Landlord and Tenant Act 1954, Part II, Section 38(1) — Agreement to surrender void as purposting to preclude tenant from making an application or request for a new tenancy — Elaborate clause in lease, an ‘ungainly bit of drafting’, prohibiting any assignment of premises as a whole, provided that if the tenant wished to assign and first offered to surrender the lease to the landlords on certain terms, and the landlords either refused or failed to accept it, the tenant was free to assign within a stated time, landlords not to withhold consent unreasonably — Joseph v Joseph followed — Landlord’s claims for declaration that agreement was enforceable, for decree of specific performance of for award of damages rejected — Tenant’s claim, on the other hand, rejected for a declaration that so long as the tenancy was within Part II the tenant was entitled to assign or sublet the whole of the demised premises with the consent of the landlords (such consent not to be unreasonably withheld) without first offering to surrender the residue of the term.
This was an
action by the landlords, Allnatt London Properties Ltd, against the tenant,
Ronald James Newton, for specific performance and other relief in respect of an
agreement to surrender a lease of business premises in Hounslow demised by the
plaintiffs to the defendant for 21 years from March 25 1972. The dispute turned
upon the effect of a clause in the lease dealing with assignment. The clause is
set out at length in the judgment of the Vice-Chancellor.
J H G Sunnucks
(instructed by Marshall, Shortland & Co) appeared on behalf of the
plaintiffs; Paul de la Piquerie (instructed by Paul Gromett & Co)
represented the defendant.
Giving
judgment, THE VICE-CHANCELLOR said: This action raises two points on business
tenancies under the Landlord and Tenant Act 1954, Part II. Under a lease dated
April 20 1972 the plaintiffs, the landlords, demised business premises to the
defendant, the tenant, for a term of 21 years from March 25 1972. The lease
contained an elaborate clause, clause 3(21)(b), which I will set out in due
course. This prohibited any assignment of the premises as a whole, though if
the tenant wished to assign them and first offered to surrender the lease to
the landlords on certain terms, and the landlords either refused the offer or
failed to accept it within 21 days, the tenant was free to assign the premises
within a stated time, and the landlords were not to withhold their consent
unreasonably.
What happened
was that after the lease had been running for nearly seven years the tenant
wished to assign it, and he approached the landlord for consent. They refused
this and required the tenant first to offer to surrender his lease. This he did
by letter dated December 20 1979, which offered to surrender the lease ‘in
accordance with the terms of the lease’; and on January 9 1980 the landlords
accepted the offer. An exchange of letters in February and March showed that
whereas the tenant expected to receive £45,000 for the surrender, the landlords
were willing to pay only £10,000. The difference, I was told, was in the main
due to the landlord’s offer being based on the value of the unexpired term,
with nothing for goodwill, whereas the tenant’s value included what an assignee
would be expected to pay for goodwill. When this emerged, the tenant withdrew
his offer to surrender. This was on March 6 1980: and on April 11 the landlords
issued the writ. This claims a declaration that the contract for surrender was
enforceable, specific performance of the contract, and damages. The tenant’s
defence and counterclaim, as amended and re-served on July 8, is that section
38 of the Landlord and Tenant Act 1954 renders the agreement to surrender void;
and the tenant seeks a declaration to this effect, and also a declaration that
so long as the tenancy is subject to Part II of the Act of 1954 the tenant is
entitled to assign or sublet the whole of the premises with the landlord’s
consent (such consent not to be unreasonably withheld) without first offering
any surrender.
Section 38(1)
of the Act of 1954, as amended by the Law of Property Act 1969, runs as
follows:
Any agreement
relating to a tenancy to which this Part of this Act applies (whether contained
in the instrument creating the tenancy or not) shall be void (except as
provided by subsection (4) of this section) in so far as it purports to
preclude the tenant from making an application or request under this Part of
this Act or provides for the termination or the surrender of the tenancy in the
event of his making such an application or request or for the imposition of any
penalty or disability on the tenant in that event.
I pause to say
that it became common ground that the second part of that provision, beginning
with ‘or provides for the termination’, did not arise in the present case, for
there was nothing which provided for the termination or surrender of the
tenancy ‘in the event of his making such an application or request’. What is at
the heart of the matter is the provision ‘in so far as it purports to preclude the
tenant from making an application or request under this Part of this Act’.
In subsection
(4) of the section, para (a) admittedly does not apply, and so I read it
without that paragraph.
(4) The court may:
. . .
(b) on the joint application of the persons who
are the landlord and the tenant in relation to a tenancy to which this Part of
this Act applies, authorise an agreement for the surrender of the tenancy on
such date or in such circumstances as may be specified in the agreement and on
such terms (if any as may be so specified);
if the
agreement is contained in or endorsed on the instrument creating the tenancy or
such other instrument as the court may specify; and an agreement contained in
or endorsed on an instrument in pursuance of an authorisation given under this
subsection shall be valid notwithstanding anything in the preceding provisions
of this section.
It is common
ground that the agreement for the surrender is not contained in or endorsed on
the lease, or in ‘such other instrument as the court may specify’; no
application to the court on this point has been made. Accordingly, subsection
(4) does not apply, and the case turns on the first limb of subsection (1).
With that, I
can come to the terms of the lease itself. Clause 3 contains the tenant’s
covenants. The lease refers to ‘tenants’ in the plural because, I think, the
tenant was contemplating the incorporation of his business, though in fact he
never did this. Clause 3(21) begins by imposing an absolute prohibition on any
assignment of part of the demised premises:
(a) Not to assign underlet or part with the
possession or occupation or share the occupation of any part (as a part) of the
demised premises.
Nothing
directly arises under that. There is then subclause (b), which is at the heart
of the matter. It is an ungainly bit of drafting, with three provisos, and it
shuttles to and fro between the first stage, that of the offer to surrender,
and the second, that of an assignment if the offer is not accepted. For ease of
reference I have inserted numerals which divide the subclause up into separate
limbs, though of course this subdivision cannot affect the construction of the
subclause. So divided, it reads as follows:
(1) Not (subject to the proviso to this clause)
to assign underlet part with the possession or occupation of the demised
premises as a whole (2) Provided Always that if at any time and so often as the
Tenants shall desire to assign or underlet the demised premises as a whole the
Tenants shall make to the Landlords an offer in writing in the terms
hereinafter mentioned (3) then if the Landlords shall refuse such offer or
shall not within twenty-one days after the receipt by the Landlords of such
offer accept the same (4) the Tenants shall be at liberty within one month
after such refusal or otherwise within two months after the making of such
offer to apply to the Landlords in writing for consent to assign or underlet
the demised premises as a whole (5) and such consent shall not be unreasonably
withheld (6) Any such offer shall be in the terms following namely the Tenants
shall offer to surrender the Lease with vacant possession and otherwise free
from encumbrances on a date three months from the date of the said written
offer in consideration of the payment by the Landlords to the Tenants of a sum
representing the net premium value (if any) of this Lease for the unexpired
residue of the term such value to be agreed upon by the parties or in default
of agreement as may be determined by a surveyor to be appointed upon the
application of either party by the President for the time being of the Royal
Institution of Chartered Surveyors (7) Provided further that any acceptance by
the Landlords of any such offer so made to them shall be without prejudice to
the rights and remedies of the Landlords in respect of any rent in arrear or
any breach of any of the covenants herein contained and on the part of the
Tenants to be observed (8) Provided further that if the Landlords shall agree
to give consent for the Tenants to assign this Lease then it shall be a
condition of any such consent that the Assignee shall enter into a direct
covenant with the Landlords to pay the rents hereinbefore reserved and to
observe and perform the covenants herein contained during the residue of the
term hereby created.
It will be seen
that limb (1) imposes the prohibition, limbs (2), (3), (6) and (7) refer to
stage 1, and limbs (4), (5) and (8) relate to stage 2.
With that in
mind, I return to the accepted offer to surrender. This is plainly an agreement
relating to a tenancy to which Part II of the Act of 1954 applies, within the
opening words of section 38(1). That agreement does not fall within section
38(4), and so by subsection (1) it is void ‘in so far as it purports to
preclude the tenant from making an application or request under this Part of
this Act’. Does it so purport?
Whatever might
be thought about the meaning of the word ‘purport’ in the abstract, that word
has to be construed in its context: and this was done in Joseph v Joseph
[1967] Ch 78. There, the Court of Appeal unanimously held that the phrase
‘purports to preclude’, in its context, meant not ‘professes to preclude’ but
‘has the effect of precluding’. The question is not so much whether there is an
agreement which in terms prevents the tenant from making an application or
request, but whether, whatever the agreement says, it in fact operates to
prevent the tenant from doing this. In Joseph v Joseph there was
an agreement for a lease for 10 years, and after this had run for some two
years there was an agreement to surrender the tenancy within the next two
years. The inevitable effect of the agreement to surrender the tenancy, if
carried out, would be to preclude the tenant from applying for a new tenancy
when the tenancy agreement ran out some six years after the date of the
agreement to surrender: for by section 24(2), section 24(1) would not operate
to prolong a tenancy which had actually been surrendered. Section 38(1)
invalidated that agreement to surrender and therefore the landlord could not
obtain any damages for the tenant’s breach of the agreement.
Joseph v Joseph, of course, binds me: and I have heard nothing to
detract from its authority. It was followed by the Court of Appeal in Jones
v Wrotham Park Settled Estates [1980] AC 74, and although it was
challenged on appeal, the House of Lords found it unnecessary to decide
anything on it and said nothing one way or the other to affect its authority:
see at p 114. Certain other authorities were cited to me, but I do not think
any of them affect what I have to decide. Mr Sunnucks, who appeared for the
landlords, had a point on the lease not being assignable by reason of the
parties clause at the beginning referring to the parties only by name, without
mentioning assigns. Mr de la Piquerie, for the tenant, met this by invoking the
Law of Property Act 1925, section 79; but then the point blew up in Mr
Sunnucks’ hands when, very properly, he drew attention to clause 5(c) of the
lease, which provided, inter alia, that ‘the Tenants’, where the context
so required or admitted, included their assigns. Mr Sunnucks also had a point
on the contrast in section 38(1) between ‘tenant’ and ‘tenancy’, and he
contended that the subsection gave no protection to a tenant who did not want
his tenancy to continue but instead wished to terminate it. I did my best to
follow his submissions, but in the end I was quite unable to see anything in
them which could suffice to exclude the operation of section 38(1) as construed
in Joseph v Joseph, or to distinguish that case.
In the result,
it appears to me that I must hold that the agreement to surrender is rendered
void by section 38(1). It follows that the landlord’s claim must fail. I cannot
declare that the agreement is an enforceable contract, nor decree specific
performance of it or award damages for its breach. On the counterclaim, the
tenant has made out a sufficient case to support his claim to a declaration
that the agreement to surrender is void by virtue of section 38; and in the
absence of any reason why I should exercise my discretion to refuse to grant
declaratory relief, I propose to make a declaration to that effect.
That leaves
the tenant’s further claim to a declaration that so long as the tenancy is
within Part II of the Act of 1954 the tenant is entitled to assign or sublet
the whole of the demised premises with the consent of the landlords (such
consent not to be unreasonably withheld) without first offering to surrender the
residue of the term. That is the second point in the case.
Relatively
little was said about this issue during the argument. It seems to me the most
difficult part of the case. Mr Sunnucks contended that if (contrary to his main
contention) section 38(1) harmed him, it did not merely avoid the contract to
surrender, but also rendered void or ineffective the machinery in clause
3(21)(b) for the tenant having to make an offer to surrender the lease before
seeking to assign; and if it did that, it made the whole of clause 3(21)(b)
void or ineffective. Mr de la Piquerie, on the other hand, argued that the
provision for a surrender was merely a condition precedent to an assignment;
and if the condition precedent was void, as he said it was, that left the
provision for assignment in full operation.
I think the
starting point must be to consider whether section 38(1) invalidates any of
clause 3(21)(b), and if so, how much of it. What section 38(1) invalidates is
an agreement in so far as it has the effect of precluding the tenant from
making an application or request under Part II of the Act of 1954. Is there
anything in clause 3(21)(b) which does this?
If one takes the subclause as it stands, without applying section 38(1),
I cannot see that, without more, there is anything which has the effect of
precluding the tenant from making an application or request. Limb (2) requires
the tenant to make an offer to surrender: but an offer is not an ‘agreement’,
nor does an agreement to make an offer to surrender, by itself, preclude the
tenant from making an application or request. If the landlords reject the
offer, there is still no such precluding, and the tenant is free to assign
under the conditions stated. If on the other hand the landlords accept the
offer, then the resulting agreement to surrender (if enforceable) would have
the effect of precluding the tenant from making an application or request: and
then at that point section 38(1) would make that agreement void. In short,
until it is known whether the landlords have accepted or rejected the offer to
surrender it cannot be known whether there is any agreement which will preclude
an application or request, within the meaning of the subsection: there may or
may not be.
It will be
observed that all that clause 3(21)(b) does is to require an offer to be made,
and it depends on what happens to that offer whether there ever comes into
being an agreement which offends against the subsection. It is not as if the
subclause gave the landlords an option or other right to require the tenant to
surrender the lease.
one remove from anything that does. It seems to me that the subsection, as
construed in Joseph v Joseph, is perfectly adequate to guard
against the mischief which it envisages if it strikes down the actual agreement
to surrender, and that there is no need to construe the subsection so as to
make it extend to the mechanism for producing an offer which, if accepted,
would be invalidated. Nor do I feel any more enthusiasm than was felt by the
Court of Appeal in Joseph v Joseph for enabling either party to a
lease to escape from his bargain further than is necessary to give effect to
the subsection and its manifest purpose.
There is a
further consideration. The subclause represents a bargain in which the rights
of the parties depend on a balance of advantages and disadvantages to each. If
statute declares void part of such a subclause which operates for the benefit
of one party, I should hesitate to hold that the other party could thereupon
obtain the benefit of the rest of the clause without suffering the burden of
what has been declared void, unless the provisions were clearly severable.
Limbs (2) to (8) of the subclause seem to me to be so interdependent that it
would be making a different contract for the parties if the provisions for the
offer to surrender were to be disregarded as being void and the rest of the
limbs were then revised so as to put them into an intelligible and enforceable
form. I certainly would not regard the provisions for the offer to surrender as
being a mere condition precedent. This is not a case of independent provisions
such as there were in Gaskell v King [1809] 11 East 165; and see Pickering
v Ilfracombe Railway Co [1868] LR 3 CP 235 at p 250. Accordingly, if I
am wrong in thinking that the subclause is not affected by the subsection, then
I would hold that limbs (2) to (8) all fall together.
Linb (1),
which prohibits the whole of the premises from being assigned, and so on, seems
to me to be in a somewhat different position. It is, of course, in terms made
‘subject to the proviso to this clause’, which presumably means all three
provisos, and thus includes limbs (2) to (8). If all those limbs fall by virtue
of the subsection, then limb (1) remains perfectly intelligible and capable of
operation, though it then ceases to be subject to anything. Limb (1) seems to
me to be severable from limbs (2) to (8) in a way that is not possible for the
latter limbs inter se. However, none of this was argued before me, and I
hesitate to reach a firm conclusion on it. For the reasons that I have given I
base my decision on the subsection not having any application to the subclause.
In the result,
it seems to me that the second declaration sought by the counterclaim ought to
be refused. I do not think that the effect of the subsection is to permit
assignments or sublettings of the whole with the consent of the landlords which
must not unreasonably be withheld, without the prior offer of a surrender. In
the result, the counterclaim fails save as to the declaration which merely
reflects the failure of the claim.
