Landlord and tenant — Disclaimer of lease — Whether notice of disclaimer of interest under a licence to assign was disclaimer of the lease
On February 7
1979 the plaintiff, MEPC Ltd, granted to the defendant, Scottish Amicable Life
Assurance Society, a lease for a term of 20 years from March 25 1978 of the
first, second and third-floor offices at 67-70 East Street, Brighton, East
Sussex. On June 23 1989 the defendant assigned that lease to Mr Roger Pell-Stevens.
The assignment was granted pursuant to a licence to assign by deed of June 23
1989 made between the plaintiff, the defendant and the assignee. By clause 3 of
the licence to assign the assignee covenanted with the landlord thenceforth,
during the residue of the term granted by the lease, to pay the rent reserved
by the lease and perform and observe all the covenants and conditions on the
part of the lessee. In 1990 Mr Pell-Stevens became bankrupt and the third
party, Mr Neville Richard Eckley, was appointed his trustee in bankruptcy. By a
notice of disclaimer in the prescribed form 6.61 in the bankruptcy proceedings
in Brighton County Court the third party disclaimed all his interest in: ‘the
Licence to Assign dated 23rd June 1989 . . . relating to the Lease dated 7th
February 1979 [of the premises at] 67/70 East Street, Brighton, . . .’. In the
court below Mr Martin Mann QC (sitting as a deputy judge of the Chancery
Division) upheld the contention of the defendant that the assignment was an
assignment of the interest of the bankrupt or his estate under the licence to
assign and not a disclaimer of his interest under the lease. The defendant
appealed.
provides for the disclaimer of any onerous property. The onerous property in
the context was plainly the lease itself under which the rent was payable and
it was quite impossible to construe the position so as to achieve a result that
the trustee can disclaim the onerous liabilities in relation to the property,
but retain the property itself. Where there has been an assignment, and the
bankrupt is the person who came in as assignee, he cannot disclaim the
assignment without disclaiming the lease, and the link is equally close if he
seeks to disclaim the licence to assign without disclaiming the lease because
the covenant in the licence to assign, which is the only subsisting provision
under it, is related to the full term of the covenant in the lease. The
disclaimer is to be construed as a disclaimer of all the interest of the
bankrupt’s estate under the lease.
No cases were
referred to in this report.
This was an
appeal by the defendant, Scottish Amicable Life Assurance Society, from a
decision of Mr Martin Mann QC (sitting as a deputy judge of the Chancery
Division) who, inter alia, held that the third party, Neville Richard
Eckley, had not disclaimed the lease dated February 7 1979 granted by the
plaintiff landlord, MEPC plc.
David
Neuberger QC and Susan Prevezer (instructed by Cameron Markby Hewitt) appeared
for the appellant; Edward Bannister QC and Oliver Ticciati (instructed by
Berrymans) represented the respondent third party, Neville Richard Eckley: the
plaintiff, MEPC plc, did not appear and was not represented.
Giving
judgment, DILLON LJ said: The court has before it an appeal and a
cross-appeal arising out of the decision of Mr Martin Mann QC, sitting as a
deputy judge of the High Court in the Chancery Division, on October 22 1992.
Both the appeal and the cross-appeal arise in regard to third-party proceedings
in the action. We have heard argument, first, on the cross-appeal and it is on
the cross-appeal only that I am at the moment delivering judgment. The facts
are admirably simple and not in dispute.
On February 7
1979 the plaintiff in the action, MEPC Ltd, granted to the defendant, Scottish
Amicable Life Assurance Society, a lease for a term of 20 years from March 25
1978 of certain premises known as the first-, second- and third-floor offices
situate at 67-70 East Street, Brighton, East Sussex. On June 23 1989 Scottish
Amicable Life Assurance Society, the defendant, assigned that lease to a Mr
Roger Pell-Stevens, who, in the deed of assignment, is referred to as the
purchaser. There was a consideration paid of a sum of which receipt was
acknowledged and, in the usual way, the purchaser covenanted with the vendor
that the purchaser and those deriving title under him would:
. . .
henceforth during the continuance of the term created by the lease pay the rent
thereby reserved and perform and observe the covenants on the part of the
lessee and the conditions therein contained . . .
That
assignment was granted pursuant to a licence to assign by deed, which bore the
same date, June 23 1989. That was made between the landlord, MEPC, in the first
part, the tenant, Scottish Amicable Life Assurance Society, of the second part,
and the assignee, Mr Pell-Stevens, of the third part.
In clause 2
the landlord granted the tenant a licence to assign in fairly conventional
terms; and, in clause 3, the assignee covenanted with the landlord thenceforth,
during the residue of the term granted by the lease, to pay the rent reserved
by the lease and perform and observe all the covenants and conditions on the
part of the lessee contained in the lease. There was also a covenant, which is
long since spent, to give notice of and register the assignment in accordance
with the relevant terms of the lease or within a specified time.
Unfortunately,
in the course of the year 1990, Mr Pell-Stevens, the assignee, became bankrupt
and the third party in these proceedings, Mr Neville Richard Eckley, is his
trustee in bankruptcy.
The question
on the cross-appeal is whether Mr Eckley has disclaimed the leasehold interest
in the property. The proceedings arise as between the landlords and the
defendant in way of a claim for unpaid rent subsequent to the 1989 assignment
to Mr Eckley brought by the landlords against the defendant as the original
lessees. There is no issue in those proceedings.
The third
party, as trustee, duly signed and filed a notice of disclaimer in the
prescribed form 6.61 in the bankruptcy proceedings in Brighton County Court. It
is dated December 14 1990 and it is in these terms:
I NEVILLE
RICHARD ECKLEY the trustee of the above named
bankrupt’s estate disclaim all my interest in:
the Licence
to Assign dated 23rd June 1989 between MEPC Limited (the Landlord), Scottish
Amicable Life Assurance Society (the Tenant) and Roger Pell-Stevens (the
Assignee) relating to the Lease dated 7th February 1979 between the Landlord
and the Tenant with regard to the premises known as the first, second and third
floor offices situate at 67/70 East Street, Brighton, . . .
It is the
contention of the defendants, which was upheld by the deputy judge, that that
was merely an assignment of the interest, whatever it may have been, of the
bankrupt or his estate under the licence to assign and not a disclaimer of his
interest under the lease.
I will come to
the arguments in a moment, but it is important to note first some of the
relevant provisions in the Insolvency Act 1986.
First, there
is section 315 which provides by subsection (1):
Subject as
follows, the trustee may, by the giving of the prescribed notice, disclaim any
onerous property and may do so notwithstanding that he has taken possession of
it, endeavoured to sell it or otherwise exercised rights of ownership in
relation to it.
Then, in
subsection (2), there is a definition of ‘onerous property’:
The following
is onerous property for the purposes of this section, that is to say —
(a) any unprofitable contract, and
(b) any other property comprised in the
bankrupt’s estate which is unsaleable or not readily saleable, or is such that
it may give rise to a liability to pay money or perform any other onerous act.
Then the
effect of a disclaimer is set out in subsection (3):
A disclaimer
under this section —
(a) operates so as to determine, as from the
date of the disclaimer, the rights interests and liabilities of the bankrupt
and his estate in or in respect of the property disclaimed, and
(b) discharges the trustee from all personal
liability in respect of that property as from the commencement of his
trusteeship,
but does not,
except so far as is necessary for the purpose of releasing the bankrupt, the
bankrupt’s estate and the trustee from any liability, affect the rights or
liabilities of any other person.
It has
consequently been held that a disclaimer of a leasehold interest by an assignee
of the original term does not release the original lessee from liability to pay
the rent. That is why it is in the interests of Scottish Amicable to establish,
if it can, that there has been no valid disclaimer. Then a further point is taken,
which, if successful, would have the effect that the trustee remained
personally liable for the rent, but that is the subject of the appeal with
which I am not now concerned.
Mr David
Neuberger QC refers us also to section 203, which contains the definition of
the bankrupt’s estate. It is to comprise:
(a) all property belonging to or vested in the
bankrupt at the commencement of the bankruptcy, and
(b) any property which, by virtue of any of the
following provisions of this Part, is comprised in that estate or is treated as
falling within the preceding paragraph.
Then there are
certain exceptions which are not relevant.
Mr Neuberger
takes us next to the definition of the word ‘property’ in the general
interpretation section of the Act, section 436, which says that:
‘property’
includes money, goods, things in action, land and every description of property
wherever situated and also obligations, and every description of
interest, whether present or future or vested or contingent, arising out of, or
incidental to, property.
(Emphasis
supplied)
He says that
that means that property, besides including what are obviously assets, namely,
‘money, goods, things in action, land and every description of property
wherever situated and also . . . every description of interest, whether present
or future or vested or contingent, arising out of, or incidental to, property’,
also includes ‘obligations’ or, at any rate, ‘obligations . . . arising out of,
or incidental to, property’, so that they are separately to be regarded as
property for the purposes of the disclaimer section. I find it very difficult
to see any sensible reason why ‘obligations’ other than obligations due to the
bankrupt’s estate ‘arising out of, or incidental to, property’, should fall to
be included in a catalogue of assets which are to vest in the trustee, when the
liabilities of the bankrupt are dealt with as bankruptcy debts quite separately
in section 382(1) of the Insolvency Act. But, to my mind, what is essential is
that the provisions of the licence to assign are inextricably tied in with the
assignment and the terms of the lease itself.
It is urged
for the defendants that the disclaimer of the licence to assign can have
separate effect as a disclaimer of the obligation of the bankrupt to pay the rent
to the plaintiff landlord under clause 3(1) of the licence to assign. It is
said that that has been disclaimed and, in effect, no more because there were
no other obligations outstanding under the licence to assign itself, apart from
the assignment and the lease. But the covenant in clause 3(1) is expressed to
continue during the residue of the term granted by the lease; the whole of the
residue of the term. Mr Neuberger says that that is all very well, but there is
an independent obligation by privity of estate to pay the rent. So long as the
term remains vested in the bankrupt or his trustee that — he says — remains
valid and undisclaimed, but the disclaimer can still be effective after the
term has been assigned — because it has not been disclaimed — and therefore it
is possible to give independent effect to the disclaimer as a disclaimer of
liability to pay the rent after assignment by the bankrupt or his trustee.
To my mind,
that is not what the licence to assign is setting out to do. We are concerned
with section 315, which authorises disclaimer of onerous property. The onerous
property in the context is plainly the lease itself under which the rent is
payable and, to my mind, it is quite impossible to construe the position so as
to achieve a result that the trustee can disclaim the onerous liabilities in
relation to property, but retain the property itself. If the bankrupt has been
an original lessee, the trustee could not have disclaimed the obligation
arising out of or incidental to the property to pay the rent but have kept the
leasehold term itself, so as to enjoy it without payment of rent, leaving the
landlord to prove in the bankruptcy for the rent while the trustee enjoys the
property. Equally, it seems to me, where there has been an assignment, and the
bankrupt is the person who came in as assignee, he cannot disclaim the
assignment without disclaiming the lease, and the link is equally close if he
seeks to disclaim the licence to assign without disclaiming the lease because
the covenant in the licence to assign, which is the only subsisting provision
under it, is related to the full term of the covenant in the lease. You cannot
have one disclaimed and the other subsisting.
Is the answer
then that the disclaimer is a complete nullity, which has achieved
nothing? Or is it that the disclaimer is
to be construed as a disclaimer of all the interest of the bankrupt’s estate
under the lease? To my mind, the latter
is the obvious answer, coinciding with what must be taken from the document
itself to be the intention of the parties to get rid of the liability as a
continuing liability for onerous property, namely the leasehold interest
carrying the obligation to pay the rent to which I have already referred.
Accordingly, with every respect to the learned deputy judge who reached the
other conclusion, I would hold that the disclaimer was effective to disclaim
the lease and I would allow this cross-appeal.
LEGGATT LJ agreed and did not add anything.
Cross-appeal
allowed with costs; appeal dismissed with costs.
