Sale of development site – Agreement for leaseback of ground-floor commercial space in completed development – First claimant vendor assigning benefit of agreement to second claimant – Standard conditions of sale – Whether possible to assign benefit of contract for grant of leases – Whether first claimant repudiating agreement by erroneously purporting to assign obligations thereunder – Whether obligation to grant leases binding on second defendant as non-party – Claim allowed
By an agreement dated March 2005, the first claimant agreed to sell a development site to the first defendant for the construction of a tower containing ground-floor commercial space and 298 flats above. The defendant agreed to pay £12.745m for the site and to grant long leases of the commercial space either to the first claimant or to such party as the first claimant might direct. The agreement incorporated the standard conditions of sale (4th ed), so far as they were not inconsistent with the agreed terms. The first defendant subsequently transferred the site into the joint names of himself and his brother, the second defendant. Meanwhile, the first claimant executed a deed purporting to assign the benefit of the agreement to the second claimant, along with all the obligations and liabilities thereunder. A unilateral notice was entered on the register in respect that deed.
The claimants brought proceedings against the defendants, seeking declarations that, on or before the completion of the development, the defendants were obliged to grant the leases to the second claimant. The defendants contended that: (i) by clauses 1.5, 8.2.1 and 8.2.2 of the standard conditions, the first claimant was not entitled to transfer the benefit of the agreement; (ii) since the transfer of obligations under the contract could not be achieved by the act of assignment by the party who owed those obligations, the first claimant’s purported assignment of them was a repudiation of the agreement, which the defendants had accepted so as to bring the contract to an end; and (iii) the second defendant was not bound by any obligation to grant the leases since he was not a party to the agreement.
Held: The claim was allowed.
(1) The agreement was both a contract to sell the site and a contract to grant new leases. On a correct application of clauses 1.5, 8.2.1 and 8.2.2 of the standard conditions, the prohibition against transferring the benefit of the contract applied to the “buyer” in its capacity of “proposed tenant” under the contract to grant a new lease, such that the prohibition applied only to that contract and not to the entire agreement. It did not affect the first claimant’s right to assign the benefit of the agreement so far as it comprised the contract to sell the site or its right to require the leases to be granted to a party other than itself and to exercise that right in whatever way the second claimant wished.
(2) The first claimant’s conduct did not amount to a rejection of the agreement and its obligations such as to give rise to a repudiation. The first claimant had not shown any intention not to be bound. Its position was that the agreement continued but that, following the assignment, the obligations under it lay with the second claimant. That position was based on an honest but wrong understanding of what the agreement allowed. It had not led the defendants reasonably to infer that the first claimant would refuse to perform its obligations in the event that the validity of the attempt to transfer obligations were successfully challenged. The defendants had fully realised that, in that event, the first claimant would accept that it was bound by the agreement and that it continued to be under the obligations thereby imposed: Woodar Investment Development Ltd v Wimpey Construction (UK) Ltd [1980] 1 WLR 277 applied.
(3) Section 28 of the Land Registration Act 2002 provided that a disposition of a registered estate did not affect any interest in respect of that estate save as provided by sections 29 and 30. The contract to grant the leases was an interest affecting the estate within section 28 that was capable of supporting the entry of a notice on the register. It was unaffected by the disposition of the freehold since the latter had not been made for valuable consideration within the meaning of section 29(1). Moreover, the change in the names in which the site was held had not resulted in any change in its beneficial ownership. As a matter of construction of the agreement, the parties had expressly contemplated that the construction of the development and its commercial element might be undertaken by the first defendant or by his successor in title, and that either might grant the leases. There was no reason why both defendants should not both be held to the agreement n relating to the grant of leases of the ground-floor commercial space.
Mark Warwick (instructed by Philip Ross & Co) appeared for the claimants; David Mayall (instructed by Merriman White Solicitors) appeared for the defendants.
Sally Dobson, barrister
