Landlord and tenant — Assignment of lease — Liabilities of assignees after further assignment by them to company which went into liquidation — Plaintiffs in the action which gave rise to this appeal were lessors of a unit in a trading estate of which the defendants were the original lessees — Defendants assigned the lease to the third party which in turn assigned to another company, which failed and went into liquidation — After arrears of rent and other payments had accrued, plaintiffs sued and recovered judgment against the defendants, as privity of contract remained although there was no longer privity of estate after the assignment of the lease — By a third party notice in the action the defendants sought indemnity from the third party for the payments which the defendants thus became liable to make to the plaintiff lessors — It was clear that the third party were liable to the lessors during the time when the term was vested in them, but it was submitted that the position was different after they had assigned over to the company which went into liquidation — Both the defendants and the third party accepted that at common law an assignee was only liable to indemnify his assignor in respect of arrears of rent and breaches of covenant occurring while the term was vested in the assignee — The defendants, however, relied on the effect of the statutory obligations implied by section 77(1)(C) of the Law of Property Act 1925 and Part IX of Schedule 2 — These implied obligations on assignees to pay rent and indemnify assignors were subject to the condition that the relevant conveyance was for valuable consideration, which did not include a nominal consideration in money — A slightly confusing feature in the present case was a reference in the deed of assignment to a nominal consideration of £1 — The county court judge, however, held, in accordance with such old authorities as Currie v Misa and Price v Jenkins, that the third party’s assumption of the obligations of the lease under the assignment was in itself sufficient valuable consideration — Held by the Court of Appeal, on appeal by the third party, that the judge had reached the correct conclusion — The third party were liable for the indemnity claimed — Appeal dismissed
The following
cases are referred to in this report.
Currie v Misa (1875) LR 10 Ex 153
Midland
Bank Trust Co Ltd v Green [1981] AC 513;
[1981] 2 WLR 28; [1981] 1 All ER 153, HL
Price v Jenkins (1877) 5 Ch 619
Wolveridge v Steward (1833) 1 Cr&M 644
This was an
appeal from a decision of Judge Hopkin Morgan QC, at Newport (Gwent) County
Court by Chepstow Machine Tool Co Ltd, the third party in an action between
Johnsey Estates Ltd and Lewis & Manley (Engineering) Ltd. Judge Hopkin
Morgan QC gave judgment for the defendants, Lewis & Manley (Engineering)
Ltd, on a third party notice against the present appellants. The matter
concerned the lease of a building called Unit 2 on a trading estate in Gaskell
Street, Newport, Gwent.
Viscount
Dilhorne (instructed by Gartside, Harding & Davies, of Newport, Gwent)
appeared on behalf of the appellants; W Gaskell (instructed by Hornby Baker
Jones & Wood, of Newport, Gwent) represented the respondents (defendants).
Giving
judgment, GLIDEWELL LJ said: This is an appeal from His Honour Judge Hopkin
Morgan QC, sitting in Newport (Gwent) County Court, who on February 10 this
year gave judgment for the defendants, Lewis & Manley (Engineering) Ltd, on
a third party notice against the third party, Chepstow Machine Tool Co Ltd, for
a total sum including interest of £3,223.24. The third party appeals to this
court with leave of the learned judge granted on March 6 of this year.
The facts were
agreed and indeed no evidence was called before the judge, although documents
were put before him. Shortly they are these. The plaintiffs are the owners of
buildings on a trading estate in Gaskell Street, Newport, Gwent. On January 28
1972 they entered into a lease of a building on that estate called Unit 2, by
which they agreed to lease to the defendants that building for a term of 21
years from December 6 1971. The term was subject to rent reviews at
seven-yearly intervals. The initial rent was £1,390 per annum. From December 6
1978 it was raised to £2,850 per annum.
On May 8 1978
by deed of assignment the defendants, Lewis & Manley (Engineering) Ltd,
assigned the lease to the third party, Chepstow Machine Tool Co Ltd. I will
refer later to the provisions of that deed.
On June 6 1980
Chepstow Machine Tool Co Ltd in turn assigned the lease to another limited
liability company. Subsequently that company ran into financial difficulties
and went into liquidation. In 1984 the second assignee company ceased to pay
the rent.
By a specially
endorsed writ issued on February 4 1985 the plaintiffs claimed from the
defendants a sum of £2,437.76, being arrears of rent for the three quarters
commencing in June, September and December 1984 and for unpaid insurance
premiums. On March 18 1985 the plaintiffs were given judgment for that sum
under Order 14. We are told the defendants have subsequently paid to the
plaintiffs other instalments of rent and other sums as they have become due.
They are, and remain, under a liability to the plaintiffs under the terms of
their lease. By a third party notice dated March 7 1985 the defendants claimed
to be indemnified against the judgment obtained by the plaintiffs against them,
and costs.
The deed of
assignment dated May 8 1978 recited that ‘The Vendor [the defendant company] is
possessed . . . of the property hereby assigned’ (ie Unit 2 described as ‘All
that warehouse and premises situate off Gaskell Street, Newport . . . as
delineated on the plan annexed’) and ‘The consent of the Lessor (as required by
the said Lease) to this Assignment has been duly obtained’, and then provides:
In pursuance
of the said agreement and in consideration of the sum of £1.00 paid by the
Purchaser to the Vendor (the receipt whereof the Vendor hereby acknowledges)
the Vendor as beneficial owner hereby assigns unto the Purchaser all the
property described in the Schedule hereto and comprised in and demised by the
Lease therein mentioned to hold unto the Purchaser for the residue of
the said term of years and subject henceforth to the said rent covenants and
conditions.
There is no
doubt that the obligation thus undertaken by the third party was one which
obliged them to pay the rent to the plaintiff landlord during the time that
they themselves were the lessees of the property after the assignment to them,
but before the assignment by them to the company, which eventually went into
liquidation, had been executed. Viscount Dilhorne, who has appeared for the
third party, accepts that they were under that obligation, which of course
they fulfilled, and moreover accepts that if they had failed to carry out their
obligation during the period that they were the lessees and the landlord had
then claimed for rent from the present defendants, the original lessees, the
present defendants at that stage would have had a right to be indemnified by
the third party. But Viscount Dilhorne argues, as he argued in the court below,
that since the second assignment by the third party to the later company a
different situation obtains.
It is common
ground that at common law an assignee is only liable to indemnify his assignor
in respect of arrears of rent accruing due and breaches of covenant occurring
while the term is vested in the assignee. The authority for that proposition is
the case of Wolveridge v Steward (1833) 1 Cr&M 644 and 149 ER
557. It is unnecessary to go to the authority, because it is common ground
between counsel that that is the case. But it is argued on behalf of the
defendants that, quite apart from the express terms of the deed of assignment,
the assignment is subject to implied covenants as a result of the operation of
the Law of Property Act 1925. By section 77(1) of that Act it is provided:
(1) In addition to the covenants implied under
the last preceding section, there shall in the several cases in this section
mentioned, be deemed to be included and implied, . . .
(C) In a conveyance for valuable consideration,
other than a mortgage, of the entirety of the land comprised in a lease, for
the residue of the term or interest created by the lease, a covenant by the
assignee or joint and several covenants by the assignees (if more than one)
with the conveying parties and with each of them (if more than one) in the
terms set out in Part IX of the Second Schedule to this Act . . . .
Part IX of
Schedule 2, read with section 77, thus has the effect of implying a covenant:
That the
assignees, or the persons deriving title under them, will at all times, from
the date of the conveyance or other date therein stated, duly pay all rent
becoming due under the lease creating the term or interest for which the land
is conveyed, and observe and perform all the covenants, agreements and
conditions therein contained and thenceforth on the part of the lessees to be
observed and performed:
And also will
at all times, from the date aforesaid, save harmless and keep indemnified the
conveying parties and their estates and effects . . .
Thus there is
an implied covenant by the third parties to pay the rent and, if they do not,
to indemnify the defendant if the defendant has to pay the rent, provided
always that the conveyance was for valuable consideration.
Viscount
Dilhorne’s argument is that the assignment in this case was not for valuable
consideration. He takes us to the definition section, section 205 of the Law of
Property Act, where by subsection (1) it is provided:
In this Act
unless the context otherwise requires, the following expressions have the
meanings hereby assigned to them respectively, that is to say:
(xxi) ‘Purchaser’
means a purchaser in good faith for valuable consideration and includes a
lessee, mortgagee or other person who for valuable consideration acquires an
interest in property . . . ‘valuable consideration’ includes marriage but does
not include a nominal consideration in money;
Viscount
Dilhorne argues that, without concerning ourselves with the definition of
‘purchaser’, the definition of valuable consideration applies, unless the
context otherwise requires, throughout the Act and that a valuable
consideration is expressly defined as not including a nominal consideration. He
then argues that the provision in the deed of assignment for the payment of £1
is clearly a provision for payment for nominal consideration. That, he argues,
is the end of the matter.
The learned judge
in his judgment said this:
As to whether
the payment of £1 amounts to valuable consideration, it appears to me that, on
its own, it does not. It was a payment in money but of a very small amount.
He then
referred to a footnote in Wolstenholme and Cherry* and the case of Midland
Bank Trust Co Ltd v Green [1981] AC 513 and to a passage in the
speech of Lord Wilberforce† . There is no cross-appeal against that and thus we
need not concern ourselves with the question whether the judge was right, or
indeed with the question whether the definition of valuable consideration in
subparagraph (xxi) of section 205(1) is merely part of the definition of
‘purchaser’ or is a definition which applies throughout the Act. The judge went
on:
But that is
not the end of the matter in view of Currie v Misa and Price
v Jenkins which ruled, in effect, that the assignment of a lease which
attached responsibility or liability to the assignee is a conveyance for
valuable consideration.
* Editor’s
note: Wolstenholme and Cherry’s Conveyancing Statutes, 13th ed, vol 1, p
340.
† Editor’s note: At pp 531 — 532 and in
particular at p 532b: ”Nominal consideration’ and a ‘nominal sum’ in the law
appear to me, as terms of art, to refer to a sum or consideration which can be
mentioned as consideration but is not necessarily paid.’
He said: ‘It is
on the basis of those cases that I have decided that there was valuable
consideration here.’
Thus the
argument which persuaded the judge was that the assumption by the third party
in the deed of assignment of the obligation to pay the rent and to comply with
the other covenants in the lease, and if necessary to indemnify the defendants
if he failed to comply with those obligations and the defendants were required
to do so, while the assignee was holding under the lease, provided
consideration passing from the third party as assignee and thus was valuable
consideration.
Mr Gaskell, on
behalf of the defendants, referred to the classic definition of ‘consideration’
in the judgment of Currie v Misa (1875) LR 10 Ex 153 in which
Lush J giving the majority judgment said at p 162:
A valuable
consideration in the sense of the law may consist either in some right,
interest, profit or benefit accruing to one party, or some forbearance,
detriment, loss or responsibility given, suffered or undertaken by the other.
Mr Gaskell
argues that here we have a classic example of the assignee undertaking a
detriment or responsibility, and indeed by prima facie taking it off the
shoulders of the defendants conveying a benefit to the defendants; thus, he
said, quite apart from £1, this assignment of a commercial leasehold was an
assignment for valuable consideration.
The other
authority to which Mr Gaskell referred the judge was Price v Jenkins
(1877) 5 Ch D 619. That was a case in which there was a settlement in which the
settlor assigned leasehold property to trustees upon trust for life and after
death to his son by a former marriage. The assignment of the property carried
with it liabilities and for that reason it was held that it was an assignment
for valuable consideration. James LJ said at p 621:
It appears to
me impossible to hold that this settlement was voluntary as regarded Thomas
Jenkins the younger, who was himself one of the assignees of the leaseholds.
The trustees came under a responsibility for payment of rent and performance of
the covenants of the lease. It might be such a responsibility that a lessee
might be actually willing to pay money to get rid of. If there is any valuable
consideration for a settlement, the quantum of such a consideration is of no
consequence under the statute of Elizabeth. I think that here there was
a valuable consideration sufficient to support the settlement against a
subsequent purchaser.
In my view that
amply establishes the proposition upon which the learned judge founded his
judgment.
Despite
Viscount Dilhorne’s valiant efforts I am convinced that the judge was correct
and I would therefore dismiss this appeal.
Agreeing,
BINGHAM LJ said: The plaintiff lessors in this action were in my judgment
plainly entitled to the judgment which was entered against the defendant
lesseess. After the defendants’ assignment to the third party there was no
longer privity of estate between the plaintiffs and the defendants, but privity
of contract remained and the plaintiffs were entitled to sue and recover
judgment against the defendants. The plaintiffs were also entitled to recover
against the assignee in possession at the time that the breaches occurred by
virtue of the privity of estate existing between them. But by the time these
breaches occurred, a second assignment had taken place and it appears that the
second assignee was in liquidation. That no doubt explains why the plaintiffs
proceeded against the defendants.
When a lessee
assigns he obviously wishes to rid himself of liability to the lessor. He does
not want to remain subject to the obligations of the lease without the
enjoyment of the property. Accordingly the old practice was for an assignee
expressly to covenant to indemnify the assignor against future breaches of
covenants in the lease. I believe, but do not know, that that practice has
fallen into desuetude as a result of section 77(1)(C) of the Law of Property
Act 1925, to which Glidewell LJ has referred.
Here the
assignment to the third party by the defendants was on terms that the third
party should hold the residue of the term of years comprised in the lease,
subject to the rent and covenants provided for in it. It is argued that there
was no valuable consideration for the
The learned judge held that the £1 consideration stated in the conveyance was
nominal consideration and therefore to be disregarded by virtue of section
205(1)(xxi) of the Law of Property Act 1925. There is no cross-appeal against
that decision and I accordingly do not consider it.
In my judgment
the question that has to be asked is what the substance of this transaction of
assignment was. If the third party’s argument is correct, it must follow that
this was a conveyance without valuable consideration. In my judgment it plainly
was not. The assignor obtained an obvious benefit because, although remaining
liable to the landlord under his original contract, he ceased to be primarily
liable and gained the benefit of another party being also liable. The assignee
for his part undertook a responsibility in that he undertook a responsibility
to pay rent to the original landlord. Looking at the matter as a commercial
transaction and ignoring the £1, it is in my judgment quite impossible to
regard this transaction as one otherwise than for valuable consideration.
Having reached
that conclusion as a matter of principle, I am reassured to find that that is
the effect of the decision of this court in Price v Jenkins to
which Glidewell LJ has referred and which is in any event binding upon us.
I accordingly
agree that the learned judge was right and that the appeal should be dismissed.
The appeal
was dismissed with costs.
