Landlord and tenant — Lease of shop in development area — Rulings in regard to matters consequential on previous Court of Appeal decision between the same parties — The previous decision established that an agreement in 1973 created a lease, and not a mere licence, in favour of the present respondents and that certain provisions in clause 6 of that agreement gave rise to an overriding interest under the Land Registration Act 1925 in respect of a property occupied by the respondent company (126 Gloucester Road) — These provisions were never registered as an estate contract (which would have been enforceable against the appellants) with the result that the respondents had no enforceable rights in respect of clause 6 except such as were derived from their overriding interest — There was no contractual relationship between the appellants (assignees of the reversion) and the respondents — The present proceedings were to determine the effect of the undertaking in clause 6 that, on the completion of a proposed development, the respondents would be granted ‘a lease of a shop in a prime position at the development’ — The development in question included properties other than that occupied by the respondents — The difficulties arose from the limited relief available to the respondents, despite their overriding interest, owing to the absence of a contractual relationship with the appellants and the respondents’ failure to register the provisions of clause 6 as an estate contract — The main rulings now given by the Court of Appeal were the following — (1) The overriding interest merely protected existing rights in the occupied land; it did not extend or otherwise alter them — (2) The respondents had no rights at all over that part of the development site to which their overriding interest did not extend — (3) Clause 6 did not give the respondents a right to require a shop to be built on the 126 Gloucester Road site which was the subject of the overriding interest; it merely gave a right to have the grant of a lease of a shop in a prime position in the development area — (4) There might, however, be circumstances in which the only way to implement the undertaking in clause 6 would be to grant the respondents the lease of a shop on the 126 Gloucester Road site; the judgment of Fox LJ discussed some complex situations in which this would be so — (5) It was difficult to see in what circumstances an award of damages in lieu of specific performance could arise — Declarations accordingly
No cases are
referred to in this report.
The Court of
Appeal in a lengthy judgment of the court given on October 27 1987* decided a
number of matters in dismissing an appeal from the decision of Mr E C
Evans-Lombe QC, sitting as a deputy judge of the Chancery Division. Some
consequential matters were left for decision after further argument and are now
dealt with in the judgment of Fox LJ.
*Editor’s
note: Reported at [1987] 2 EGLR 71; (1987) 284 EG 1375.
William
Goodhart QC and Peter Cowell (instructed by Fox & Gibbons) appeared on
behalf of the appellants, Ashburn Anstalt; Robert Pryor QC and Miss Erica
Foggin (instructed by Pritchard Englefield & Tobin) represented the
respondents, Walter John Arnold and W J Arnold & Co Ltd.
Giving
judgment, Fox LJ said: We gave judgment on a number of matters in this case on
October 27 1987. It was then agreed that we should hear further argument upon
consequential matters.
The issues
arise in this way. Arnold & Co and their predecessor, Mr W J Arnold, have
for many years carried on business at shop premises in Gloucester Road, London.
I will refer to them as 126 Gloucester Road. Immediately prior to the agreement
of February 28 1973, to which I will refer in more detail later, Mr Arnold
owned a headlease of the premises for a term of 52 1/2 years granted on
December 31 1945 and Arnold & Co owned a sublease expiring on September 29
1973.
In the
agreement of February 28 1973 (which was made between Arnold & Co of the
one part and Matlodge Ltd of the other part) Mr Arnold sold the headlease to
Matlodge for £205,000. By a further agreement of the same date (which I will
call the 1973 agreement) Arnold & Co sold the sublease to Matlodge.
Clauses 5 and
6 of the 1973 agreement provided as follows:
5 From and after completion Arnold shall be at
liberty to remain at the property as Licensee and to trade therefrom until
September 29 1973 without payment of rent or any other fee to Matlodge save
that Arnold shall pay all outgoings so long as it is in occupation of the
property. From and after September 29 1973 Arnold shall be entitled as Licensee
to remain at the property and trade therefrom in the like terms save that it
can be required by Matlodge Ltd to give possession on not less than one
quarter’s notice in writing upon Matlodge certifying that it is ready at the
expiration of such notice forthwith to proceed with the development of the
property and the neighbouring property involving inter alia the demolition of
the property.
6 Matlodge hereby warrant that it intends
either itself or its successor in title to redevelop the property and the
neighbouring property by the erection inter alia of shops and hereby undertakes
that in consideration of the disturbance to be suffered by Arnold it or its
successor in title will grant to Arnold on completion of the development a
lease of a shop in a prime position at the development with an area available
for trading of approximately 1,000 square feet and with carpark facilities
within development for a term of twenty one years and the rent in respect of
such lease shall for the first seven years be 25 per cent less than the market
rent and thereafter shall be at the market rent subject only to the rent being
reviewed to the then market rate at the expiration of the seventh and
fourteenth years from the date of its grant. Arnold shall within fifty six days
of being offered the grant of such lease elect in writing to Matlodge or its
successor whether or not it will take up the lease and if it shall not so elect
or if it shall elect not to take up the lease then the provisions of this
clause shall lapse. In the event of Arnold taking up the lease then the lease
shall not be capable of assignment for seven years from the commencement of the
term except at the full market rent. The market rent shall be such rent as may
be agreed between the parties in accordance with the criteria laid down in the
Landlord and Tenant Act (as amended) and in the event of the parties failing to
agree such market rent then either party may upon giving notice to the other
have the question of the market rent determined by a chartered surveyor acting
as an expert and not as an arbitrator and to be appointed on the application of
either party by the President for the time being of the Royal Institution of
Chartered Surveyors whose decision shall be final and binding on the parties
and whose fees shall be borne as directed by such expert. This provision for
fixing the market rent shall apply to the initial market rent and to the market
rent at the seventh and fourteenth years.
On February 24
1973 the benefit of the 1973 agreement was assigned by Matlodge to Cavendish
Land Co Ltd (‘Cavendish’), which was the owner of the freehold. In 1976 the
provisions of clauses 5 and 6 of the 1973 agreement were novated between
Cavendish and Arnold & Co. Cavendish subsequently transferred the freehold
to the Legal & General Insurance Society, who transferred it to the
plaintiffs, Ashburn Anstalt (‘Ashburn’) in 1985.
In our
previous judgment we held, inter alia, (a) that clause 5 of the 1973
agreement created a lease and not a mere licence and (b) that the provisions of
clause 6 constitute an ‘overriding interest’ under the Land Registration Act
1925 in respect of 126 Gloucester Road (ie the property actually in the
occupation of Arnold & Co when the freehold was sold to Ashburn). The
provisions of clause 6 were never registered by Arnold & Co as an estate
contract; accordingly, Arnold & Co have no enforceable rights in respect of
clause 6 against Ashburn (with whom they have no contractual relationship)
except such as they may have by reason of the overriding interest.
Ashburn owns,
under several different registered titles, a block of property at Gloucester
Road, part of which is 126 Gloucester Road. They intend to develop the whole
block. As regards planning permission, we were informed that Ashburn’s plans
for development have been approved but that there is an outstanding question as
to a listed building consent. We have not seen any documents regarding planning
permission.
We were also
informed that in September 1987 Ashburn had entered into an agreement with the
local authority under section 52 of the Town and Country Planning Act 1971 by
which most of the site occupied by Arnold & Co’s premises will be used as a
public way.
In January
1988 Arnold & Co commenced proceedings in the West London County Court for
the grant of a new lease at 126 Gloucester Road under the Landlord and Tenant Act
1954. The proceedings are based on the decision of this court that clause 5 of
the 1973 agreement created a lease.
The questions
now put before us are as follows:
Whether in the absence of an undertaking
by Ashburn to offer to Arnold & Co a lease of a shop elsewhere on the
development, Arnold & Co would be entitled to any of the following relief,
namely:
(a) to restrain Ashburn from proceeding
with any development which did not provide suitable shop premises on the land
now subject to the overriding interest;
(b) to compel Ashburn to offer Arnold
& Co a lease of a shop on the land now subject to the overriding interest
if shop premises were in fact to be constructed thereon or
(c) damages in lieu of specific
performance.
These
questions relate to the extent of Arnold & Co’s rights against Ashburn in
respect of the provisions of clause 6 of the agreement. That clause constituted
an estate contract. If Arnold & Co had registered that estate contract
under the Land Registration Act it would have been enforceable against Ashburn.
However, Arnold & Co failed to register it. The result is that clause 6 is
void as against Ashburn save to the extent that its provisions constitute an
overriding interest. In our previous judgment we held that there was only an overriding
interest in respect of the land occupied by Arnold & Co which Ashburn
purchased, that is to say 126 Gloucester Road (to the site of which I will
refer as ‘the Gloucester Road site’). Ashburn was never under any contractual
liability to Arnold & Co in respect of the provisions of clause 6; the
clause was part of a contract between Arnold & Co and Matlodge and, by
novation, with Cavendish; Ashburn was never a party to that contract.
The following
propositions appear to me to be correct:
(1) Arnold & Co cannot have any different
rights against Ashburn than Arnold & Co had, as a matter of contract,
against Cavendish. The overriding interest merely protects existing rights in
respect of occupied land; it does not extend or otherwise alter them. Thus suppose,
for example, that Arnold & Co had contracted for a lease of the whole of
the development site but had only an overriding interest in respect of a small
part of it. Arnold & Co could not insist upon a lease of that part at an
apportioned rent (though it may be, as Mr Goodhart was willing to concede, that
it could insist upon a lease of that part — at any rate if it was a substantial
part — at the full rent).
(2) Arnold & Co has no enforceable rights at
all under clause 6 over or in respect of that part of the development site to
which its overriding interest does not extend. Accordingly it has no rights in
respect of any land other than the Gloucester Road site.
(3) Clause 6 conferred no rights upon Arnold
& Co to require a shop to be built upon the Gloucester Road site. The only
right conferred by clause 6 was on completion of the development to have a
grant of a lease of a shop in a prime position, with certain special
characteristics, for the term and at the rents and subject to the provisions stated
in clause 6. It is entirely a matter for Ashburn to decide where it sites shops
on the development. It is asserted, as I understand it, that there never was an
agreement to grant a lease but merely a warranty sounding in damages. I do not
agree with that. I think that the ‘undertaking’ given in clause 6 was a
contract. Accordingly, to compel Ashburn to build such a shop would be imposing
upon Ashburn a different liability to that for which it contracted in clause 6.
(4) If Ashburn build a shop completely on the
Gloucester Road site and do not offer to Arnold & Co any other shop (within
the description in clause 6) Arnold & Co are entitled to insist upon the
grant of a lease of the shop on the Gloucester Road site. Mr Goodhart was, I
think, disposed to accept that, but in any event it seems to me to be correct.
What is protected by the overriding interest is a contract to grant a lease.
The question is in what circumstances could Cavendish, consistently with the
provisions of clause 6, have been compelled to grant a lease to Arnold & Co
of the Gloucester Road site. In that connection, Ashburn cannot be in any worse
position than Cavendish. For present purposes, the circumstances, I think, are
two. First, if the only shop premises built upon the development are upon the
Gloucester Road site, the grant of a lease of that shop would be the only way
of giving effect to clause 6; second, if shop premises are built on the
Gloucester Road site and other shop premises on other parts of the development
but Cavendish refused to offer a lease of any shop at all. In those
circumstances, I apprehend the court would permit Arnold & Co to make a
choice itself and would enforce the choice — which could be the Gloucester Road
site. In the present circumstances, Arnold & Co cannot insist upon a lease
of a shop outside the Gloucester Road site but, if one is built upon that site
and Ashburn refuses to grant a lease of any other, I do not see why Arnold
& Co should not be able to insist upon a lease of the shop on the Gloucester
Road site. Arnold & Co would have no better rights and Ashburn no worse
rights than Arnold & Co and Cavendish respectively would have had if
Cavendish had remained the owners of the freehold.
I now come to
Mr Pryor’s contention on behalf of Arnold & Co. He asserts that, if
Ashburn’s development is such that a shop is built partly on the Gloucester
Road site and partly on land belonging to Ashburn, then Ashburn is bound to
offer a lease of the shop to Arnold & Co. That, it is said, is the only way
to give effect to the overriding interest. I do not feel able to accept that.
Arnold & Co have no interest which they can enforce over any part of the
development other than the Gloucester Road site. Any other conclusion would
involve, in effect, treating the overriding interest as applying to land to
which it certainly does not apply. There are no circumstances in which Arnold
& Co could claim a lease of a shop built wholly outside the Gloucester Road
site. That is simply because they had no overriding interest in respect of such
land. For the same reason, Arnold & Co can have no rights in a shop built
partly on the Gloucester Road site and partly outside it. What clause 6 is
dealing with is the lease of an entire shop premises. The fact that Arnold
& Co has an overriding interest in part of the premises is not a reason for
conferring upon Arnold & Co what is, in effect, the same right in respect
of other land. The only reservation I make to that is that, if the overlap on
the land outside the Gloucester Road site were trivial, it might be possible
for the court to disregard it, but I express no concluded view on the point,
since its determination would require a consideration of the precise facts of a
situation which does not at present exist. If there is any hardship in that
result it is essentially the consequence of Arnold & Co’s failure to
register its clause 6 rights as an estate contract. From what we know of the
facts the point seems likely to be academic, since it seems probable that no
shop will be built on any part of the Gloucester Road site (either because of
the section 52 agreement or because Ashburn do not wish to build there).
The reason, in
my view, is that the answer to question (a) is ‘No’ and the answer to question
(b) is ‘Yes’. We can consider the precise terms of any declaration with
counsel.
As regards any
award of damages in lieu of specific performance, it is difficult to see in
what circumstances that could arise. At the completion of the development,
either Arnold & Co is entitled as of right to a lease of some part of the
development or it is not. In any event, the award of damages in lieu of
specific performance is a discretionary matter and I do not think we can
usefully speculate upon the circumstances in which it might be appropriate. It was
argued by Mr Pryor for Arnold & Co that it would be better if this court
left the questions considered above to the judge in the Landlord
that we should deal with them ourselves.
NEILL and
BINGHAM LJJ agreed and did not add anything.
Declarations
accordingly. Plaintiffs were awarded costs of the further argument.