Contract — Sale of leases — Leases subject to right of lessor to serve break notice — Lessor concerned about missing fireplaces — Prospective assignee purporting to rescind contract — Assignor claiming damages — Whether assignor able to sell that contracted — Whether defect in title — Appeal by assignee dismissed
The respondent, Mr Aslan, was the owner of three leases of guest house properties, which he held from the trustees of Henry Smith’s Charity. The leases contained redevelopment break clauses. In early 1984, and in breach of covenant, the respondent wrongfully removed certain fireplaces. The trustees’ agent, who was concerned to have the fireplaces replaced, referred to the break clauses, but in the course of further negotiations over the fireplaces, and for a possible surrender and regrant, the respondent was left with the impression that the trustees were unlikely to operate the break clauses. The trustees were of the view that if the break clauses were operated, the respondent, to whom they had offered only £100,000 for a surrender, would allow the property to be filled with protected tenants.
On April 3 1984 the respondent exchanged contracts with the appellant company under which the appellants agreed to purchase the leases for £350,000. The contract made provision for the breach of covenant concerning the fireplaces and the appellants were aware of the existence of the break clauses. On April 4 1984 the trustees’ agent, in a discussion with the respondent about the fireplaces, indicated that he would recommend the trustees to operate the break clause. On April 13 1984 the appellants purported to rescind the contract on the ground that by April 2 the respondent was aware that because of the breach of covenant the trustees intended to operate the break clauses. In due course the trustees did operate the break clauses and paid the respondent a premium of £185,000 for the surrender of the leases. The respondent’s claim for damages against the appellants for breach of contract was allowed by Mr Terence Cullen QC, sitting as a deputy judge of the Chancery Division (October 25 1989). The appellants appealed contending that the respondent was in breach of contract as there was a non-discharge by the respondent of a latent defect in the respondent’s title attributable to the possible use of the break clause.
Held The appeal was dismissed.
The respondent’s obligation was to disclose any fact calculated to prevent the purchaser from obtaining such title to the property as it was led to expect. The property which the appellants were led to expect they would get consisted of leases which could be destroyed at any time by the due exercise of the break clauses. During negotiations between the respondent and the trustees in March 1984, reference to the break clauses by the trustees was a negotiating point and a side issue to the trustees real concern about the fireplaces. By the date of the contract the respondent knew there was a risk of the use of the break clauses, but there was no defect in his title.
John Macdonald QC and Colin Braham (instructed by Allan Jay & Co) appeared for the appellants; and Ashe Lincoln QC and Paul Infield (instructed by Bennett Taylor Tyrrell) appeared for the respondent.
