Proprietary estoppel – Lease renewal – Agreement subject to contract for tenant to extend shop into adjacent parts of building and landlord to grant new tenancy of extended premises – Tenant permitted to carry out works prior to final execution of agreement – Appellant acquiring premises and declining to grant new tenancy on agreed terms – Held that obliged by proprietary estoppel to do so – Whether tenant entitled to new tenancy on agreed terms or confined to rights under Part II of Landlord and Tenant Act 1954 – Appeal allowed
The first respondent was the tenant of a property let by the respondent local authority, originally for a term of 15 years from 1983. The first respondent’s husband ran a convenience store from the premises. Although the contractual term had expired in 1998, the tenancy continued under Part II of the Landlord and Tenant Act 1954.
Prior to the expiry of the contractual term, the husband had, with a view to expanding his business, obtained planning permission to extend the premises into adjacent parts of the building, with the support of the second respondents. Notices and counternotices were served under the 1954 Act regarding the grant of a new tenancy and an application was made for that purpose. An agreement in principle was reached and recorded in November 2001, expressly subject to contract, under which the husband was to carry out the extension works at his own expense and the second respondents were to grant a new tenancy of the extended premises for a term of 60 years at an initial rent of £5,570, reviewable every five years but only to 15% of the open market rental or the previous rent if higher. However, the documentation was not finalised.
Meanwhile, the husband was allowed to enter onto the relevant premises and to carry out the contemplated works, after which, in 2003, he began trading from the extended shop.
In December 2005, the second respondent local authority transferred the property and others to the appellant registered social landlord. The appellant indicated that it was not prepared to grant a new lease to the first respondent on the terms that had been agreed with the second respondents. It proposed to grant a new tenancy of the extended premises for 15 years, this being the maximum possible under the 1954 Act, at a rent of £36,000 pa.
The first respondent brought proceedings in which she claimed to be entitled, on the ground of proprietary estoppel, to a new tenancy on the terms agreed with the second respondents. That claim was allowed; the judge found that the second respondents had waived the “subject to contract” status of the agreement and had represented unequivocally that they would grant the lease following completion of the works. The appellant appealed.
Held: The appeal was allowed.
Although the second respondents had allowed the first respondent’s husband to access relevant parts of the building in order to commence the works, and had waived the pre-condition that the agreement be signed and exchanged first, that did not mean that they had dispensed with the need for the documents to be executed. The correspondence showed that the second respondents did require the documents to be finalised and signed. All that could be inferred was the grant of a temporary licence, implied from their conduct, to start the works. They had not, by the same conduct, waived the “subject to contract” status of the negotiations or the requirement that the documents should be signed and exchanged once they their final form had been agreed. If negotiations were proceeding on an explicitly “subject to contract” basis, one party alone could not convert them from that status to being a binding agreement where the formal documents contemplated had not yet been signed and exchanged. Since that process required agreement, it had to be bilateral, and not unilateral. Further, nothing in the dealings between the parties suggested that the first respondent’s husband himself believed that it was no longer necessary for the documents to be agreed and signed. Nothing had happened to change the status of the negotiations from being subject to contract, as they were in late 2001, to no longer being subject to contract, in such a way that either party could not withdraw before the documents required to give the transaction legal effect were executed.
Although it was unfortunate that the position regarding the carrying out of the extension works had not been regularised by an exchange of correspondence, it must have been clear that, although both parties had intended to proceed and might well have hoped and expected that the other party would also proceed, for the time being each side was acting at its own risk. The second respondents had done nothing that could amount to an unequivocal representation either that they would not require the intended formal legal documents to be finalised and executed or that they would in no circumstances withdraw before that stage. The basic requirements for a proprietary estoppel had not been made out and it was not unconscionable for the second respondents to rely on their strict legal rights. The first respondent was entitled to her statutory rights to a renewal tenancy in respect of the extended premises but no more: Attorney-General of Hong Kong v Humphreys Estate (Queen’s Gardens) Ltd [1987] 1 AC 114 applied.
Martin Rodger QC (instructed by Bircham Dyson Bell LLP) appeared for the appellant; Sarah Asplin QC and Oliver Hilton (instructed by Archer Fields) appeared for the first respondent; Michelle Stevens-Hoare (instructed by the legal department of Tower Hamlets London Borough Council) appeared for the second respondents.
Sally Dobson, barrister
