Landlord and tenant — Assignment — Option to determine lease — Option ceasing to have effect after assignment of lease — Lease assigned but assignee never registered as proprietor under Land Registration Act 1925 — Whether exercise of option effective
In July 1989
the respondent landlords granted the first appellants a lease of business
premises for a term of 25 years at an initial rent of £1.3m pa, subject to
five-year reviews. The lease contained a break clause allowing the first
appellant to determine the lease at the end of the seventh year of the term;
the provisions of the clause were expressed as personal, were not capable of
assignment and would cease to have effect on assignment. In August 1989 the
first appellants were registered as proprietors of the lease, and have remained
so registered. In 1993 the first appellants became a wholly owned subsidiary of
the second appellants, and it was decided to transfer the business and assets
of the first appellants to the second. In December 1993, following a licence to
assign granted by the landlords and the execution of the necessary documents,
the first appellants gave up possession of the premises and the second
appellant commenced paying the rent to the landlords. In September 1994 the
first appellants served notice under the break clause. In the court below the
judge held that the lease had been assigned and that therefore the break clause
could no longer be implemented. The appellants appealed.
clause the first appellants were entitled to serve the notice terminating the
lease. Under section 22 of the Land Registration Act 1925 the assignment of the
legal estate in the lease was not effective as the first appellants were never
registered as the proprietors. Assignment in the break clause meant assignment
of the legal estate, which remained with the first appellants: Gentle v Faulkner
applied. There was no detriment relied on by the landlords such as to make it
inequitable for the first appellants to assert that there had been no
assignment.
The following
cases are referred to in this report.
Gentle v Faulkner [1900] 2 QB 267; 16 TLR 397
R v Edwards, ex parte Joseph [1947] KB 392; [1947] 1 All ER 314
Rodenhurst
Estates Ltd v Barnes Ltd [1936] 2 All ER 3
Rose,
In re [1949] Ch 78; [1952] Ch 499; [1952] 1 All ER
1217; [1952] 1 TLR 1577, CA
This was an
appeal by the plaintiffs, Brown & Root Technology Ltd and Brown & Root
Ltd, from a decision of Judge Paul Baker QC refusing the appellants relief
claimed in an originating summons to which Sun Alliance & London Assurance
Co Ltd were defendants.
Kim Lewison QC
(instructed by Vanderpump & Sykes, of Enfield) appeared for the appellants;
Nicholas Dowding (instructed by Bates & Partners) represented the
respondents.
Giving
judgment at the invitation of Butler-Sloss LJ, Mummery LJ said: This is an appeal from an order of Judge
Paul Baker QC (sitting as a judge of the High Court) on June 16 1995 in
proceedings brought by lessees of office premises against the lessors for a
declaration that the lease would determine in consequence of the service of a
notice by the lessees pursuant to the provisions of a break clause.
The judge made
a declaration that:
on the true construction
of the lease dated the 24th July 1989 made between (1) the Defendant (2) the
1st Plaintiff (then known as Brown & Root Vickers Ltd) and relating to 150
The Broadway, Wimbledon, London SW19: —
(1) The 1st
plaintiff was not entitled to serve the notice of determination dated 19th
September 1994;
(2) The lease
will not determine pursuant to that notice.
The lessees
served a notice of appeal dated July 26 1995 on the ground that the judge had
erred in law in his construction of the relevant provisions of the lease. The
lessors served a respondents’ notice dated August 3 1995 contending that the
judge’s decision should be affirmed on an alternative ground of estoppel.
Background
facts
As appears
from the affidavit evidence sworn in support of and in opposition to the
lessees’ originating summons, there has never been any dispute about the
relevant facts.
On July 24
1989 the lessors, Sun Alliance & London Assurance Ltd (Sun Alliance)
granted a lease for a term of 25 years from June 24 1989 at an initial rent of
£1.3m pa, with five-year reviews, to the first appellants, Brown & Root
Technology Ltd (‘Technology’), known as Brown & Root Vickers Ltd until a
change of name on June 1 1993. Technology were, at the time of the grant of the
lease, a partly owned subsidiary of the second appellants, Brown & Root Ltd
(‘B&R’). The appellants are members of a group of engineering companies.
The premises consisted of offices at 150 The Broadway, Wimbledon, London SW19.
Technology were registered as the proprietors of the lease on August 17 1989
and have remained so registered.
Clause 8.1 of
the lease entitled the lessees to give notice to terminate the lease by serving
not less than 12 months’ notice expiring at the end of the seventh year. That
notice would be effective to determine the term upon what was defined as ‘the
first determination date’. Technology subsequently purported to serve such a
notice, but its effectiveness is disputed by reason of the provisions of clause
8.4 of the lease:
the
provisions contained in this sub clause 8.1 of this clause shall be personal
and of benefit only to Brown & Root Vickers Ltd and shall not be capable of
being assigned or otherwise dealt with by the said Brown & Root Vickers Ltd
with the intent that the rights vested in the lessee under sub clause 8.1 shall
cease to have effect upon the assignment of the lease by the lessee.
In 1993 Technology
became a wholly owned subsidiary of B&R. At the end of May 1993 it was
decided that B&R would take a transfer from Technology of their business
and assets, including the lease. Sun Alliance granted a licence to assign. The
necessary conveyancing documents in proper form were executed on December 10
1993. Technology gave up the property on that date. The records of Sun Alliance
were altered so that B&R replaced Technology as the recorded tenants. Rent
was invoiced to and paid by B&R, who had already started to pay the rent to
Sun Alliance. There was an exchange of letters on December 13. B&R’s letter
to Sun Alliance’s solicitors stated:
I refer to
our previous correspondence in the matter and confirm that completion of the
licence and assignment occurred on the 10th December by way of telephone
exchange. Please forward to me as soon as possible the tenant’s signed
counterpart of the licence to assign.
Sun Alliance’s
solicitors’ letter stated:
We now
enclose the licence duly dated 10th December last as agreed and have dated our
copy of the transfer with the same date. There is accordingly no need to
register the transfer as we are now closing our file.
(That was a
reference to the requirement in a clause of the lease to register particulars
in the lease.)
The transfer
of the lease, which was registrable, has never in fact been registered at HM
Land Registry in the name of B&R. Owing to unresolved stamp duty problems
B&R failed to submit the transfer for registration.
On September
19 1994 Technology served a notice on Sun Alliance purporting to terminate the
lease at the expiry of the seventh year (June 24 1996). Sun Alliance refused to
accept that Technology’s notice was valid and effective to terminate the lease.
Judge’s
decision
The issue for
decision by the judge was whether there was an ‘assignment of the lease by the
lessee’ within the meaning of clause 8.4 of the lease. If there was an
assignment, Technology were not entitled to serve the break notice, as the
right to serve such a notice under clause 8.1 ceased to have effect upon an
assignment.
The judge
upheld the contention of Sun Alliance that the lease was not effectively
terminated by service of the notice, as there had been an assignment of the
lease by Technology on December 10 1993. He accordingly refused to make the
declaration sought by Technology and B&R that, on the true construction of
the lease, the lease would determine on June 24 1996 in accordance with clause
8.1 and made the order already referred to.
The judge’s
reason for finding in favour of Sun Alliance, as explained in his judgment now
reported in [1996] Ch 51, was that the assignment of the lease by Technology to
B&R took place when it was completed; and it was completed on December 10
1993 when Technology gave up the property subject to the lease and, having done
all in their power to vest the lease in B&R, became a bare trustee for
B&R of the legal title to the lease. B&R were the assignees of the
lease, even though the legal estate had not been effectively transferred by
entering the name of B&R in the Land Register as the legal proprietor.
The judge
referred to the relevant provisions of the Land Registration Act 1925, in
particular section 22(1), which relates to the registration of dispositions of
leaseholds:
A transfer of
the registered estate in the land or part thereof shall be completed by the
Registrar entering on the register the transferee as proprietor of the estate
transferred, but until such entry is made the transferor shall be deemed to
remain the proprietor of the registered estate: and where part only of the land
is transferred notice thereof shall also be noted on the register.
After
reviewing the authorities, on which the judge commented that none were
‘directly in point’, he concluded at pp67H to 68A:
I accept, in
effect, the defendant’s submissions, that, where it is necessary to fix a date
on which the assignment takes place, that date, in my judgment, is the date on
which it is completed. The tenant/assignor gives up the property on that date;
he has no control over the stamping of the transfer, or its submission to the
Land Registry. He becomes a bare trustee for the assignee as regards the legal
title. The landlord, a fortiori, has no such control. There is no ground for
suggesting that either the assignor or the landlord can compel the assignee to
submit the transfer for registration.
The judge
rejected the submission of Technology and B&R which started from the
provisions of the Land Registration Act and was summarised as follows by the
judge at p65B:
… it is said
here that the assignment means the assignment of the legal estate, and this
does not occur until the name of the assignee is entered on the register. Until
that happens the transferor is deemed to remain the proprietor of the lease. It
is that conclusion that I am invited to draw from those authorities and the
statutory language.
Although, in
view of that conclusion, it was not necessary for the judge to deal with an
argument on estoppel by Sun Alliance, the judge briefly dealt with that point
at p68D:
I would say
that on this issue I would accept that a representation had been made to the
landlord that an assignment had taken place, and the landlord could expect that
it would be registered in due course quite shortly. But I think the landlord is
in a much more difficult position in regard to establishing any reliance to his
detriment. What he had actually done is to change his records and collect the
rent. That did not amount to very much. It was submitted to me generally that
the landlord had changed his overall position and that was sufficient ,that it
accepted the assignment and changed its position by accepting the assignee as
the new lessee. The particular instances of rent and records and the general
position that the landlord had accepted the assignee are not sufficient in
themselves for reliance, and I would not have accepted that the tenant was
estopped as against the landlord. I would respectfully associate myself with
the way that Hoffmann J dealt with it in Banner Industrial & Commercial Properties
Ltd v Clark Paterson Ltd [1990] 2 EGLR 139. The differences are too
trivial to satisfy the test of reliance.
In their
respondents’ notice Sun Alliance contend that the judge’s decision should be
affirmed on the alternative ground that, in all the circumstances, Technology
and B&R are estopped from denying that the lease was assigned by Technology
to B&R prior to service of the break notice in September 1994.
Appellants’
submissions
A striking
feature of the rival submissions before the judge and on this appeal is that
they start from different points.
As the judge
observed at p65B of his judgment, the argument for Sun Alliance starts from
clause 8.4 itself and concentrates on what is meant, in the provisions of that
clause, by ‘an assignment of the lease by the lessee’. In contrast, the
submissions of Technology and B&R start, as the judge observed at p61G,
from the provisions of the Land Registration Act concerning effective dispositions
of registered leasehold interests. Those submissions, repeated and elaborated
on this appeal, are that Technology were not prevented from exercising their
right to terminate the lease by service of a notice on the ground that the
lease had been assigned within the meaning of clause 8.4. On the true
construction of section 22 of the Land Registration Act an assignment of the
legal estate in the registered lease was not effective, as B&R were not
registered as proprietors. The legal estate in the lease therefore remained at
all times vested in Technology. B&R had an equitable interest at most.
Clause 8.4 only caused the right conferred by clause 8.1 to cease to have
effect if there was an assignment of the lease by Technology. In the absence of
registration of B&R as proprietors, there had been no assignment of the
lease. Reliance was placed on Gentle v Faulkner [1900] 2 QB 267,
a case on the construction of a covenant against assignment. It was submitted
that, contrary to the view of the judge, the case was indistinguishable from
the present case. In brief, the essential point is that the assignment
referred to in clause 8.4 must be an assignment of the legal estate, which, in
the absence of registration, remained with Technology.
The absence of
control by Technology over the stamping of the transfer and the submission of
it to the Land Registry were irrelevant considerations. Contrary to the view of
the judge, there was in fact a duty on Technology to register imposed by the
terms of section 22 (1) that the transfer of a registered lease ‘shall be
completed’.
The judge’s
reliance on authorities relating to bequests and inter vivos gifts of
shares was criticised. The judge cited from In re Rose [1949] Ch 78 and
[1952] Ch 499 which, in the view of the judge, showed that:
… in a case
where the transfers were handed over and the relevant share certificates (that
is a point that is made in both cases, that the relevant share certificates
were handed over), and the registration then occurred after the critical date,
death in the one case and the turning point for tax in the other, in such
circumstances the documents took effect from the date of handing over and not
subsequent registration.
The judge
observed at p67H that the cases were ‘not directly in point’. It is submitted
on behalf of Technology and B&R that those cases are irrelevant, as they
were concerned with the transfer of shares in the context of the construction
of a will or of an inter vivos gift. This case is concerned with the
legal rights of the parties to a lease: Technology are the lessees. Have they
made an assignment of the lease? In that context the relevant estate is not the
equitable interest, which may have passed to the assignee as a matter of
contract, but the legal estate and its effect on third parties, such as the
lessors, who are concerned with the location of the legal estate. It is the
owners of the legal estate to whom the lessors look for the payment of rent and
performance of the lessees’ covenants.
On the
estoppel question, it was contended that the judge was right and that
Technology were not estopped, as against Sun Alliance, from asserting that
there had been no assignment and that clause 8.4 did not apply. The essence of
the argument of Technology and B&R on this point was that, even assuming
that there was a representation on their behalf that the assignment had been
completed, no estoppel would arise, because no detriment had been suffered by
Sun Alliance as a result of reliance and a change of position, such as might
make it unconscionable or inequitable to allow Technology and B&R to go
back on their representation. The most that Sun Alliance could say in relation
to change of position was in connection with the records and invoicing for
rent. That was not detrimental reliance sufficient to raise an estoppel.
Submissions
of Sun Alliance
Sun Alliance’s
answer to those submissions is short and simple: this is not a case about the
technical rules relating to Land Registration. It is a question of the true
construction of a particular provision (clause 8.4) in a lease and of the
intention of the parties. The fact was that, as far as Technology and Sun
Alliance were concerned, there had been an effective assignment of the lease.
Technology had done all in their power to divest themselves of their interest
in the lease. As far as Sun Alliance were concerned that had been done and they
had acted accordingly. Mr Nicholas Dowding supported the decision of the judge
by citation of the same authorities (and the further case of R v Edwards,
ex parte Joseph [1947] KB 392), and by detailed reference to other
provisions of the lease (clauses 3.15, 3.16 and 3.17, in particular).
On the
estoppel point, Mr Dowding cited Rodenhurst Estates Ltd v Barnes Ltd
[1936] 2 All ER 3 at p14 in support of a claim of estoppel by representation.
Sun Alliance were informed that the assignment had been completed and, in
reliance on that statement, had altered their records, demanded rent from
B&R and treated B&R as the tenants occupying the premises in their own
right. By being kept in the dark about the true position, Sun Alliance had lost
the opportunity to consider their position. A similar submission was made on
estoppel by convention: both parties acted on the common, but mistaken,
assumption engendered by Technology and B&R that there was an assignment of
the lease by Technology on December 10 1993. Sun Alliance had been misled into
thinking that they had a new tenant and had acted accordingly. It would be
wrong to allow Technology and B&R to depart from the common assumption
which they themselves had engendered: for example, by allowing B&R to raise
the absence of registration as a defence to a direct claim for rent by Sun
Alliance.
Conclusion
In my
judgment, Technology were entitled, on the correct construction of clause 8.4
of the lease, to serve the notice terminating the lease. I am persuaded by the
excellent submissions of Mr Kim Lewison QC that the judge adopted an approach
which, though sound in its analysis of the position in equity as between
Technology and B&R, was inappropriate to determine the respective rights in
law of Sun Alliance, as lessors, and Technology, as lessees, under the lease. I
would allow the appeal and, subject to further argument on the precise form of
order, would make a declaration that the lease determined on June 24 1996 in
accordance with clause 8.1 of the lease.
My reasons
are:
(1) Clause 8.4
had two purposes: first, that the right to terminate should be unassignable:
second, that, if there was an assignment of the lease, the personal right to
terminate conferred on Technology should cease to have effect. The second
purpose is relevant to the resolution of this appeal, which turns on the
identification of the precise event occasioning Technology’s cesser of the
right to invoke the break clause. The critical question is: has there been an
assignment of the lease by the lessee and, if so, when did that event occur?
(2) It is
common ground that there has been no transfer (and therefore no assignment) of
the legal title to the lease; that, as between Technology and B&R, the
equitable title to the lease was capable of passing by virtue of a specifically
enforceable contract to assign the lease; that, if this were unregistered land,
the assignment would occur on the execution of the deed of assignment and the
conveyance of the legal estate thereby, and not on the conclusion of the
contract to assign; and that, depending on the context, the passing of the
equitable or beneficial interest may amount to a transfer or assignment of the
property in question, even though there has been no registration of the
transfer, as required by statute, to perfect the legal title. The judge
referred to the cases of In re Rose [1949] Ch 78 and In re Rose
[1952] Ch 499 as instances of a bequest of shares and an inter vivos
gift of shares which took effect as between donor and donee and in accordance
with donative intent before the registration of the transfers of the shares
pursuant to the provisions of the Companies Act. Until registration there was
no transfer so far as the company was concerned, but that did not prevent the
gift from being effective as between others.
(3) This case
is not a matter of beneficial ownership between parties to the transfer of the
lease: the issue of assignment or no assignment affects the legal position of a
third party, the lessors, who have given their licence to assign but are not a
party to the transfer. As was observed by Jenkins LJ in In re Rose
[1952] Ch 499 at p508 it is necessary to keep clear and distinct the position between
the transferor and the transferee and the position of a third party. Transfer
of the beneficial title is not, in this context, relevant to the legal
relationship between the lessees and the lessors. The issue is not what rights
Technology and B&R have against each other, but what rights Technology and
Sun Alliance have against each other. That is a question of legal, not
equitable, rights.
(4) As between
lessors and lessees, there is binding Court of Appeal authority in Gentle
v Faulkner (supra) for the proposition that ‘assignment’ means,
in the absence of a context showing an extended meaning, an assignment of the
legal estate, and not of the beneficial interest, eg by declaration of trust of
the lease. It is not a matter of intention to assign, a point highly relevant
to the passing of beneficial title, but of whether a defined event has
occurred. That event is not ‘completion’, as Mr Dowding contended; it is the
transfer of the legal title to the lease, so as to create the legal
relationship of lessor and lessee between B&R and Sun Alliance.
On the
estoppel point, I agree with the judge that there has been no detrimental
reliance by Sun Alliance such as to make it inequitable for Technology to
assert, contrary to any representation or shared assumption, that there had
been no assignment of the lease within the meaning of clause 8.4. For these
reasons I would allow the appeal.
Butler-Sloss LJ and Sir Ralph
Gibson agreed and did not add
anything.
Appeal
allowed.
