Option in lease of business premises to purchase property–Exercise of option not an ‘instrument of surrender,’ therefore not caught by contracting-out provisions of Law of Property Act 1969, amending Landlord and Tenant Act 1954–Tenant who exercised option but failed to complete purchase must give possession
In this
adjourned order 14 summons Mrs Christina Margaret Watney, of Finstock Manor,
Finstock, Oxon, and Mr Sanders Watney, of Bisterne Close, North Burley, near
Ringwood, Hampshire, suing as executors of Oliver Vernon Watney deceased,
claimed possession of business premises known as the Corner Garage, Charlbury,
Oxon, from the occupier, Mr Geoffrey Mansel Boardley.
Mr W D C
Poulton (instructed by Lee & Pembertons) appeared for the plaintiffs. The
defendant did not appear and was not represented.
Giving
judgment, GOULDING J said that he had to decide questions of law which in his
view were not without difficulty. The relevant lease was dated July 3 1967 and
was made between the plaintiffs as lessors and two predecessors in title of the
defendant as lessees. By clause 1 of the lease, premises known as the Corner
Garage and the Brice & Price Workshops at Charlbury were demised to the
lessees for a term of seven years from April 1 1967 at an annual rent of £600.
By clause 5, the lessors covenanted as follows:
If the
lessees or either of them shall at the end of the term desire to purchase the
reversion in fee simple of the demised premises . . . and shall not less than
three months prior to the determination of the lease give to the lessors three
months’ notice in writing of such desire then the lessors shall on the expiry
of the notice and on payment of the sum of £15,000 together with all arrears of
rent and interest on the said sum . . . convey the premises to the lessees in
fee simple free from any encumbrance. It is hereby agreed that such sale and
purchase as the result of the exercise of the option shall be in accordance
with and upon the latest edition of the National Conditions of Sale current at
the time with the exception of National Condition 13 and National Condition 16
(3) and 16 (4).
On October 30
1970 an agreement under seal was executed varying in certain respects the terms
of the lease. The agreement was expressed to be made between the plaintiffs as
lessors and Mr John Gordon Blencow, an intermediate owner of the term of years,
of the other part. It provided that the purchase price of the reversion on
exercise of the lessee’s option under the lease should be whichever was the
lower of the sum of £15,000 and the market value of the premises with vacant
possession. The agreement contained certain stipulations as to the manner of
ascertaining the market value, and also provided that the option might be
exercised at any time during, or at the termination of, the term. In the events
that happened, the provisions of that agreement were not material to the
ascertainment of the price. On April 6 1973 the defendant, who had at about
that time become the owner of the term, through his solicitors gave notice to
the plaintiffs in accordance with clause 5 of the lease that he desired to
purchase the reversion of the premises in fee simple. According to the terms of
the lease, completion should have taken place three months after the date of
the notice exercising the option, ie on July 6 1973. The defendant, however,
was not ready with his money at that date, and the plaintiffs gave him various
indulgences in an endeavour to bring the purchase to a satisfactory conclusion.
However, their patience did not result in actual completion.
On January 7
1974 the plaintiffs’ solicitors gave 28 days’ notice to complete pursuant to
the National Conditions of Sale. That notice was not complied with. Some
further correspondence followed, and in the end, on May 8 1974, the plaintiffs’
solicitors notified the defendant’s solicitors that, in view of the defendant’s
failure to complete, the plaintiffs had elected to treat the contract between
them and the defendant as at an end. By that letter possession was demanded
forthwith, and in any event not later than May 24 1974. The defendant did not
give up possession. He subsequently asserted that following the expiry of the
original seven-year term he was entitled to the benefit of the Landlord and
Tenant Act 1954, and he caused a notice to be served demanding a new tenancy
under that Act. As already observed, clause 5 of the lease provided that on the
expiration of the notice, which occurred on July 6 1973, rent ceased to be
demandable. Rent had to be paid up to the expiration of the notice, and
thereafter interest at 8 per cent had to be paid on the purchase-money up to
the date of completion. He (his Lordship) thought that the effect of such a
clause was that at the date when rent was to cease the tenancy also ceased, so
that a tenant who had exercised the option was thereafter in possession not as
tenant but as purchaser let into possession prior to completion. That analysis
of the position derived support from authority on other clauses in other
leases: see Cockwell v Romford Sanitary Steam Laundry Ltd [1939]
4 All ER 370 and Nightingale v Courtney [1954] 1 QB 399. However,
the defendant’s contention, appearing from the correspondence, was that the
tenancy under the lease of 1967 was continued in existence by the Act of 1954
notwithstanding the expiry of the contractual term of seven years. The relevant
section was section 24, but subsection (2) of that section qualified subsection
(1) as follows:
‘The last
foregoing subsection shall not prevent the coming to an end of a tenancy by
notice to quit given by the tenant, by surrender or forfeiture, or by the
forfeiture of a superior tenancy.’
In that form,
subsection (2) would have been a complete answer to the suggestion made in
correspondence on behalf of the defendant, for he (his Lordship) was satisfied
that the effect of clause 5 of the lease, followed by the notice exercising the
option, was to bring about a surrender of the tenancy on July 6 1973.
Difficulty nevertheless remained, because of the impact of amending legislation
contained in the Law of Property Act 1969. This legislation was passed, as he
(Goulding J) understood it, to make it more difficult to avoid by agreement the
protection given to tenants of business premises by the Act of 1954. The Act of
1969 added the following words at the end of section 24 (2) of the Act of 1954:
‘. . . unless
(a) in the case of a notice to quit, the notice was given before the tenant had
been in occupation in right of the tenancy for one month; or (b) in the case of
an instrument of surrender, the instrument was executed before, or was executed
in pursuance of an agreement made before, the tenant had been in occupation in
right of the tenancy for one month.’
In other
words, the present law, so far as relevant, was that a protected tenancy could
not be brought to an end by an instrument of surrender if that instrument was
executed in pursuance of an agreement made before the tenant had been in
occupation in right of the tenancy for at least one month. A possible answer to
the plaintiffs’ claim for possession was thus that the tenancy under the lease
was brought to an end by an instrument of surrender, namely the notice
exercising the option, executed in pursuance of an agreement contained in the
original lease and thus made before the first month of occupation under the
lease had elapsed.
Three
alternative answers had been made by counsel for the plaintiffs to that
argument. First, it was said that there was here no instrument of surrender.
True it was, counsel submitted, that the effect of giving notice to exercise
the option was that the term came to be surrendered, but the
place three months later, and the notice on the face of it was wholly different
from what any ordinary layman or lawyer would describe as an instrument of
surrender. Therefore there was no instrument of surrender, and the
qualifications imposed on section 24 (2) by the Act of 1969 had no relevance.
The second argument was that the option clause in the lease could not fairly be
described as an agreement in pursuance of which the exercise of the option took
place. Reliance was placed on the familiar analysis of an option as being an
irrevocable offer. It was said that that offer was accepted by notice exercising
the option: then, and only then, did any agreement whereunder surrender took
place come into existence. The third argument was that the agreement, if any,
in pursuance of which the notice was given to exercise the option was
constituted not by the lease but by the agreement of 1970 incorporating and
republishing the relevant terms of the lease. That varying agreement was of
course made long after the expiration of the first month of the tenancy.
He (his
Lordship) did not propose to say anything about the second or third points. The
second, in particular, he regarded as a matter of considerable difficulty,
having regard to the purpose of the amending legislation and the lack of
precision in the words ‘in pursuance of.’
In his view, the plaintiffs should succeed on their first contention. In
the older language of the law of landlord and tenant, a surrender in
consequence of the exercise of the option to purchase would properly be
described as a surrender by operation of law, having effect as such because the
relation of vendor and purchaser paying interest on the purchase-money was
inconsistent with the continuation of a tenancy under which rent was payable.
If that was not the right way of looking at the matter, it might be that the
surrender should be considered as taking place by virtue of clause 5 of the
lease operating after the service of a notice exercising the option. On neither
analysis would it be right, in his judgment, to describe the notice exercising
the option as an instrument of surrender. It was not directed to surrender as
such, but to purchase of the reversion. It did not, at the date when it took
effect as a notice, bring about a surrender. All it did was to produce such a
state of affairs that the tenancy could not continue after the contractual
completion date. Accordingly it would be an unjustified and strained
interpretation of the term ‘instrument of surrender’ to describe the notice as
such an instrument in the present case. The Act of 1969 therefore did not in
the circumstances deprive the landlord of the benefit of section 24 (2) of the
Act of 1954, whereby the Act did not prevent the coming to an end of a tenancy
by surrender. The plaintiffs were entitled to possession of the premises and an
inquiry (1) as to the damages they had sustained by reason of the defendant’s
failure to complete the purchase pursuant to the option and notice, and (2) as
to the mesne profits due to them in respect of the defendant’s occupation
during any period subsequent to the discharge of his agreement to purchase on
May 8 1974.
The
plaintiffs were awarded the costs of the summons. The costs of the inquiry were
reserved.