Shop — Underlease — Agreement to assign — Assignment contingent on consent of landlord — Whether agreement void for lack of writing — Whether constructive trust arising — Claim allowed — Part 20 claims dismissed
The claimant held the reversion of an underlease of a shop (the lease). The second and third defendant tenants sold their dry-cleaning business to the first defendant and assigned the unexpired residue of the lease to him with the consent of the claimant.
The first defendant later abandoned the shop and returned the keys to the second and third defendants, who began to negotiate the sale of the business and assignment of the lease to the fourth defendant.The claimant brought proceedings concerning the lease, in which the only surviving claim was under section 17 of the Landlord and Tenant (Covenants) Act 1995 for the fixed charges (rent and service charge) that fell due in 2003. The only defence to the claim was that the claimant had accepted a surrender of the original lease by creating a periodic tenancy with the fourth defendant.
The second and third defendants also made a Part 20 claim against the fourth defendant, alleging that he had entered into an agreement with them to take over the lease together with all covenants contained therein. The fourth defendant expressed his continued willingness to take an assignment, but made a Part 20 claim of his own alleging misrepresentation and breach of contract on the ground that, inter alia, the second and third defendants were unable to assign the lease lawfully.
Questions arose as to whether the agreement between the second, third and fourth defendants was void because its terms were not in writing, as required by section 2 of the Law of Property (Miscellaneous Provisions) Act 1989, and, if so, whether a constructive trust had arisen so as to save the Part 20 claims.
Held: The claim was allowed and the Part 20 claims were dismissed.
The claim under section 17 succeeded, since, on the facts, the first defendant’s return of the keys was not a surrender of the lease by operation of law, and there was no evidence of any intention to create legal relations between the claimant and the fourth defendant: Mattey Securities v Ervin [1998] 2 EGLR 66 applied.
As regards the Part 20 claims, the contract was a package: the promise to assign the lease was subject to the landlord’s consent and to the fourth defendant paying the stipulated price, which, in turn, obliged the second and third defendants to sell to him the equipment and machinery for the business. A contract for the sale or other disposition of an interest in land could be made only in writing by incorporating all the agreed terms. On the facts, all the essential terms had not been set out in writing. The application of section 2 was not excluded simply because some other step had to be taken or condition fulfilled prior to the interest being transferred: Singh v Beggs (1995) 71 P&CR 120 applied.
Furthermore, no constructive trust had arisen. If the facts supported the existence of a constructive trust, the court would not be prevented by a lack of writing from giving effect to it. However, the conditions entitling the beneficiary to require the transfer of the beneficial interest, that is, the assignment of the lease, had be fulfilled. In the present case, the required consent to the assignment by the claimant had not been given. Thus, the second and third defendants had neither the power nor the obligation to assign the lease: Yaxley v Gotts [1999] EGLR 181 considered.
James Hanham (instructed by Forsters) appeared for the claimant; Marie-Claire Bleasdale (instructed by Whiskers, of Harlow) appeared for the second and third defendants; Duncan Kynoch (instructed by Turbervilles with Nelson Cuff) appeared for the fourth defendant; the first defendant did not appear and was not represented.
Eileen O’Grady, barrister
