Sale of land — National Conditions of Sale — Leasehold flat — Whether landlords’ consent to assign the leasehold ‘cannot be obtained’ — Whether vendors entitled to rescind — Leasehold term was not to be assigned without the landlords’ consent in writing, such consent not to be unreasonably withheld — Condition 11(5) of the National Conditions provided that if the reversioner’s licence cannot be obtained ‘the vendor may rescind the contract on the same terms as if the purchaser had persisted in an objection to the title which the vendor was unable to remove’ — Landlords and their agents took some time to consider the application for consent and questioned suitability of proposed guarantors who were non-residents in the UK in view of the fact that the company to which the flat was to be assigned was based outside mainland Britain — Vendors’ solicitors intimated that unless the licence to assign could be obtained before the contractual date for completion the vendors would rescind, and in fact they did purport to do so — Shortly afterwards two British-based guarantors were put forward who were subsequently found to be acceptable — Purchasers registered a caution, issued a writ for specific performance and sought summary judgment under Order 86 — Knox J held the notice of rescission valid and dismissed the application for summary judgment, holding that at the contractual date for completion the licence ‘cannot be obtained’, in the sense that it was not forthcoming — Held by Court of Appeal that the judge was wrong in concentrating on the contractual date for completion — Condition 11(5) required one to look at the date when the vendor has purported to exercise his right to rescind and it is a question of fact as to whether at that date it can fairly be said that the licence cannot be obtained — It was impossible to say so in this case, as by that date at long last guarantors had been put forward, a bank reference had been supplied satisfactorily, and the landlords’ agents had intimated that, if the guarantors were suitable, they would recommend the grant of the licence — Appeal allowed
The following
cases are referred to in this report.
Lipmans
Wallpaper Ltd v Mason & Houghton Ltd [1969]
1 Ch 20; [1968] 2 WLR 881; [1968] 1 All ER 1123; 19 P&CR 224
Jneid v Mirza CA; July 16 1981 (unreported)
Shires v Brock [1978] EGD 886; (1977) 247 EG 127, [1978] 2 EGLR 153
This was an
appeal by the purchasers, 29 Equities Ltd, from a decision of Knox J dismissing
their summons for summary judgment in their action for specific performance of
the agreement to purchase from the present respondents, Bank Leumi (UK) Ltd,
the leasehold premises known as Flat 47, 27/29 Abercorn Place, London NW8. Knox
J had also made an order on the bank’s motion vacating a caution lodged by the
present appellants at the Land Registry against the title.
T Etherton
(instructed by William Stockler & Co) appeared on behalf of the appellants;
Timothy Evans (instructed by Isadore Goldman & Son) represented the
respondents.
Giving
judgment, DILLON LJ said: This is an appeal against a decision of Knox J given
on March 11 1986. It raises a question as to the construction and effect of a
provision in the National Conditions of Sale (20th edition) where there is a
sale of leasehold property and the landlord’s consent to assignment is
necessary.
As to the
facts, the appellants (29 Equities Ltd) were the purchasers and the respondents
(Bank Leumi (UK) Ltd) were the vendors of the property in question, a leasehold
flat, Flat 47, 27/29 Abercorn Place, London NW8, held at a ground rent for a
term of 99 years from September 29 1970.
The only term
of that lease which I need mention is that it included the usual covenant that
the term should not be assigned without the landlord’s licence which was not to
be unreasonably withheld.
The contract
for sale by the respondents to the appellants was entered into on July 10 1985.
I should mention briefly certain points on the title to the flat because they
explain the provision in the contract as to the completion date and they
explain certain observations of the landlords later when the question of their
licence to assign had arisen.
The flat at
some time before March 1982 had become vested in a Mr Rozner. In March 1982 he
had assigned the lease to a company called Gallithorn Ltd, which he controlled.
That company had charged the lease to the respondents by an all moneys charge.
Some time later Gallithorn Ltd went into liquidation and, with the leave of the
court, in June 1984 the liquidator of Gallithorn Ltd disclaimed the lease.
Thereafter on August 6 1984 the term of the lease had been vested in the
respondent, the mortgagees, by an order of the Companies Court under the
Companies Act. That was a vesting order, and, in order that the title should be
accepted by the Land Registry, the title being registered, the stamp duty on
the vesting order had to be submitted for adjudication. Accordingly the
contract for the sale of the lease provided that the completion should take
place on the seventh day after receipt by the vendors’ solicitors of the
vesting order duly adjudicated. In point of fact, the vesting order was
received by the respondents’ solicitors duly adjudicated on Friday, November 22
1985, so that the contractual completion date became Friday, November 29 1985.
The contract
for sale incorporated the National Conditions of Sale with amendments, most of
which are immaterial. Under condition 5 of the National Conditions of Sale time
was not to be of the essence of the contract. As the property was leasehold,
condition 11 of the National Conditions of Sale applied. Subclause (1) of that
provides:
Where the
interest sold is leasehold for the residue of an existing term the following
provisions of this condition shall apply
Subclause (5)
of condition 11, which is the crucial provision in this case, provides:
The sale is
subject to the reversioner’s licence being obtained, where necessary. The
purchaser supplying such information and references, if any, as may reasonably
be required of him, the vendor will use his best endeavours to obtain such
licence and will pay the fee for the same. But if the licence cannot be
obtained, the vendor may rescind the contract on the same terms as if the
purchaser had persisted in an objection to the title which the vendor was
unable to remove.
The effect of
those last words is that if the contract is rescinded by the vendor under
condition 11(5), the vendor is to return the deposit without interest, costs of
investigating the title or other compensation or payment, and the purchaser is
to return the abstract and other papers furnished to him; in other words, the
matter is called off.
The vendor’s
right to rescind where the purchaser persists in an objection to the title
which the vendor is unable to remove is conferred by general condition 10 of
the National Conditions of Sale. Subclause (1) provides:
If the
purchaser shall persist in any objection to the title which the vendor shall be
unable or unwilling, on reasonable grounds, to remove, and shall not withdraw
the same within 10 working days of being required so to do, the vendor may,
subject to the purchaser’s rights under Law of Property Act 1925, sections 42
and 125, by notice in writing to the purchaser or his solicitor, and
notwithstanding any intermediate negotiation or litigation, rescind the
contract.
We were also
referred to the well-known condition 22 of the National Conditions of Sale.
That provides in the 22nd edition by subclauses (1) and (2):
At any time on
or after the completion date, either party, being ready and willing to fulfil
his own outstanding obligations under the contract, may (without prejudice to
any other right or remedy available to him) give to the other party or his
solicitor notice in writing requiring completion of the contract in conformity
with this condition.
(2) Upon service of such notice as aforesaid it
shall become and be a term of the contract, in respect of which time shall be
of the essence thereof, that the party to whom the notice is given shall
complete the contract within 16 working days after service of the notice
(exclusive of the day of service); but this condition shall operate without
prejudice to any right of either party to rescind the contract in the meantime.
In fact, by the
special conditions of this particular contract, ten working days were
substituted for 16 working days for the purposes of condition 22(2).
As to the
facts in relation to the grant of the landlords’ licence to assign, they are
set out with great care and in full detail in the judgment of Knox J, which is
reported* and I do not need to repeat them. It is sufficient for present
purposes to say that the appellants are a company incorporated in the Channel
Islands, and it seems that it is a company which at the time of the contract
had only fairly recently been established and which did not then have any bank
account in this country.
*Editor’s
note: [1986] 1 WLR 950; [1986] 2 All ER 873.
When the
contract had been entered into, the respondents’ solicitors on the following
day, July 11 1985, sent to the landlords’ managing agents, Keith Cardale
Groves, somewhat rudimentary references which had previously been supplied by
the appellants’ solicitors.
One of the
difficulties that arose in this case and arises in many cases where there is a
sale of leaseholds subject to landlords’ consent to assign is that neither the
vendor nor the purchaser has any real leverage on the landlords to give their
consent or even to act speedily in going through any necessary formalities.
What so often happens is that landlords take a very long time before giving
their minds to the matter. Surveyors or managing agents have other things to do
and are in no hurry. Ultimately the matter is passed to the landlords’
solicitors to prepare a formal deed of licence or consent, and rather a large
meal is made of it over a considerable period of time at the expense ultimately
of the vendor or purchaser of the leasehold interest.
In this case,
although the information, such as it was, had been promptly sent to the
landlords’ agents on July 11, they did not reply until August 28 1985. They
then wrote, saying that they understood that Mr Rozner was a director of 29
Equities Ltd, and they said that they had had difficulties before with Mr
Rozner and Gallithorn Ltd. So they were going to seek the landlords’
instructions as to their requirements.
That produced
ultimately on September 18 1985 a letter requiring, among other things, a
satisfactory bank reference, full details of the company (the appellants) and
two personal guarantors, both of whom should be British-based.
In the
circumstances, it has not been suggested that the landlords were unreasonable
in saying that they required British-based personal guarantors. The letter of
September 18 from Keith Cardale Groves ends up with the statement:
Once we have
received satisfactory replies to the above we will consider this matter further
and recommend to our client that consent to the proposed assignment be granted.
The bank
reference was supplied to the satisfaction of Keith Cardale Groves, and it was
pointed out that Mr Rozner was not, at any rate by that time, a director of the
appellants. The correspondence did not indicate whether he had any interest in
the appellants, but a letter was sent by a firm called Youngstein & Gould, who
we were told are international law consultants, naming two other persons, both
non-residents of the United Kingdom, as having been the only directors of the
appellants since June 1 1985.
That letter
was passed on to the landlords with the hope expressed by the appellants’
solicitors that it would deal with all the points raised by the landlords,
which it palpably did not. On October 29 1985 Keith Cardale Groves came back
with a restatement that their requirement was that there be two British-based
guarantors as the flat was being assigned to a company based outside mainland
Britain.
That letter
also said:
We would
confirm that as soon as we have received details of suitable guarantors we will
be in a position to recommend to our clients that licence be granted. The
matter will then be handed over to our clients’ solicitors, Messrs Pickering
Kenyon for their attention.
On November 21
1985 Keith Cardale Groves confirmed that a reference from the National
Westminster Bank was satisfactory.
They said
again:
We look
forward to receiving in due course details of the two guarantors who have been
appointed.
On Monday,
November 25 1985 the adjudicated stamped vesting order having by then been
received by the vendors’ solicitors, the vendors’ solicitors wrote intimating that
unless the licence to assign could be obtained by Friday, November 29 (by then
fixed as the contractual completion date), the vendors (the respondents)
proposed to rescind the contract in accordance with condition 11(5).
On November 28
(the Thursday) the appellants’ solicitors wrote putting forward the names of
two individuals in London as the proposed guarantors, and they stated that they
were obtaining a bank reference of each of them and would let the vendors’
solicitors have that. They also sent that to Keith Cardale Groves.
That,
therefore, was the state of play on November 29 1985. On Monday, December 2 the
vendors’ solicitors, in purported exercise of the power under condition 11(5)
of the National Conditions of Sale, purported to rescind the contract because
the landlords’ consent had not been obtained. In fact, shortly thereafter two
different individual guarantors were suggested by the appellants’ solicitors
and they and their references were accepted by Keith Cardale Groves on January
22 1986. So far as the landlords were concerned, the matter would then have
gone to their solicitors for the preparation of the formal licence to assign,
but it did not because the respondents were maintaining, as they have
maintained ever since, that the contract had been validly rescinded by the
notice of December 2 1985 under condition 11(5).
In
consequence, a caution was registered against the title by the appellants as
purchasers on December 10 1985 and they issued the writ in this action claiming
specific performance of the contract on January 14 1986. They followed that up
by a summons for summary judgment under Order 86 on the footing that there is
no defence to the action. The respondents countered with a motion to vacate the
caution, which is merely the other side of the coin. By sensible co-operation
between the parties, both came on for effective hearing before Knox J on March
7 1986 and he delivered judgment on March 11. He held that the notice of
rescission was valid. He accordingly dismissed the appellants’ summons for
summary judgment under Order 86 and granted the respondents an order vacating
the caution. That, by orders which I need not mention, has been stayed pending
the hearing of this appeal in which we have to consider the validity of the
judge’s conclusions in the circumstances of this case.
The judge was
persuaded by the arguments that were put to him, and I perhaps ought to mention
that Mr Etherton who has appeared for the appellants in this court did not
appear before Knox J. On the arguments put to him, the judge held that the
question which he had to consider was whether the vendors’ right to rescind
under condition 11(5) arose at the contractual date for completion or whether
it arose only at whatever later date was the one when the purchaser was
entitled to treat the contract as at an end, time not being of the essence, or,
alternatively, at the date when specific performance was no longer available.
When the judge said ‘arose’ he may have meant ‘fell to be considered’. He went
on from there to consider whether the vendor would have been entitled, where
landlords’ consent to assignment had not been obtained, to serve a notice to
complete under condition 22, and inclined to the view that the vendor was in no
safe position to do so; he had not yet obtained the landlords’ licence to
assign. He then considered the words of condition 11(5) and said that ‘cannot
be obtained’ does not mean ‘cannot ever be obtained’. He commented that various
other forms of tense or mood
obtained’ was equivalent to ‘is not forthcoming’. Looking at the matter, as he
held he ought to, at the contractual date for completion, November 29 1985, he
considered that as the landlords’ licence to assign was not then forthcoming,
the vendor’s right to rescind under condition 11(5) was exercisable and so was
validly exercised on December 2.
The trouble I
feel about that, with respect to the learned judge, is that it involves a drastic
rewriting of the condition and a concentration on a contractual date for
completion which is not mentioned in the clause at all. Under condition 10 the
vendor is given a right to rescind if certain events have happened:
If the
purchaser shall persist in any objection to the title which the vendor shall be
unable or unwilling, on reasonable grounds, to remove, and does not withdraw
[it within a specified period] of being required so to do.
If that
happens, the vendor has a right to rescind whether before or after the
contractual date for completion. Under condition 11 the vendor is given a right
to rescind if the licence cannot be obtained. It seems to me that the natural
construction of that clause requires one to look at the date when the vendor has
purported to exercise his right to rescind. The court has to consider whether
at that date it can fairly be said as a question of fact that the licence
cannot be obtained.
As Goff J
pointed out in Lipmans Wallpaper Ltd v Mason & Houghton Ltd [1969]
1 Ch 20, the vendor could not escape under the clause by rescinding on the
ground that consent was not obtainable without first using the vendor’s best
endeavours to get it; but that is not in question here. As Goff J equally
pointed out, if the facts are that there has been a categorical refusal of
consent by the landlord, then it is not incumbent on the vendor to make further
or yet further attempts to persuade the landlord to change his mind or to give
the purchaser an opportunity of trying his powers of persuasion on the landlord
or taking various other steps which hypothetically might equally well, or might
not, have any effect in persuading the landlord to change his mind. But the
question is a simple question of fact to be decided in the light of common sense.
In the present
case there is no doubt at all that it is impossible to say at December 2 1982
that ‘the licence cannot be obtained’ unless you put the complete gloss on
those words that the judge did and ask yourself instead whether it was
forthcoming by November 29. It is impossible to say on the facts that ‘it
cannot be obtained,’ because at long last the appellants’ solicitors had put
forward the names of guarantors in response to the landlords’ requirements, the
bank reference had been supplied satisfactorily, and the landlords’ agents had
several times intimated that if the guarantors put forward were satisfactory
they would recommend that the licence to assign should be granted by the
landlords.
On the facts
of this case, therefore, I have no doubt that the vendors (the respondents)
were not in a position to serve their condition 11(5) notice when they served
it. The notice was thus ineffective to bring the contract to an end.
The judge
sought to produce a result which is in harmony with the vendors’ position under
condition 22, and he was frightened of a position that the vendor might be
locked in where the landlords’ consent was required for completion but, through
no fault of the vendors, was not forthcoming. We have been referred to certain
unreported decisions of this court in which there is comment on this position.
In the case of Jneid v Mirza (decided on July 16 1981) Fox LJ, in
giving the leading judgment in this court, said that
if the
vendors — on whom there was the obligation to provide licences to assign — were
never in a position before, during or upon the expiration of the notice to
complete to produce the licences at any time, then the vendors were quite
plainly never ready at any material time to fulfil their obligations under this
contract . . .
In Shires v
Brock (decided on April 5 1977 and reported only in the Estates
Gazette Digest)* Goff LJ said at p 892 that it was misconceived for
vendors’ solicitors to give a notice pursuant to condition 22 of the National
Conditions of Sale at a time when the vendors, not having been able to get the
reversioner’s licence to assign, were not in a position to perform their part
of the contract. However, I do not find it necessary to consider what the
position would have been in this case under condition 22 because the vendors
never gave a notice under condition 22.
*Editor’s
note: See also (1977) 247 EG 127, [1978] 2 EGLR 153.
For my part, I
would allow this appeal and set aside the order of Knox J. I would dismiss the
respondents’ motion to vacate the caution and, subject to any further
submissions that may be made, on the plaintiffs’ summons under Order 86 I would
make an order for specific performance.
CROOM-JOHNSON
LJ agreed and did not add anything.
Agreeing,
BALCOMBE LJ said: I, too, would wish to reserve for another occasion, should
the point arise, whether vendors in the position of these vendors, who might
be, so it is said, locked into the contract — where the landlords are not
refusing to grant their licence but are being dilatory in granting it — are
able to serve a notice under condition 22 notwithstanding the remarks of Goff
LJ in Shires v Brock and Fox LJ in Jneid v Mirza.
The appeal
was allowed with costs in the Court of Appeal and below, the form of the
court’s order to be agreed.
