Landlord and tenant – Specific performance – Repairing covenant – Appellant freeholder bringing claim for specific performance of repairing obligations in common parts lease held by respondent receivers – High Court dismissing claim and giving judgment for respondents on counterclaim that appellant unreasonably refusing consent to assignment of lease – Appellant appealing – Whether court erring in law – Appeal dismissed
The appellant was the current freeholder of a prominent high-rise building in Salford, partly used as a hotel and partly as residential flats let on long leases. The responsibility for carrying out repairs to the building was that of the lessee of a lease of the common parts.
The respondents were the current holders of that lease. They were two insolvency professionals appointed as receivers of the freehold of the building pursuant to a charge, who acquired the common parts lease in the course of their receivership. The charge over the freehold had long since been redeemed, and the receivership had come to an end, but the respondents had been left holding the common parts lease.
The appellant brought an action for specific performance of the repairing obligations in the common parts lease. The respondents counterclaimed for a declaration that the appellant had unreasonably refused its consent to an assignment of that lease.
The High Court dismissed the claim for specific performance and gave judgment for the respondents on their counterclaim. Among other things, the court held that the respondents had acquired the common parts lease in exercise of their powers as receivers, and hence as agents for the appellant. As such they were entitled to be indemnified by the appellant. Accordingly, it was inappropriate to order specific performance of the repairing obligations against them: [2022] EWHC 2671 (Ch). The appellant appealed.
Held: The appeal was dismissed.
(1) The powers in schedule 1 to the Insolvency Act 1986 had to be construed broadly, and it was sufficient that the lease was required or convenient for the business in question. The acquisition of the lease was within the powers conferred on the respondents by clause 15(4)(iv)(a) of the mortgage conditions which conferred power on the respondents to do all things which seemed to the receiver to be conducive to any of the powers vested in him. One of the powers vested in the respondents as receivers was the power to sell the freehold. It was also within the scope of paragraph 17 of schedule 1 to the 1986 Act, expressly incorporated into the mortgage conditions. It was therefore sufficient if it seemed to the respondents that acquiring the common parts lease was conducive to the sale of the building. That was a question of fact.
(2) The High Court had accepted the evidence of the respondents that the receivership strategy was to sell the receivership assets, and that the respondents took the common parts lease because any purchaser would need to have control of it to run the service charge for the building. The judge found both respondents to be straightforward witnesses with a good recollection of events and the reasons for them. That was sufficient to show both that the receivers in fact took the common parts lease in contemplation of the exercise of the power of sale, and that it seemed to them conducive to a sale of the building to do so.
Thus, the respondents were acting within their powers when they sought and obtained a vesting order in respect of the common parts lease.
(3) Once the charge had been redeemed, the appellant occupied two positions in relation to the common parts lease: as the landlord and as the beneficiary under a trust of the lease. It was necessary to keep those two capacities distinct. For example, where the landlord (A) let to a lessee (B) who held on trust for a beneficiary (C), as between landlord and tenant, B had as legal owner of the lease a power to dispose of it subject to complying with the covenant in the lease. That required it to seek A’s consent, and if A gave consent subject to compliance with a condition, B was entitled to ask the court to determine if that condition was reasonable. That had nothing to do with C. If C did not wish the assignment to take place, C’s remedy was to assert that it would be a breach of trust and either seek to prevent it by injunction or claim compensation for breach of trust afterwards.
In the present case the appellant occupied the position of both A and C. It did not assert its rights as beneficiary or seek to prevent the respondents assigning on the basis that it would be a breach of trust. The only argument was whether the appellant as landlord was reasonably entitled to require that the respondents enter into authorised guarantee agreements. Since that was the issue, the court was only concerned with the rights and wrongs between landlord and tenant.
(4) The respondents accepted that the appellant might have had an arguable defence to the counterclaim: The relief sought in the counterclaim was a declaration which was an equitable remedy. If any assignment would be a breach of trust, it was arguable that the court should refuse to grant a declaration in its discretion. If that had been pleaded or argued at trial, the respondents might have said that: they did not want the lease, which was onerous; the appellant had declined to take it; the respondents had found someone willing to take it; and they should be at liberty to assign it, if necessary by asking the court to exercise its powers under section 14 of the Trusts of Land and Appointment of Trustees Act 1996. But that had not happened. The action as constituted was between landlord and tenant and was not nonjusticiable.
The case was run below as a dispute between landlord and tenant, not between trustee and beneficiary and dealt with on that basis. The question argued was whether the appellant’s requirement that the receivers enter guarantees was reasonable or not. The judge decided that it was unreasonable. The question on appeal was whether that decision was wrong. It was no answer to say that if the case had been run differently he might have been persuaded not to grant a declaration because the respondents had no business assigning the lease given their position as trustees. That case could not be articulated for the first time on appeal.
Timothy Dutton KC (instructed by Walker Morris LLP) appeared for the appellant; Adam Rosenthal KC and Mark Galtrey (instructed by Wedlake Bell LLP) appeared for the respondents.
Eileen O’Grady, barrister
Click here to read a transcript of Alma Property Management Ltd v Crompton and another
