Landlord and tenant — Land contract — Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 — Whether section 2 applied to agreement by landlord to pay tenant’s costs of fitting-out
summer of 1990 the parties negotiated two agreements relating to the grant of a
lease by the respondent, Guinea Properties Management Ltd, to the appellant,
Tootal Clothing Ltd, of shop premises at 16-18 High Street, Brecon — The
agreements were dated and exchanged on August 10 1990 — By the first agreement
the respondent would grant the appellant a lease for a 25-year term and the
appellant would carry out shop-fitting works within 12 weeks — The lease was
granted on August 31 1990 — The second agreement, which recited the lease
agreement, set out the terms whereby the respondent agreed to pay the appellant
£30,000 for the shop-fitting works — The shop-fitting works were completed, but
the respondent refused to pay the agreed sum, contending that section 2 of the
Law of Property (Miscellaneous Provisions) Act 1989 barred recovery as the
second agreement was part of the consideration for the acceptance of the lease
by the appellant and was therefore a land contract which did not satisfy the
formality requirements of the Act — Douglas Brown J accepted the respondent’s
contention
only to executory contracts; it has no relevance to executed contracts — In the
present case the parties chose to incorporate the terms of their agreement in
two documents instead of one — Upon completion of the lease agreement it ceased
to be an executory contract — The second agreement was not, itself, a land
contract or, at least, if it was, by incorporation therein of the terms of the
lease agreement, there was no issue because the lease agreement was executed
and section 2 no longer applied — On the assumption that the second agreement
was not a land contract, there was no longer, after the completion of the lease
agreement, any executory land contract in existence to which section 2 could
apply — The respondent had no defence to the appellant’s claim
The following
case is referred to in this report.
Spiro v Glencrown Properties Ltd [1991] Ch 537; [1991] 2 WLR 931;
[1991] 1 All ER 600; [1991] 1 EGLR 185; [1991] 02 EG 167
This was an
appeal by Tootal Clothing Ltd, tenant of shop premises, from an order of
Douglas Brown J dismissing the appellant’s claim for £30,000 due under an
agreement with the respondent, Guinea Properties Management Ltd.
Wyn Williams
QC (instructed by Berry Smith, of Bridgend) appeared for the appellant; Richard
Ritchie (instructed by Piper Smith & Basham) represented the respondent.
Giving the
first judgment at the invitation of Parker LJ, SCOTT LJ said: This is an
appeal from the judgment of Douglas Brown J given on July 12 1991 on a
preliminary issue of law. The facts which give rise to the preliminary issue
are not in dispute and can be shortly stated.
Guinea
Properties Management Ltd, the respondent, and Tootal Clothing Ltd, the
appellant, were, in the summer of 1990, negotiating about the terms of a lease
of commercial premises, 16-18 High Street, Brecon, proposed to be granted by
Guinea Properties as landlord to Tootal as tenant. The terms that were under
negotiation and were in the end agreed between the parties included the
following:
(i) Tootal were to carry out shop-fitting works
to the premises.
(ii) Tootal was to have a rent-free period of
three months, within which it was expected to carry out the shop-fitting works,
and
(iii) On the satisfactory completion of the
shop-fitting works Guinea Properties would pay Tootal £30,000 towards the cost
of the works.
Formal
agreements were prepared embodying the terms that had been agreed between the
parties. The formal agreements were signed by each of the parties. They were
dated August 10 1990 and exchanged on that date. There were two agreements that
were signed, dated and exchanged. One was an agreement for a lease whereby it
was agreed: (i) that Guinea Properties would grant and Total would accept the
grant of a 25-year lease in the form of the draft lease annexed thereto; (ii)
that the grant of the lease would be completed on August 17 1990; (iii) that
Tootal would within 12 weeks from the date of the agreement (or a later date in
the event of certain delays occurring) carry out the shop-fitting works at its
own expense; (iv) that rent under the lease would commence to be payable three
months from the date of the grant thereof; and (v) that ‘this Agreement sets
out the entire agreement of the parties . . .’.
This
agreement, which I will hereafter call ‘the lease agreement’, contained no
reference to the other agreement, also dated August 10 1990 and exchanged on
that date.
The other
agreement (which I will call the ‘supplemental agreement’) contained a recital
that ‘the parties have agreed that this Agreement is supplemental to the
[Lease] Agreement and have agreed terms whereby the Landlord will contribute
towards the cost of the Tenant’s works referred to in Clause 3 of the [Lease]
Agreement’. There was also a recital of the lease agreement. This supplemental
agreement, after the two recitals to which I have referred, then set out the
terms on which the £30,000 would be payable by Guinea Properties to Tootal. I
have said before, and I repeat, that both agreements were signed by each of the
parties thereto.
The lease
agreement was duly completed on August 31 1990. A lease bearing that date in
the form of the draft lease annexed to the lease agreement was granted by
Guinea Properties to Tootal. Tootal thereupon set about carrying out the
necessary shop-fitting works. Having completed the shop-fitting works, I assume
satisfactorily because the contrary has not been suggested, Tootal applied to Guinea
Properties for payment of the £30,000. Guinea Properties declined to pay,
contending that section 2 of the Law of Property (Miscellaneous Provisions) Act
1989 barred recovery by Tootal of the £30,000. Tootal, not surprisingly,
commenced proceedings. The only defence pleaded by Guinea Properties to the
claim by Tootal for the £30,000 was the section 2 point. It was pleaded in
Guinea Properties’ defence that:
7. The terms
embodied in the Document [ie the supplemental agreement] were not incorporated
into the Agreement [ie the lease agreement] or the Lease and are void and/or
unenforceable by virtue of Section 2 of the Law of Property (Miscellaneous
Provisions) Act 1989.
Section 2, on
which reliance is placed, provides so far as relevant as follows:
(1) A contract for the sale or other disposition
of an interest in land can only be made in writing and only by incorporating
all the terms which the parties have expressly agreed in one document or, where
contracts are exchanged, in each.
(2) The terms may be incorporated in a document
either by being set out in it or by reference to some other document.
(3) The document incorporating the terms or,
where contracts are exchanged, one of the documents incorporating them (but not
necessarily the same one) must be signed by or on behalf of each party to the
contract.
(4) Where a contract for the sale or other
disposition of an interest in land satisfies the conditions of this section by
reason only of the rectification of one or more documents in pursuance of an
order of a court, the contract shall come into being, or be deemed to have come
into being, at such time as may be specified in the order.
. . .
(8) Section 40 of the Law of Property Act 1925
(which is superseded by this section) shall cease to have effect.
The
preliminary issue brought before Douglas Brown J for decision was whether the
supplemental agreement was one to which section 2 of the 1989 Act applied.
The argument
put forward by Mr Ritchie, on behalf of Guinea Properties, before the judge as
before us, is a simple one. Section 2 requires all the terms of a contract for
the sale or other disposition of an interest in land, ie a land contract, to be
incorporated in one document. The document must be signed by each of the
parties. The term regarding the £30,000 was an intrinsic part of the bargain
which had been agreed between the parties. It was part of the consideration
passing from Guinea Properties to Tootal in exchange for which Tootal was to
accept the lease and was to carry out the shop-fitting works. The bargain was a
land contract. Accordingly, section 2 required the terms regarding the £30,000
to be in the same document as the other contractual terms of the land contract.
The learned
judge, although, as he put it, ‘without any enthusiasm at all’, concluded that
this argument was sound. He accordingly made a declaration that the
supplemental agreement was one to which section 2 of the 1989 Act applied.
In my opinion,
the reliance in Guinea Properties’ defence on section 2 of the 1989 Act misses
the point about the purpose and effect of section 2.
Section 2,
superseding and replacing section 40 of the Law of Property Act 1925, is
dealing with the circumstances in which a valid and enforceable contract for
the sale or other disposition of an interest in land can come into existence.
As Hoffmann J put it in Spiro v Glencrown Properties Ltd [1991] 2
WLR 931*: ‘Section 2 . . . was intended to prevent disputes over whether the
parties had entered into a binding agreement or over what terms they had
agreed’: see p 933. However, section 2 is of relevance only to executory
contracts. It has no relevance to contracts which have been completed. If
parties choose to complete an oral land contract or a land contract that does
not in some respect or other comply with section 2, they are at liberty to do
so. Once they have done so, it becomes irrelevant that the contract they have
completed may not have been in accordance with section 2.
*Editor’s
note: Also reported at [1991] 1 EGLR 185.
In the present
case, the parties having agreed all the terms under which the new 25-year lease
would be granted, including those relating to the shop-fitting works and the
contribution by Guinea Properties of £30,000 towards the cost incurred by
Tootal in carrying out the shop-fitting works, chose to incorporate the terms
in two documents instead of one, namely the lease agreement and the
supplemental agreement. They then completed the lease agreement. The lease
agreement thereupon ceased to be an executory contract. The question whether
section 2 of the 1989 Act would, because not all the terms of the contractual
bargain had been incorporated into the lease agreement, have rendered the lease
agreement unenforceable became irrelevant. All that was left was the
supplemental agreement. The supplemental agreement was not and is not by itself
a land contract or, at least, if it is, by incorporation therein of the terms
of the lease agreement, a land contract, then there is no issue in the case
that need detain the court. But on the footing that the supplemental agreement
by itself is not a land contract, which is the contention of Mr Ritchie for
Guinea Properties, there was no longer, after the completion of the lease
agreement, any executory land contract in existence to which section 2 of the
1989 Act could apply. There was simply a contract recorded in writing, signed
by each party, for the payment of £30,000 in a certain event by one party to
the other.
I am of the
opinion, speaking for myself, that even before completion of the lease
agreement on August 31 1990, section 2 would not have prevented the enforcement
of the lease agreement. If parties choose to hive off part of the terms of
their composite bargain into a separate contract distinct from the written land
contract that incorporates the rest of the terms, I can see nothing in section
2 that provides an answer to an action for enforcement of the land contract, on
the one hand, or of the separate contract on the other hand. Each has become,
by the contractual choice of the parties, a separate contract.
But it is not
necessary for us on the present appeal to decide that point. It suffices, in my
judgment, to say that, once the lease agreement had been executed by
completion, section 2 had no relevance to the contractual enforceability of the
supplemental agreement, whether or not that supplemental agreement was
negotiated as part of one bargain that included the terms of the lease
agreement.
I would,
therefore, allow this appeal. Guinea Properties has, in my opinion, no defence
to the action.
BOREHAM J agreed and did not add anything.
Also agreeing,
PARKER LJ said: The order under appeal provides as follows:
The contract
specified in paragraph 2 of the Statement of Claim [which is the supplemental
agreement] is one to which Section 2 of the Law of Property (Miscellaneous
Provisions) Act 1989 applies.
If one looks
only at the supplemental agreement it does not appear on its face to be a
contract for the sale or other disposition of land at all. The declaration
which is made therefore appears to be defective. It can be made a contract to
which section 2 of the 1989 Act applies only if, by reason of its reference to
the agreement for the lease and the terms thereof, the two must be read
together. If one reaches the conclusion, therefore, that the supplemental
agreement is a contract for the sale or other disposition of land or purported
so to be, it follows that all the terms of section 2 must have been complied
with, because all the terms must be in that document. Accordingly, it appears
to me that either the matter of the supplemental agreement falls wholly outside
section 2 or, if it does fall within section 2, it does not avail the landlord
because section 2 would then have been fully complied with. I agree that the
appeal should be allowed and that there is no defence.
Appeal
allowed with costs here and below. Application for leave to appeal to the House
of Lords refused.
