Landlord and tenant — Assignment — Liability of assignee and surety to pay rent — Whether under licence to assign liability continued after further assignment by assignee — Whether interest should be awarded to dates earlier than first date plaintiff demanded arrears of rent from defendants
By a lease
dated January 17 1977 the plaintiff landlord demised premises to S Ltd for a
20-year term. By a deed dated October 6 1980 containing a licence to assign by
the plaintiff, the lease was assigned to the first defendant; by clause 2 of
the deed the first defendant covenanted ‘to pay the rents reserved by the Lease
at the time and in the manner therein provided for’. The deed also contained a
covenant by the second defendant as surety that the first defendant would pay
the rents and in default would pay the same himself. On April 25 1983 the first
defendant lawfully assigned the lease. On January 27 1993 the plaintiff claimed
arrears of rent from September 29 1991 to December 25 1992 from the defendants.
On the hearing of a summons under Ord 14 of the RSC, the master gave judgment
to the plaintiff with interest. The defendants’ appeal, contending that as a
matter of construction of the 1980 deed the defendants’ liability to pay rent
did not continue after the first defendant had assigned the term in 1983,
alternatively that interest should have been awarded only on the rent arrears
from January 27 1993, being the first date that the defendants became aware of
the breach of covenant, was allowed by the judge below. The plaintiff appealed.
obligations on the first defendant: (1) to pay the rents reserved by the lease
at the time and in the manner provided for; and (2) to observe and perform all
the covenants on the lessee’s part and the conditions in the lease. By a
process of construction the first defendant became doubly bound by clause 2 to
pay the rents payable during the whole of the term. The obligation assumed by
the second defendant surety in clause 3 of the deed was to ensure that the
first defendant would perform the obligations imposed on it by clause 2. The
award of interest from January 27 1993, and not before, was within the
discretion of the trial judge, although the interest should be 9%.
The following
cases were referred to in this report.
Estates
Gazette Ltd v Benjamin Restaurants Ltd [1993]
4 All ER 367; [1993] 2 EGLR 120; [1993] 48 EG 131
Johnsey
Estates Ltd v Webb [1990] 1 EGLR 80; [1990]
19 EG 84
Lyons (J)
& Co Ltd v Knowles [1943] KB 366
Waite v Jennings [1906] 2 KB 11
This was an
appeal by the plaintiff, Estates Gazette Ltd, from the order of Judge Zucker,
sitting as a judge of the High Court, who on May 25 1993 had allowed an appeal
by the defendants, Benjamin Restaurants Ltd and Kenneth Benjamin, from the
orders of Master Cooper, who on April 5 1993, gave judgment to the plaintiff on
a summons under Ord 14 of the RSC for arrears of rent claimed from the
defendants: see [1993] 2 EGLR 120; [1993] 48 EG 131.
David
Neuberger QC and Edward Denehan (instructed by Manches & Co, of Oxford)
appeared for the appellant; Norman Primost (instructed by Peter Gillis &
Co) appeared for the respondents.
Giving
judgment, Nourse LJ said: The question for decision on this appeal
arises out of a covenant in a licence to assign a lease of business premises.
The assignee covenanted with the landlord to pay the rents reserved by the
lease at the time and in the manner therein provided for and to observe and
perform the covenants on the lessee’s part and the conditions therein
contained. Is the covenant limited in point of time to the period during which
the lease is vested in the assignee or does it extend to the whole of the term?
By a lease
dated January 17 1977 and made between the plaintiff, Estates Gazette Ltd, as
lessor of the first part, Sandwich Scene Ltd as lessee of the second part and
Monty Bloom as surety of the third part, the plaintiff demised to Sandwich
Scene the ground-floor shop known as 155 Wardour Street, London W1, for a term
of 20 years from October 6 1976. Sandwich Scene was called ‘the lessee’, which
expression, where the context so admitted, was to include the person or persons
in whom the term might from time to time be vested.
Clause 1 of
the lease contained a reddendum in standard form for the payment ‘during
the said term hereby granted’ of a yearly rent of £4,500 (subject to review) by
equal quarterly payments in advance on the four usual quarter days in each
year. Clause 2 contained covenants by the lessee ‘for itself and its successors
in title and assigns’. The first part of clause 2(1) was in these terms:
To pay the
rent hereinbefore reserved at the times and in manner aforesaid . . .
Clause 3(c)
contained provisions for the rent to be reviewed at the end of the fourth,
eighth, 12th and 16th years of the term. By clause 5(1) Mr Bloom gave a
surety’s covenant in standard form.
By a licence
under seal dated October 6 1980 and made between the plaintiff of the first
part, Sandwich Scene of the second part, the first defendant, Benjamin
Restaurants Ltd (called ‘the assignee’), of the third part and the second
defendant, Kenneth Benjamin, of the fourth part the plaintiff, at the request
of the other parties and in consideration of the covenants on the part of the
defendants thereinafter contained, granted Sandwich Scene licence to assign the
lease to the first defendant. Clause 2 of the licence was in these terms:
In
consideration of the Licence hereinbefore contained having been granted the
Assignee hereby covenants with the Landlord to pay the rents reserved by the
Lease at the time and in manner therein provided for and to observe and perform
all the covenants on the Lessee’s part and the conditions therein contained.
Clause 3(1)
contained a covenant by the second defendant with the plaintiff:
That the
Assignee will pay the rents reserved by the Lease at the time and in manner
therein provided for and will observe and perform all the covenants on the
Lessee’s part and the conditions therein contained . . .
The evidence
as to what happened after the execution of the licence is, to say the least,
sketchy. The second defendant has said that the first defendant took an
assignment of the lease on or about October 7 1980 and remained the lessee
thereunder until April 25 1983, when it was assigned, so we were told, to a
company called I Y Caterers Ltd. On May 15 1989 the plaintiff and that company
signed a memorandum recording that they had agreed that the rent payable as
from October 6 1988 would be £34,000 pa, or (with VAT) £9,987.50 per quarter,
subject to a proviso which can be ignored for present purposes. We were also
told that on January 9 1991 the lease was assigned by I Y Caterers to a Mr
Keizner.
On January 27
1993 solicitors acting for the plaintiff wrote letters to each of the
defendants informing them that the rent payable under the lease was in arrear
in respect of the five quarterly instalments due between September 29 1991 and
September 29 1992, the total sum outstanding being £49,937.50 inclusive of VAT.
Demands for payment by February 10 1993 were made, in the absence of which it
was said that proceedings for recovery would be commenced forthwith, together with
claims for interest amounting to £6,250 approximately and costs.
It appears
from the foregoing that the defaulting assignee was Mr Keizner and not I Y
Caterers. We were told that Mr Keizner is a bankrupt, that the original tenant,
Sandwich Scene, is in liquidation and that the original surety, Mr Bloom,
cannot be found. For reasons into which I need not go it was not possible for
us to be told whether, on the assignment by the first defendant to I Y
Caterers, that company and its moving spirit, Mr Isaac Younis, entered into
covenants with the plaintiff similar to those given by the defendants, nor, if
they did, whether demands were made on them and, if so, with what result.
Although these facts are not material to our decision, they may be material to
the defendants’ rights to recover against third parties if they themselves are
liable to the plaintiff. It is unsatisfactory that none of them has been
deposed to in evidence.
A writ was
issued by the plaintiff against the defendants in the Queen’s Bench Division on
February 5 1993, but the amount claimed for arrears and interest was later
reduced from £56,402.01 to £40,000.24 by the crediting of a deposit lodged ‘by
the present lessee’, presumably Mr Keizner. The plaintiff took proceedings
under Ord 14 and on April 5 1993 Master Cooper gave judgment for the amount
claimed and costs. The defendants then appealed to the judge. Their appeal came
before Judge Zucker QC, sitting as a judge of the Queen’s Bench Division, who,
on May 25 1993 allowed it and gave them unconditional leave to defend. He
refused the plaintiff leave to appeal, but on July 25 1993 leave was granted by
Hoffmann LJ.
Judge Zucker’s
judgment is reported at [1993] 4 All ER 367. He held that the covenant in
clause 2 of the licence was limited to the period during which the lease was
vested in the first defendant. Although that was enough to dispose of the
matter in favour of the defendants, the judge dealt with two further questions
in case the matter should go further. First, he rejected the defendants’
argument that the plaintiff’s failure to provide a VAT invoice had made the
demand for arrears of rent illegal. That point has not been revived on this
appeal. Second, he declined to award the plaintiff interest under section
35A(1) of the Supreme Court Act 1981 before January 27 1993, the date on which
its solicitors wrote to the defendants demanding payment. That point is still
in issue.
The judge
stated his decision on the question of construction at p371B:
In my
judgment, although cl 2 of the licence to assign in this case provides that the
assignee is to pay the rents reserved by the lease at the time and in manner
therein provided for, it does not make clear whether that obligation is to
subsist only while the assignee holds the term or after he has parted with it.
As the latter condition would impose a very onerous obligation upon the
assignee it can only be imposed by words which clearly make provision for it.
In my judgment no such words are used in this case and it follows that the
assignee is not liable for rent becoming due after further assignment by him.
Two
obligations were assumed by the first defendant in clause 2 of the licence. The
first was to pay the rents reserved by the lease at the time and in manner
therein provided for. The rents reserved by the lease were those for whose
payment provision was made by the reddendum. The reddendum provided
for the payment ‘during the said term hereby granted’ of the yearly rent of
£4,500 (subject to review). Thus, the first defendant became bound to pay the
rents payable during the whole of the term.
The second
obligation assumed by the first defendant was to observe and perform all the
covenants on the lessee’s part and the conditions contained in the lease. It is
clear that ‘the lessee’ here includes the person or persons in whom the term
may from time to time be vested. One of the lessee’s covenants is that
contained in clause 2(1): ‘To pay the rent hereinbefore reserved at the times
and in manner aforesaid’. So, by an identical process of construction, the
first defendant became doubly bound to pay the rents payable during the whole
of the term.
Shortly
stated, the obligation assumed by the second defendant in clause 3(1) of the
licence was to ensure that the first defendant would perform the obligations
imposed on it by clause 2. In all material respects the wording of the two
provisions was identical. So the second defendant became bound to pay the rents
payable during the whole of the term, if and in so far as they were not paid by
the first defendant.
Mr David
Neuberger QC, for the plaintiff, sought to support the clear meaning and effect
of clauses 2 and 3(1) of the licence by making a number of additional points.
In particular, he argued that if they had been intended to have the limited effect
favoured by the judge, clause 2 would have been redundant, since the first
defendant, as an assignee, would in any event have been subject to the lessee’s
obligations while the lease was vested in it. That was the point made by
Hoffmann LJ when giving brief reasons for granting leave to appeal. In spite of
an argument to the contrary advanced by Mr Primost on behalf of the defendants,
I agree that clause 2 would for all practical purposes have been redundant.
However, the force of the point is significantly reduced by the advantage
achieved by the plaintiff in having the second defendant as a new and
additional surety during the period that the lease was vested in the first
defendant.
In my view,
none of the additional points relied on by Mr Neuberger is needed in order to
confirm the clear meaning and effect of clauses 2 and 3(1) of the licence, an
effect to which the law takes no objection: see J Lyons & Co Ltd v Knowles
[1943] KB 366. On general principles of construction, they have the effect
for which the plaintiff contends. It is only by the application of some special
principle that their effect can be modified. Mr Primost sought to rely on three
such principles.
First,
adopting the view of the judge, Mr Primost submitted that the very onerous obligation
imposed upon the first defendant by clause 2 of the licence could have been
imposed only by words which clearly made provision for it. He relied on a dictum
of Fletcher Moulton LJ in Waite v Jennings [1906] 2 KB 11, at
p18, where a covenant by an assignee to pay the rent and perform the covenants
of a lease during the whole of the residue of the term was described as an
onerous condition on the assignee and a benefit to the lessor. An onerous
condition is one which imposes a burden that would not be there without it.
There is no special principle of construction which applies to the imposition
of such a condition. If, as here, the words are clear, the burden is imposed.
Second, Mr Primost submitted that the covenant by the second defendant in clause
3(1) of the licence, being one entered into by a surety, must be given the
strictest possible construction, a construction which would likewise be applied
to clause 2. For that proposition he relied on some observations of Millett J
in Johnsey Estates Ltd v Webb [1990] 1 EGLR 80, at p82, which
must, however, be placed in their full context:
Lastly, it
was submitted on behalf of the defendants that if there is an ambiguity or
doubt upon the meaning of the suretyship covenant I should construe it in
favour of the defendants and against the plaintiffs. Certainly it is true that
neither equity nor law will put a construction on a contract of guarantee which
results in imposing on the surety any greater obligation than that which on the
strictest construction of the instrument he must be said expressly to have
undertaken: see Eastern Counties Building Society v Russell [1947]
1 All ER 500.
On the other
hand, the words have to be fairly construed in their context and in accordance
with their proper meaning without in any way favouring the guarantor, who is
not placed in any more favourable position in this regard than any other
contracting party. The so-called rule of construction is very much a matter of
last resort.
Here there is
no ambiguity or doubt in the meaning of clauses 2 and 3(1) and the principle
relied on by Mr Primost does not come into play.
Third, Mr
Primost sought to rely on the practice of conveyancers. He submitted that the
court should take notice of the invariable practice of conveyancers, when drafting
a licence containing a covenant intended to make the assignee liable throughout
the term, to include words such as ‘during the residue of the term’. He
referred us to precedents in that form in Butterworth’s Encyclopaedia of
Forms and Precedents, 5th ed (1992) p377, and Kelly’s Draftsman 15th
ed (1986), p437. While certainly accepting that it must be the best practice to
include the words suggested by Mr Primost, I doubt whether the sources to which
he referred were enough to establish an invariable practice to that effect. In
any event, I am unable to see how even an invariable practice to adopt a
particular formula for a particular provision can affect the construction of a
provision in another form whose effect is neither ambiguous nor doubtful.
I have
therefore come to the conclusion, with regret, that none of Mr Primost’s three
principal submissions is made out. He raised a number of subsidiary points, to
which specific reference need not be made. The question of construction must be
resolved in favour of the plaintiff. That makes it necessary to deal with the
question of interest. In both courts below interest was claimed from December
25 1991 onwards, on the footing, so it was claimed, that it was the first
defendant’s duty to seek out the plaintiff in order to pay the rent. That claim
evidently impressed the master, but was rejected by the judge, who said at
p372E:
In my
judgment that is a wholly unrealistic approach to the circumstances of this
case. The undisputed facts are that the First Defendant assigned the term on 25
April 1983, and he knew nothing about any arrears of rent until the letter of
27 January 1993. It would be inequitable in those circumstances if either he or
his surety were required to pay interest going back to a period when they knew
nothing at all about outstanding arrears of rent.
The judge
added that, if he had awarded interest, he would have awarded it at the rate of
12.5% pa from January 27 1993.
This was a
question for the discretion of the judge. Even if I had not thought that his
decision was correct, it would not have been one with which this court could
interfere. The amount of the judgment entered by the deputy master must
therefore be amended to allow for a reduction in interest. Subject to that
point and to any question as to the rate of interest, I would allow the appeal
and restore the judgment.
HIRST and SAVILLE LJJ agreed and did not add anything.
Appeal
allowed. Interest at 9% from January 27 1993.
