Enfield London Borough Council v Arajah and others
Sir Thomas Bingham MR and Aldous LJ,
Rent arrears — Possession order — Negotiations for new lease — Letter with main terms “subject to contract” — No new lease finalised — Warrant for possession — Tenants relying on letter as agreement for lease — Court finding that binding agreement existed — Appeal allowed
The appellant council were freehold owners of 227 Fore Street, London N18, a lockup shop with residential accommodation above known as 133 Moree Way. The shop and accommodation were let to three tenants by a lease dated 14 August 1990 for a term of 25 years from 1 December 1987. The initial rent was £4,470 pa. This was reviewed to £8,750 with effect from 8 April 1989. The lease contained a forfeiture clause exercisable if the rent was in arrears. The tenants fell into arrears and in August 1992, forfeiture proceedings were issued by the council. A possession order was made after which one of the tenants entered into negotiations for the grant of a new lease. By a letter dated 25 October 1993, headed “subject to contract” and referring to previous correspondence, the council wrote that the old lease was at an end and occupation was by way of a tenancy at will. Thus, it said, a new lease had to be completed by 19 November on specified main terms. In November 1994, the council applied for leave to issue a warrant of possession. Leave was granted, but the county court set aside the warrant on the basis ‘that there was a binding agreement for a new lease. The council appealed.
Held The appeal was allowed.
Rent arrears — Possession order — Negotiations for new lease — Letter with main terms “subject to contract” — No new lease finalised — Warrant for possession — Tenants relying on letter as agreement for lease — Court finding that binding agreement existed — Appeal allowed
The appellant council were freehold owners of 227 Fore Street, London N18, a lockup shop with residential accommodation above known as 133 Moree Way. The shop and accommodation were let to three tenants by a lease dated 14 August 1990 for a term of 25 years from 1 December 1987. The initial rent was £4,470 pa. This was reviewed to £8,750 with effect from 8 April 1989. The lease contained a forfeiture clause exercisable if the rent was in arrears. The tenants fell into arrears and in August 1992, forfeiture proceedings were issued by the council. A possession order was made after which one of the tenants entered into negotiations for the grant of a new lease. By a letter dated 25 October 1993, headed “subject to contract” and referring to previous correspondence, the council wrote that the old lease was at an end and occupation was by way of a tenancy at will. Thus, it said, a new lease had to be completed by 19 November on specified main terms. In November 1994, the council applied for leave to issue a warrant of possession. Leave was granted, but the county court set aside the warrant on the basis ‘that there was a binding agreement for a new lease. The council appealed.
Held The appeal was allowed.
The letter relied on as creating a new tenancy was headed “subject to contract”. It clearly envisaged a new lease being completed before the council and tenants were bound. Moreover, it was only signed by one of the tenants although all three were to be lessees.
Where parties intended to enter into the relationship of landlord and tenant without a preliminary contract for the grant and acceptance of a lease, and their negotiations were expressed to be “subject to contract” or the like, then, so long as the qualification remained in force, the relationship did not become binding on them unless and until there was an exchange of lease and counterpart before which either party could withdraw. In the absence of evidence to the contrary it was not possible to dispense with the common intention that the parties should become bound at one ascertainable point of time: see Salomon v Akiens [1993] 1 EGLR 101.
The “agreement for a new lease” did not comply with section 2(1) and (3) of the Law of Property (Miscellaneous Provisions) Act 1989 in that the letter did not contain all, but only the main, terms agreed. Further, it was not signed by or on behalf of two of the tenants named as lessees together with the third. Under section 2(1) a contract for the disposition of an interest in land such as the 20-year term proposed by the council “can only be made” in accordance with the requirements of the section. Those requirements were not satisfied. There was therefore no binding agreement.
John Male (instructed by the solicitor to Enfield London Borough Council) appeared for the council; Prins Gunasekera (instructed by Samarsinghe & Co, of Middlesex) appeared for the tenants.
Aviva Golden, barrister
