Landlord and tenant — Solus agreements — Leases containing petrol ties — Assignment of reversion — Whether assignee can enforce benefit of ties against tenants
In these two
actions both plaintiffs are tenants under tenancies of petrol-filling stations
originally granted by Texaco Ltd. The leases contain solus agreements by which
the tenants covenant to keep the service stations open for the sale of specified
petroleum products as are marketed from time to time by the landlord for resale
and will not sell motor fuel other than that supplied by the landlord. There
were further obligations in respect of other products and covenants by the
landlord to use its best endeavours to supply the specified products. The
reversions to the leases were acquired by Save Service Stations Ltd, the second
defendant in each action. The tenants contended that the covenants were
personal covenants and the ties were not enforceable by the second defendant as
assignee of the reversions.
against the tenants. Clear words to show that successors were intended to have
the benefit of the covenants was not necessary. Section 141 of the Law of
Property Act 1925 will operate to pass the benefit of covenants in a lease to
an assignee of the reversion without need of any reference in the lease to
successors in title. Section 78 of the 1925 Act can be applied to make good any
such omission. Nothing on the face of the leases showed that the covenants were
personal to Texaco. Whether the personality of the landlord is of commercial
importance to the tenant is not a relevant consideration. The covenants do
affect that mode of user of the land and therefore touch and concern the land.
The following
cases are referred to in this report.
Clegg v Hands (1890) 44 ChD 503
Kemp v Baerselman [1906] 2 KB 604
Kumar v Dunning [1989] QB 193; [1987] 3 WLR 1167; [1987] 2 All ER
801; [1987] 2 EGLR 39; (1987) 283 EG 59, CA
Petrofina
(Gt Britain) Ltd v Martin [1966] Ch 146;
[1966] 2 WLR 318; [1966] 1 All ER 126, CA
Regent
Oil Co Ltd v JA Gregory (Hatch End) Ltd [1966]
Ch 402; [1965] 3 WLR 1206; [1965] 3 All ER 673
Swift
(P&A) Investments v Combined English Stores
Group plc [1989] AC 632; [1988] 3 WLR 313; [1988] 2 All ER 885; [1988] 2
EGLR 67; [1988] 43 EG 73, HL
Tolhurst v Associated Portland Cement Manufacturers Ltd [1902] 2 KB
660; 71 LJKB 949; 87 LT 465; 51 WR 81, CA
Tulk v Moxhay (1848) 2 Ph 774; [1843-60] All ER Rep 9
In two
applications the respective plaintiff tenants, Caerns Motor Services Ltd and
Robert Geddes and others trading as G&C Service Stations, sought
declarations as to the enforceability of solus agreements in leases granted by
the first defendant, Texaco Ltd, and later assigned to the second defendant,
Save Service Stations Ltd.
Ian Boyle QC
and Philip Jones (instructed by Lipkin Gorman, agents for Philip Conn & Co,
of Manchester) appeared for the plaintiffs; Kim Lewison QC and Edward Cole
(instructed by Pannone & Partners, of Manchester) represented the first
defendant; Paul Morgan QC and Martin Rodger (instructed by Osborne Clarke, of
Bristol) represented the second defendant.
Giving
judgment, JUDGE PAUL BAKER said: I have before me two actions in which
the issues are identical. The plaintiffs in the two actions are lessees of
petrol stations granted by Texaco. The leases are in identical terms mutatis
mutandis. In the case of the first action, where the lessee is Caerns Motor
Services Ltd (‘CMS’) there is one site. In the other action, which is a
partnership trading as G&C Service Stations, there are two or three sites.
These leases, unsurprisingly, contain a solus agreement. What has happened here
is that Texaco assigned the reversion on those leases to the second defendant,
Save Service Stations Ltd (‘SSS’), subject to the leases.
The question I
have to resolve is whether that assignee, the second defendant, can enforce the
covenant in relation to the petrol tie against the two tenants. The plaintiffs
say no, because it is a personal covenant and not concerning the land. They
have brought before the court, under Ord 14A, questions of law and construction
to be resolved. It is agreed by the defendants that that is an appropriate way
of proceeding. Just to take the first summons — and they are in identical terms
— brought by motion before the court, it is whether the second defendant, SSS,
is entitled to the benefit of the purchase obligations of CMS, the first
plaintiff, following assignment of Texaco’s reversionary interest to SSS. The
next question is whether SSS is subject to the burden of the sale obligations
of Texaco following assignment of Texaco’s reversionary interest to SSS. There
are similar questions in relation to the other plaintiffs.
The
plaintiffs’ evidence in support of that application sets out the formal stages
and so forth that have occurred. There is no dispute about any of that. But it
is, I may remark at this stage, devoid of any evidence that any special
relationship existed with the first defendant or that there was any anticipated
difficulty in dealing with the second defendant. Before passing to the
questions of law, I should refer further to the evidence which has been filed
by the defendant. There are certain passages of that which I should note. I go
first to the affidavit of Mr Frost, who is the second defendant’s chairman. He
says in para 7 of the affidavit:
The business
of Save [the second defendant] is to own and operate petrol filling stations.
Since 1991 Save has continued to acquire more sites and it now owns 181.
Then I can go
to para 10:
Save purchases
petroleum product from a number of oil company suppliers in this country and
from an oil trader in common with arrangements operated by most other oil
company suppliers.
11. In the
vast majority of cases, the petrol and diesel purchased from those suppliers is
sold under the ‘Save’ brand name, in the same way that other oil company
suppliers will sell petrol and diesel under their own brand name even though
the product has been purchased from other competitor suppliers under swap deals
or other arrangements.
12. Save also
sells lubricating oil for use in customers’, motor vehicles both under its own
brand name and under other suppliers’ brand names.
Then I think I
can miss out para 13 and go to para 14:
Since 29th
October 1993, Save has been the landlord of the three sites and it has been and
remains in a position to fulfil all of the obligations of the landlord in the
three Tenancy Agreements, including ‘the supply obligations’. Save’s primary
case is that it is not under an obligation to supply Texaco products rather
than products obtained from other sources. However Save is willing, if
necessary, to ensure that the plaintiffs continue to be supplied with exactly
the same range of Texaco petroleum products including motor fuel, lubricating
oils, lubricating greases, preservatives, anti-freeze, speciality oils and
speciality products as was provided by Texaco up to 29th October 1993 . . . For
its part, Save is willing that those products be sold under the Texaco brand
name.
Then going to
the first defendant’s evidence, there are some passages in that I should refer
to. Mr Lambert, who is the commercial sales manager, says in para 11:
The First
Defendants contend that on the assignment of the reversion to the three sites,
the Second Defendants were entitled to the benefit, subject to the burden, of
all the covenants contained in the leases, including the covenants specified in
the Affidavits of Messrs Caerns and Cowie. Upon this basis, we seek the
dismissal of the Plaintiffs’ claims herein.
12.
Alternatively, if the benefit of the purchase obligations of the tenants has
not been transferred to the Second Defendants, then it is submitted that the
Plaintiffs remain bound by their purchasing obligations to purchase from the
First Defendant, and the First Defendant remains bound by its sale obligations
to the Plaintiffs.
13. If this
should be the case, then I confirm that the First Defendant will comply with
its sale obligations as indicated in a letter from the Second Defendant’s
solicitors to the Plaintiffs’ solicitors dated 15th December 1993 . . .
The other
affidavit filed on behalf of the first defendant was from a Miss Amanda Barber
[FRICS], who is a chartered surveyor. She was brought in to supply some
valuation evidence. She is an independent expert. I think I can just go to para
14 which sets out the particulars of the three sites and the rents currently
being charged. The first plaintiff, Caerns Motor Services Ltd, has a term of
three years from November 1 1990 at a fixed rent of £12,000 pa. The second site
is three years from July 10 1987, £2,500 year one, £3,000 year two, £3,500 year
three. The third site is three years from March 1 1988, £5,500 year one, £6,000
year two, and £6,500 year three. Then going to para 16 of her affidavit, she
says:
In my
opinion, the rental value of the service stations on a free of tie basis upon
the lease commencement dates is as follows: . . .
Then, as to
the first one, which of course was the £12,000 one, she gives evidence that it
is £63,500 pa. The second one is at £14,000 pa, and the third one is at £35,000
pa. So it is obvious that the tie has a very depressant effect on the value of
the rent which can be obtained for a site which is free of that tie.
I now go to
the lease. The lease is in a standard form and is made between the landlord of
the first part and the tenant of the second part. So there is no indication
there of either the identity of the landlord or any extended definition of the
landlord to include successors in title. But then the lease proceeds throughout
to refer to the landlord and tenant respectively, as appropriate, until you
come to clause 7 of the main body of the lease which says:
THE Lease
particulars given at the commencement of this Lease are incorporated herein but
where the body of the document contains any extra or extending provisions the
body of the document shall prevail.
Then going to
the lease particulars, which is a sheet of paper attached to the lease, we find
that it contains, among other things, the execution by Texaco. So lease
particulars, ‘The Landlord: Texaco Limited’, and then a London address is given
for that, ‘The Tenant: Caerns Motor Services Limited of Grove Road Service
Station’. The guarantor is left blank. Then ‘The Premises’, and it sets out the
service station and its address. Then ‘The Equipment: The items at the premises
listed in the inventory incorporated in schedule two’. Then ‘The Term:’ (as altered from the original typing) from
November 1 1990 to October 31 1993 ‘and continuing thereafter from year to
year’. The fixed rent is £12,000 pa. The security deposit is £3,000. ‘The
Opening Hours: twenty four hour site’. ‘The Wholetime Operator: Ronald Caerns’.
‘General Provisions: As within by reference to the foregoing particulars’. The
particulars in relation to the other two leases follow the same form.
Then, turning
to the lease itself, there is the demise for ‘the Term’. It is subject to
determination (a) by the tenant giving not less than six nor more than seven
months’, notice expiring at any time within the period of the first 12 months;
and (b) by either the landlord or the tenant giving to the other not less than
six months’, prior notice in writing to that effect expiring at the end of the
said period of three years. So it is quite a short term, but of course it is
right to say that the tenant on expiry of that term would be protected under
the Landlord and Tenant Act 1954, Part II.
Then the rent
is ‘YIELDING AND PAYING therefor the Rents as set out in the Third Schedule’.
That contains quite elaborate provisions for varying the fixed rent for each
period of 12 months during the continuance of the lease and also provisions for
varying what is known as base volume. That is a quantity of litres of motor
fuel supplied by the landlord to the tenant during any period of 12 months.
That has this effect. If the base volume is not reached by 10% or less, then
some further payment is due from the tenant to the landlord. If it is exceeded
by 10% or more, then a further allowance is made by the landlord against the
rent, to the tenant. In this clause there is provision for the landlord to
require the figure of the base volume to be increased. At the same time there
are provisions for the rent to be varied.
I have been
through those in some detail, but I do not propose to take up time in the
judgment just reading them out. Now I come to clause 2:
THE Tenant
HEREBY COVENANTS with the Landlord as follows:
(a) to pay the said rent upon the days and in the
manner as provided in the Third Schedule . . .
Then there
follow a number of clauses which you would find in any lease of business
premises to pay rates and taxes, not to make alterations, keep the premises in
repair, to permit the landlord and superior landlords to view and that sort of
thing. I think the first one of importance that I should dwell on is in clause
2(H), which is a covenant by the tenant:
(i) not to assign charge sub-let or part with or
share the possession or occupation of the Premises or any part thereof.
(ii) (a) it being hereby agreed and declared between
the parties that the identity and composition of the Tenant is of paramount importance
to the Landlord in granting this Lease then in any case where the Tenant is a
limited company no change of control as hereinafter defined shall take place in
such company
Then there are
supplemental provisions elaborating what is change of control. So that is an
absolute covenant against assignment and an express provision as to the
importance of the identity of the tenant.
Now I come to
(I) which is the critical covenant for the purposes of this case, that is the
tie covenant:
throughout the
Term the Tenant:
(i) will at all times carry on upon the Premises
and will not for any period or periods of time discontinue wholly or in part
the business of a Petrol Filling and Service Station and will keep the same
open for the sale of such of the specified products (as hereinafter defined) as
are marketed from time to time by the Landlord for resale from Petrol Filling
Service Stations during the Opening Hours
(ii) (a) will
purchase from the Landlord on the Landlord’s standard terms from time to time
shown on its delivery notes/sales invoices (but so that in the event of
conflict between such terms and the provisions of this Lease then the latter
shall prevail) the Tenant’s total requirements for resale at and for use at and
or about the Premises of such brands and grades of motor fuel as shall be
marketed by the Landlord from time to time and will not sell nor advertise for
sale nor permit to be sold or advertised for sale at the Premises any motor
fuel supplied by any other supplier.
So that is the
important tie in respect of motor fuel. Then it goes on to other products.
(b) will purchase from the Landlord on the
Landlord’s standard terms from time to time shown on its sales invoices (but so
that in the event of conflict between such terms and the provisions of this
Lease then the latter shall prevail) and will at all times keep sell advertise
conspicuously display and exclusively use for the Tenant’s own consumption on
the Premises such brands and grades of petroleum products (other than motor
fuels) lubricating oils lubricating greases preservatives anti-freeze
speciality oils and specialty products as shall be marketed by the Landlord
from time to time and all other products from time to time marketed by the
Landlord in the dealer market either under the ‘Texaco’ brand name or under
such other name or style as the landlord may designate from time to time.
The products
mentioned in paragraphs (a) and (b) of this sub-clause are herein collectively
referred to as ‘the specified products’.
Within this
same covenant there are further provisions designed to regulate the carrying on
of the business at that petrol station, which I do not propose to read out, but
the clause does go on at some length and imposes restrictions on the manner in
which the station is to be conducted so that it remains a petrol-filling
station primarily for the sale of motor fuels and lubricating oils.
In the rest of
the tenant’s covenants there is nothing particularly indicative one way or the
other whether this is a personal covenant or an ordinary landlord and tenant
covenant. That brings me to the end of tenant’s covenant, and then I come to
clause 3 of the lease, which are the landlord’s covenants, and the first one of
those is the normal covenant for quiet enjoyment. The second one is important:
(B) throughout the Term the Landlord will subject
to the provisions of Clause 2(I)(vii)(viii) and (ix) hereof — those are parts
of the clause that I have already been alluding to — use its best endeavours to
supply the Tenant with the Tenant’s requirements of the specified products in
accordance with the terms hereof . . .
Then there are
provisos to allow for possibilities of failure to make deliveries because of
strikes, labour difficulties and so on. Those qualifications go on for two or
three pages and allow the tenant in the case of shortages caused by those
matters to purchase from other suppliers. Then I should note also in the
landlord’s covenants the insurance covenant:
the Landlord
will insure and keep the Premises in the joint names with such insurers as it
shall nominate and against such risks and on such terms as it shall from time
to time in its absolute discretion stipulate for the full cost of reinstatement
of the Premises (including Architects Surveyors and other professional fees) .
. .
Then there is
a proviso which I do not think I need read out.
The general
provisos in the lease come under clause 4. There is the usual proviso for
re-entry, inter alia, on a breach or non-observance of any of the
obligations of the tenant. I think that brings me to the end of the lease
because I have already mentioned the third schedule. The fourth schedule: this
incorporates further obligations on the part of the tenant. These are detailed
instructions as to how the tenant is to conduct the station: providing
courteous and efficient and expeditious service and keeping the premises clean
and so forth, and keeping an accurate and efficient and comprehensive record of
all sales, and detailed matters of that sort. Perhaps I should mention that
when the reddendum and the third schedule are read together the rent is
so defined as to include payments for the products of the landlord supplied to
the tenant.
The question,
as indicated by the summons, is as to whether that covenant in clause 2 is
enforceable by the second defendant as the assignees of the reversion on the
one hand, or whether it was personal and only Texaco, if anyone, can continue
to enforce it. I should say that there has been the most excellent argument
throughout the case from all counsel. Mr Ian Boyle QC, for Caerns Motor
Services Ltd, takes two points as to this. He said, first of all, it is a
personal covenant and, second, that, in any event, it does not touch and
concern the land and therefore does not pass until section 141 of the Law of
Property Act.
For his first
proposition that it is personal, he relies on two authorities which I can
shortly look at. The first one is the decision of Tolhurst v Associated
Portland Cement Manufacturers Ltd [1902] 2 KB 660. This is the Court of
Appeal decision. It went to the House of Lords where the decision was affirmed.
This was not a case as between landlord and tenant. It was a contractual case,
where:
. . . the
owner of land contracted with a company to supply them for fifty years with at
least 750 tons of chalk per week, and so much more as they might require for
their manufacture of cement.
The company
went into liquidation and transferred all its business and property to a second
company which had an extensive business. It was held that:
. . . though
the second company could not maintain an action on the contract [that is to say
to get deliveries of this chalk] in their own right as assignees of the company
with whom the contract was made, the contract was a subsisting one between the
original parties to it, and had not been put an end to by the liquidation of
the original company or the assignment to the second company . . .
So one sees
the issue here is as to the extent to which the benefit of contractual
obligation can be assigned. The decision does not assist the plaintiffs in this
case, but there were observations to which my attention was called. First of
all, at p668 in the judgment of Sir Richard Henn Collins MR:
The special
right of ignoring altogether the consent of the person upon whom the obligation
lies to the substitution of one person for another as the recipient of the
benefit would seem in principle and in common justice to be confined to those
cases where it can make no difference to the person on whom the obligation lies
to which of two persons he is to discharge it . . .
Missing out
the next part, his lordship said at p669:
There is,
however, another class of contracts, where there are mutual obligations still
to be enforced and where it is impossible to say that the whole consideration
has been executed. Contracts of this class cannot be assigned at all in the
sense of discharging the original contractee and creating privity or quasi
privity with a substituted person.
Then there is
some citation of authority.
To suits on
these contracts, therefore, the original contractee must be a party, whatever
his rights as between him and his assignee. He cannot enforce the contract
without shewing ability on his part to perform the conditions performable by
him under the contract. This is the reason why contracts involving special
personal qualifications in the contractor are said, perhaps somewhat loosely,
not to be assignable. What is meant is, not that the contracts involving
obligations not special and personal can be assigned in the full sense of
shifting the burden of the obligation on to a substituted contractor any more
than where it is special and personal, but that in the first case the assignor
may rely upon the act of another as performance by himself, whereas in the
second case he cannot. He cannot vouch the capacity of another to perform that
which the other party to the contract might, however unreasonably, insist was
what alone he undertook to pay for — namely, work to be executed by the party
himself. If, for instance, he had ordered a painting from some unknown artist
of his own choice, he could not be compelled to accept instead of it the work
of another artist, however eminent.
I am invited
to apply that to this case, that there is a special relationship between a
petrol company and its lessees, and the petrol company cannot assign the
benefit in such a way that it could claim to have the contract performed by
somebody else.
There is one
other case on this where in fact that principle was applied. It is the case of Kemp
v Baerselman [1906] 2 KB 604, where, reading the headnote:
The defendant
contracted with K, a cake manufacturer to supply him with all the eggs of a
specified quality ‘that he shall require for manufacturing purposes for one
year,’ K undertaking not to purchase eggs from any other merchant during the
year so long as the defendant was ready to supply them. During the year K
transferred his business to a company, whereupon the defendant claimed to be
discharged from his contract, and refused to supply any more eggs either to K
or to the company. In an action brought by K and the company, as co-plaintiffs,
for breach of the contract:
Held, that the defendant’s contract was with K personally, and that the
benefit of it was not assignable, and that the defendant was discharged from
his obligation.
The Lord Chief
Justice, Lord Alverstone, ends his judgment by saying:
I base my
decision on the ground that clauses 1 and 5 shew that the contract was a
personal one, the measure of the defendant’s obligations to supply being the
extent of Kemp’s personal requirements, and the undertaking by Kemp not to buy
eggs of other merchants being an undertaking which was purely personal to
himself.
So the amount
of the eggs was dictated by the identity of the purchaser as a manufacturer of
cakes and the weight of the obligation could not be altered adversely to
Baerselman by the manufacturer transferring his company to a bigger
organisation.
Again there is
no question there of landlord and tenant at all. They are contractual cases
only. Of course it is trite law in the case of contracts that the benefit may
possibly be assigned but not the burden in any circumstances. Hence the
principle that the benefit can be assigned has been somewhat qualified as a result
of these cases, and we now have the principle which I deduce from them, that
the benefit must not be assigned so as to increase the burden. Now, in leases
one knows that, by way of exception to the contractual position, the burden can
be assigned in certain circumstances. So I find these cases of very limited
application to the problems which arise here. It was submitted to me, as a
result of those cases, that the benefit of the contract is assignable only in
cases where it can make no difference to the persons on whom and as to which of
two persons the obligation is to be discharged. Having regard to the
authorities I am to come to, it seems to me that that principle as such has no
place in determining whether a tenant’s covenant in a lease can be enforced or
not by a reversioner. Before passing from this, I should say that there is
nothing on the face of the lease to show that Texaco only is the party who
should perform the landlord’s obligations and can insist upon the tenant’s
obligations being performed; there is a strong contrast between the position of
the landlord and the non-assignability of the lease on the part of the tenants.
The next
inquiry is whether the covenant touches and concerns the land. For that one has
to start with section 141 of the Law of Property Act 1925. The foundation of
the defendants’ case rests on this section.
(1) Rent reserved by a lease, and the benefit of
every covenant or provision therein contained, having reference to the
subject-matter thereof, and on the lessee’s part to be observed or performed,
and every condition of re-entry and other condition therein contained, shall be
annexed and incident to and shall go with the reversionary estate in the land,
or in any part thereof, immediately expectant on the term granted by the lease,
notwithstanding severance of that reversionary estate, and without prejudice to
any liability affecting a covenantor or his estate.
That is a
section under which the rent and benefit of the lessees’ covenants run with the
reversions, subject to them having reference to the subject-matter.
That was not
by any means a new provision. The first was a statute of Henry VIII, which
followed on the dissolution of the monasteries when problems arose after the
monastery lands had passed into other hands. Monasteries and other religious
houses had frequently granted leases so it was necessary to provide a statutory
right for the lessees’ covenants to run with the reversion which had been
obtained.
The essential
phrase of the modern statue is ‘having reference to the subject-matter’. Do the
covenants in question here, and particularly the tied covenant in the first
part of the tenant’s covenant 2(i), have reference to the subject-matter? That phrase is to be identified with the
terminology used in the old cases ‘touch and concern the land’. It is regarded
as equivalent to that.
The plaintiffs
here rely on two recent cases, one in the Court of Appeal and one in the House
of Lords, to say that these covenants do not measure up to that standard,
whether you call it ‘touching and concerning’ or ‘having reference to the
subject-matter’. The first one is Kumar v Dunning [1989] QB 193*.
*Editor’s
note: Also reported at [1987] 2 EGLR 39.
This was a
case where it was a question of whether a surety’s covenant which had been
granted on assignment could be relied on by an assignee of the reversion.
The plaintiff
assigned the unexpired residue of his underlease of business premises. The
assignee covenanted with the head lessee to pay the rent and perform and
observe the underlessee’s covenants. Two sureties entered into a covenant with
the head lessor to pay all losses, costs, damage and expenses occasioned to the
head lessor by the non-payment of rent or breach of any obligation by the
assignee. The head lessor subsequently sold the head lease without expressly
assigning the benefit of the surety covenant. In 1982 the assignee went into
liquidation and stopped paying the rent. The new head lessor demanded from the
plaintiff the arrears of rent which had accrued since the assignee went into
liquidation. The plaintiff paid that sum to the new head lessor and sought to
recover it from the defendants, one of the sureties and the executor of the
estate of the other surety, by commencing an action.
The claim was
dismissed below, but on the appeal it was held:
. . .
allowing the appeal, that the question whether, in the absence of express
assignment, a benefit under a covenant (including the payment of money) could
be enforced by the assignee of the immediate reversion depended on whether the
covenant touched and concerned the land or was merely collateral;
I will read
some passages from the judgment, but an important matter to notice about that
case is that there is no privity of estate between the surety and the assignees
to the reversion. So there could be no question there of a direct application
of section 141. One can see that brought out in this passage from the judgment
of Sir Nicolas Browne-Wilkinson V-C on p199:
Mr Primost
submits that the surety covenant ‘touches and concerns’ the reversion to the
underlease in consequence of which the benefit of such covenant passed . . .
It must be
noted that there is no privity of contract between H&B and the sureties.
Nor is there privity of estate. Accordingly, the Grantees of Reversions Act
1540 [now sections 141 and 142 . . .] is not directly in point. Those
provisions only apply to covenants between landlord and tenant. Where there is
neither privity of contract nor privity of estate, the benefit of a covenant
runs with the land of the covenantee at law if, but only if, the covenant
touches and concerns the land of the covenantee . . . [Then he cites from Megarry
and Wade’s book]. Such a covenant, if it does touch and concern the land,
is enforceable by an assignee of the land against the covenantor, whether or
not the covenantor has any land . . .
So that is the
area of inquiry in that case. Because of that detachment of the covenantor from
any estate in the land, this sort of case and this type of covenant have given
rise to great difficulties of interpretation and determination as to whether
they did touch and concern the land. A number of those cases are gone through
by Sir Nicolas Browne-Wilkinson V-C. Then he says at p204:
From these
authorities I collect two things. First, that the acid test whether or not a
benefit is collateral is that laid down by Best J, namely, is the covenant
beneficial to the owner for the time being of the covenantee’s land, and to no
one else? Secondly, a covenant simply to
pay a sum of money, whether by way of insurance premium, compensation or
damages, is a covenant capable of touching and concerning the land provided
that the existence of the covenant, and the right to payment thereunder,
affects the value of the land in whomsoever it is vested for the time being.
Therefore, in my judgment, these cases (which were not cited to Walton J) show
that he was in error in holding that a covenant at double remove could not
touch and concern the land.
Then he went
on to hold that the surety covenant did touch and concern the land. He ends his
judgment by saying at p207:
For these
reasons, in my judgment, it is consistent with both principle and authority to
hold that a covenant by a surety, guaranteeing performance of covenants by a
tenant which touch and concern the land, itself touches and concerns the land
and is enforceable by an assignee of the reversion. It follows that H&B
could have enforced the surety covenant against the defendants and that, accordingly,
the plaintiff is entitled to be subrogated to the rights of H&B and recover
from the defendants the sum he has paid to H&B.
So that was a
decision on a covenant where there was no privity of estate. They are
difficult, those cases, because ex hypothesi the
difficult in the case of such a covenantor to show that his obligation touches
and concerns the land than the obligation of an ordinary tenant, who is there
in the land and using it.
Be that as it
may, in that case leave to go to the House of Lords was given but evidently
those parties did not appeal because an exactly parallel case was taken to the
Court of Appeal called P&A Swift Investments v Combined English
Stores Group plc [1989] AC 632*. This was an identical case, leapfrogged to
the House of Lords, where the decision of the Vice-Chancellor that I have just
looked at was approved and the reasoning adopted. At p639G there is the same
point in regard to section 141 taken:
The
relationship between the landlord and a surety in a case such as the present
is, of course, contractual only. The surety has no interest in the land the
subject matter of the demise and there is thus no privity of estate. In
seeking, therefore, to enforce the surety’s covenant, an assignee of the
reversion cannot rely on the Grantees of Reversions Act 1540 . . . the
provisions of which were substantially re-enacted in section 141 of the Law of
Property Act 1925 and which apply only to covenants between landlord and
tenant.
*Editor’s
note: Also reported at [1988] 2 EGLR 67.
Then he says
[at p640F]:
In my opinion
the question of whether a surety’s covenant in a lease touches and concerns the
land falls to be determined by the same test as that applicable to the tenant’s
covenant. That test was formulated by Bayley J in Congleton Corporation v
Pattison . . . and adopted by Farwell J in Rogers v Hosegood .
. .
‘the covenant
must either affect the land as regards mode of occupation, or it must be such
as per se, and not merely from collateral circumstances, affects the value of
the land.’
The meaning
of those words ‘per se, and not merely from collateral circumstances’ have been
the subject matter of a certain amount of judicial consideration . . .
Then he refers
to the Vice-Chancellor’s judgment, and concludes with this test, on which great
reliance is placed by the plaintiff in this case [at p642]:
Formulations
of definitive tests are always dangerous, but it seems to me that, without
claiming to expound an exhaustive guide, the following provides a satisfactory
working test for whether, in any given case, a covenant touches and concerns
the land: (1) the covenant benefits only the reversioner for the time being,
and if separated from the reversion ceases to be of benefit to the covenantee;
(2) the covenant affects the nature, quality, mode of user or value of the land
of the reversioner; (3) the covenant is not expressed to be personal (that is
to say neither being given only to a specific reversioner nor in respect of the
obligations only of a specific tenant); (4) the fact that a covenant is to pay
a sum of money will not prevent it from touching and concerning the land so
long as the three foregoing conditions are satisfied and the covenant is
connected with something to be done on, to or in relation to the land . . . I
am entirely satisfied that the decision of the Court of Appeal in Kumar v
Dunning . . . was correct and reached for the correct reasons.
The
defendants’ position on this is that that test, and in particular whether the
covenant benefits only the reversion for the time being and if separated from
the reversion ceased to be a benefit to the covenantee, applies only to the
second branch of Bayley J’s formulation back in 1808 and does not really affect
the land as regards the mode of occupation. It is merely construing and giving
guidance on applying the second branch of the formulation.
The plaintiff
principally submits that the covenant is personal and therefore it does not
touch and concern, but in submissions to me yesterday it was said that both
requirements have been decided by the House of Lords to be part of the working
test which the courts should apply to solve the problems, and that I should use
that test to resolve whether this covenant that I have before me is or is not a
personal covenant not running with the reversion.
I am not going
to accede to that approach to it. As I indicated, their lordships there were
not dealing with a case of the correct application of section 141 of the Law of
Property Act which, to my mind, is the starting point of the investigation.
When we have travelled through that, it will be found that the test does apply
and gives a satisfactory result in this case. It is not right, in my judgment,
to start using that test where their lordships have said in both cases that the
section is not applicable in the circumstances they had to deal with. Of course
the inquiry is the same. It is still an inquiry as to whether the relevant
covenant touches and concerns the land, but one has to approach it differently,
in my judgment, according to whether one is applying section 141 or whether one
is looking at covenants where there is no privity of estate. One reason why one
has to do that is because the application of section 141 and its predecessor
has been encrusted with many authorities at which one has to look before
considering and applying a test which has been devised for the other class of
case.
So I accept
the defendants’ submissions in this sense: there is really only one question
here, whether the covenants relating to the supply of petrol touch and concern
the land, or have reference to the subject-matter to use the statutory
language, within the meaning of section 141 of the Law of Property Act 1925.
The tie
certainly affects the mode in which the land is used. We also start with this,
that the reversion on this lease is assignable. Normally a set of tenant’s
covenants have relation to the subject-matter, the leased property. There may
be exceptions and one may be able to identify among the tenant’s covenants some
that do not, but in the main one starts with a set of tenant’s covenants all
having relation to the subject-matter.
There have
been cited to me a number of cases relating to the brewer’s tie in relation to
the supply of beer to public houses. There is such an obvious analogy there
that no one has doubted that one can get useful guidance out of those cases
when one comes to deal with the petrol cases. The leading case, behind which
there is no point in going, is Clegg v Hands (1890) 44 ChD 503, a
decision of the Court of Appeal. This is a case of a brewer’s tie. This case
shows that a covenant of this sort can touch and concern the land. One of the
difficulties which has been presented by these cases is that the elucidation of
that issue has been overlaid by two other problems. One is that there may be
express provisions in the lease which direct the tenant’s obligations to
successors of the business if different from the successors of the reversion.
So sometimes one meets problems of lack of identity between an assignment of
the reversion and an assignment of the business which makes the beer. The other
problem is that the courts have been somewhat hesitant in seeing a business
carried on on land as touching and concerning the land because of the possible
impact of the doctrine of restraint of trade.
With that, we
can look at the case, starting with the headnote:
Messrs A
& B, who were brewers, and also dealers in ale and stout, carrying on
their business at the X Brewery, demised a public-house to the Defendant
by an indenture of lease, in which the term ‘lessors’ was defined to include
each of Messrs A & B, ‘and their each and every of their heirs,
executors, administrators, and assigns,’ and the term ‘lessee’ was defined to
include the ‘executors, administrators, and permitted assigns’ of the lessee.
The lease
contained a covenant by the lessee with the lessors that he would not during
the term, directly or indirectly, buy, sell, or dispose of upon the premises
any ales or stout ‘other than such as shall have been bona fide purchased
of the said lessors, or from them or either of them, either alone or jointly
with any other person or persons who may hereafter become a partner or partners
with them or either of them, provided they or he shall at the same time deal in
or vend such liquors as aforesaid and be willing to supply the same to the
lessee of good quality and at fair current market price’.
A & B [the original lessors] afterwards sold and assigned their brewery,
plant, business, and goodwill to C, a brewer carrying on business at the
Y Brewery, and assigned to him the public-house and the benefit
of the covenant with reference to the sale of beer. About the same time A
& B dissolved partnership, and ceased to carry on business at the X
Brewery, which was shortly afterwards shut up.
One can see there
that C is in a strong position in that he is an assignee, first, of the brewery
business and its good will; second, he is an assignee of the public house
subject to the lease and, third, he is an assignee of the benefit of the
covenant. So there was something of a belt and braces operation. Going on with
the facts:
The Defendant
did not take his beer from C, and in an action brought by A, B,
and C, as co-Plaintiffs, to restrain the Defendant from selling any beer
other than beer purchased from C, either directly or through A &
B, the Vice-Chancellor of the County Palatine Court of Lancaster,
after holding that A & B, having ceased to carry on business, were
not entitled to relief, granted an injunction in favour of C in the
terms of the covenant.
On appeal,
three matters were held:
First, Upon
the construction of the covenant, that the benefit of it was not restricted
either to assigns carrying on the same brewer’s business as the lessors, or to
assigns who themselves made beer.
That is, of
course, a decision on the construction of the particular covenant. It is the
second point that is of importance in this connection:
That the
covenant was not a personal covenant incapable of assignment, but a covenant
relating to the way in which the business at a particular house was to be
carried on, and accordingly a covenant running with the land, and enforceable
by the owner of the reversion on the lease.
Third, it
deals with an argument invoking the doctrine relating to the benefit and burden
of restrictive covenants running in equity.
Mr Henn
Collins QC was leading for the tenant on this occasion and his first
submissions were in relation to the construction of the covenant. At p510:
We contend
that the covenant can only be taken advantage of by persons who are successors
in the business of the lessors . . .
Hence, the
argument runs, the covenant was no longer effective because the business had
been dissolved. Then the second construction he put before the court was:
. . .
assuming the word ‘assigns’ to bear its widest signification, the lessee’s
obligation was, at the most, to take beer from the lessors’ assigns so long as
a particular state of things continued — that is, so long as the trade of a
brewer was carried on at the place where or in connection with which this
covenant was entered into.
Then one comes
to his submissions in relation to the point that is of importance in this case.
Mr Henn Collins said:
If the
covenant is dissevered from the business it cannot run with the land; and that
is a proposition founded on common sense, otherwise a man who has contracted to
take beer for his house from a particular brewer of established reputation, and
has, as in the present instance, paid a large sum of money for that advantage,
may find himself afterwards tied to a brewer whose reputation will not bring
customers to his house. He might even find himself transferred to a person who,
though selling beer, might not be himself a brewer at all. If it is held that a
covenant such as this, when disconnected from the particular business, passes
to the assignee of the reversion, that will be opposed to dicta of great
authority, and will defeat what were the obvious intentions of the parties to
this covenant. This, we say, is a personal covenant, the benefit of which
cannot pass to an assignee.
It was
submitted to me that the identity of Texaco was of vital importance in this
matter. The success of the entire business depends on marketability of
products, an intensely competitive business. There is a commercial relationship
with the landlord here which depends on their acting with integrity and fair
play. It is important, third, that Texaco is not a one-man band, but a large
organisation and so its standard terms will not be oppressive. Fourth, there is
no covenant by the landlord that its products are of good quality so the tenant
is left to rely on the integrity of Texaco. Fifth, there is no power to select
which products the tenant takes so long as the landlord markets the products.
They have to take their whole supply from the landlord and they have to stay
open 24 hours a day. When you put all that together, it shows that the supplier
has powers of life and death over the tenant. Those submissions bear a
remarkable resemblance to the submissions that were being put before the Court
of Appeal in Clegg v Hands.
I now come to
the judgment of Cotton LJ. The first part of his judgment is taken up with the
issues as to construction. They were resolved, as we have seen, against the
tenant. Upon the proper construction the benefit was not restricted either to
assigns carrying on the same brewer’s business or to assigns who themselves
made beer. In the lease before me there are no words of that sort. Cotton LJ
continues at p518 of the judgment:
It cannot, in
my opinion, be said here that this was a personal covenant with the particular
landlords who granted the lease, or that it was impossible for the benefit of
that covenant to be conveyed to anybody else who did not carry on their trade.
It is not like entering into a contract with a particular painter to paint your
picture. That is a contract made with him personally, and he must not hand it
over to anybody else. In my opinion, this is not a contract which is incapable
of being assigned.
Then it is
said that this covenant does not run with the land. I think it does run with
the land. That is my opinion; but there are other points on which this case may
be decided independently of that question. It is a contract relating to the way
in which the business at a particular house is to be carried on — therefore it
is a contract relating to the public-house, just as much, in my opinion, as a
contract as to the mode in which the cultivation of a particular bit of land is
to be carried on relates to the land. It affects the value of the reversion, it
affects the house, and in my opinion it is a contract running with the land. If
that is so, that will enable the judgment to be supported, and will enable the
present owner of the reversion in this case to sue.
Then he turns
to the third ground on which it can be supported, under the doctrine of Tulk
v Moxhay*
*Editor’s
note: Reported at (1848) 2 Ph 774.
The judgment
of Lindley LJ judgment starts off by saying:
I agree with
Mr Collins in thinking that this case is one of very great importance
both to brewers and tenants who take tied houses, because it certainly is
rather a startling thing to anybody to be told that when you have agreed to buy
beer of a particular brewer you may find yourself bound to take beer from
somebody else. Whether you are or not depends upon the agreement into which you
have entered. The whole question here to my mind turns upon the true
construction of this agreement . . .
He embarks on
that. Having reached a conclusion on that aspect, at p521 he says:
That being
the case, I think there can be no reasonable doubt that this contract is not a
personal unassignable contract. The question then arises whether it has been
assigned to Mr Cain. It unquestionably has. If it is capable of being
assigned it has been assigned. It has been assigned without any controversy in
equity by the brewers to Cain, and, inasmuch as he and his assignors are
both suing, I see no answer whatever to this action upon that ground.
Then he turns
to the ground which is of greater interest here:
It has also
been said that it is assigned to Mr Cain by virtue of his being an
assignee of the reversion in the lease. That raises a technical question which,
stated in legal language, amounts to this: whether the benefit of this covenant
runs with the land. We have heard the authorities discussed by Mr Collins,
who has studied this branch of the law probably more carefully than anybody
living, and he has not persuaded me, I confess, that this is a covenant which
does not run with the land. I rather think it does. If you look at the
authorities which he has cited, and look at them carefully, this does, in
lawyers’ language, so ‘touch and concern’ the land demised as to run with it at
Common Law. But whether that is so or not, the benefit of the contract has been
assigned to Mr Cain, and Mr Cain is entitled to it.
Then Lopes LJ,
at p523, says on this point:
But then a
question is raised as to whether the benefit of this covenant runs with the reversion.
It was contended by Mr Collins that it did not run with the reversion,
and that it was purely collateral. The benefit to run with the reversion must
touch or concern the demised premises. Now, does this covenant touch or concern
the demised premises? It relates to the
mode of enjoyment of a public-house. The thing demised is a public-house, and
the covenant compels the covenantee to buy the beer of the covenantor and his
assigns.
In my
opinion, it touches and concerns the demised premises; it affects the mode of
enjoyment of the premises, and therefore it runs with the reversion.
In the case
before me, it is simply a covenant by a tenant with a landlord so there is no
difficulty of construction that arose in that and some of the other cases where
the business may be severed from the reversion. But this is simply, as I say, a
covenant by the tenant, named
need be no reference to successors in title.
(1) Rent reserved by a lease, and the benefit of
every covenant or provision therein contained, having reference to the
subject-matter thereof, and on the lessee’s part to be performed . . . shall be
annexed and incident to and shall go with the reversionary estate in the land .
. .
Of course the
expression of assignees of the landlord, successors in title, may strengthen
and reinforce the case and their absence may be used when combined with other
language in the covenant to show that it was nevertheless personal. For
example, if you have in the relevant covenant some such words as ‘will purchase
from the landlord on the landlord’s standard terms, here meaning Texaco’, then
the matter would be put beyond doubt. Or if it was, at the beginning of the
clause, defined ”landlord’ here means and is limited to Texaco’, then of
course clearly it would be a personal covenant.
Clegg v Hands — although their lordships expressed themselves
tentatively and had other grounds on which to found their decision — has never
been doubted as authority for the proposition that tied brewery covenants do
touch and concern the land or do have reference to the subject-matter and so go
with the reversionary estate.
I come now to
tied garages. In the 1960s two cases came along, I think almost simultaneously.
The first one was Regent Oil Co Ltd v JA Gregory (Hatch End) Ltd [1966]
Ch 402. The landlord and tenant relationship was somewhat artificial in this
case. It was a mortgage case. The petrol company had lent money to the garage
proprietor, no doubt to purchase and improve the garage, and that money was
secured on a charge on the petrol station. The mortgage itself took effect as a
demise of a long term but that would have placed the garage proprietor in the
position of landlord and the petrol company as tenants, but the mortgage
contained an attornment clause in which ultimately the garage proprietor
attorned tenant to the mortgagee by way of a sort of subtenancy. So the issue
did not arise in a straight landlord and tenant situation. The materiality of
the case is to show that the courts have seen the analogy between the brewery
cases and petrol cases. I can just look at the judgment of Harman LJ at p431.
He dealt with the attornment clause and held that it did create a tenancy in
the circumstances. Then he continues:
Apart from
that, it seems to me that this kind of covenant is connected with the charge,
and nearly analogous to the well-known cases of tied houses for the sale of
beer: see, for instance, Clegg v Hands.
Then he reads
out the headnote, which of course I have gone through in some detail. Then he
says that on appeal it was held, first, about the construction. Then he adds:
and this is
the important part —
That the
covenant was not a personal covenant incapable of assignment, but a covenant
relating to the way in which the business at a particular house was to be
carried on, and accordingly a covenant running with the land, and enforceable
by the owner of the reversion on the lease.
Compare also White
v Southend Hotel Co already cited.
Breaking off
there, that case has been cited to me. It is not a case on the precise terms of
the imposition of the covenant but, so far as this is concerned, it was really
a case on the running of the burden of the covenant to the reversioner rather
than the benefit. The relevance of this is that Harman LJ is there equating the
type of covenant in Clegg v Hands with the petrol tie cases; and
accepting as indisputable that brewer’s tie covenants touched and concerned the
land.
The other case
is Petrofina (Gt Britain) Ltd v Martin [1966] Ch 146. This was
not a landlord and tenant case. This is where the question of restraint of
trade in respect of these solus agreements was fought over and their validity
determined. In the course of his judgment, Lord Denning MR said at p171:
The best
argument in favour of these solus agreements comes from the tied houses in the
brewery trade. If public houses can be tied, why cannot filling stations? This is so obvious a parallel that I have
felt it necessary to examine the brewery cases in some detail. Ever since the
close of the eighteenth century public houses have been divided into two
classes, ‘free’ and ‘tied.’ A ‘free’
house is one where the innkeeper is at liberty to buy his beer from any brewery
he likes. A ‘tied’ house is one where he has bound himself to take all his beer
from one particular brewer and from no one else. Round about 1805 there were
several cases where brewers, who owned a public house, let it to a tenant on
the terms that he should take all their beer from them . . .
Then there is
a disquisition on that which certainly does not lack interest — nothing that he
said did — but I need not read it out, I think, in the context of this
judgment. But I come to what he said at the end, at p172:
The only question
which the profession did raise in those days was the question whether these
covenants ran with the land so as to be enforceable by a new brewer who brought
the reversion, or against a new tenant who took an assignment of lease . . .
— and then he
refers to the three cases —
a point which
was eventually decided in favour of their running with the land: see Clegg v
Hands.
I have said
that there is no need for the operation of section 141 to have any reference to
successors in title but there is a section, section 78, of the Law of Property
Act 1925 which does in fact supply such words:
Benefit of
covenants relating to land.
(1) A covenant relating to any land of the
covenantee shall be deemed to be made with the covenantee and his successors in
title and the persons deriving title under him or them, and shall have effect
as if such successors and other persons were expressed.
For the
purposes of this subsection in connexion with covenants restrictive of the user
of land ‘successors in title’ shall be deemed to include the owners and
occupiers for the time being of the land of the covenantee intended to be
benefited.
I would supply
those words in clause 2 of the lease:
The tenant
hereby covenants with the landlord a covenant with the landlord and his successors
in title.
That, I think,
is as far as I need go through the authorities. I was referred to quite a
number of others, but when they are all examined there is none which doubts the
main thrust of Clegg v Hands and, as we have seen in the petrol
cases, it was seen to be a useful analogous authority in the case of the petrol
ties.
Having regard
to that, one comes back to the question as to whether the lease, this covenant,
is a personal covenant or one which has reference to the subject-matter and
therefore the benefits and burdens of these covenants run under section 141
with the reversion. In submissions to me in support of this I have already read
out a number of extrinsic factors which go to the composition of Texaco and the
way it does business. There is nothing on the face of the lease which would
show that it was personal. The sort of extrinsic factors, of course, as I have
already shown were those which were advanced in the brewery cases. The
personality of the brewer was important — one would have thought more important
in the case of beer than petrol. But, nevertheless, those arguments were
rejected and the decision made that I have already said.
In the light
of that, I am unable to accept Mr Boyle’s approach to this — this line of
questions that he suggests I have to ask myself: is the personality of the
landlord of commercial importance to the tenant? That I cannot accept is a relevant
consideration because it seems to me that the principles in Kemp v Baerselman
and the Tolhurst cases do not apply in this situation. There is Clegg
v Hands where those matters were canvassed and rejected.
Then it was
said there must be clear words to show that successors are included. It will be
obvious from what I have said that I cannot accept that either. I think the
burden is the other way round. If you have a lease simply between a landlord
and tenant and you have got a covenant that touches or concerns the land, then
it does not need the mention of successors to make it run under section 141.
But, in any event, the statute does apply those words, because I could not
accept as a mode of construction which was suggested to me that you do not
look at that until you have made up your mind whether the clause is personal or
not.
Then it is
said that in the absence of those words it fails the Oliver test, the test
adumbrated by Lord Oliver of Aylmerton in Swift (P&A) Investments v Combined
English Stores Group plc [1989] AC 632 at p642:
. . . (1) the
covenant benefits only the reversioner for the time being, and if separated
from the reversion ceases to be of benefit to the covenantee . . .
As I see it,
the benefit and burden do run under section 141 and therefore the covenant
benefits the reversioner for the time being and there is no question of it
being separated from the reversion except only this: under the landlord’s
covenant, of course him being an original covenantor under clause 3, he will
continue to be liable to the tenant if the reversioner does not comply with it,
certainly liable in damages as an original covenantor of the landlord’s
covenant. Then (2):
it . . . the
covenant affects the nature, quality, mode of user or value of the land of the
reversioner . . .
It clearly
does that, as we have seen.
. . . (3) the
covenant is not expressed to be personal . . .
I stress that
here because that is the sort of thing that one has to find, in my judgment, in
a lease of this sort where it would otherwise run, some sort of expression
which would lead to that result. I have indicated how it might come about in
this covenant.
Then (4) is
applicable only to the type of covenants:
. . . the
fact that a covenant is to pay a sum of money will not prevent it from touching
and concerning the land so long as the three foregoing conditions are satisfied
. . .
That of course
was the particular covenant they had there, a surety covenant.
So, in my
judgment, I do not have to say that the test is wrong in any way. When one
analyses the cases one finds that the test really covers them. But it is
fallacious, in my judgment, to start from that test in other circumstances and
come round to a decision on this one. The decision in this case rests on other
principles than the ones to the forefront of the Kumar and Swift cases.
So the points
I would make in conclusion about this is that the reversion on the lease is
assignable; that is common ground. The covenants that I am concerned with here
in para (i) do affect the mode of user of the land; that is Clegg v Hands.
The Law of Property Act 1925 section 78 shows that ‘landlord’ includes
successors in title, though that is not necessary for the operation of section
141. The covenants as to supply of petrol and the provisions as to rent,
particularly in the third schedule, are not readily split between Texaco and
the reversioner. That, to my mind, is an indication rather than otherwise that
the covenant is not personal. It is not essential that the second defendant
should be a producer of petrol, he has merely got to be marketing petrol on
standard terms. There is nothing in the lease to state that ‘landlord’ means
Texaco and no one else, other than the initial particulars. As I would see it,
the Swift test here is satisfied. Accordingly, I answer in the
affirmative the questions in the application under Ord 14A. I answer that SSS
was entitled to the benefit of the purchase obligations of CMS following
assignment, and SSS is subject to the burden of the sale obligations.
