Landlord and tenant–Question as to the date of commencement of lease, being the date when rent began to be payable–Difficulties caused by the fact that both the lease and the counterpart were delivered in escrow–Subsequently both became unconditional when an outstanding term under which the counterpart had been delivered was satisfied–Whether escrow takes effect from the date when it becomes unconditional or, by relation back, from the date of its original execution–Authorities reviewed and a number of ancient authorities in favour of the latter view rejected–An instrument delivered as an escrow takes effect from the satisfaction of the relevant condition and not from original date of delivery as an escrow–Plaintiffs’ claim based on earlier date dismissed.
In this action
the plaintiffs, Alan Estates Ltd, sought a declaration that a lease of premises
at 32 Goldhawk Road, London W12, granted by the plaintiffs to the first
defendants, W G Stores Ltd, commenced on November 1 1976, when a counterpart
was sent by the defendants’ solicitors as an escrow to the plaintiffs’
solicitors. The second defendant, Derek Desmond Solomons, who was named as the
lessee in the original draft lease, was subsquently described as a surety,
although the lease contained no covenant by him of guarantee or otherwise. The
date when the delivery of the lease and the counterpart became unconditional
was November 18 1977. The plaintiffs in these proceedings also asked for an
order for payment of arrears of rent and the apportionment of an insurance
premium, based on the commencement date of the lease being November 1 1976.
J B W
McDonnell (instructed by Martin Boston & Co) appeared for the plaintiffs; L
F R Cohen (instructed by Paul Woolf & Co) for the defendants.
Giving
judgment, JUDGE RUBIN said: By this originating summons the plaintiffs are
seeking a declaration that the lease mentioned in its title commenced on
November 1 1976 and an order for payment of arrears of rent and an apportioned
part of the insurance premium which would be due upon the basis of that
commencement date.
The history of
this ill-fated matter starts in the early autumn of 1976 when Mr Solomons, the
second defendant, was negotiating with the plaintiff company for the grant of a
lease of 32 Goldhawk Road, London W12. No contract was entered into, but a time
arrived when a draft lease was prepared. Mr Solomons then decided that he did
not want to take the lease in his own name but in the name of the first
defendant. Accordingly, the drafts were amended and the first defendant became
tenant under the lease and Mr Solomons was joined as the party of the third
part. Although he is there described as the surety, nowhere in the lease did he
enter into any covenant and accordingly there seems to have been no purpose in
joining him as a party.
The lease and
counterpart were duly engrossed and were sealed respectively by the plaintiff
company and the first defendant. There is no evidence before me which
establishes the dates of either of these sealings, other than each must have
occurred on or before November 1 1976.
In September
1976 the defendants had been allowed to have a key of the premises on payment
of a quarter’s rent by way
statement to the defendants’ solicitors. This statement is difficult to
understand. It credits the defendants with the deposit of £937.50. It then
debits rent £3,250 per annum, being 59 days to September 29 amounting to £525.
Counsel for the plaintiffs says that such description of the debit must be
wrong and suggests it should read ‘from October 27’ instead of ‘to September
29.’ He bases that submission on the
calculation that October 27 is 59 days before the quarter. Even if that is so,
I fail to understand the relevance of October 27, as no one now suggests that
the rent runs from that date.
On November 1
1976 Paul Woolf & Co, the defendants’ solicitors, sent the counterpart of
the lease sealed by both the defendants to the plaintiffs’ solicitors together
with a cheque for the balance of £4.54 shown on the completion statement I have
just mentioned. In the letter which accompanied the counterpart the plaintiffs’
solicitors were asked to hold the counterpart to the order of the defendants’ solicitors
pending clarification of certain points. I need not deal with those points in
any detail because in an action between the same parties Whitford J, on
November 15 1977, declared that the counterpart had been delivered as an escrow
upon terms, one of which remained unsatisfied at the date of that judgment. It
is common ground between the parties that the final term was satisfied on
November 18 1977, when the delivery of the counterpart became unconditional.
Also on
November 1 1976, but after receipt of the counterpart, the plaintiffs’
solicitors sent the lease sealed by the plaintiffs to Paul Woolf & Co. From
the letter which accompanied the lease, the plaintiffs’ solicitors show that
their view was that the lease and counterpart had become unconditional, since
they asked the question whether the lease could be dated November 1 1976.
It is not
established on the evidence before me precisely when the defendant company went
into possession of the premises, but in my judgment I do not have to determine that
date. The argument before me has been whether the rent should be treated as
running from November 1 1976, the date of the physical exchange of the
counterpart and the lease, or November 18 1977, the date upon which the final
condition of the escrow was satisfied.
On November 9
1976 Paul Woolf & Co informed the plaintiffs’ solicitors that the
defendants had decided to withdraw from the matter and required repayment of
the deposit. This act by the defendants was described in the first action as a
repudiation. On November 11 1976 the plaintiffs issued the writ in the first
action, claiming a declaration that the lease and counterpart had taken effect
according to their terms, with an alternative claim for an inquiry whether the
counterpart had been delivered as an escrow and, if so, upon what conditions it
was delivered, and whether and upon what date or dates the conditions had been
satisfied. Whitford J delivered his judgment in that action on November 15
1977, holding that the counterpart had been delivered as an escrow and that one
of the conditions remained outstanding. The order entered as a result of that
judgment contained a declaration that upon the plaintiffs on or before November
18 1977 producing to the defendants a certified copy of the transfer of
mortgage from Northern Commercial Trust Ltd to Knowsley & Co Ltd the
conditions attached to the delivery in the escrow of the counterpart lease and
statement of claim mentioned are complete.
At the
conclusion of Whitford J’s judgment Mr Picarda, who was appearing for the
plaintiffs, attempted to raise the question of arrears of rent. The judge had
been critical of the pleadings in the first action and summarily disposed of
the question saying, ‘There is nothing about this in the pleadings in this connection
at all.’ The question is now before me
on the present originating summons.
The only parts
of the lease and counterpart, which fortunately are in identical terms, to
which I need refer are the habendum, which reads: ‘To hold the demised premises
unto the tenant for a term of 24 years from the 29th day of September 1976,
determinable as hereinafter provided, paying therefor unto the landlords from
the date thereof and throughout the said term hereby granted yearly and
proportionately for any fraction of the year the several rents hereinafter
referred to.’ Also I must refer to the
covenant contained in clause 2(1), which reads: ‘To pay the respective yearly
rents hereinbefore reserved and made payable at the times and in the manner at
and in which the same are hereinbefore reserved and made payable without any
deduction.’
Mr McDonnell,
for the plaintiffs, argued that as a matter of construction of the lease I
should reach a conclusion that the rent was reserved from a date not later than
November 1 1976. I accept that rent does not have to run from the date of the
lease and can, if its terms so provide, run from a date prior to its execution.
Authority for this proposition is to be found in the recent judgment of the
Vice-Chancellor in Bradshaw v Pawley, which is reported in [1980]
1 WLR 10. However, the terms of the present lease seem to be perfectly clear,
that is to say, ‘from the date hereof’; and the question to be decided is not
so much a question of construction but of ascertainment of the date of the
lease.
Mr McDonnell
argued that the completion statement is a document from which it can be deduced
that the parties intended the rent to run from October 27. Even if that were
right, I fail to see how it assists the plaintiffs. There is no claim for rectification
in the present action, and as no such claim was raised either in this action or
in the former action, in my judgment it is now too late, quite apart from the
added difficulty that the plaintiffs have now parted with the reversion and the
present reversioner is not a party to the present proceedings.
The plaintiffs
argued that notwithstanding the prior delivery of the counterpart as an escrow,
the subsequent physical delivery of the lease to the defendants’ solicitors was
unconditional and took effect at once. Mr McDonnell attempted to avoid the
impossible situation which would arise if the condition upon which the
counterpart had been delivered as an escrow was never satisfied by arguing
either that the tenant would be bound by the covenants in the lease because he
had entered into possession, or the term which had come into being would become
divested. I am unable to accept that argument.
Beesly v Hallwood Estates Ltd [1961] Ch 105 is authority for the
proposition that when a company affixes its seal to a deed that is execution of
the deed by the company and no further delivery is required. It is not,
however, any authority for the proposition that the execution is necessarily
absolute and can well be as an escrow. Indeed, it clearly appeared from the
judgment of Harman LJ at p 116 that the grantor company executed its deed
conditionally upon the due execution and delivery by the grantee of the
counterpart. At p 118 Harman LJ summarised the effect of the delivery of the
deed as an escrow in these words:
. . . if you
do deliver a document as an escrow it is your act and deed and is not
recallable by you. If, of course, the condition be never performed, it never
becomes binding, and I suppose there must come a time, if there be unreasonable
delay in the performance of the condition, when, in these days at any rate
where equitable principles govern the actions of the court, the person or firm
that has executed the escrow would be released from its obligation. . . . In my
opinion, however, where it is the common intention of the parties as, indeed,
is almost universal in these days to proceed by means of lease and counterpart,
it is readily to be inferred that delivery of the counterpart is a condition of
the escrow.
One can see a
like inference being drawn by Sir John Pennycuick in delivering the judgment of
the Court of Appeal in Glessing v Green [1975] 1 WLR 863 where at
p 867 he said:
The manifest
intention of the vendor in such circumstances is that conveyance shall not be
operative in advance of completion, and, apart from special circumstances, the
inference is inescapable that the conveyance is executed as an escrow
conditional upon completion, ie against payment of the purchase price and where
appropriate execution by the purchaser.
So here it
seems to me that the lease must be regarded as having been executed by the
plaintiff in escrow, the condition being the unconditional delivery by the
tenant and the surety of a counterpart. As the counterpart delivered by the
defendant was itself delivered as an escrow, both lease and counterpart remain
conditional until the outstanding term under which the counterpart had been
delivered was satisfied on November 18 1977.
On the basis
that the delivery of the lease became unconditional on November 18 1977, in
order that I can answer the question ‘What is the date thereof?’ I must determine whether an escrow takes
effect when it becomes unconditional, or ought to be treated as having taken
effect on the date of its original execution.
In support of
his argument that an escrow should be treated as having taken effect on its
first delivery, Mr McDonnell relied upon a decision of Gorell Barnes J in Edmunds
v Edmunds [1904] p 362. Undoubtedly the learned judge decided that the
proper date was the date of first execution and not of the satisfaction of the
term. Unfortunately, he deals with the point very shortly at p 334 by reference
to a passage in Williams on the Law of Real Property, 1901 ed at p 151,
which shortly states that an escrow operates from the date of its execution. In
support of the proposition there are a number of authorities contained in a
footnote. Mr McDonnell has referred me to some of those cases, but for my part
I have considerable doubt whether they provide much support. The first case was
Coare v Giblett (1803) 4 East 85. The relevant passage from the
judgment of Lord Ellenborough appears on p 95, where he says:
The principle
is that an inchoate act, which is to be consummated upon the performance of a
conditional act required to be first done by the party who was the object of
such inchoate act, and where the performance rests only with such party,
becomes, when consummate by the performance of his part of such conditional
act, an effectual act for the benefit of the inchoate actor by relation from
the time of such inchoate act done.
The problem with
that case, as Lord Ellenborough pointed out a little earlier in his judgment,
is that he was not dealing with an escrow at all, as there had been an actual
delivery to a party, and, as the law was then understood, such delivery was
unconditional.
The next case
was Graham v Graham (1791) 1 Ves Jun 272. At the end of p 274
Eyre LCB, after saying that the bonds must be considered as escrows, said: ‘. .
. and then that they take effect from their original sealing and
delivery.’ The word ‘from’ in that context
can, I think, have two meanings: that is, ‘from the date of’ or ‘by reason of,’
and for my part I think the latter is to be preferred.
Finally, Mr
McDonnell referred to Perryman’s Case (1599) 5 Co Rep 84a. In
that case the words used were ‘takes effect by force of the first delivery
without any new delivery.’
Mr Cohen, for
the defendants, preferred to rely upon more modern authority and in particular
upon the decision of Walton J in Terrapin International Ltd v Inland
Revenue Commissioners, which is reported in [1976] 1 WLR 665. It is right
that I should bear in mind that none of the cases I have already mentioned
appear to have been cited, and also the case involved a question of stamp duty.
However, it seems to me that the decision is based upon principles generally
referable to escrows. At p 669 in his judgment Walton J said this:
In my
judgment, it is essential to go back to first principles. There are,
unfortunately, a large number of dicta to be found in the books which are
clearly not consistent with first principles, including one notable one by Lord
Reid in Wm Cory & Son Ltd v Inland Revenue Commissioners
[1965] AC 1088 at p 1108 . . .
–and then the
reference reads in this form:
. . . ‘Then
Lord Denning instanced an executed conveyance delivered in escrow. In my
understanding there would then be nothing binding: both parties would have a locus
poenitentiae. So long as that position continued I do not see that there
would be any obligation to stamp the instrument.’ That is, quite clearly, a total misunderstanding
of the doctrine of an escrow. The true position, in my judgment, is accurately
stated in Prestons Abstracts, 2nd ed vol III (1824) p 65, where that
work of authority states the law as follows: ‘The rules respecting escrows are,
first, the writing will not operate as a deed till the second delivery.
Secondly, the party deputed to make the second delivery cannot give effect to
the writing by delivering the same before the conditions are performed.
Thirdly, on the second delivery of the writing, it will have relation, for the
purpose of title, and not for the purpose of giving a right to immediate rents,
etc from the delivery. Fourthly, so as the conditions be performed, and the
deed delivered a second time, the deed will be good, notwithstanding the death
of both or either of the parties before the second delivery.’
Walton J then
made a reference to Halsbury’s Laws of England, which I need not repeat,
and he went on to say:
I think that
there can really be no dispute as to the law. A document which is intended to
take effect as a deed when certain conditions have been fulfilled may be
executed as an escrow: that is to say, with all the formalities of a deed save
that the vital unconditional delivery, which is essential for the proper
execution of a true deed, is missing; it is replaced by a conditional delivery,
usually express, but capable of being assumed. At this stage, the document is
not a deed; and although of course it contains within itself the possibility of
becoming an effective deed, a deed rising phoenix-like from the ashes of the
escrow, at the stage before the condition is fulfilled it is of no effect
whatsoever. Thus, even in a case where a condition is subsequently fulfilled,
the grantee of land under an escrow would never be entitled to the intermediate
rents: see, for example, Thompson v McCullough [1947] KB 447.
When the condition is fulfilled, under the old strict practice there would
undoubtedly have been, for the first time, an unconditional delivery of the
instrument, which would then become, again for the first time, a deed effecting
the purpose therein stated. The theory of the old law was that an escrow had to
be delivered to a third party–not to the person intended to take thereunder
because, if so, he took immediately under the deed–and on the fulfilment of the
condition, the third party would deliver it to the person intended to take
thereunder. Indeed, so obvious was this that mere possession of the escrow by
such party was taken to be prima facie evidence of the fulfilment of the
condition.
This seems to
me to be the clearest possible authority, which I ought to follow, that a deed,
delivered as an escrow, takes effect from the satisfaction of the condition and
not from the date of its delivery as an escrow. Applied to the present case, in
my judgment both lease and counterpart took effect together on the satisfaction
of the condition of November 18 1977 and, accordingly, such date is ‘the date
hereof,’ and the rent ought to be calculated from and become payable from that
date.
It is common
ground that rent has in fact been paid from that date, and therefore the claim
in the present originating summons fails and the summons should be dismissed.
At the end of
the argument, Mr Cohen realised for the first time that the plaintiffs had
parted with the reversion, and sought at that stage to raise a counterclaim to
recover the deposit which had been paid before exchange and could no longer be
set off against a future rent. When I indicated that such a claim was not open
to him in the present proceedings as they stood, Mr Cohen no doubt very wisely
did not persist.
For these
reasons I propose to dismiss the originating summons with costs.
