Four-year fag-end of lease of industrial property in Southwark sold for £50,000–‘Foot in the door’ for acquisition of freehold from Crown Estate Commissioners and redevelopment of site–Sale subject to adverse entry in any register on search by purchaser–Building found to have been listed as of historic interest about the time the contract was made–Purchaser who nevertheless continued negotiations to buy freehold held to have waived right of repudiation
This was an
appeal by Mr Arthur Sidney Minton and Minton Treharne & Davies Ltd, of Bute
Crescent, Cardiff Docks, from a decision of Walton J in the Chancery Division
on November 14 1974 granting the respondents, Aquis Estates Ltd, of Clarendon
Court, Maida Vale, London W9, a declaration that their contract to buy from the
appellants the leasehold interest in industrial premises at 99 Southwark
Street, Southwark, London SE1, had been rescinded, so that they were entitled
to recover their deposit of £5,000, and rejecting the appellants’ counterclaim
for a declaration that the deposit was forfeit and for damages for wrongful
repudiation.
Mr D J
Nicholls QC and Mr T L G Cullen (instructed by Holman, Fenwick & Willan,
agents for Lean & Lean, of Cardiff) appeared for the appellants, and Mr M J
Roth (instructed by Mackrell & Co) represented the respondents.
Giving the
judgment of the court, RUSSELL LJ said that in 1970 the first appellant, Mr
Minton, owned what was in effect the four-year remainder of a lease of the premises
in question, the freeholders being the Crown Estate Commissioners. The
building, which was some 100 years old, was of no architectural merit, but it
had considerable industrial historic interest in that it was the first building
to be designed and constructed for testing materials, a function requiring
exceptional strength in construction. It might be thought that such a stub-end
of a lease was of very little value, but the end of 1970 was a great time,
especially in the area concerned, for office development, for which change of
use little or no difficulty in planning permission would have been envisaged.
If a developer could acquire this interest in the property, it was recognised
in evidence that he would be in an advantageous position to acquire the
freehold by negotiation with the freeholders, and other developers would tend
to keep off. From December 1970 the appellants were very frequently approached
by developers anxious in one way or another to get their foot in the door with
a view to acquisition of the freehold for office development. In June 1971 the
respondents, who were developers, contracted by telex to buy the appellants’
interest for £50,000, a figure which spoke for itself as to the value attached
by a developer to obtaining a foot in the door, since the four-year lease of
this purpose-designed building could scarcely otherwise be worth anything to a
would-be office developer. The contract, which called for completion in six
months, contained a clause, clause 3, referring to negotiations by or on behalf
of the purchasers with the freeholders which reflected precisely the importance
attached to the foot in the door. It also, however, contained a clause making
the sale subject to:
Good title
and property being found free from adverse entry on the purchasers’ local land
charge, land charge and land registry searches.
Unknown to
both sides, the Department of the Environment had in June 1971 included 99
Southwark Street as an historic building of grade II in a list made pursuant to
section 32 of the Town and Country Planning Act 1962 and with the consequences
in Part V of the Town and Country Planning Act 1968, and the fact of the
listing was entered in the local land charges register. The first point taken
by counsel for the appellants was that the test whether this was an ‘adverse’
entry within the meaning of the clause in the lease was subjective, and that on
that basis the entry could not have been adverse, since it had not in fact
deterred the respondents from pursuing their attempts to acquire the freehold.
On this issue their Lordships agreed with Walton J’s conclusion that the test
was not subjective, but objective. It was true that if consideration was
confined to the acquisition of the four-year lease, this listing could not have
any adverse effect on that, for in that period the plaintiffs could not
rationally do anything to the property which could conflict with the effect of
listing. But it would be unrealistic to ignore, in construing the word
‘adverse,’ the object of the contract, which was to put the respondents in a
position of advantage for purchasing the freehold. The evidence preferred by
the judge showed that the existence of a listing would significantly under
various heads hamper an office developer in the form and cost of such
development, though no doubt that very fact would enable him to pay less for
the freehold. Their Lordships were therefore of opinion that within the
contract this listing was an adverse entry.
Supposing this
to be so, what happened after the respondents discovered the matter, as they
did on June 28? Pursuant to the
obligations imposed on him by clause 3, the first appellant on July 5 wrote a
letter for the respondents’ agents, Donaldson & Sons, to forward to the
Crown Estate Commissioners so that he could start negotiations with the
commissioners for acquisition of the freehold. The letter, addressed to the
Crown Estate Surveyor, ‘For the attention of E J Shaw Esq,’ was in these terms:
‘Dear Sir, 99
Southwark Street, London SE1. Bearing in mind the offers you have received for
the freehold interest in the above and my own, I thought it wise to instruct
the surveyors, Donaldson & Sons, to act on my behalf in this matter. The
object of this letter is to advise you that I have taken this action. No doubt
you will be hearing from them.’
A letter of
July 7 from Mr Trevor Donaldson of the agents enclosing that was also addressed
to Mr Shaw:
‘Dear Mr
Shaw, 99 Southwark Street, SE1. Your lessee, Mr A S Minton, has instructed us
to negotiate on his behalf for the freehold interest and I am enclosing a
letter of authority which is not couched in the best of terms, but which I hope
you will think confirms sufficiently that we can talk direct. In view of the
considerable interest in this property, Mr Minton would like us to establish
whether or not the freehold is available to him on specific terms and I would
appreciate it if you would telephone me on receipt of this letter to say when
we may have a discussion.’
If the
discovery on June 28 by the respondents of the fact that the property was
listed as an historic building conferred upon them a right to repudiate the
contract for breach of condition, it must then be considered whether the
actions of the respondents afterwards constituted an unequivocal election to
treat the contract as still on foot and so to waive the right to repudiate
based upon breach of the condition. In this connection it was submitted for the
respondents that the language of the adverse entry condition was such that in
any event there could be no breach until some later date, towards the end of
July, when an actual certificate of search revealed registration in the local
land charges register of this listing. But the court considered that this was
too narrow and technical an approach, and that the steps involved in a letter
by Mr Donaldson to the freeholders undoubtedly constituted a determination on
the part of the respondents, with knowledge of the listing, to treat the
contract as on foot for their own benefit. Those steps were steps which the
respondents were only permitted to take by the contract. They were, in fact,
the essence of the foot in the door which the respondents were to get by the
terms of contract with the appellants.
Negotiations
continued with the freeholders through the agents for the acquisition of the
freehold or a long-term building lease. By July 13 the agents had revealed that
Aquis Securities Ltd were their clients and contractually entitled to the
appellants’ leasehold. From July to October there was further correspondence between
the agents and Mr Shaw, but in the upshot the negotiations with the Crown
Estate Commissioners fell through, because the commissioners wished to consider
the question of development of no 99 in a wider context of other sites.
Thereupon the plaintiffs sought to escape their obligation to pay £50,000 under
the contract by making a further search of the local land register, with the
result they must have expected, and by calling on the appellants to procure the
removal of the listing before the completion date, with the non-result they
must have expected. On December 16 1971, the day after the date fixed for
completion, they wrote to say that they repudiated the contract for breach of
condition. The crucial question which remained, on these facts, was not whether
the respondents had acted unequivocally under the contract, and on the basis
that it was on foot, after they discovered the fact of listing. It was common
ground that they did so; and their so acting undoubtedly had an impact on the
appellants as that phrase is used in London & County (A & D) Ltd
v Wilfred Sportsman Ltd [1971] Ch 764, for it kept the appellants, and
other developers, off the grass, as was intended. The crucial question was
whether it could realistically be said that there was, or was in any mind, a
possibility that the breach of the condition was something which could
conceivably be remedied by cancellation of the listing before the time for
completion.
Theoretically
a building listed as was the building here could be de-listed, if application
were made to the appropriate department. But this building had been listed as
recently as June 1971, and the court considered it would be a perverse
conclusion on the evidence that there could be the slightest prospect of a
de-listing before completion. Quite obviously on the evidence (and the court
observed that no evidence was given on the views of the respondents in the
matter) nobody dreamed of this as a possibility. In this connection was to be
noted the fact that in negotiation with the freeholders Donaldsons assumed, as
the correspondence showed, that the respondents must negotiate on the
assumption that the listing would continue, should the respondents have
acquired the leasehold interest of the appellants. It was not without interest in
this connection that counsel for the respondents, in representing the situation
in which the respondents found themselves, used the expression that, having
lost the first prize, the respondents went ahead in the hope of the second
prize, in other words, the hope of obtaining the freehold subject to the
listing. It was also not without interest that at the moment when, because the
freeholders were not prepared to deal, the respondents sought to escape from
the contract on the ground of the listing, that ground had become totally
irrelevant, for that very reason, to the acquisition of the subject-matter of
the actual contract, the four-year stub-end of the lease. The court concluded,
accordingly, that the only rational view, and the one which on the evidence was
shared by all concerned, was that when it appeared that there was this listing,
the removal of it before completion was past praying for. In those
circumstances there was a breach of the condition at a stage after which the
respondents nevertheless treated the contract as something of which they were
entitled to take advantage. This appeared to the court to be a classic example
of election, or waiver of the right to repudiate.
In the event,
therefore, the decision of the appeal turned upon one point, and that was
whether it could rationally be inferred that the parties thought for a moment
that as a practical matter the adverse entry could or would be expunged before
the time for completion. For the respondents it was contended that in theory
this particular adverse entry could be so expunged, that consequently the
condition could not operate until the time for completion, that in further
consequence they (the respondents) could not until then have a right to
repudiate based upon the condition. It followed, if they were right in these
submissions, that they were entitled to conduct themselves on the basis of the
contract without being accused of waiver of the non-existent earlier right to
repudiate, or of election to pursue a course inconsistent with reliance on the
condition. That argument, in the court’s view, failed, and it failed because it
was really perverse to think that it was in anybody’s mind, let alone that of
the respondents–of which there was no evidence–that the adverse entry could be
expunged or deleted before the time for completion. As a practical matter, and
viewed realistically, the condition was broken once and for all at the time
when the respondents first learnt of the listing. Nor was the court prepared to
accede to the technical contention that the condition was not broken until
later in time, when an answer to a request for a search confirmed the existence
of the adverse entry. If, immediately upon hearing reliable information that
the building was listed, the respondents had repudiated, the appellants could
not have contended that the repudiation was premature because the listing had
not been revealed in response to a search by the respondents.
When,
therefore, Donaldsons, on behalf of the respondents, opened negotiations with
the freeholders on the basis of the right conferred upon the respondents by the
contract, that was the respondents exercising their contractual rights at a
time when they were entitled to repudiate the contract. They were pursuing a
course of conduct inconsistent with the retention of a right to repudiate on
the ground of breach of condition. They were electing to affirm the contract
rather than exercise a pre-existing right to escape from it. Having approbated
the contract by taking advantage of it after breach of the condition, they
could not reprobate it on the basis of that breach. They had waived the right
to repudiate. They sought to retain at the same time the benefit of the
contract and the ability to repudiate it–to eat the cake and have it. This was
an attitude of inconsistency which the law did not permit. Nor was there any
ground for suggesting, as was suggested, that that attitude was one which was
confined to forfeiture of leases. The court would accordingly allow the appeal,
with a consequent forfeiture of the £5,000 deposit paid and an inquiry as to
damages for the wrongful repudiation of the contract by the respondents.
On November 6,
the House of Lords Appeal Committee refused Aquis Estates Ltd leave to appeal
to the House against the Court of Appeal’s decision and their petition was
dismissed with costs.
