Landlord and tenant — Covenant to renew at request of lessee — Whether an estate contract requiring to be registered as a land charge in order to be effective against a purchaser for money or money’s worth — Authorities and practice of
conveyancers unsuccessfully challenged — Appeal against decision of Judge Leonard Bromley QC, sitting as a High Court judge, declaring that the unregistered option was void
lessor (respondent to present appeal) sought a declaration that the option to
renew for a term of 25 years in a lease granted by a predecessor to the
defendant company (the present appellants) was void on the ground that it had
never been registered in the register of land charges — The legislation in
force at the material time was the Land Charges Act 1925, the relevant
provisions of which, however, were in substance the same as in the present
governing statute, the Land Charges Act 1972 — Class C (iv) in section 10 of
the 1925 Act included in the definition of ‘estate contract’, as among the
contracts protected by registration, ‘a valid option to purchase, a right of
pre-emption or any other like right’
property consisted of a petrol filling station — As a result of a number of
transactions by way of sale, mortgage and underlease, the respondent became the
freehold owner of the property subject to the appellants’ lease containing the
option to renew — A company owned and controlled by the respondent became the
appellants’ undertenants and occupied the property, carrying on the business of
the petrol filling station — Thus the respondent in his personal capacity was
the freeholder and through his company the operating underlessee — The present
litigation arose when the respondent declined the appellants’ request to grant
them a renewal of their term
of construction an option to acquire a lease seemed clearly to be within the
wording of Class C (iv), either because of the extended meaning of ‘purchase’
in the Act or because it was written ‘any other like right’ — An interesting
argument was, however, put to the Court of Appeal on behalf of the appellants —
This was to the effect that an option to renew contained in a lease is a
covenant which runs with the reversion, in contrast with an option to buy the
reversion, which does not — In the latter case the purchasers of the reversion
before 1926 would have been bound by the option only if they had notice of it —
Under the 1925 legislation registration replaced notice — In the case of an
option to renew contained in a lease, however, where the burden runs with the
reversion, notice had no application before 1926 and so no question arose of
introducing a requirement of registration in lieu of notice after 1925 —
Although recognising that this argument was ‘erudite’, the court was not
convinced by it or by reliance on section 6 of the Law of Property Act 1925 —
They were also not persuaded by legislative antecedents in the shape of section
28(4) of the Law of Property Act 1922 as amended by the Law of Property
(Amendment) Act 1924 — In the court’s view a renewal covenant in a lease did
fall within the definition of an estate contract in section 10 of the Land
Charges Act 1925
there was authority in support of that view, Beesly v Hallwood Estates Ltd and
Taylor Fashions Ltd v Liverpool Victoria Trustees Co Ltd, and there was the practice of
conveyancers over a lengthy period — The court was being asked to overrule an
interpretation which had been acted on in innumerable transactions — It was
also noted that Parliament had amended the Land Charges Act 1925 by the Law of
Property Act 1969 and the Land Registration and Land Charges Act 1971 but had
not thought fit to reverse the decision in Beesly’s case — Appeal dismissed
The following
cases are referred to in this report.
Beesly v Hallwood Estates Ltd [1960] 1
WLR 549; [1960] 2 All ER 314
Farrell v Alexander [1977] AC 59; [1976] 3
WLR 145; [1976] 2 All ER 721; (1976) 32 P&CR 292; [1976] EGD 343; 240 EG
707, [1976] 2 EGLR 69, HL
Hagee (London) Ltd v A B Erikson and Larson [1976]
QB 209; [1975] 3 WLR 272; [1975] 3 All ER 234; [1975] EGD 139; (1975) 236 EG
479, [1975] 2 EGLR 61, CA
Isteed v Stoneley (1580) 1 And 82
Muller v Trafford [1901] 1 Ch 54
Otter v Norman [1989] AC 129; [1988] 3
WLR 321; [1988] 2 All ER 897; [1988] 2 EGLR 128; [1988] 39 EG 79, HL
Roe d Bamford v Hayley (1810) 12 East
464; 11 RR 455
Smith, re: Vincent v Smith [1930] 1 Ch 88
Spencer’s Case (1583) 5 Co Rep 16a; 1 Smith
LC (13th ed) 51
Taylors Fashions Ltd v Liverpool Victoria
Trustees Co Ltd [1981] 2 WLR 576; [1981] 1 All ER 897; [1982] QB 133;
(1979) 251 EG 159, [1979] 2 EGLR 54
Woodall v Clifton [1905] 2 Ch 257
This was an
appeal by Mobil Oil Co Ltd, defendants below, from a decision of Judge Leonard
Bromley QC, sitting as a judge of the High Court, in favour of the plaintiff,
the present respondent, holding that an option of renewal contained in a lease
for 25 years, granted to the defendants by a predecessor in title of the
plaintiff, was void for want of registration as an estate contract. The subject
property was a petrol filling station at Frome, Somerset.
William
Poulton (instructed by Metson Cross & Co) appeared on behalf of the
appellants; Simon Berry (instructed by Ames Kent Rathmell & Walters, of
Westbury, Wiltshire) represented the respondent.
Giving the
first judgment at the invitation of May LJ, NICHOLLS LJ said: This appeal
raises a conveyancing point. The issue is whether a renewal covenant in a lease
needs to be registered as a land charge.
The material
facts can be stated very shortly. By a lease dated August 12 1961 Mills &
Rockleys Ltd, the original lessor, granted to the defendant, Mobil Oil Co Ltd,
a lease of a petrol filling station at Frome, Somerset. The lease was for 25
years from March 25 1961. Thus it was due to expire on March 25 1986. The lease
contained, in unexceptional form, a covenant by the lessor to grant to the
lessee at its request a further term of 25 years. By a conveyance dated April
29 1971, the original lessor sold the property, subject to the lease, to Vace
Properties Ltd. In 1976 Vace Properties mortgaged the property to Barclays
Bank. On December 20 1982 Mobil granted a three-year underlease of the property
to D S Phillips Ltd, a company owned and controlled by the plaintiff Mr David
Stanley Phillips. Nine months later, on September 12 1983, Barclays Bank as
mortgagees sold the freehold to Mr Phillips personally. The end result, thus,
was that Mr Phillips owned the freehold subject to the 1961 lease and his
company occupied the property and carried on a petrol filling station business
there as undertenant from Mobil.
On February 15
1985 Mobil exercised its option to renew contained in the lease. (In fact there
were two options, one contained in the 1961 lease and a similar option
contained in a supplemental lease of an additional small strip of land. Nothing
turns on this supplemental lease and I need not refer to it further.) Mr
Phillips declined to grant a new 25-year term pursuant to the covenant in the
lease, on the ground that the covenant had never been registered in the land
charges register. He issued a writ claiming a declaration that the renewal
option was void against him for want of registration. Judge Leonard Bromley QC,
sitting as a judge of the High Court, made a declaration to the effect on July
8 1988. Because the option had not been registered, Vace Properties, and
through that company in due course Mr Phillips, acquired the freehold reversion
free from the burden of the option. The judge also determined adversely to
Mobil other issues such as estoppel. None of these is germane to the only issue
arising on the appeal which Mobil has brought before this court.
The land
charges system is now governed by the Land Charges Act 1972. This Act came into
force on January 29 1973. The Act in force at the time of the sale of the
property from the original lessor to Vace Properties was the Land Charges Act
1925. The crucial provision in the 1925 Act, which does not differ materially
from the corresponding section in the 1972 Act, is section 10(1). This section
provides for the registration of certain classes of charges on or obligations
affecting land in the register of land charges. Class C(iv) is in these terms:
Any contract by an estate owner or by a
person entitled at the date of the contract to have a legal estate conveyed to
him to convey or create a legal estate, including a contract conferring either
expressly or by statutory implication a valid option of purchase, a right of
pre-emption or any other like right (in this Act referred to as ‘an estate
contract’).
A further
statutory provision can be noted. Section 20(8) provides that unless the
context otherwise requires:
‘Purchaser’ means any person
(including a mortgagee or lessee) who, for valuable consideration, takes any
interest in land or in a charge on land; and ‘purchase’ has a corresponding
meaning.
The only other
provision I need mention is section 13(2), which enacts that the consequence of
non-registration of an estate contract
worth.
It will be
seen, therefore, that the statutory definition of an estate contract in section
10 expressly embraces ‘a contract conferring . . . a valid option of purchase,
a right of pre-emption or any other like right’. From this wording and the
wording of the whole definition, three points at least are clear. First, an
agreement whereby A confers on B an option to buy A’s land is within the
statutory definition. This is so whether A owns the freehold or only a lease.
In each event he is the owner of a legal estate in the land and as such is an
‘estate owner’. Second, if A and B enter into a contract whereby A agrees to
grant and B agrees to take a lease, the contract is within the definition as a
‘contract by an estate owner . . . to . . . create a legal estate’. Third, if A
and B enter into an agreement whereby A confers on B an option to acquire a
lease, that also falls within the definition as ‘a contract conferring . . . a
valid option of purchase . . . or any other like right’. Whether that is
because such an option is an ‘option of purchase’ by reason of the extended
meaning given to the word ‘purchase’ by section 20(8) or because such an option
is a contract conferring ‘any other like right’ is not, in my view, a matter of
moment. Given that an option to buy a freehold or leasehold is within the
definition, and given that an agreement to grant a lease is also within the
definition, a construction of the definition which would exclude the grant of
an option to acquire a lease would be without rhyme or reason.
None of the
points I have so far mentioned was in dispute before us. Mr Poulton’s erudite
argument was that the position so far described does not obtain in one
particular case, namely a renewal option contained in a lease. He accepted that
if L grants to T a lease containing an option to buy the reversion, that option
does fall within the statutory definition and is registrable even though it is
contained in a lease. He submitted that the position is otherwise where L
grants to T a lease containing an option to call for a further term (in the
present case, another 25-year lease). In that case the option is not within the
definition of an estate contract and is not registrable.
I can
summarise the rationale on which this suggested distinction is based as
follows. An option in favour of a tenant to buy the reversion to his lease is
not a covenant which touches or concerns the demised land (Woodall v Clifton
[1905] 2 Ch 257). The burden of such an option does not run with the
reversion under section 142 of the Law of Property Act 1925. In contrast, an
option to renew does run with the reversion. Whether anomalous or not, this has
been established law ever since Spencer’s Case (1583) Co Rep 16a itself:
see Isteed v Stoneley (1580) 1 And 82, Roe d Bamford v Hayley
(1810) 12 East 464, and the observations of Farwell J in what is, by
comparison, the relatively recent decision in Muller v Trafford (1901)
1 Ch 54, at p 60. It was submitted that in the former instance, where the
option does not run with the reversion, purchasers of the reversion before 1926
would have been bound by the option only if they had notice of the option.
Under the 1925 property legislation, registration replaced the requirement of
notice. In the latter case, of an option to renew, where the burden runs with
the reversion at law, notice had no application before 1926 and, hence, no
question arose of introducing a requirement of registration in place of notice.
I do not find
that this line of argument furnishes a compelling reason for construing the
statutory definition of estate contract in section 10 of the Land Charges Act
1925 in the manner contended by Mr Poulton. His task might have been much eased
if he had been able to submit that no option conferring a right to the grant of
a lease fell within the statutory definition or if, alternatively, he had been
able to submit that no option of any kind fell within the statutory definition
when contained in a lease. Quite rightly, Mr Poulton eschewed both these
submissions. In consequence he was driven to advancing a construction of the
statutory definition for which the language provides no support. I look to the
definition in vain for the words which achieve the result that the definition
(a) embraces an option to buy the reversion even when contained in a lease and
(b) embraces an agreement conferring an option to call for a lease but (c) does
not embrace an option of the latter type when contained in a lease. That, of
course, is the present case: a renewal covenant by a lessor as in the present
case is a contract conferring an option to call on the lessor to grant a new
lease.
In the result,
therefore, Mr Poulton’s argument is based on the twin supports of context and
legislative antecedents. The context relied on is the distinction already
mentioned between covenants which run with the reversion and those which do
not. I do not find in this a sufficiently clear indication of what Parliament
must be taken to have intended when enacting section 10 of the Land Charges Act
1925 for it to be right to read the statutory definition as containing an
unexpressed but implicit exclusion of renewal covenants in leases. If this had
been intended, it could so easily have been said. As it is, I see no
inconsistency between (a) Parliament enacting section 142 of the Law of
Property Act 1925 and leaving untouched the established principle that a
renewal covenant in a lease runs with the reversion and (b) Parliament
intending that in future, unless registered, a renewal covenant in a lease
should be void as regards one category of successors in title to the original
lessor, namely, purchasers of a legal estate for money or money’s worth.
Some reliance
was placed on section 6 of the Law of Property Act 1925, which reads:
(1) Nothing in this Part of this Act affects
prejudicially the right to enforce any lessor’s or lessee’s convenants,
agreements or conditions (including a valid option to purchase or right of
pre-emption over the reversion), contained in any such instrument as is in this
section mentioned, the benefit or burden of which runs with the reversion or
the term.
(2) This section applies where the covenant,
agreement or condition is contained in any instrument:
(a) creating a term of years absolute, or
(b) varying the rights of the lessor or lessee
under the instrument creating the term.
For present-day lawyers, to whom the
pre-1926 property law is not as familiar as it was to their predecessors, this
section bristles with difficulty. However, I am not persuaded that the section
assists Mr Poulton’s argument, for two reasons. The section is a saving only
from the provisions of Part I of the Law of Property Act 1925 and thus it does
not impinge upon the registration provisions contained in the Land Charges Act
1925. Second, the words in parenthesis tell, if anything, against counsel’s
argument. If, as is contended, one of the purposes of section 6 was to exclude
from registration lessors’ and lessees’ covenants which run with the reversion
or the term, one would not have expected to find options to purchase the
reversion expressly included within the section. Whatever be the position
regarding renewal options, options to purchase the reversion were not intended
to be exempt from registration.
I turn next to
the argument based on legislative antecedents. I embark on this exercise at all
only with considerable doubt. The Land Charges Act 1925 was a consolidating
Act. In Farrell v Alexander [1977] AC 59 at p 73, Lord
Wilberforce observed that recourse should be had to the antecedents of
consolidating statutes only when there is a real and substantial difficulty or
ambiguity which classical methods of construction cannot resolve. Nevertheless,
if I put my doubts on one side, and have regard to the legislative antecedents
to the Land Charges Act 1925, I do not consider that what is revealed sheds any
clear light, either way, on the point of construction now under consideration.
The property Acts of 1925 were preceded by the Law of Property Act 1922.
Section 14 of and Schedule 7 to that Act extended the existing statutory
provisions relating to registration of land charges by including within the
scope of land charges estate contracts in the same terms as those subsequently
adopted in section 10 of the Land Charges Act 1925: see para 1(1)(f) of
the Seventh Schedule to the 1922 Act. Section 28(4) of the 1922 Act reads:
Nothing in this Part of this Act shall
affect the right to enforce any lessor’s or lessee’s covenants, agreements, or
conditions (including a valid option to purchase or right of pre-emption over
the reversion or the term of years absolute) contained in any instrument
creating a term of years absolute the benefit or burden of which run with the
reversion or the term, nor render necessary the registration of any land
charge in respect of the same.
Thus, as enacted in 1922, the
registration position regarding renewal covenants in leases was made abundantly
clear by the emphasised words: such covenants did not need to be registered.
However, that
section was then amended by the Law of Property (Amendment) Act 1924. The
effect of section 3 of and para 4 in Part II of the Third Schedule to this Act
was to substitute for section 28(4) of the 1922 Act a new subsection, in the
same terms as were subsequently enacted in section 6 of the Law of Property Act
1925. Of the changes thus made, the most pertinent for present purposes was the
deletion of the emphasised words. Here again there is difficulty. The inference
most obviously to be drawn from the deletion of the emphasised words is that as
amended the subsection was not intended to exclude any obligation which there
would otherwise be to register lessors’ and lessees’ covenants as land charges.
Mr Poulton, however, sought assistance from an argument
need to register lessors’ and lessees’ covenants running with the land, because
this section was in the same part (Part I) of the 1922 Act as the registration
section (section 14). In the end I find there is here too much obscurity and
uncertainty for these considerations, based on the legislative antecedents of
section 6, to afford any sure assistance.
I am unable to
accept, therefore, the arguments based on context and the legislative
antecedents. In my view, a renewal covenant in a lease falls within the
definition of estate contract in section 10 of the Land Charges Act 1925.
Thus far I
have considered the construction of the definition in section 10 of the Land
Charges Act 1925 without the assistance of authority. But the point is not free
from authority. In 1960 the same point came before Buckley J in Beesly v
Hallwood Estates Ltd [1960] 1 WLR 549. He decided that a renewal
covenant was registrable as an estate contract. In 1979 the same point was
argued before Oliver J in Taylor Fashions Ltd v Liverpool Victoria
Trustees Co Ltd [1982] 1 QB 133. He followed Beesly’s case,
expressing the view (at p 143) that the decision in that case had been followed
and acted upon for the past 18 years and that he would not have felt at liberty
to depart from that decision even if he had been minded to do so. The same
course was followed by Judge Bromley in the present case.
The present
position therefore is this. Beesly’s case was decided almost 30 years
ago. From then on this decision has been noted in the standard practitioners’
textbooks and acted upon by practitioners in a field where certainty as to the
state of the law is of great importance. In Re Smith: Vincent v Smith
[1930] 1 Ch 88 at p 99, Maugham J made the following observation in the
context of a point of construction arising on one of the property Acts of 1925:
I take this opportunity of repeating what
I have said on previous occasions, that where a learned judge, after
consideration, has come to a definite decision on a matter arising out of this
exceedingly complicated and difficult legislation, it is very desirable that
the court should follow that decision, and accordingly I should be strongly
inclined, whatever my own view was, to follow what I take to be the positive
decision of Tomlin J.
That was said in 1929, regarding a
decision given by Tomlin J the previous year. In the present case we are being
asked to overrule a decision acted on by conveyancers in innumerable
transactions for nearly 30 years. This is a course which I would be slow to
take. In Hagee (London) Ltd v A B Erikson and Larson [1976] 1 QB
209 at p 215, Lord Denning MR said:
In conveyancing matters, once the courts
have given a decision on which parties have acted, the decision should be
upheld unless there are very strong reasons to the contrary.
Again, very recently in Otter v Norman
[1988] 3 WLR 321 at p 326, Lord Bridge of Harwich said, regarding a point
of construction on the Rent Acts:
I think we must assume that for many
years many landlords and tenants have regulated their relationships on this
basis, and even if I thought that a different construction could reasonably be
placed on section 7(1) of the Act of 1977 I would not think it right to adopt
it now and to upset existing arrangements made on the basis of an understanding
of the law which has prevailed for so long.
As it is, I am
relieved to find that my own view on the interpretation of the ‘estate
contract’ definition in the Land Charges Act does not result in any disturbance
of the now established conveyancing position.
There is one
further consideration which calls for brief mention. On two occasions since Beesly’s
case was decided Parliament has made amendments to the Land Charges Act
1925: by the Law of Property Act 1969 and by the Land Registration and Land
Charges Act 1971. On neither occasion did Parliament reverse the decision in Beesly’s
case. Thereafter the substance of the Land Charges Act 1925 as amended was
replaced by a new consolidating statute, the Land Charges Act 1972. In the
present case I have reached my conclusion on the construction of section 10
without regard to this subsequent history. Nevertheless, I do derive some
comfort from noting that since 1960 Parliament has revisited the Land Charges
Act 1925 more than once and has not reversed the decision in Beesly’s case.
I would
dismiss this appeal.
MAY and PARKER
LJJ agreed and did not add anything.
The appeal was dismissed with costs; an
application for leave to appeal to the House of Lords was refused.