Commercial premises — Lessee assigning lease — Rent substantially increased — Assignee failing to pay — Whether variation bringing about surrender and regrant — Whether lessee liable on personal covenant on lease as varied or under lease’s original terms — Whether assignment releasing lessee on liability under original deed — First instance decision that variation operated as surrender and regrant — Lessor’s appeal allowed
The appellant lessor, Friends’ Provident Life Office (FPLO), claimed for rent arrears in respect of a large office block at 6-34 Oxford Road, Reading. FPLO was successor in title as lessee under a long lease, having granted an underlease for 21 years and a reversionary underlease for a similar term to the respondent’s predecessors in title. In 1985, with the lessor’s agreement, the respondent assigned the remainder of the term of the reversionary underlease to CEHL. The deed of variation substantially increased the rent and altered the covenants against alienation and the user covenant permitting CEHL to grant subtenancies and licences far more freely. In 1988 CEHL assigned the remainder of the terms to S Ltd, which defaulted in paying the rent.
The appellant claimed that the respondent was liable under the terms of its personal covenant to pay the increased rent or failing that, to pay the original rent. The deed of variation had varied the lessee’s obligation under the covenant to pay £12,000 pa quarterly in arrears and made it liable for an increased rent of £35,000 payable quarterly in advance. The respondent contended that its obligations under the covenant ceased by reason of the variation of the terms of the lease. The respondent’s principal argument was accepted at first instance, that the alterations made by the deed of the variation to the terms of the lease were so fundamental that it effected a surrender and regrant by operation of law, thereby determining the respondent’s liability. The lessor appealed, arguing that the effect of surrender and regrant by operation of the law would only occur when the variation affected the legal estate and either increased the extent of the premises demised or increased the term.
Held The appeal was allowed.
1. In the present case, there was neither an increase in the extent of the premises demised or of the term for which they were to be held, both of which would have changed the legal estate. The court could thus see no reason why the lessor and the assignee could not achieve the changes in the terms of the lease without the law having to imply its surrender and regrant for the remainder of the term: see, inter alia, J W Childers Trustees v Anke r [1995] EGCS 116.
2. With regard to the question of liability of the lessee for the increase in rent, it was difficult to see how obligations accepted by the lessee in his contract with the lessor could be varied or increased by a subsequent agreement made by the lessor with the assignee.
3. The respondent was not released from liability to pay the original rent reserved by the lease, however, because on its true construction, the deed of variation, which referred to the “rent reserved by the lease” had described the yearly rent of £12,000 as “rent”, and the additional sums to be paid by way of reimbursement by the lessees for insurance premiums paid by the lessors as “additional rent”.
David Neuberger QC and Michael Roberts (instructed by Rowe & Maw, London agents for Sweetlands, of Dorking) appeared for the lessor; Jonathan Gaunt QC and Martin Dray (instructed by Kennedys) appeared for the respondent lessee.
