Agreement to grant a lease of a shop — Not registered as an estate contract — Held to be an overriding interest in earlier litigation — Binding on purchaser of the registered title — Whether development proposed by purchaser must provide suitable shop premises — Whether purchaser compelled to grant a lease if shop premises provided — What damages in lieu of specific performance
The defendants are occupiers of premises at 126 Gloucester Road under the terms of an agreement of February 1973. This agreement followed the sale of a head lease and sublease by the defendants to the plaintiffs’ predecessors in title, Matlodge Ltd. By clause 5 of the agreement the defendant was at liberty to remain and to trade at the property. Clause 6 was an agreement by Matlodge Ltd to grant to the defendants, on the completion of a proposed development scheme of the property and neighbouring property, “a lease of a shop in a prime position at the development” on stated terms and conditions.
In Ashburn Anstalt v Arnold and another [1987] 2 EGLR 71, clause 5 was held to create a lease and not a mere licence; and the provisions of clause 6 were held to constitute an “overriding interest” under the Land Registration Act 1925 binding on the plaintiffs when they purchased the freehold. The agreement in clause 6 had not been registered as an estate contract. Following the earlier litigation the defendants had commenced proceedings for a new tenancy under the Landlord and Tenant Act 1954. The plaintiffs have planning permission to develop the area, with the present premises occupied by the defendants being used mainly as a public way. The questions in the present proceedings were: (a) whether the plaintiffs could be restrained from proceeding with a development scheme for the area which did not provide suitable premises on the land now subject to the overriding interest; (b) whether the plaintiffs could be compelled to grant a lease of a shop on the land subject to the overriding interest if shop premises were in fact constructed thereon; or (c) what damages were payable by the plaintiffs in lieu of specific performance.
Held The defendants cannot have any different rights against the plaintiffs than they had against an earlier owner contractually bound by the February 1973 agreement; the defendants have no enforceable rights over or in respect of the development site to which their overriding interest does not extend; clause 6 does not oblige the plaintiffs to build a shop, but if they decide to include a shop in their scheme, and it is on, or substantially on, the land over which the defendants enjoy their overriding interest, the plaintiffs will then be compelled to grant a lease; the question of damages depends on whether at the completion of the development the defendants are or are not entitled to a lease.
William Goodhart QC and Peter Cowell (instructed by Fox & Gibbons) appeared for the plaintiffs; and Robert Pryor QC and Erica Foggin (instructed by Pritchard Englefield & Tobin) appeared for the defendants.
