Contract for sale of land –– Rescission –– Landlords’ consent–– Sale of lease –– Whether landlords gave consent to proposed assignment –– Whether “in principle” consent good consent –– Whether landlords can qualify consent after giving “in principle” consent –– Whether buyer entitled to rescind contract –– Whether buyer entitled to return of deposit
On 9 August 1999 the claimant buyer entered into a contract with the defendant seller to acquire, by assignment, a 125-year lease of property for £4.44m. A deposit of £234,000 was paid, and the agreement made provision for the obtaining of landlords’ consent to the assignment. The standard conditions of sale (3rd ed) applied. At an early stage, both the landlords’ agents and solicitors stated that consent would be given “in principle”. Shortly before the contractual date for completion (30 September 1999), both parties accepted that completion would have to be delayed because of the buyer’s funding arrangements. Despite earlier correspondence on the matter, on 1 October 1999 the landlords’ solicitors refused to provide the executed licence on the ground that a rent deposit deed and certain assurances had not been provided. Meanwhile, on 30 September 1999 the buyer purported to rescind the contract on the basis that no landlords’ unconditional consent had been given. The buyer contended that as the landlords’ formal licence of written consent had not been executed three days before the contractual date for completion, it was entitled to rescind and recover its deposit (standard condition 8.3.4). The seller’s position was that landlords’ consent had been obtained, even though there was no executed licence, and that the buyer could not rescind.
Held: The buyer was not entitled to rescind.
At all material times up to the contractual completion date the parties’ solicitors proceeded upon the basis that the landlords’ executed licence to assign would be forthcoming. Standard condition 8.3.4 should not be interpreted as though it refers only to the contractual date for completion particularised in the agreement for sale, and not the date for completion that all the parties were agreed would be the case (some days later). In any event, there was waiver by the buyer of any right to rescind after 27 September, as both parties were doing everything possible to complete on the original completion date or shortly thereafter. Once the landlords had given their “in principle” consent, that could not be revoked by subsequent letters that appeared to qualify that consent. The buyer was not entitled to the return of the deposit.
The following cases are referred to in this report.
Footwear Corporation Ltd v Amplight Properties Ltd [1999] 1 WLR 551; [1998] 3 All ER 52; (1999) 77 P&CR 418; [1998] 2 EGLR 38; [1998] 25 EG 171, Ch
Mount Eden Land Ltd v Prudential Assurance Co Ltd; sub nom Prudential Assurance Co Ltd v Mount Eden Land Ltd (1997) 74 P&CR 377; [1997] 1 EGLR 37; [1997] 14 EG 130, CA
Norwich Union Life Insurance Society v Shopmoor Ltd [1999] 1 WLR 531; [1998] 3 All ER 32; [1998] 2 EGLR 167, Ch
Safehaven Investments Inc v Springbok Ltd (1996) 71 P&CR 59
Spring v O’Flynn [1999] EGCS 79, Ch
Venetian Glass Gallery Ltd v Next Properties Ltd [1989] 2 EGLR 42; [1989] 30 EG 92, Ch
This was the hearing of a claim by the claimant, Aubergine Enterprises Ltd, for declarations and other relief against the defendant, Lakewood International Ltd.
Elizabeth Weaver (instructed by Fladgate Fielder) appeared for the claimant; Michael Pryor (instructed by Beveridge Milton) represented the defendant.
Giving judgment, MR DAVID VAUGHAN QC said:
1. This matter concerns a property known as floors 1-7, 18 Berkeley Street, London W1. The landlords of that property are the Earl of Mexborough and the Hon Charles Anthony Savile. By a lease dated 29 December 1997, the landlords let the property to Lakewood International Ltd (Lakewood) for a term of 125 years from 25 December 1997. The consideration for the lease (which was an extension of a previous lease) was the sum of £600,000, together with rent, which was to be £500 for the first three years; £1,000 for the next 14 years; and with an escalator operating throughout the term, reaching £5,000 for the last 12 years. That lease contained a covenant that the tenant should not assign the premises as a whole without the prior written consent of the landlords, such consent not to be unreasonably withheld: clause 4.18.3.
2. It was provided by clause 4.18.4 of the said lease that:
Notwithstanding anything contained in these presents the Landlord shall be entitled in its absolute discretion to withhold consent to any proposed assignment of the demised premises in any one or more of the following circumstances:
(a) rent or other sums due under these presents are in arrears
or
(b) any notice hereunder or proceedings having been issued and not withdrawn or settled in respect of a breach or alleged breach of any of the covenants or conditions on the part of the Tenant contained in these presents or
(c) an Authorised Guarantee Agreement duly executed and completed by the Tenant and any guarantor or guarantors for the time being of the Tenant has not been delivered to the Landlord or
(d) a deed duly executed has not been delivered unconditionally to the Landlord containing (inter alia) a covenant with the Landlord:
(i) by the proposed assignee to observe and perform the covenants and conditions on the part of the Tenant contained in these presents from the date of such assignment and
(ii) by any guarantors which the Landlord may reasonably require to act as guarantor for such assignee and to covenant with the Landlord as a primary
(e) where the proposed assignee is likely to become entitled to claim immunity or exemption in relation to compliance with or performance or observance of any covenant or condition on the part of the Tenant contained in these presents whether by reason of diplomatic or sovereign immunity or otherwise howsoever.
Part I of schedule 5 of the lease set out the terms of the covenant by a surety in the case of an assignment, and schedule 6 set out the terms of an authorised guarantee agreement.
3. In mid-1999 Lakewood wished to sell the lease of the property, and, on 9 August 1999, Lakewood entered into a contract of sale of the lease of the property to the claimant, Aubergine Enterprises Ltd (Aubergine). Both Lakewood and Aubergine are British Virgin Island-registered companies. The price of the property was agreed at £4.44m and the price of the contents was agreed at £240,000. A 5% deposit of £234,000 was to be paid by Aubergine. The date for completion was agreed to be the 30 September 1999. The contract of sale included the following conditions:
4. The Buyer shall enter into, and shall procure that any guarantor reasonably required by the Seller’s lessor shall enter into an Authorised Guarantee Agreement and Deed of Covenant in the form set out or referred to in the Lease.
5. If the sale of the Property is not completed on the Completion Date because the Seller has not received any relevant licence from its lessor and failure to obtain that licence is caused wholly or partly by any delay by the Buyer in:
(a) complying with the Buyer’s obligations under the Standard Condition or under this clause 5 or
(b) obtaining the approval by the lessor of any guarantor of the Buyer’s liabilities under such licence and Authorised Guarantee Agreement as the lessor shall reasonably require or
(c) approving any draft of such licence or Authorised Guarantee Agreement
(d) executing the counterpart of any licence or procuring such execution by a guarantor or
(e) delivering the properly executed counterpart of any such licence and Authorised Guarantee Agreement to the Seller’s Solicitors or (if previously so requested in writing) to the lessor or to the lessor’s solicitors or agents.
THEN if the Seller does not rescind this Agreement, the Buyer shall on Completion pay to the Seller interest at the prescribed rate on the balance of the Purchase Price and pay all outgoings due in respect of the Property from the later of the Completion Date and the date upon which the relevant licence would have been granted but for any such cause up to and including Completion.
…
10. This Agreement incorporates The Standard Conditions of Sale (3rd Edition). The terms of this Agreement shall prevail where there is any conflict between those Conditions and this Agreement.
1. The notice required to be given by Standard Condition 7.3.4. shall hereby be deemed to have been given.
2. In Standard Condition 5.1.3. the word “no” shall be replaced by “an”.
[Neither of which matters enumerated in clause 10 are relevant to the issue herein.]
4. In so far as relevant, the standard conditions of sale (3rd ed) provide:
1.3.5 If a notice or document is received after 4.00 pm on a working day, or on a day which is not a working day, it is to be treated as having been received the next working day.
…
2.2 Deposit
2.2.1 The buyer is to pay or send a deposit of 10 per cent of the purchase price no later than the date of the contract. Except on a sale by auction, payment is to be made by banker’s draft or by a cheque drawn on a solicitor’s clearing bank account.
…
2.2.3 Any deposit or part of a deposit… is to be held by the seller’s solicitors as stakeholder on terms that on completion it is paid to the seller with accrued interest.
…
6. COMPLETION
6.1 Date
6.1.1 Completion date is twenty working days after the date of the contract but time is not of the essence of the contract unless a notice to complete has been served.
6.1.2 If the money due on completion is received after 2.00 pm, completion is to be treated, for the purposes only of conditions 6.3 and 7.3, as taking place on the next working day.
6.1.3 Condition 6.1.2 does not apply where the sale is with vacant possession of the property or any part and the seller has not vacated the property or that party by 2.00 pm on the date of actual completion.
…
6.8 Notice to complete
6.8.1 At any time on or after completion date, a party who is ready able and willing to complete may give the other a notice to complete.
6.8.2 A party is ready able and willing:
(a) if he could be, but for the default of the other party, and
(b) in the case of the seller, even though a mortgage remains secured on the property, if the amount to be paid on completion enables the property to the transferred freed of all mortgages (except those to which the sale is expressly subject).
6.8.3 The parties are to complete the contract within ten working days of giving notice to complete, excluding the day on which the notice is given. For this purpose, time is of the essence of the contract.
6.8.4 On receipt of a notice to complete:
(a) if the buyer paid no deposit, he is forthwith to pay a deposit of 10 per cent
(b) if the buyer paid a deposit of less than 10 per cent, he is forthwith to pay a further deposit equal to the balance of that 10 per cent
7. REMEDIES
…
7.2 Rescission
If either party rescinds the contract:
(a) unless the rescission is a result of the buyer’s breach of contract the deposit is to be repaid to the buyer with accrued interest
(b) the buyer is to return any documents he received from the seller and is to cancel any registration of the contract
…
7.5 Buyer’s failure to comply with notice to complete
7.5.1 If the buyer fails to complete in accordance with a notice to complete, the following terms apply.
7.5.2 The seller may rescind the contract, and if he does so:
(a) he may
(i) forfeit and keep any deposit and accrued interest
(ii) resell the property
(iii) claim damages
(b) the buyer is to return any documents he received from the seller and is to cancel any registration of the contract.
7.5.3 The seller retains his rights and remedies.
7.6 Seller’s failure to comply with notice to complete
7.6.1 If the seller fails to complete in accordance with a notice to complete, the following terms apply
7.6.2 The buyer may rescind the contract, and if he does so:
(a) the deposit is to be repaid to the buyer with accrued interest
(b) the buyer is to return any documents he received from the seller and is, at the seller’s expense, to cancel any registration of the contract.
7.6.3 The buyer retains his other rights and remedies.
8. LEASEHOLD PROPERTY
…
8.3 Landlord’s consent
8.3.1 The following provisions apply if a consent to assign or sub-let is required to complete the contract.
8.3.2
(a) The seller is to apply for the consent at his expense, and to use all reasonable efforts to obtain it.
(b) The buyer is to provide all information and references reasonably required.
8.3.3 The buyer is not entitled to transfer the benefit of the contract.
8.3.4 Unless he is in breach of his obligation under condition 8.3.2, either party may rescind the contract by notice to the other party if three working days before completion date:
(a) the consent has not been given or
(b) the consent has been given subject to a condition to which the buyer reasonably objects
In that case, neither party is to be treated as in breach of contract and condition 7.2 applies.
5. The purchase was not completed. The issue before me is whether, as Aubergine claims, the failure by Lakewood to produce, by the close of business on the actual date of completion (30 September 1999), a written consent by the landlords to the assignment entitled Aubergine to rescind the contract for sale under standard condition 8.3.4 (as it purported to do) and to recover the deposit paid (£234,000), plus interest, or whether, as Lakewood contends, Aubergine is bound to pay the remaining part of the 10% deposit, plus interest. To answer that question, it is first necessary to examine the facts relevant to that issue in some detail.
6. The evidence before me consisted, in the main, of a bundle of agreed documents, together with the witness statement of Ms Antonia Brandes, a solicitor and partner in the firm of Fladgate Fielder, which acted in the conveyance on behalf of Aubergine, and Ian Jefferson, a solicitor, who acted in the conveyance on behalf of Lakewood. Both of whom were very experienced conveyancers and were extensively cross-examined, although there was little real dispute on the facts. The other main relevant individual is a Ms Emily Steele, a solicitor employed in the firm of Stephenson Harwood, the solicitor acting for the landlords. Stephenson Harwood, I was informed, had declined to co-operate in the case, whether by way of allowing Ms Steele to give evidence or by producing documentation. Although I have not heard evidence from Ms Steele, one matter upon which both solicitors were agreed was that she appeared to be very inexperienced, and that many of the problems that arose in the present case were due to that inexperience. She appeared to both witnesses to lack the experience to deal with matters outside normal conveyancing practice, such as seeing that an undertaking as to costs would be wholly unnecessary where there was ample protection for her client in the rent deposit; failing to give firm advice to her client; and by raising many unnecessary issues or issues at much too late a stage. It also seems that it was guilty of considerable delay. It is most unfortunate that Stephenson Harwood has taken this attitude, as its evidence would have been very important for a full understanding of this case, but I have had to deal with its role in this matter upon the basis of the documents and evidence before me. Again, this matter is not made any easier by there being no evidence or documentation from Aubergine or from Mr Farmer, who appears to be the main investor in Aubergine, particularly with regard to the matters lying behind the financing that they required in order to be able to complete the conveyance.
Background facts
7. Following upon the signing of the contract of sale, Mr Jefferson, on 9 August 1999, spoke to Mrs Brandes, asking for references on her client and any proposed guarantor, so that an application for the licence to assign could be made. Mrs Brandes replied that the client was a recently incorporated BVI company, and said that she expected the landlords to require a rental deposit, but said that she thought £20,000, which was the existing deposit, was unnecessarily high. In fact, it was subsequently reduced to £10,000. On 12 August Mr Jefferson wrote to Mrs Brandes requesting confirmation that any assignment was to be to Aubergine alone. On the same day Mr Jefferson wrote to the landlords’ agent, Nightingale Chancellors, asking for consent to the assignment and informing it that a rent deposit would be provided. It was told of the date of completion. A chasing letter was sent on 21 August 1999, as no reply had by then been received. In the meanwhile, the normal conveyancing matters were proceeding.
8. On 26 August 1999 Nightingale Chancellors replied that its clients would “be prepared in principle to grant a licence for the assignment of the lease” to Aubergine, but they would require a rent deposit of £10,000, and their costs and fees in relation to the assignment. It asked Mr Jefferson to deal with Stephenson Harwood in relation to a completion of the licence, and told it that the person dealing with this matter was Ms Emily Steele. Mrs Brandes was informed of the situation on the next day, and Mr Jefferson wrote that day to Ms Steele informing her that the assignment had been agreed in principle subject to the rent deposit, informing her that a draft deed of rent deposit based upon an earlier version prepared by Stephenson Harwood had been supplied, and asking her agreement to this. He asked Ms Steele whether she wished to include an assignee’s direct covenants with the landlords in this document. At this stage, there was over a month to go before the date of completion and there was nothing that would have suggested to these experienced conveyancers that there was going to be any problem with regard to the licence to assign. Experience suggested to both solicitors that the landlords could have no possible grounds for objection provided that the necessary documentation was produced at their request.
9. Ms Steele replied by letter dated 1 September, and repeated that her clients agreed in principle to the assignment, said that she was going to review the rent deposit deed, and asked for confirmation that Mr Jefferson would undertake to be responsible for her clients’ legal fees and the fees for the agent. She said she was not prepared to draft the licence before this was confirmed. She said she was also taking instructions from her clients about the authorised guarantee agreement.
10. Mr Jefferson replied on 3 September saying that it was not the practice of his firm to act as guarantor for his client’s liabilities, and that he would not provide an undertaking with regard to fees, as the landlords already held £20,000 by way of rent deposit. He proposed to agree the legal fees at £200 plus VAT. He pointed out that completion was on 30 September, and that it might take some time to finalise the documentation.
11. For some unexplained reason, Ms Steele did not reply to that letter until 10 September. Mr Jefferson had, on that date, written to her protesting about the delay, sending her an engrossment of the rent deposit deed and a simple form of licence to assign, suggesting that she discuss details with Mrs Brandes. Probably some time later that day, Ms Steele replied that her clients required an authorised guarantee agreement, and that her firm’s fees would be £450.00 plus VAT and the surveyor’s fees £150.00 plus VAT, and stating again that she would not send the draft licence to assign or a draft authorised guarantee agreement until Mr Jefferson had given an undertaking to proceed. It is clear that, subject to various documents being completed, the licence to assign would be forthcoming.
12. Mr Jefferson replied in an exasperated tone by letter dated 13 September, warning Stephenson Harwood that if it caused the conveyance to fall through, he would be making a claim against its clients in damages that he set out. On the same date, he wrote to Nightingale Chancellors, protesting about the behaviour of Stephenson Harwood and sending it copies of the rent deposit deed and the authorised guarantee agreement, neither of which, he said, needed to be signed by the landlords. On 14 September a Mr Christopher Bujac, of Stephenson Harwood, said that it was perfectly reasonable to expect an undertaking from Mr Jefferson before proceeding with this matter, and that once this was forthcoming the draft documentation would be supplied. Two weeks had now expired because of Stephenson Harwood requiring an undertaking, in what appears to me to be a wholly unnecessary way when it held £20,000 of Lakewood’s moneys, which they could perfectly easily have used a security for its fees.
13. Mr Jefferson replied to Mr Bujac’s letter of 15 September, protesting about its attitude and pointing out that his client, Lakewood, had always complied with its lease obligations, paid a substantial premium of £600,000 for an extension of the lease and that the landlords held £20,000 of Lakewood’s money by way of deposit that could easily provide security as against the legal costs and fees.
14. On 17 September 1999 Mr Farmer, of Orama Holdings Ltd, a Guernsey company, faxed Mr Jefferson, following a meeting the previous day, telling him that the property was being bought with finance provided by the Royal Bank of Scotland and that much needed to be done, and asking that the date for completion be delayed until mid-October. Mr Jefferson replied the next day that this would not be acceptable, and if completion did not take place on 30 September, he would issue a notice to complete and require the payment of the balance of the deposit on that date, together with interest. He ended up by saying that whatever he could reasonably do to assist, he would do. Apparently, Mr Farmer was the principal investor in Aubergine. Mr Farmer, and therefore Aubergine, must have known, at that date,
15. On 18 September Mr Jefferson, as well as sending Mrs Brandes the fax from Mr Farmer together with his reply, informed her of the position with regard to Stephenson Harwood. He stated that it was his view that if the required documentation were supplied to it, the matter could proceed, even if no formal licence were provided. On 20 September Mr Farmer replied that: Aubergine would “proceed as contracted”; the bank’s facility had been accepted; and saying he hoped the completion would not be delayed, but he said he understood the consequences of any delay. This provides further evidence that Mr Farmer was, in all probability, well aware that completion would not take place on the contracted date, although 30 September was to remain the date of completion for the purposes of notices to complete. On 21 September 1999 the completion statement was prepared on the basis that completion would occur on 30 September, although “there appears to be a doubt about this at the moment”, according to Mr Jefferson. This doubt obviously is a reference to the question of financing. On the same date the documentation relating to the title of the property was sent to Mrs Brandes.
16. On 21 September Miss Steele at last replied to Mr Jefferson’s letter of 15 September. No explanation was given for this further delay. It was now three weeks from her original letter. The letter was expressed to be “SUBJECT TO LICENCE”. This letter stated that her clients agreed in principle to the assignment, and that, wholly unjustifiably, the delay was due to Mr Jefferson’s refusal to provide an authorised guarantee agreement. It stated that Stephenson Harwood accepted that an undertaking in respect of costs and fees was no longer required, and that the legal costs and fees would be deducted from the rent deposit it held. This was exactly the proposal that had been advanced by Mr Jefferson as long ago as 3 September. She enclosed a draft licence to assign, in duplicate, to be signed by Lakewood and by Aubergine, and said that she was sending a third engrossment of the licence to her clients for execution, and that, upon completion of the licence, she would provide a certified copy of that part of the licence so that both Lakewood and Aubergine could hold a copy. She also included with that letter a copy of the rent deposit deed with her minor amendments. She confirmed that the authorised guarantee agreement was acceptable, subject to a “couple of typing mistakes”, and that if Mr Jefferson engrossed it, she would send it to her clients for execution. She finally asked Mr Jefferson to confirm that the execution clause in the deeds to be signed by Aubergine “is sufficient under BVI law for the company’s constitution”. Obviously, Mr Jefferson was in no position to deal with that inquiry on behalf of Aubergine.
17. Mr Jefferson replied on 23 September 1999, expressing pleasure that Stephenson Harwood was no longer seeking an undertaking, and pointing out that the reference to Lakewood not providing an authorised guarantee agreement was incorrect. He pointed out that he could not answer for Aubergine and its constitution. Mr Jefferson’s evidence was that, on 24 September, he telephoned Mrs Brandes to ask whether the financial arrangements were in place to enable her client to complete on 30 September. Accordingly, to Mr Jefferson, she said that her client’s financing was in place and that solicitors had been appointed to act for the bank. She said she was confident that she would provide the lenders with all information to meet the deadline. No mention then was made by Mrs Brandes about any difficulty about the licence to assign being available. Although Mrs Brandes might have thought that the financing was in place (I have been shown no documentation as between Mrs Brandes and her clients) to allow for completion on 30 September, I cannot accept that this was in fact the case, as can be seen from the fax that as late as 30 September, the bank’s valuers were still inspecting the property and there was clearly much to be done before conveyance could take place. It is here that the absence of any documentation being produced by Aubergine is a major disadvantage for a full understanding of this case.
18. On 27 September Stephenson Harwood sent to Mrs Brandes an engrossment of the licence to assign for execution by Aubergine, as well as the rent deposit deed. It asked Mrs Brandes for an undertaking as regards its costs, and asked her to confirm the execution clause. Mrs Brandes replied to that letter on 28 September to say that the licence and the deed of rent deposit had been faxed to her client, and that she had asked it to execute copies and to return them by return. She asked Ms Steele to confirm that once she had received £10,000 for her client by way of rent deposit, her costs in the sum of £500 plus VAT, the authorised guarantee agreement executed by Lakewood and released to Stephenson Harwood and the licence deed of rent deposit executed by Aubergine and released to Stephenson Harwood, they might proceed upon the basis that the licence had been granted, notwithstanding the fact that Stephenson Harwood may not by then have received back the landlords’ executed licence. She pointed out that completion was on 30 September. On the same day she wrote to Mr Jefferson saying that Ms Steele had confirmed that, provided she received the necessary documents referred to in Mrs Brandes’ letter, she would be prepared to allow Lakewood and Aubergine to proceed upon the basis that her clients’ part of the licence would be granted, although it would not be in her hand at that point. Mrs Brandes said in her evidence that this letter did not set out the correct position, but I cannot accept that, for in her letter dated 1 October she said that “on 29th September 1999 [which must be a reference to the letter dated 28 September, for there was not a letter of 29 September], we understood the position to be as set out in my letter to you of that date. The Landlords’ solicitors have subsequently written indicating that they were not able to give the assurance sought by us.” That latter reference must be a reference to Stephenson Harwood’s subsequent letter of 30 September 1999, referred to below. On any ordinary interpretation of those documents, it would seem clear that the landlords had given their consent, and that they had agreed that completion could take place without that executed licence. A further indication that that is the correct construction is shown by the fact that, if the landlords’ solicitor had said, as Mrs Brandes now claims, that it would certainly not give that assurance, there would inevitably have been much conversation and communication about the licence in the period between 28 September up to the date for completion, yet there was none.
19. On the next day, 29 September, the licence to assign and the deed of rent deposit executed by Aubergine were sent by Mrs Brandes to Stephenson Harwood by hand, and she asked for account details so that the rent deposit of £10,000 (which she had already in her client account) could be telegraphed to Stephenson Harwood. On the same date Mr Jefferson confirmed that he would be sending Ms Steele the authorised guarantee agreement, which he did, stating that “this completes the documentation for the release of the Licence to Assign”. According to Mrs Brandes’ evidence, she also had the remaining part of the deposit moneys payable to Lakewood upon completion in her client’s account.
20. On the same day Mr Jefferson spoke to Mrs Brandes on the telephone to confirm that all that was in order for completion for the next day. She said that she was totally confident that her lay client’s financing arrangements were complete. For the reasons I have set out, I cannot accept that this was the true position, at least so far as her client was concerned. She said that Stephenson Harwood had expressed concern about the rent deposit, and Mr Jefferson said he would leave his client’s deposit with the landlords, pending the payment of the fresh deposit of £10,000, so that the landlords could be covered and there could be no possible reason for the licence to assign not to be granted. So far as Mr Jefferson and Mrs Brandes were concerned, there seemed to be no problem about the licence to assign, although Mrs Brandes apparently had been told that as one of the landlords was overseas, the actual deed would not be executed on 30 September. It is probably correct to assume that one of the landlords had signed by that date. Mrs Brandes did not express any concerns about this, but if she had done so, arrangements could have been expedited to obtain the signature of the second landlord, who apparently got back to the United Kingdom on 30 September (coincidentally, he lived in the same building as Mr Jefferson).
21. On 30 September (the contractual day for completion) Mrs Brandes wrote to Mr Jefferson to inform him that her client’s funders (the Royal Bank of Scotland) would require an opinion letter in respect of her client’s good standing, and that, accordingly, funds would not be available to complete on that date. She said that she would keep Mr Jefferson informed of her progress. It was agreed in a telephone conversation that this would be a relatively simple matter, but would take a few days to obtain, and that completion would take place in the early days of the next week. There was no mention in that conversation of the licence to assign, or that the absence of a written licence to assign created any problems. Later that day Mr Jefferson went to the premises and discovered the Royal Bank of Scotland’s valuers were in the process of carrying out a valuation on the premises, which would suggest that the need for an opinion was probably an excuse to cover up the fact that there was still much to be done on the financing side. This was a great surprise to Mr Jefferson, who had assumed that this had been done some considerable time previously, upon the basis of the assurances given to him by Mrs Brandes, and he immediately telephoned Mrs Brandes, who seemed to him to be aware of the situation, and aware that financial arrangements would not be in place on that day, and probably not until at least the next week. I have not been informed, and have never seen any documentation to show, whether in fact the finance was ever available. At no time in that conversation did Mrs Brandes mention the absence of the licence to assign as presenting any problem, and, again, if she had done so, then (as set out above) the second signature could certainly, so far as probabilities are concerned, have been obtained. Mr Jefferson was later told that the valuation of the property by the valuers was in line with the price being paid for the property.
22. Later on 30 September Ms Steele, at 6.29pm, sent to Mrs Brandes a letter by fax and DX marked “SUBJECT TO LICENCE”. It acknowledged receipt of the executed licence to assign and the rent deposit deed. It gave the necessary account for the rent deposit of £10,000 to be paid “in readiness for completion”. It is clear that someone (probably Mrs Brandes) must have told her that completion was to be at some later date than 30 September. She referred to a telephone conversation on the previous day, in which Mrs Brandes requested that the executed rent deposit deed should be held by Stephenson Harwood to Fladgate Fielder’s order pending completion of the transfer of the property. She expressed her concern as to this, for if the licence to assign were completed without completion of the rent deposit deed there was a danger that, if completion took place, the assignment could have taken place without the landlords obtaining a new rent deposit. The letter ends as follows:
In any case, I have not have authority to grant consent to the Assignment before we have signed documentation back from our clients. As you and Ian Jefferson already know, consent to the Assignment has been granted by our clients in principle and subject to the completion of the Licence, but we do not have instructions to give you any further assurance. We have been informed this evening by our clients’ agents, that one of our client’s signatories has been away until today. However, we hope to receive the executed documents back from them in the next few days and will telephone Ian Jefferson and you then.
We also look forward to hearing from you with confirmation that the Licence to Assign and the Authorised Guarantee Agreement had been executed by your client, Aubergine Enterprises Limited, in the manner which accords with the company’s constitution and with BVI law. This confirmation is required from you because your client is a BVI registered company.
It will be noted that that letter was received after close of business, and was therefore deemed to have been received on 1 October 1999.
23. According to Mrs Brandes, at 17.07 on 30 September she had received instructions from her client to rescind the contract on the basis that the licence to assign had not been completed. I have seen no documents to support this version or the precise reasons why, in fact, she was given those instructions. However, I have no doubt that she did receive instructions to this effect. Accordingly, she wrote to Mr Jefferson by letter dated 30 September 1999 (and faxed at 05.48 the next morning) informing him that, as the date for completion had passed, and that as “the landlords’ consent had not been given, through no fault of our client”, it was going to rescind the contract, pursuant to standard condition 8.3.4, which permitted rescission if, three days before completion, consent to the assignment had not been given. She asked for the deposit to be returned, as well as accrued interest pursuant to standard condition 7.2(a). The documents received from Mr Jefferson were returned later that day.
24. It is quite clear that, on that date, Mrs Brandes’ client would not have been able to complete the purchase (even apart from the licence to assign issue) for it was not in possession of the necessary funds to pay the price (apart from the outstanding deposit) and therefore could not have served a notice to complete in accordance with standard condition 6.8. In addition, they had not yet obtained the opinion as to good standing or compatibility of the execution clause with BVI law and Aubergine’s constitution, and, in fact, had not actually paid the rent deposit of £10,000 (although this was because of delay by Stephenson Harwood in furnishing details of the account number).
25. According to the subsequent correspondence, Mr Jefferson rejected the purported rescission, requested the remaining balance of the 10% deposit, and served notice to complete. So far as Lakewood was concerned, on the basis that its notice to complete was appropriately served, the contract of sale was terminated on the expiry of 10 working days from the service of such notice: standard condition 6.8.3. It is not disputed that Lakewood was ready, able and willing to complete on the date when notice was given. Stephenson Harwood wrote to Mr Jefferson on 11 October to say that it was now holding the authorised guarantee agreement, the rent deposit deed and the licence to assign, as executed by their landlords, and that once they had received confirmation of Aubergine’s execution and the payment of the rent deposit by Aubergine, it would be in a position to complete all documentation.
Rival contentions
26. Aubergine, as the claimant, contends that as the formal licence of written consent by the landlords had not been executed three days before the date of completion, then, by virtue of standard condition 8.3.4, it was entitled to rescind the contract for sale, as it purported to do. Aubergine contends that Lakewood can point to no document that, upon its true construction, amounts to a written consent, as required by the lease, and that any consent falling short of full consent would not amount to the necessary consent. It also adds that there was no question of it being in breach of its duty to provide the information and the references reasonably required: standard conditions 8.3.2(b). It accordingly seeks repayment of the 5% deposit already paid, together with interest.
27. Lakewood, as the defendant, contends that Aubergine was not entitled to rescind the contract because:
(1) consent had been obtained, even though the licence had not been executed by the landlords at that date;
(2) if there were a failure to consent, that resulted from Aubergine’s breach of its obligations with regard to the payment of the rent deposits, and failure to confirm that the execution clause was sufficient under BVI law and under its constitute (neither of which it ever did);
(3) if there were a right to rescind on 27 September, Aubergine, by its subsequent conduct, waived its right to rescind, and/or affirmed the contract and was therefore not entitled to rescind and was obliged to complete in accordance with the notice to complete.
Lakewood, for its part, contends that Aubergine not only is entitled to recover the 5% deposit already paid, but is bound to pay the remaining part of the 10% deposit, together with interest.
Conclusions on the facts
28. Before reviewing the law, it is convenient to bring together the relevant factual matters:
(1) It is clear that at no time was it ever thought or suggested that the landlords might have any reason to refuse to grant consent to the assignment to Aubergine. Such questions as were asked were questions relating to the documentation that would be necessary to finalise that consent: see, in particular, the documents referred to in clause 4.18.4 of the lease. All parties were well aware that the landlords owed the tenant
(2) Although, at an earlier date, the agreement had been given to the assignment only in principle, on 27 September (the date that both parties agreed to be the relevant date, with regard to consent under standard condition 8.3.4, if the completion date were treated as being 30 September) Stephenson Harwood, acting for the landlords, had sent the draft licence to assign to the landlords for execution, and, on the next day, had agreed that the parties could proceed upon the basis that consent had been given and that the landlords’ part of the licence would be granted.
(3) At all times thereafter, both Lakewood and Aubergine acted as if that were the position. Mrs Brandes never thereafter suggested, until she sent her letter dated 30 September (and faxed the next day) purporting to rescind the contract, that there had been no consent in that the absence of any executed licence would be any obstacle to completion. Both parties proceeded upon the basis that actual completion would take place probably a few days after 30 September, and upon the basis that the landlords had no possible reason for refusing to consent to the assignment and were not going to do so, and they had indeed consented.
(4) After 27 September both parties proceeded to complete the necessary documentation, and Aubergine carried on with its arrangements for obtaining financing for the purchase so that completion could take place, if not on 30 September, a few days afterwards. In particular, the necessary signatures by Aubergine for the licence to assign and the rent deposit were obtained, and the authorised guarantee agreement was signed by Lakewood. Both parties were well aware that it could take a few days for these documents to be signed by the landlords, and never raised any point about this delay.
(5) The reason why Stephenson Harwood changed its position, after having previously accepted that completion could take place without the licence to assign having been executed by both the landlords (initially referred to in the telephone communications between Mrs Brandes and Ms Steele), was nothing to do with the change of mind about consent, but was because of matters raised by Mrs Brandes on the rent deposit deed that clearly could be resolved.
(6) If Mrs Brandes had expressed any concern about the execution of the licence to assign by the landlords, this could easily have been rectified, as it had probably been signed by one of the landlords before 30 September, and arrangements could be made for it to be signed by the other landlord on that date, when he got back from abroad, if the matter had been raised and if it had been suggested that this was any impediment to completion.
(7) The reason why actual completion was not going to take place on 30 September was nothing to do with the fact that the licence to assign had not been signed by both the landlords, but because Aubergine had either changed its mind or had not fully set in place the necessary finance arrangements, and had requested, and Lakewood had agreed, that completion should be delayed a few days to enable the finance to be organised with the Royal Bank of Scotland. Aubergine itself must have known on 27 September that completion on 30 September was not going to take place for one of these reasons. I have no doubt that if completion had been delayed for a few days, as had been agreed, all necessary documentation would have been in place, and, in particular, the licence to assign would have been executed by the landlords. The only outstanding matters would have been in Aubergine’s hands, namely the assurances about the execution clause, the payment of the rent deposit and the obtaining of the necessary finance to secure completion.
(8) When Lakewood was in a position to serve the notice to complete on 1 October (and this is accepted that it was entitled so to do), Aubergine could not have served such a notice, for it was not then, and never was, in a position when it was “ready, able and willing” so to do. The executed licence to assign was certainly available on 11 October, and could well have been much earlier. I have not been shown the executed document.
29. Although 30 September 1999 was agreed as being the date for completion in the contract for sale, and remained the date for completion so far as interest was concerned, it was clear from a relatively early stage that both parties accepted that it was most unlikely that that date would be achieved. It should also have been borne in mind that standard condition 6.1.1 provided that time for completion of the contract was not to be of the essence, unless and until a notice to complete had been served, when time for completion was to be within 10 working days of the service of the notice to complete: standard conditions 6.8.1 and 6.8.3. Aubergine had asked, on 17 September, that completion should be delayed until mid-October. On 20 September Mr Farmer, for Aubergine, said that he hoped completion would not be delayed, and he understood the consequences of delay. I have no doubt that Aubergine, if not Mrs Brandes, was then well aware that completion would not be on 30 September, because of Aubergine’s difficulties in arranging the appropriate finances by that date. The issue before me is whether, notwithstanding the fact that Aubergine would not have been able to complete on 30 September because of the absence of appropriate financing, which so far as I am aware was never put in place, Aubergine is nevertheless entitled to rescind the contract, because of the absence, some three days before 30 September, of a written licence to assign, duly executed by the landlords.
Law
30. It is therefore first necessary to consider the question of consent. Ms Elizabeth Weaver, on behalf of Aubergine, argued strongly that the absence of written consent constituted a defect in the title of Lakewood, and that standard condition 8.3.1 required that there be not only consent, but written consent, and that, in the absence of such written consent being available three days before the contractual date for completion, Aubergine was entitled to rescind, pursuant to standard condition 8.3.4. It is certainly true that, under the lease, written consent was required to an assignment, but standard condition 8.3.4 does not require the consent that had to be given three days before completion to be in writing. It is clear to me that, by 27 September, Stephenson Harwood, on behalf of the landlords, had indeed consented within the terms of standard condition 8.3.4 in all the circumstances of this case, in particular by sending out the licence to assign to Aubergine for its signature, and then sending that licence to the landlords for signature. In any event, before Aubergine had rescinded, Stephenson Harwood had made the position much clearer, for it stated that it had agreed that completion could take place without written consent, provided that the necessary documents were completed by Aubergine (as they were), and provided that Aubergine carried out the requisite matters with regard to the payment of the rent deposit and the opinion concerning the execution clause (which they had not done and never did). I entirely accept that the earlier statements on behalf of the landlords as to “consent in principle” does not amount to the necessary consent (see Venetian Glass Gallery Ltd v Next Properties Ltd [1989] 2 EGLR 42), but, by 27 September and certainly by 28 September, I have no doubt that the consent amounted to actual consent for the reasons set out above.
31. But in any event, I do not consider that it would be correct that 30 September be treated as the date for completion for the purpose of standard condition 8.3.4. At least by 27 September, for the reasons set out above, the parties had agreed that the actual date for completion was almost certainly going to be at the later stage, probably several days after that, and I do not consider that standard condition 8.3.4 should be interpreted so that it means only the contractual date for completion, and not the date for completion as all parties agreed would be the case (ie some several days thereafter). It will be wholly realistic if standard condition 8.3.4 was to apply to a date that all parties by then were accepting would not be achieved. I do not consider the fact that 30 September should still remain the completion date for purposes of interest and notices to complete would alter this position.
32. I was referred to a very brief report of Spring v O’Flynn [1999] EGCS 79. The facts of that case were considerably different to those in issue here. There, before the contractual date for completion, the landlord had refused to consent to the assignment, and, in that case, the
33. Even if I were wrong as to this and there had not been sufficient consent on 27 September or 28 September, and if 30 September is the relevant date for the three days, then both Lakewood and Aubergine would have been entitled to rescind the contract. I consider that their actions (and, in particular, the actions of Aubergine) in the following days amounted to a waiver of their right to rescind or an affirmation of the contract. I have already set out the relevant facts. It is clear that between 27 September and 30 September, both parties did everything possible to show that they intended to complete the contract in accordance with the terms either on 30 September (which was, by then, highly unlikely) or a few days thereafter. I do not consider that Aubergine is entitled to act, both with regard to the landlords and with regard to Lakewood, as if the conveyance would take place, albeit on a date a few days subsequent to 30 September, and to seek extensions of time and to do everything to complete the documentation, but then, if it suited it, to turn round and purport to rescind the contract when, in fact, it was not in a position to complete the conveyance as it did not have the necessary finance. If there had been a right to rescind, such right would have to be exercised promptly and without affirming the contract: compare, for example Safehaven Investments Inc v Springbok Ltd (1996) 71 P&CR 59.
34. Although the landlords’ solicitors in a telephone conversation with Mrs Brandes on 29 September and in their letter of 30 September (sent after the close of business that day) appeared to qualify their consent, I do not consider that this was effective to remove the consent that it had previously given. There was no question of the fact of consent being withdrawn, but simply an insistence that the proper mechanisms be carried out before the written consent could be executed and delivered. These are not matters going to consent or qualifying the consent or withdrawing the consent, but matters going to documentation and the machinery of completion. The fact that the letter dated 30 September stated that it was “SUBJECT TO CONTRACT” does not amount to a revocation of the previous consent, but is merely a reference to the fact that it was accepted that a written document would have to be completed at some time, and an assurance that it would be completed provided the outstanding matters were dealt with. In this respect, I consider that the decision of the Court of Appeal in Mount Eden Land Ltd v Prudential Assurance Co Ltd (1997) 74 P&CR 377* shows the proper approach to such terms, and that once consent has been given in such circumstances making a subsequent letter “SUBJECT TO CONTRACT” does not remove the previous unequivocal consent. It was perfectly clear that no positive reason had ever been raised such as would justify withdrawing consent (other than matters within Aubergine’s control), and I have no doubt that if Aubergine had insisted upon an executed document and had done all that it had to do, such a document would have been forthcoming on 30 September (for the reasons set out above), or, in any event, before the then anticipated date when Aubergine would be in a position to complete. Any withdrawal of consent at that time would have been wholly unjustifiable, as all well knew, and would simply expose the landlords to an action by Lakewood for declarations and damages under section 1 of the Law of Property Act 1988, to which they would have no possible defence: see Norwich Union Life Insurance Society v Shopmoor Ltd [1999] 1 WLR 531† and Footwear Corporation Ltd v Amplight Properties Ltd [1999] 1 WLR 551‡. The landlords could have had no possible interest in the circumstances of this case exposing themselves to such a liability, which could have been great had the market turned. But as I find that consent had been given, it is not necessary to consider those cases and the application of the Law of Property Act 1988 in any detail.
* Editor’s note: Also reported at [1997] 1 EGLR 37
† Editor’s note: Also reported at [1998] 2 EGLR 167
‡ Editor’s note: Also reported at [1998] 2 EGLR 38
35. A further obstacle to the exercise of the right to rescind under standard condition 8.3.4 is that Aubergine was not entitled to exercise its rights if it were in breach of its obligations under condition 8.3.2(b); that is to say had not provided all information and references reasonably required. On 27 September Stephenson Harwood had asked Mrs Brandes to confirm “that the execution clause which has been provided in the Deed is sufficient under BVI law and is in accordance with the Company’s Constitution”. I have no doubt that that was information that the landlords reasonably required. That information was not forthcoming, and, indeed, has never been given. Accordingly, this is an additional reason why I consider that Aubergine was not entitled to rescind the contract under condition 8.3.4.
36. For all those reasons, it follows that I do not consider that Aubergine was entitled to rescind the contract under standard condition 8.3.4 on 1 October 1999 (by the letter dated 30 September 1999), and is not entitled to recover the deposit paid with interest. But I accept, as the defendant contends, that Aubergine is bound to pay the remaining part of the 10% deposit, plus interest. It is not disputed that Lakewood is entitled to those remedies, if Aubergine was not entitled to rescind (subject to the matters referred to below).
37. It was contended, although not very strongly, that there were reasons to order Lakewood to repay the deposit to Aubergine, but I can see no possible basis for such a contention. There is no doubt that there is jurisdiction so to do. I consider that the reasons given in Savehaven Investments Inc v Springbok Ltd for not ordering repayment are equally applicable here, in particular:
(i) this was a commercial agreement for commercial property by experienced businessmen with access to the best advice;
(ii) the taking of the deposit was in earnest for performance; Aubergine had no apparent assets and an action for damages would probably be useless;
(iii) the reason for the failure to complete was nothing to do with the absence of a licence to assign, but due either to a change of heart by Aubergine or an inability to raise the necessary finance;
(iv) Aubergine has not thought it worthwhile to produce the relevant documentation relating to why it decided not to carry on with the agreement, and, for the reasons set out above, it is clear to me that the absence of the licence to assign was merely an excuse, and that the real reason was something upon which I have had no evidence and seen no documentation;
(v) the vendor has suffered substantial damages as a result of what happened: it was not able to sell the premises for some time, and when it did so, it did so at a lower price;
(vi) the vendor, or its agents, have not acted in any way that could be considered inequitable or reprehensible.
38. It therefore follows that I dismiss the claim and make the orders contended for by Lakewood.
Application dismissed.
