Landlord and tenant — Arrears of rent — Whether following assignment of term original tenant liable for arrears of rent during tenancy continued by Part II of the Landlord and Tenant Act 1954
By a lease
dated July 15 1977 the appellant landlord granted the respondent tenants a
10-year term of premises from March 25 1976. The respondents assigned the term
to Grovebell Group Ltd in June 1979. Following the expiration of the term on
March 24 1986 the assignee remained in possession pursuant to a continuation
tenancy under Part II of the Landlord and Tenant Act 1954. On January 23 1987
the liquidator of the assignee surrendered the term. The appellants’ claim for
arrears of rent and outgoings amounting to £33,460.64 in respect of the period
between March 25 1986 and January 22 1987 was dismissed by the Court of Appeal.
bound to pay rent after the expiration of the contractual term. There was
nothing in 1954 Act to impose liability on former tenants who have ceased to
have any interest in the property. The effect of common law and statute on a
lease is to create rights and obligations which are independent of the parallel
rights and obligations of the original human covenantor; the tenancy is capable
of existence as a species of property independently of the contract.
Accordingly, if the liability of the original tenant is released the term does
not cease nor will the assignee cease to be liable on the covenants. Upon an
assignment of a lease, the covenants by the original tenant continue to attach
to the term because those provisions touch and concern the land and not because
there continues to exist an original tenant who has ceased to own any interest
in the demised land, but remains liable in contract to fulfil the promises he
made under covenant.
The following
cases are referred to in this report.
City of
London Corporation v Fell [1993] 2 WLR 710;
[1993] 2 All ER 449; [1993] 1 EGLR 93; [1993] 04 EG 115, CA
Spencer’s
Case (1583) 5 Co Rep 16a; 1 Smith LC (13th ed) 51
Tulk v Moxhay (1848) 2 Ph 774
This was an
appeal by the City of London Corporation from the decision of the Court of
Appeal ([1993] 1 EGLR 93; 04 EG 115) which dismissed their appeal from the
decision of Mr Desmond Perrett QC (as he then was) ([1992] 1 EGLR 95; 02 EG
172), who had dismissed a claim for arrears of rent against the respondents,
John Fell, John Edwards James Hayward and Edward Denham Sturmer.
Andrew Arden
QC and Jonathan Manning (instructed by the solicitor to the City of London
Corporation) appeared for the City of London Corporation; David Neuberger QC and
Erica Foggin (instructed by Wilde Sapte) appeared for John Fell.
In his speech,
LORD TEMPLEMAN said: By a lease dated July 15 1977 the appellant
landlords, City of London Corporation, granted to the respondent partners in
Wilde Sapte & Co premises in New Broad Street ‘to hold the premises . . .
from 25 March 1976 for the term of ten years . . . (hereinafter called ‘the
term’)’. The lease contained 23 covenants by the tenant firm, including a
covenant to pay the rent. Those covenants were of course limited to the 10-year
period which constituted the term.
In 1979 Wilde
Sapte with the consent of the landlords assigned the lease to Grovebell Group
Ltd. By privity of contract and pursuant to the covenants contained in the
lease, Wilde Sapte remained liable to the landlords to pay the rent and perform
and observe the tenant’s covenants contained in the lease during the remainder
of the term. By privity of estate, Grovebell became liable to the landlords to
pay the rent and to perform such of the other tenant’s covenants contained in
the lease as touched and concerned the land. The contractual liability of Wilde
Sapte was due to end on March 24 1986 upon the expiration by effluxion of time
of the term granted by the lease. However, Part II of the Landlord and Tenant
Act 1954 then applied:
. . . where
the property comprised in the tenancy is or includes premises which are
occupied by the tenant and are so occupied for the purposes of a business
carried on by him or for those and other purposes
— see section
23(1) of the Act of 1954.
By section
69(1) of the Act of 1954 a tenancy is:
. . . a
tenancy created either immediately or derivatively out of the freehold, whether
by lease or underlease, by an agreement for a lease or underlease or by a
tenancy agreement . . .
In the
circumstances of the present case, the Act of 1954 operated to protect the
occupying tenant, Grovebell Group Ltd, in respect of the tenancy, that is to
say the term granted by the 1977 lease. This was effected by section 24 of the
Act of 1954 which, so far as material, provided as follows:
(1) A tenancy to which this part of this Act
applies shall not come to an end unless terminated in accordance with the
provisions of this Part of this Act;
tenancy —
(a) if the landlord has given notice under
section 25 of this Act to terminate the tenancy, or
(b) if the tenant has made a request for a new
tenancy in accordance with section twenty-six of this Act.
(2) The last foregoing subsection shall not
prevent the coming to an end of a tenancy by notice to quit given by the
tenant, by surrender or forfeiture, or by the forfeiture of a superior tenancy
. . .
The term
granted by the 1977 lease did not come to an end on March 24 1986 under the
lease, but was continued under the Act. The term continued until January 23
1987 when the liquidator of an insolvent Grovebell surrendered the term. There
was then owing rent and outgoings amounting to £33,460.64 in respect of the
period between March 25 1986 and January 22 1987.
In these
proceedings the landlords seek to recover the sum of £33,460 from Wilde Sapte.
The deputy High Court judge, Mr Desmond Perrett QC, and the Court of Appeal
(Nourse and Evans LJJ and Sir Michael Kerr) held that the landlords were not
entitled to recover and the landlords now appeal.
Wilde Sapte
are not contractually bound to pay the landlords any rent for the period after
March 24 1986 because Wilde Sapte only contracted to pay rent until that date.
If Wilde Sapte are liable to the landlords after that date, that liability must
have been imposed by the Act of 1954. That Act does not expressly impose any
liability on anybody except the landlords and the occupying tenant. There is no
reason why any liability on Wilde Sapte should be implied. The Act was intended
and expressed to protect occupying tenants against their landlords not to
impose liability on former tenants who ceased to have any interest in the
property before or after the Act of 1954. Mr Arden, who appeared for the
landlords, attempted to wring some comfort out of the words of the 1977 lease,
the language of the Act of 1954 and finally divers sentences snatched like
straws from passages in judgments which had nothing to do with the Act of 1954
or were useless for present purposes. His gallant attempts failed.
Mr Arden
relied on the following propositions. The lease contained covenants by the
original tenant, Wilde Sapte. As assignee of the lease, Grovebell was bound to
perform and observe those covenants. If the covenants ceased to be enforceable
against the original tenant, they could not be enforced against the assignee.
The Act of 1954 would not therefore work unless the statutory continuation of
the term granted by the lease also continued the liability of the original
tenant under the covenants. The lease, he said, must be underpinned, whatever
that expression means, by the original tenant’s covenants. I can find nothing
in principle or authority to support the proposition that if the covenants of a
lease cannot be enforced against the original tenant they cannot be enforced
against the assignee. If, after an assignment, a landlord expressly released
the original tenant from his covenants, the residue of the term granted by the
lease would remain vested in the assignee and the assignee would be obliged to
observe and perform those covenants which ran with the term, or, as it is
usually put, ran with the land, just as he would be liable before the release.
Similarly, if an original tenant were a corporation which was dissolved during
the term, the residue of the term would remain vested in the assignee, who
would remain liable to observe and perform the covenants.
At common law,
after an assignment, the benefit of a covenant by the original landlord which
touches and concerns the land runs with the term granted by the lease. The
burden of a covenant by the original tenant which touches and concerns the land
also runs with the term: see Spencer’s Case (1583) 5 Co Rep 16a.
By statute,
the benefit of a covenant by the original tenant which touches and concerns the
land runs with the reversion. Section 141 of the Law of Property Act 1925
replacing section 1 of the Grantees of Reversions Act 1540 (32 Hen 8 c34),
section 10 of the Conveyancing Act 1881 and section 2 of the Conveyancing Act
1911 provides that:
(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 .
. . immediately expectant on the term granted by the lease . . .
By statute,
the burden of a covenant by the original landlord which touches and concerns
the land also runs with the reversion. Section 142 of the Law of Property Act
1925 reproducing section 2 of the Act of 1540 and section 11 of the
Conveyancing Act 1881 provides that:
(1) The obligation under a condition or of a
covenant entered into by a lessor with reference to the subject-matter of the
lease shall, if and as far as the lessor has power to bind the reversionary
estate immediately expectant on the term granted by the lease, be annexed and
incident to and shall go with that reversionary estate . . . and may be taken
advantage of and enforced by the person in whom the term is from time to time
vested . . . and . . . the obligation aforesaid may be taken advantage of and
enforced against any person so entitled.
The principle
that the benefit and burden of covenants in a lease which touch and concern the
land run with the term and with the reversion is necessary for the effective
operation of the law of landlord and tenant. Common law, and statute following
the common law, recognise two forms of legal estate in land, a fee simple
absolute in possession and a term of years absolute: see section 1 of the Law
of Property Act 1925. Common law, and statute following the common law, were
faced with the problem of rendering effective the obligations under a lease
which might endure for a period of 999 years or more beyond the control of any
covenantor. The solution was to annex to the term and the reversion the benefit
and burden of covenants which touch and concern the land. The covenants having
been annexed, every legal owner of the term granted by the lease and every
legal owner of the reversion from time to time holds his estate with the
benefit of and subject to the covenants which touch and concern the land. The
system of leasehold tenure requires that the obligations in the lease shall be
enforceable throughout the term, whether those obligations are affirmative or
negative. The owner of a reversion must be able to enforce the positive
covenants to pay rent and keep in repair against an assignee, who in turn must
be able to enforce any positive covenants entered into by the original
landlord. Common law retained the ancient rule that the burden of a covenant
does not run with the land of the covenantor except in the case of a lease, but
even that rule was radically modified by equity so far as negative covenants
were concerned: see Tulk v Moxhay (1848) 2 Ph 774.
The effect of
common law and statute on a lease is to create rights and obligations which are
independent of the parallel rights and obligations of the original human
covenantor who and whose heirs may fail or the parallel rights and obligations
of a corporate covenantor which may be dissolved. Common law and statute
achieve that effect by annexing those rights and obligations so far as they
touch and concern the land to the term and to the reversion. Nourse LJ neatly
summarised the position when he said in an impeccable judgment at [1993] 2 WLR
710 at p716*
The
contractual obligations which touch and concern the land having become
imprinted on the estate, the tenancy is capable of existence as a species of
property independently of the contract.
* Editor’s
note: Also reported at [1993] 1 EGLR 93 at p94K.
The common law
did not release the original tenant from liability for breaches of covenant
committed after an assignment because of the sacred character of covenant in
English law. I understand that Scots law releases the original tenant once he
has been replaced by a permitted or accepted assignee. This only means that the
fortunate English landlord has two remedies after an assignment, namely his
remedy against the assignee and his remedy against the original tenant. It does
not follow that if the liability of the original tenant is released or
otherwise disappears then the term granted by the lease will disappear or that
the assignee will cease to be liable on the covenants.
As between
landlord and assignee the landlord cannot enforce a covenant against the
assignee because the assignee does not covenant. The landlord enforces against
the assignee the provisions of a covenant entered into by the original tenant,
being provisions which touch and concern the land, because those provisions are
annexed by the lease to the term demised by the lease. The assignee is not
liable for a breach of covenant committed after the assignee has himself in
turn assigned the lease because once he has assigned over he has ceased to be
the owner of the term to which the covenants are annexed.
Covenants are
introduced on the creation of a lease but are not necessary to sustain a lease.
Upon an assignment of a lease, the provisions of the covenants by the original
tenant continue to attach to the term because those provisions touch and
concern the land and not because there continues to exist an original tenant
who has ceased to own any interest in the demised land, but remains liable in
contract to fulfil the promises he made under covenant. Mr Arden’s submission
confuses contract with status, a distinction fundamental to the English system
of leasehold tenure of land. The only object and effect of this submission is
that it would enable the Corporation of the City of London to compel Wilde
Sapte to pay £33,460.64, which Wilde Sapte never covenanted to pay in respect
of an estate in land which Wilde Sapte never enjoyed. I would dismiss this
appeal with costs.
LORDS GOFF
OF CHIEVELEY, JAUNCEY OF TULLICHETTLE, BROWNE-WILKINSON and MUSTILL agreed that the appeal should be dismissed and
did not add anything.
