Disclaimer of lease by lessee – Intermediate lessee covenanting directly with landlord to pay rent – Deed of variation between landlord and intermediate lessee and lessee by assignment – Lessee by assignment subsequently in liquidation and owing arrears of rent – Question as to liability of original lessee and intermediate lessee
By a lease dated September 18 1981, Associated Newspapers Ltd let 8, 8A and 9 Stratton Street, Westminster, London, to BHP Petroleum Ltd for a term of 25 years. In March 1985 the then landlord granted BHP a licence to assign the term to Sevington Properties Ltd (Sevington). The licence contained a covenant with the landlord by Sevington, as assignee, “to pay the rent reserved by the lease . . . from the date upon which the lease is assigned to it . . . and thenceforth during the residue of the term”. BHP then assigned the term to Sevington and its parent company covenanted direct with the landlord by way of surety to pay the rent. On October 4 1985 Sevington assigned the term to C and a deed of variation was agreed on November 4 1985 between C, the then landlord, and Sevington. C also covenanted to pay the rent reserved and perform the covenants from the date on which the lease was assigned and thenceforth. On May 7 1992 the landlord and the tenant, C, subscribed a rent review memorandum, agreeing a stepped annual rent from September 29 1991 to 29 September 1995. In January 1994, C changed its name to Stratton Street Property Investments Ltd, SSPI. By July 7 1995 at the latest, Beegas had become entitled to the reversion to the term created by the lease.
In February 1996 SSPI went into liquidation and in July 1996 the liquidator of SSPI disclaimed the lease under section 178 of the Insolvency Act 1986 . In June 1996 Beegas issued a writ seeking payment by BHP and Sevington of the unpaid rent under their respective direct covenants, and also sought a vesting order under section 181(3) of the 1986 Act. BHP and Sevington sought an order under RSC Ord 14A and two questions arose: (1) what liability, if any, had been incurred under those covenants; and (2) arising from the first, what should be the rent payable by Sevington under the vesting order. The judge found, inter alia, that Sevington was bound by the deed of variation, and that the rent should be the current yearly rental value as at September 29 1996, the latest review date under the disclaimed lease.
Beegas appealed contending, inter alia, that BHP and Sevington were bound by the memorandum, because a stepped rent was within the scope of the rent review clause contained in the original lease, and BHP and Sevington were contractually bound to pay the rent so increased. BHP and Sevington accepted that they were contractually liable for a minimum of £210,000 and £225,000 respectively, but did not accept that the memorandum was binding on either of them.
Held The appeal of BHP and Sevington was dismissed. The appeal of Beegas was allowed in part.
Applying the fourth principle set out in Friends Provident Life Office v British Railways Board [1997] 2 EGLR 55, at p351:
1. As a matter of construction the memorandum did not permit the agreement for stepped rents, which was an obligation not contemplated by the original lease. Therefore BHP and Sevington were not bound by the Memorandum.
2. The judge had been correct in seeking to place Sevington and its parent company in the same position in relation to the memorandum and rent payable as they would have been in contracually had there been no disclaimer: see Hindcastle v Barbara Attenborough Associates Ltd [1996] 1 EGLR 94. But by omitting a previous period under the rent review provisions he had failed to give full effect to that principle
Kim Lewison QC (instructed by Rowe & Maw) appeared for Beegas Nominees Ltd; Paul Morgan QC (instructed by Nabarro Nathanson) appeared for the respondents, BHP Petroleum Ltd and Sevington Properties Ltd.
