Property — Freehold and leasehold premises — Sale by auction — Property sold subject to lessor’s covenant — Title defect — Whether vendor imposing covenants on purchasers of adjoining properties — Appeal dismissed
The respondent property developer owned a parade of shops. Seven lots were marketed for sale by public auction, including the appeal site (the property), which comprised both freehold and leasehold premises. Part of the property was bound by a 1939 lease, which contained a covenant that specified that the lessor would not, during the term of the lease, sell or let other shops in the parade to any person, corporation or firm whose primary business was that of a fixed-price store.
The first appellant was the successful bidder for the property. Following the auction, his finance provider asked the respondent to confirm that, in respect of each lot, a covenant not to let the properties for purposes that would breach the original covenant would be imposed on the buyers as required by the 1939 lease. The first appellant highlighted that the auction conditions imposed on the other lots did not refer to the covenant and admitted that the relevant covenant had not been inserted into any of the other agreements.
The bank refused to finance the purchase. It took the view that while the present lessee remained as tenant, should a fixed-price store commence trading from any of the other properties in the parade, there would be an unquantifiable risk to the purchaser of a claim for damages from the lessee. The appellants argued that the respondent had acted in breach of its duties as trustee by failing to protect the purchaser by ensuring that the relevant covenant had been inserted in relation to the other lots in the auction; thus, the respondent was not entitled to enforce the contract of sale.
The appellants refused to complete the sale at the original price, but were willing to complete at the abated price of £800,000. The respondent then obtained summary judgment for specific performance of the original agreement on the basis that there was no breach of the respondent’s duty as trustee to the purchaser. The appellants appealed.
Held: The appeal was dismissed.
As a matter of law, the duty of a vendor did not extend to a duty to impose covenants on purchasers of adjoining properties where that duty was not imposed by the contract of sale.
After contract, and until completion, the vendor became, in equity, a trustee for the purchaser, but it was not arguable that, in the absence of an agreement to the contrary, the respondent had had a duty to require the purchasers of the lots sold after the property to comply with the covenant in the 1939 lease: Lysaght v Edwards (1876) 2 Ch 499 considered.
Equity imposed duties on the vendor to (i) protect, pending completion, the interest that the purchaser had acquired under the contract; and (ii) give good title. The preservation might be in a physical sense, requiring a vendor to keep property in a proper state of cultivation, or, for example, to prevent trespassers from removing soil or damaging floors: Egmont v Smith (1877) 6 Ch D 469, Clarke v Ramuz [1891] 2 QB 456 and Davron Estates Ltd v Turnshire Ltd (1982) 133 NLJ 937 referred to.
This was a case of a lessor’s covenant, and not a case where the actions of the vendor could have led to forfeiture of the interest that was the subject matter of the sale.
Mark Warwick (instructed by Jeffrey Green Russell) appeared for the appellants; David Hodge QC (instructed by Russell-Cooke) appeared for the respondent.
Eileen O’Grady, barrister
