Landlord and tenant — Whether tenants who had assigned their lease of a flat could claim after assignment for damage suffered by landlords’ breaches of covenant occurring before assignment — Law of Property Act 1925, sections 141(1) and 142(1) — The facts were that the landlords were in breach of repairing covenants when the plaintiff tenants acquired the lease, which was a 99-year lease with a structural repairing covenant on the part of the landlords — Plaintiffs acquired lease in 1982 and commenced present action in August 1984, the writ originally claiming specific performance of the covenant — The repairs were not done until late in December 1984, by which time the plaintiffs had themselves assigned the lease — The amended writ claimed for consequential damage sustained while the plaintiffs were tenants — Landlords put forward two defences — The first was that when the tenants assigned the lease all their rights in respect of it passed to the assignees, including any right to damages which the tenants might have had — The second defence was that the heads of damages sought were too remote, arising from the tenants’ having purchased the flat as a speculation for early resale at a profit — In support of their first defence the landlords argued that section 142(1) of the Law of Property Act 1925 effected a statutory transfer of the tenants’ rights to the assignee of the lease, and sought to apply the decisions of Re King and London & County (A & D) Ltd v Wilfred Sportsman Ltd on section 141(1) by analogy — Held, rejecting this submission, that the landlords’ liability for existing breaches was capable of surviving the assignment — Held also, in regard to the plea of remoteness, that in principle speculative damages for loss of rental or capital value could be claimed, but it would be for the tenants to establish the claim at the inquiry into damages — Costs of an abortive sale by auction and loss in running the flat while disrepair was delaying resale could be tested at the inquiry — Two other heads of claim were ruled out as too remote — Inquiry into damages ordered
The following
cases are referred to in this report.
Calabar
Properties Ltd v Stitcher [1984] 1 WLR 287;
[1983] 3 All ER 759; [1983] EGD 578; (1983) 268 EG 697, [1983] 2 EGLR 46, CA
Hadley v Baxendale (1854) 9 Exch 341
King, Re;
Robinson v Gray [1963] Ch 459; [1963] 2 WLR
629; [1963] 1 All ER 781; [1963] RVR 245, CA
London
& County (A&D) Ltd v Wilfred Sportsman
[1971] Ch 764; [1970] 3 WLR 418; [1970] 2 All ER 600; (1970) 21 P&CR 788,
CA
In this action
the plaintiffs, City & Metropolitan Properties Ltd, claimed damages against
the defendant landlords, Greycroft Ltd, for losses sustained by the plaintiffs
when tenants under a 99-year lease of a flat at 23 Belsize Crescent, London
NW3.
David
Neuberger (instructed by Stein, Swede Jay & Co) appeared on behalf of the
plaintiffs; Gabriel Moss (instructed by Charles Caplin & Co) represented
the defendants.
Giving
judgment, MR JOHN MOWBRAY QC said: The landlord here bought a second-floor flat
(and, I think, the whole building) at 23 Belsize Crescent in London NW3 subject
to a 99-year lease of the flat dated July 16 1979 between Lansdowne Securities
Ltd and Moonmoor Ltd. The tenant company acquired the lease on August 11 1982,
it says for £28,000. At that time the landlord was, as is now admitted, in
serious breach of the lessor’s structural repairing covenant in clause 5(3) of
the lease. The local authority had served the landlord with a statutory notice
to repair, and the writ in this action, then claiming specific performance of
the covenant, was issued on August 17 1984, but the repairs were not done until
a few days before December 20 1984, when the tenant sold the lease again. The
tenant amended the writ and now claims consequential damages from the landlord
for damage sustained while it was the tenant.
The landlord’s
first defence is that, when the tenant assigned the lease, all its rights
passed to the assignee, including any right to damages such as are claimed under
the pre-existing writ, so the tenant has no cause of action left to support its
claim.
In my view,
that defence is not well founded. No authority was cited on the precise
question whether a tenant who has assigned his lease can afterwards recover
damages from the landlord for breaches of the landlord’s covenants committed
while the tenant held the lease. It is common ground, though, that a tenant
(not the original lessor) who has assigned his lease again remains liable to
the landlord for breaches of covenant which he committed while tenant: see Megarry
and Wade on The Law of Real Property, 5th ed p 750 at 5. Woodfall
on Landlord and Tenant, vol I, para 1-1095, and Halsbury’s Laws of
England 4th ed, vol 27, para 395.
Both this
liability and the benefit of the landlord’s covenants run with the lease at
common law by privity of estate under Spencer’s Case, see Smith LC 13th
ed, vol 1 at p 51. There is a close analogy between the two. I take the view
that by this analogy the landlord’s liability to the tenant for existing
breaches survives the assignment of the lease in the same way as the tenant’s
liability to the landlord.
Mr Moss argues
for this landlord that the tenant’s rights against the landlord did not survive
the assignment of the lease, because on the assignment section 142 (1) of the
Law of Property Act 1925 made a statutory transfer of the tenant’s rights to
the assignee of the lease. Section 142 (1) reads:
The
obligation under a condition or of a covenant entered into by a lessor with
reference to the subject-matter of the lease shall, if and as far as the lessor
has power to bind the reversionary estate immediately expectant on the term
granted by the lease, be annexed and incident to and shall go with that
reversionary estate, or the several parts thereof, notwithstanding severance of
that reversionary estate, and may be taken advantage of and enforced by the
person in whom the term is from time to time vested by conveyance, devolution
in law, or otherwise; and, if and as far as the lessor has power to bind the
person from time to time entitled to that reversionary estate, the obligation
aforesaid may be taken advantage of and enforced against any person so
entitled.
Mr Moss argued
that the middle part of section 142(1) carried out the transfer, that is the
words ‘. . . and may be taken advantage of and enforced by the person in whom
the term is from time to time vested by conveyance, devolution in law, or
otherwise’. He pointed out that the Court of Appeal has held section 141 (1) to
make a statutory transfer of the whole benefit of a tenant’s covenant to an
assignee of the reversion: Re King [1963] Ch 459, London & County
(A & D) Ltd v Wilfred Sportsman Ltd [1971] Ch 764. He asked
me to apply that principle by analogy to an assignment of the lease.
It is not
possible to apply those decisions. They turned on words corresponding to the
first part of section 142(1), ‘. . . shall . . . be annexed and incident to and
shall go with that reversionary estate . . . ‘. The middle passage of section
142(1) is quite different. It does not say that the right to take advantage of
the landlord’s covenants is annexed or incident to the term, or ‘shall go with’
it, the graphic phrase specially relied on by Diplock LJ [1963] Ch at p 497. It
is not possible to apply the Court of Appeal decisions to the middle passage.
If the intention had been to effect a statutory transfer of the right to an
assignee of the term, I should have expected words to have been used similar to
those in section 141 (1) and the beginning of section 142(1) itself.
What is more,
the middle passage of section 142(1) does not on its separate interpretation
show any intention to restrict a tenant’s proceedings to any particular period.
The words ‘from time to time’ mean as occasion may require. If the intention
had been to limit the tenant’s rights to recover damages to the time when he
was tenant, I should have expected the subsection to say ‘for the time being’.
Mr Moss said
that these conclusions could lead to anomaly and injustice, particularly that
both assignor and assignee tenants might attack the landlord for the disrepair
and both recover damages for it, which could overlap. He very reasonably
referred to Re King on this point in the judgment of Upjohn LJ at p 489
and Diplock LJ at p 498. I do not see how there can be any overlap in the
present case, because the repairs were done before the assignment. The mere
consequential damages of the assignor are personal and could not overlap any
consequential damages of an assignee, who, in the present case, could not
suffer any damage anyhow. It is true that a possible overlap of rights could
occur in a case where disrepair continued over the assignment, but section 142
would not prevent the assignee’s damages from being reduced to allow for his
having bought cheap because of the disrepair; contrast section 141(1) and Re
King [1963] Ch 459, from 11 lines down on p 489.
Mr Moss also
said that there could be several successive assignors who sold at depressed
prices during the disrepair and each sued the landlord for the shortfall. I
think this is a rather fanciful apprehension. It could arise only if the
landlord delayed so long that a number of successive tenants sold in despair or
disgust. Even where the disrepair lasted over the assignment, I do not see how
any consequential damage to assignor or assignee could overlap, because each
would be personal damages arising from the plaintiff’s personal circumstances.
I conclude
that the first defence which I have been considering, based on section 142 (1),
fails.
As the
landlord now admits that there was serious disrepair, in breach of the lessor’s
covenant, no evidence was called before me, but Mr Neuberger (for the tenant)
outlined the heads of damage claimed. They are:
1 The costs of an abortive sale by auction.
2 The tenant’s running loss on the flat while
the disrepair was delaying its resale. The tenant says the interest on the
mortgage raised to buy it, rent, rates and other expenses, exceeded what was
gained from letting out (or rather licensing out) the flat. (The structural
disrepair of the building did not prevent this.)
3 Loss of executive time in dealing with the
landlord and the local authority in getting the repairs done, and
4 Loss of opportunity to make profits with the
proceeds of the flat while sale at a suitable price was impeded by the
disrepair.
The second
defence, urged in answer to all four heads of damages, is that they are all too
remote, because they arise from the tenant’s having bought the flat as a
speculation for early resale at a profit, something which neither the parties
to the lease at its grant nor the present landlord when the present tenant
bought the lease in 1982 could have known about. I turn to this defence in
general in a minute, but in any case it does not answer the first head of
damages claimed.
The first head
of damages is the costs of an attempted sale of the flat by auction on
September 5 or 6 1983. It did not reach its reserve and was withdrawn. I do not
know whether it was reasonable to put it up for sale at all, or to sell by
auction, or to put on the reserve, or withdraw the property, nor whether the
highest bid received really showed an overall loss. But whether or not the
tenant bought as a speculation, it was entitled to quantify its damage from the
landlord’s breach of covenant by selling the flat with the building in
disrepair and then suing the landlord for the difference between the price it
fetched and the value it would have had if the repairs had been done: see Calabar
Properties Ltd v Stitcher [1984] 1 WLR 287* at pp 297-8 in the
judgment of Griffiths LJ. (Incidentally, Griffiths LJ saw no difficulty in the
tenant’s suing the landlord after the sale.)
Therefore, the second defence does not apply and the tenant should be
given the opportunity of establishing that the auction costs are properly
recoverable as damages. I am not prejudging that question, but I will leave the
tenant free to address it by ordering an inquiry as to damages.
*Editor’s
note: Reported also at [1983] EGD 578; (1983) 268 EG 697, [1983] 2 EGLR 46.
I now return
to the second defence in general. Stephenson LJ said in the Calabar case
at p 293 that speculative damages for loss of rental or capital value could be
recovered if the landlord knew that the flat was bought as a speculation. And
Griffiths LJ said at p 299 of the report, starting just below ‘D’:
If the tenant
has rented the property to let it and the landlord is aware of this, then ‘the
difference in value to the tenant’ may be measured by his loss of rent if he
cannot let it because of the landlord’s breach. If the tenant is driven out of
occupation by the breach and forced to sell the property then ‘the difference
in value to the tenant’ may be measured by the difference between the selling
price and the price he would have obtained if the landlord had observed his
repairing covenant. But each case depends upon its own circumstances . . .
Mr Moss said
the landlord here had no knowledge, and was not aware, that the tenant had
bought as a speculation; therefore on those statements the tenant could not
recover damages for commercial loss. He may very well be right in saying that
the necessary contemplation of the parties cannot be established, but I have
concluded that it would not be right to shut the tenant out from trying to
establish it on the inquiry.
My reasons are
these. I do not take Stephenson and Griffiths LJJ in the passages I have just
mentioned as meaning to define the precise circumstances in which commercial
losses can be recovered in such a case as the present. They took imaginary
examples of cases where the landlord actually subjectively knew, or was aware,
of the tenant’s speculative purpose. That brought their examples into the
second branch of the rule in Hadley v Baxendale and avoided any
question about what the parties might or might not reasonably have
contemplated, the objective test in the first branch of the rule. But I do not
read them as saying that the first branch of the rule could never apply or that
there must always be actual knowledge or awareness on the part of the landlord.
In the present case the lease is of a residential flat, but it was originally
granted to a company and it expressly contemplates that it will be assigned and
mortgaged during its 99-year life. Clause 3(9) requires all such dealings to be
registered with the lessor’s solicitors. So there is some evidence (though not
much) to be considered on the inquiry from which it can be argued that the parties
to the lease (or, if that is relevant, the parties to the action as the persons
in privity of estate) must be taken to have contemplated that the lease would
be treated as an item of commerce. In the circumstances, and as the landlord
admits breaches of covenant and I am ordering an inquiry anyway, I will not
make any direction which would prevent the tenant from putting forward such an
argument, with any supporting evidence. It will be for the inquiry to decide
whether the tenant can recover for executive time spent in administering the
lettings and so forth, and the tenant will need to show why the large capital
profit made on its ultimate resale for £50,000 should not be set off against
any loss. This will all be a steeply uphill task, but on the whole I think the
tenant should be left free to undertake it.
I will give
directions though, preventing the award of any damages under heads three and
four. Head three is an attempt to recover as damages something which is more
like costs but is not recoverable as costs. There is no precedent for it, and
Mr Neuberger himself disarmingly called head four a cheeky claim. I
respectfully agree. Such damages are too remote.
The
plaintiffs were awarded costs down to the costs of the inquiry,
