Bank with charge over leasehold property — Bank wishing to realise security by selling property — Lessee wishing to surrender lease — Court order sought — Whether court should take unprecedented step of sanctioning sale — Order made
In April 1990, the bank granted a loan facility of £15.4m to S, the second defendant, to enable it to acquire the entire share capital of Q. Q was the parent company of the first defendant, M, which was the owner of a leasehold property in the City. By a fixed and floating charge of the same date, M charged the property and assigned its rent income to the bank to secure the money advanced to S. The property was let to W for a term expiring in 2012 with a mutual break option in 2007. The current rent was £2m pa with five-year rent reviews, although there was no realistic prospect of an increase. It was widely known that W intended to vacate as soon as possible and there was no prospect of it remaining in occupation after 2007. It was of paramount importance to W that it should achieve a surrender of its lease. W reached an agreement in principle with B to take a lease of a new building. B required the lease documentation to be exchanged on or before September 30 1993. W was unwilling to enter into contractual terms with B until it had secured a release of its existing obligations. To achieve a release W arranged for I, an independent company, to purchase the property from the bank under terms which W negotiated with B, I and the bank. The bank would sell the property to I for £12m subject to and with the benefit of W’s lease. The bank wished to realise its security by entering into the sale. The court held that the bank’s power of sale had arisen and was exercisable without its assistance. The bank sought an order sanctioning the sale under section 91(2) of the Law of Property Act 1925, because it feared the sale might otherwise be lost. M and S resisted the making of the order.
Held Court order made.
1. The court had jurisdiction to make the order under section 91(2). The issue was whether the court should take the exceptional and unprecedented step of sanctioning a sale and so render it unimpeachable where the mortgagee had full power to affect the sale without an order and the purchaser had the protection of section 104(2) of the 1925 Act.
2. The application broke new ground, but meant only that the bank had to make out a proper case not only for the proposed sale but for the court to lend its assistance by making the sale unimpeachable.
3. Where a mortgagee sought the assistance of the court to allay fears of its purchase, the court must be satisfied that it had sufficient evidence to enable it to exercise the jurisdiction. The court had to be satisfied that it was a proper case for invocation of its jurisdiction: it must be satisfied that it should exercise its discretion rather than leave it to a mortgagee to exercise his own power of sale. The court must strike a balance between the interest of the mortgagor and those of the mortgagee. It would only be in exceptional circumstances that the balance would come down in favour of making the order. The court ought not lightly or unnecessarily take the step of rendering a transaction unimpeachable where a party with an adverse interest wished to impeach it.
4. But where, as here, the court was satisfied that there were sufficient grounds for exercising the jurisdiction and the mortgagee’s statutory power of sale was of no practical use to him the order sought would be granted.
Michael Briggs (instructed by Frere Cholmeley Bischoff) appeared for the plaintiff; Martin Mann QC and Elspeth Talbot Rice (instructed by Leslie Hyman) appeared for the first defendant; Alan Steinfeld QC and Adrian Francis (instructed by Ince & Co) appeared for the second defendant.
