I think with less enthusiasm, that para 1 of the
defence, by admitting that Lord Chelsea had ‘executed’ the new lease, as
alleged in para 7 of the statement of claim, had admitted that he had not only
signed and sealed the new lease but had also delivered it as an escrow.
However, I think it clear from the defence as a whole that the pleader used the
word ‘executed’ in the less correct sense of signed and sealed only.
I have
therefore come to the conclusion that there is nothing in the authorities or
the pleadings which takes this case out of the ordinary conveyancing practice.
But then Mr Neuberger has raised another objection. He has submitted that where
a deed is delivered in accordance with the third method above mentioned, in the
judge’s words where it goes ‘from nothing to a complete delivering’, it can
only be delivered by a solicitor or other agent of the grantor who is himself
authorised by deed to deliver it. That submission would not in itself be fatal
to the estate’s case, because it would not affect the revocability of the
undelivered deed. But, for reasons which are too obvious to need spelling out,
it would be fatal to the ordinary conveyancing practice. Mr Neuberger sought
support for the submission from the observations of Cross J in the Windsor
Refrigerator case [1961] Ch 88 at p 98, who in turn relied on Powell v
London & Provincial Bank [1893] 2 Ch 555. But there he was dealing
with the unilateral appointment of a receiver. Whatever may be the position
there, I am confident that Cross J, another judge of great experience in these
matters, could not have thought that his observations would be applied to the
ordinary conveyancing practice in regard to leases. If there be a conflict here
between arcane but hallowed principles of the law relating to deeds and the
settled and expedient practices of conveyancing, it is obvious that we must
look to uphold the latter. The eyesight of the court is not so weak as to be
blinded by the half light of the study.
Finally, I
must revert to section 74(1) of the Law of Property Act 1925. Although Mr
Neuberger’s acceptance of Lord Chelsea as the proposed lessor in this case has
made it unnecessary for the point to be directly decided, I respectfully think
that Buckley J’s view of the subsection was incorrect. I prefer the view which
Cross J appears to have held. The sole purpose of section 74(1) was to make it
unnecessary for a purchaser to require proof of the corporation’s formal
compliance with the provisions of its memorandum and articles of association or
its charter. I am confirmed in that view by Sir Benjamin Cherry’s own note to
the subsection in the 12th ed of Wolstenholme & Cherry’s Conveyancing
Statutes (1932), of which he was still the principal editor. Both the
problem and the solution to it are in my opinion correctly stated by Professor
Battersby in the current (fourth) edition of Williams on Title, at pp 656 to
657:
Delivery is necessary to give effect to a
deed. It is a difficult question whether this applies to the case of execution
by a corporation. At common law there is a rebuttable presumption that sealing
by a corporation imports delivery. A difficulty, however, arises from section
74(1) of the Law of Property Act 1925 . . . There is conflicting authority
whether this provision dispenses, in favour of a purchaser, with the need for
delivery. It is submitted that section 74, like section 73, is concerned only
with the formalities of sealing, and does not dispense with delivery. It seems
highly unlikely that such a radical change would have been intended, and that
it would need much clearer language to bring it about; nor does there seem to
be any good reason for applying to a corporation a rule so different from that
applied to all other persons.
I entirely agree with those observations.
For the
reasons which I have expressed, I think that the judgment of His Honour Andrew
Blackett-Ord, perhaps his instinct as much as his judgment, was entirely
correct. I would therefore dismiss this appeal.
Agreeing
TAYLOR LJ said: For the reasons given by Nourse LJ, I agree that this appeal
must be dismissed. I do so with reluctance.
The
respondents’ conduct in stringing along this appellant, a widow, for three
years, promising not to withdraw their offer and then doing just that, was in
my view deplorable. The delay was entirely of the respondents’ making and their
reason for pulling out at the end of it was simply cupidity. Such a breach of
good faith by reputable landlords not noted for their indigence is most
regrettable. The respondents’ promise during the hearing to pay the appellant’s
legal costs of the abortive negotiations recognised this (although only after
pressure by the court) and is to be welcomed as going some way towards
mitigating the unfairness.
Also agreeing,
KERR LJ did not add anything.
The appeal was dismissed with costs in
Court of Appeal and below, on undertaking volunteered by respondents not to
enforce such order for costs.
