Landlord and tenant–Covenant in underlease of house that lessee shall not assign the premises or any part thereof without written licence of superior landlords, the freeholders–Whether vesting order made on appointment of new trustees of a trust deed constituted an ‘assignment’ in breach of this covenant–Assignee to whom underlease had been assigned with freeholders’ consent executed without such consent a declaration of trust in favour of himself and the plaintiff in these Chancery proceedings, a lady who subsequently married and later divorced him–The assignee, in whom legal interest in underlease remained vested, disappeared and, although named as defendant in these proceedings, could not be served–Plaintiff’s object was to put herself in position to acquire freehold under Leasehold Reform Act 1967–Having failed in an application under Matrimonial Causes Act 1973 and facing risk of enfranchisement being excluded by freeholders’ notice under Part I of Landlord and Tenant Act 1954 proposing a statutory tenancy, she took out the originating summons in these proceedings–Summons asked for orders appointing her and her solicitor trustees of declaration of trust and vesting in them, inter alia, underlease of house–Master made such orders and freeholders, having been given leave, applied to discharge vesting order–Freeholders argued that vesting order was equivalent to assignment in breach of covenant, relied on Trustee Act 1925, sections 49 and 68(3), and quoted cases in support–Held, however, that vesting order was not an assignment but a transfer of legal estate taking effect by operation of law–Freeholders’ summons to discharge vesting order dismissed, but leave to appeal given
This was an
interlocutory application made by the governors of a foundation known as Dr
Radcliffe’s School in the Parish of Steeple Ashton. The application was made in
proceedings commenced by originating summons by Madeleine Martha Marsh
(formerly Gilbert) as plaintiff, the defendant being Malcolm Edward Gilbert.
The interlocutory application was to discharge an order made by the master in
terms of the originating summons, vesting the underlease of the house at 23
Radcliffe Road, London N21, of which the applicants were the freeholders, in
the new trustees. The master had dispensed with service of the originating
summons on Malcolm Edward Gilbert, who could not be found, and had directed
that the order should be brought to the notice of the freeholders.
J J P Powell
(instructed by Henman, Ballard & Co, of Woodstock, Oxfordshire) appeared on
behalf of the applicants in the interlocutory summons; K M J Lewison
(instructed by W H Hopkins & Co) represented the respondent to this
summons, plaintiff in respect of the originating summons, Madeleine Martha
Marsh; the defendant to the originating summons, Malcolm Edward Gilbert, could
not be served.
Giving
judgment, NOURSE J said: This is an application by the governors of the
foundation known as Dr Radcliffe’s School in the Parish of Steeple Ashton to
discharge an order made by Master Dyson on April 17, by which he appointed new
trustees of a trust deed and made a consequential vesting order in regard to
leasehold land. The principal question for my decision is whether the vesting
order comes within a covenant against assignment in the lease.
The governors
are the freeholders of the property, which consists of a house, 23 Radcliffe
Road, Winchmore Hill, London N21. By a head lease of March 9 1904 that house,
together with other property, was demised to head lessees for a term of 99
years from December 25 1881. That lease will therefore expire on December 25
next. By an underlease of September 28 1904 the original head lessees
subdemised
underlease will therefore expire on December 15 next. The rent payable under
the underlease is £6.50 per annum. The underlease contains a covenant against
assignment in the following terms:
And further
that the lessee shall not nor will assign the premises hereby demised or any
part thereof during the last seven years of the said term hereby granted to any
person or persons whomsoever without written licence of the superior Landlords
for that purpose previously had and obtained . . .
and then there
is the usual proviso for re-entry. The underlease deals with successors in
title of the lessor and lessee in these terms:
And it is
hereby lastly declared that these presents shall be construed and the executors
administrators and assigns of the lessor and lessee respectively shall be bound
by and entitled to the benefit of these presents and the term hereby created
and the covenants conditions and agreements herein contained in like manner as
if they had been respectively named herein next after the words ‘Lessor’ and
‘Lessee’ respectively throughout as far as the same will admit and unless the
context or the nature of the case may require a different construction.
So it is clear
that the covenant against assignment was and is binding on successors in title
of the lessee.
By early 1974
the underlease was vested in a Mr Heglar. He then sought and obtained a licence
to assign the underlease to the defendant in these proceedings, Malcolm Edward
Gilbert, and he did so assign it on May 7 1974. On the same day Mr Gilbert,
apparently without the knowledge of the governors, executed a declaration of
trust of the premises in favour of himself and the plaintiff in these
proceedings, then Miss Madeleine Martha Marsh. The position was that the bank
was not prepared to advance money on the security of property in the joint
names of Mr Gilbert and Miss Marsh, who were not then married. And so Mr
Gilbert took the assignment in his own name and dealt with Miss Marsh’s
interest by way of the declaration of trust. On November 13 1974 Mr Gilbert and
Miss Marsh were married and some time before or after that they moved into 23
Radcliffe Road, which became their matrimonial home. The marriage was not happy
after a time and on June 1 1978 Miss Marsh (who has reverted to her maiden
name) presented a petition for its dissolution. On September 25 1979 a decree
absolute was made.
It appears
that at about the time of the presentation of her divorce petition Miss Marsh
began to think of ways in which she might be able to acquire the freehold of 23
Radcliffe Road under the provisions of the Leasehold Reform Act 1967. She made
an attempt to do so in 1978 and 1979, but that was unsuccessful, largely
because the governors’ were able to take the point that she was not the tenant
for the purposes of the 1967 Act. It was clear that the tenant was Mr Gilbert,
in whom the legal estate in the underlease was alone vested.
On November 21
1979 Miss Marsh applied in the matrimonial proceedings for a transfer of
property order under the provisions of the Matrimonial Causes Act 1973. And on
February 18 1980 Mr Registrar Holloway gave her leave to proceed with that
application. But because its object was to acquire the whole of the beneficial
interest in 23 Radcliffe Road, Miss Marsh was ordered by the registrar to serve
notice of her application and copies of the affidavits on the governors. That,
I understand, is in accordance with the invariable practice in the Family
Division in a case where a leasehold property which may be the subject of a
transfer of property order contains a covenant against assignment and suchlike.
On March 12
1980 that application came before Mr Registrar Kenworthy. In accordance with
the practice of the Family Division as derived from a judgment of Sir George
Baker P in Regan v Regan [1977] 1 WLR 84 at p 85, once the
registrar found that the order would be opposed by the governors, that was an
end of the matter. The relevant passage in Sir George Baker’s judgment is as
follows:
The problem
has been debated whether such an order can be made when there is a covenant or
condition in the lease against assigning or subletting without the consent of
the landlord, and if there is, the question will then arise whether the
landlord is prepared to consent. If there is such a provision and the landlord
is not prepared to consent, then that seems to me to be the end of the matter
and the court should not make a transfer of property order.
In other words
the Family Division will not consider whether the landlord is proposing to
withhold his consent unreasonably but will leave that question to be debated
elsewhere. In any event, once the governors told Mr Registrar Kenworthy that
they were not prepared to give their consent to an assignment by way of a
transfer of property order, that was effectively an end of the proceedings in
the Family Division at that stage.
On March 5
1980 the governors had served on Mr Gilbert a notice under Part I of the
Landlord and Tenant Act 1954 proposing a statutory tenancy to come into effect
on the expiration of the underlease on December 15 1980. One of the
consequences of such a notice is that if no counternotice is served on the
landlords to enfranchise or to extend the lease within a period of two months
after the landlord’s notice, it then becomes impossible for the tenant to
proceed under the 1967 Act. In other words, the period for the tenant to take
the necessary steps under the 1967 Act in this case will expire next Monday May
5.
On April 2
1980 Miss Marsh issued the originating summons in these proceedings. That
summons asks for two things: first, an order that she and her solicitor Mr
Hopkins, or some other fit and proper person or persons, may be appointed
trustees of the declaration of trust; and, secondly, that the underlease of 23
Radcliffe Road and all the other freehold and leasehold land (if any) now
subject to the trust may be vested in Miss Marsh and Mr Hopkins for the estate
therein now vested in the defendant Mr Gilbert.
It is clear
that if an order in those terms is made or if, as in this case, an order having
been made, it stands, it will be open to the new trustees, under section 6(3)
of the Leasehold Reform Act 1967, to take advantage of Miss Marsh’s occupation
of the property. They will be able to serve a notice which will put the
machinery of the Act in motion for the benefit of the trust directly, and
indirectly for the benefit of Miss Marsh herself. Section 6(3) of the Leasehold
Reform Act 1977 is in these terms:
Where a
tenancy of a house is vested in trustees . . . and a person beneficially
interested (whether directly or derivatively) under the trusts is entitled or
permitted by reason of his interest to occupy the house, then the trustees
shall have the like rights under this Part of this Act in respect of his
occupation as he would have if he were the tenant occupying in right of the
tenancy.
Mr Powell, who
appears for the governors, although he quite rightly makes no concession on the
point, accepts that if the vesting order I shall shortly refer to stands, the
probability is that Miss Marsh will have fulfilled the residential and other
qualifications which are necessary to enable the trustees to exercise their
rights under section 6(3).
It has
throughout been impossible to serve Mr Gilbert with any of the divorce
proceedings. It has also been impossible, although a further attempt was made,
to serve him with the originating summons in these proceedings. The fact is
that Mr Gilbert has disappeared. He of course would be the person who would
normally serve a notice under section 6(3), because he is the trustee of the
underlease at the present time. Indeed Mr Lewison, who appears for Miss Marsh,
has submitted, I think correctly, that Mr Gilbert is in breach of trust for not
doing so. Although the evidence is only of a provisional nature at the moment,
it does appear that whichever side wins this case is going to be better off in
terms of the value of an asset acquired or preserved to the extent of some
£25,000 or thereabouts.
On April 17
last the originating summons came before the master ex parte. The master
made orders in terms of paragraphs 1 and 2 of the originating summons; that is
to say, he appointed the new trustees and made the necessary consequential
vesting order. He also made an order under section 59 of the Trustee Act 1925
dispensing with service of the originating summons on Mr Gilbert. However, he
provided that his order should be subject, among other things, to the
governors’ solicitors being informed of the order. They were to be told that
they might apply to discharge or vary the order not later than April 25. The
result of that was that on April 18 the following day, the governors issued the
summons which is now before me to discharge the master’s order so far as it
relates to the vesting of the underlease in the new trustees. When the summons
came before him the master indicated that he would have been prepared to make
an order discharging his previous order, but Miss Marsh’s advisers asked that the
matter be adjourned into court for argument.
The final fact
I should mention is that on April 26 (last Friday) the governors contracted to
buy in the head lease from the present head lessees. I think Mr Lewison is
prepared to accept that there is a contract in existence, but there is no
suggestion that that contract has yet been completed by the necessary surrender
of the head lease to the governors.
In support of
his application to discharge the master’s order, Mr Powell has referred me to
the material provisions of the Trustee Act 1925. He started with section 40,
which applies to an appointment of a new trustee by deed. Subsection (4)
paragraph (b) provides that the section does not extend
to land held
under a lease which contains any covenant, condition or agreement against
assignment or disposing of the land without licence or consent, unless, prior
to the execution of the deed containing expressly or impliedly the vesting
declaration, the requisite licence or consent has been obtained, or unless
in effect, the
landlord has unreasonably refused or is proposing unreasonably to refuse his
consent.
Then Mr Powell
referred me to section 41, which gives the court power to appoint new trustees
in a case such as this. Then to section 44, which provides, among other things,
that where the court appoints a new trustee the court may make a vesting order
‘vesting the land or interest therein in any such person in any such manner and
for any such estate or interest as the court may direct, or releasing or
disposing of the contingent right to such person as the court may direct,’
subject to two provisos, one of which is in the following terms:
(a) Where the
order is consequential on the appointment of a trustee the land or interest
therein shall be vested for such estate as the court may direct in the persons
who on the appointment are the trustees.
That is what
was done in the present case, the master having made an order in the terms of
both paragraphs 1 and 2 of the originating summons.
Mr Powell also
referred me to section 49, which provides, among other things, that:
A vesting
order under any of the foregoing provisions shall in the case of a vesting
order consequential on the appointment of a trustee, have the same effect–(a)
as if the persons who before the appointment were the trustees, if any, had
duly executed all proper conveyances of the land for such estate or interest as
the court directs.
He also
referred me to section 68(3), which contains a definition of ‘convey’ and
‘conveyance’ for the purposes of the Act and he says that that definition
reinforces a submission I am going to refer to shortly.
Mr Powell says
that the effect of these sections, and in particular sections 49 and 68(3), is
to make it clear that a vesting order is the equivalent of an assignment.
Therefore, he says, in a case where there is a covenant against assignment
without consent the court cannot, or at least ought not to, make such an order
without the consent of the landlord, provided that the landlord would not be
refusing his consent unreasonably. Mr Powell has managed to find at least one
old case where Sir William Page Wood V-C appears to have thought that a vesting
order made by the court would operate in the same manner as if an assignment
had been made to the new trustee. That is the case of Re Matthew’s
Settlement (1853) 2 WR 85. It appears that in that case the surviving
trustee of a term had died intestate, no administration had been taken out and
a petition was presented for the appointment of a new trustee and a vesting
order. The Vice-Chancellor, in a very short report, is recorded as saying that
he thought the vesting order must operate in the same manner as if an
assignment had taken place to a new trustee and that consequently the landlord
could not be said to be without a tenant. The court would be doing no more than
if the actual tenant had assigned and in the absence of any clause against
assignment in the lease the landlord could not have prevented an alienation and
need not now be served. He (the Vice-Chancellor) should therefore make the
order. However, I think it would be dangerous to attach too much significance
to that very short report. It does appear that the lease in question did not
contain a covenant against assignment and therefore the Vice-Chancellor was not
required to construe a particular form of wording in order to see whether the
vesting order would be caught by it or not.
Mr Powell also
referred me to the earlier case of Re Hazeldine (1852) 15 Jurist 853,
where in comparable circumstances Sir George Turner V-C intimated that the
owners of the fee ought to have been served with the proceedings. However, it
is not clear from the report what was the nature of the wording in question nor
is it clear for what purpose the Vice-Chancellor thought that that step ought
to have been taken.
Mr Powell then
says that if it is right that the master’s order operated as an assignment then
either the governor’s consent must be forthcoming (which it is not) or it must
be clear that they have unreasonably withheld their consent (which they have
not). On that second point Mr Powell referred me to authority for the general
proposition that the question for the court is not whether it is fair or just
or reasonable in all the circumstances for the landlord to refuse his consent but
whether the landlord is acting reasonably or not. He also referred me to two
recent authorities in the Court of Appeal, Norfolk Capital Group Ltd v Kitway
Ltd [1977] QB 506, and Bickel v Duke of Westminster [1977] QB
517, in support of the specific proposition that it is prima facie reasonable
for a landlord to refuse his consent to an assignment in favour of an assignee
who would thereafter be able to exercise his rights of enfranchisement under
the 1967 Act. However, in both those cases the proposed assignor was not, for
one reason or another, entitled to enfranchise himself whereas the proposed
assignee would have been. The assignment would thus have prejudiced the
landlord’s interest. There is a further distinction between those cases and the
present which is greatly relied on by Mr Lewison. He says that in this case
since Mr Gilbert has disappeared there is no effective tenant. Mr Lewison says
that it would be patently unreasonable for any landlord to say: ‘I will have no
tenant.’ That would have the effect of
sterilising the lease. It would be akin to the case in which the landlord says:
‘I refuse my consent to the assignment because I want to be able to get
possession of the premises myself.’ That
is a case in which it is always unreasonable for consent to be withheld. It
seems to me that those are two important distinctions between the two Court of
Appeal decisions and the present case. If I thought it necessary to decide that
point I would have to pay very great regard to those distinctions.
The arguments
of Mr Lewison proceed from an entirely different starting point. He says that
the court’s duty is to ensure that the trust is duly administered and that the
trust assets are vested in fit and proper persons. It is no part of the court’s
function to condone a breach of trust. He says,
appropriate notices under the 1967 Act is a clear breach of trust; that if he
could be found the court would certainly order him to serve those notices, and
that in that way the problem would be entirely resolved. Then he says that in
an application of this kind the court is only concerned with the trustees and
the beneficiaries and that the proceedings were properly constituted without the
governors being joined. He does not suggest that it was not right for the
master to give the governors notice and allow them to be heard. What he does
say is that the purpose of hearing the governors is not so that they can put
forward arguments in their own interest but so that they can inform the court
whether the order would or would not be in the best interests of the trust. In
particular, he says that if as a result of anything which was said on behalf of
the governors it became clear that the vesting order would result in a
forfeiture of the lease, then the court would certainly not make that order.
I do not need
to express a view as to whether these arguments are correct or not, because Mr
Lewison raised a number of others, one of which is in my judgment conclusive in
this case. This was that the vesting order made by the master on April 17 was
not and could not be an ‘assignment’ for the purposes of the covenant in
question. Mr Lewison referred me to the particular wording of the covenant and
he pointed out, correctly, that it is to be found in an underlease made in
1904, when such covenants were in a more primitive form than they are today.
The covenant is in these terms:
And further
that he the Lessee shall not nor will assign the premises hereby demised.
Mr Lewison says
that two things must happen before that covenant can be breached: first, there
must be an assignment; and, secondly, the assignment must be made by the lessee
himself. Mr Lewison relies on the general principle that a covenant against
assignment, being a fetter on a right of disposition which would otherwise be
available to the tenant, must be strictly construed against the landlord.
In normal
legal usage an ‘assignment’ is an inter vivos disposition made by one
party in favour of another as an act of their joint volition. If that is the
correct approach as a matter of language, I am bound to say that, authority
apart, it would seem to me to be an odd result if a vesting order made by the
court was capable of being an assignment for the purposes of a covenant of this
nature. Moreover, when one comes to Mr Lewison’s second point, it is manifest
that it could not in any sense be an assignment made by Mr Gilbert. The vesting
order in the present case was made because Mr Gilbert was either unable or
unwilling to act as a trustee ought to act. The legal estate in the lease was
taken away from Mr Gilbert, almost certainly without his knowing anything about
it, and vested in two different persons. I do not see how that can be said to
be an assignment made by Mr Gilbert. Going back to the first point, I think
that this was not an assignment at all. A vesting order is a transfer of the
legal estate which takes effect by operation of law. If authority is needed for
that proposition it can be found in the case of Re Birkbeck Permanent
Benefit Building Society [1913] 2 Ch 34, where an order had been made that
all the property belonging to the society or any trustee on their behalf should
vest in the Official Receiver by his official name. It is clear, I think, from
the last paragraph that he thought that the vesting order in that case was not
an assignment or anything like that but a transfer which took effect by
operation of law. It seems to me that the position must be the same in the case
of a vesting order made under the Trustee Act.
Mr Lewison
referred me to one or two other cases on this point. I would like, in
particular, to refer to a passage in the judgment of Lord Kenyon CJ in Doe
v Carter (1798) 8 TR 57. At p 61 the Lord Chief Justice, in considering
a covenant in the lease which was before the court in that case, said this:
Now, what are
the words used in this lease; that the lessee shall not let, set, assign,
transfer, make over, barter, exchange, or otherwise part with, the indenture or
the premises demised: but these are all acts to be done by the tenant himself;
and I adopt the distinction-relied upon by the defendant’s counsel between
those acts, that the party does voluntarily; and those that pass, in invitum:
judgments in contemplation of laws always pass in invitum.
There are other
observations from the other members of the Court of King’s Bench to the same
effect. That seems clearly to recognise that a transfer which takes effect
under an order of the court cannot normally be described as an assignment by an
individual, particularly when, as in this case, it is made without his
participation and almost certainly without his knowledge.
I think that
Mr Powell recognises the force of Mr Lewison’s arguments on this point, both as
a matter of language unrestricted by context and on the wording of the covenant
in question. At the end of the day he is driven back to relying on section 49
of the Trustee Act as amplified by section 68(3). His argument amounts to this,
that, notwithstanding that this was not an assignment in the normal sense,
nevertheless section 49 provides that a vesting order shall have the same
effect as if the previous trustees had duly executed all proper conveyances of
the land. Section 68(3) defines ‘conveyance’ so as to include an assignment. In
the result, the vesting order made in this case was an assignment for the
purpose of the covenant in question. I am quite unable to accept that argument.
It seems to me that section 49 is concerned only with machinery. It is concerned
with enabling trustees to prove their title. A vesting order, as conveyancers
well know, often has to appear on an abstract of title. Without section 49,
requisitions might be delivered which would have the effect of invalidating or
at least casting doubt on the vendor’s title. Then Mr Lewison says, and I agree
with him, that it is made clear by the wording of the section itself that it
cannot have the effect for which Mr Powell contends because it uses the words
‘as if.’ Mr Lewison says that these
words make it clear that the section itself recognises that a vesting order is
not an assignment.
Finally on
this point, Mr Lewison referred me to section 53 of the Bankruptcy Act 1914,
which provides in subsection (4) that:
The
certificate of appointment of a trustee shall, for all purposes of any law in
force in any part of the British Dominions requiring registration, enrolment or
recording of conveyances or assignments of property, be deemed to be a
conveyance or assignment of property, and may be registered, enrolled and
recorded accordingly.
He says it is
clear on authority that, notwithstanding that provision, when a lease vests in
the trustee of a bankrupt it it is not an assignment for the purposes of a
covenant of this kind but is another example of a transfer by operation of law.
In the circumstances, I am unable to accept Mr Powell’s arguments on this point
and in my judgment it is clear that on that ground alone the plaintiff is
entitled to succeed.
Mr Lewison
advanced a number of other arguments. I do not think that it is either
necessary or desirable that I should go through them. I have come to a clear
view on the question of assignment and that is enough to dispose of this case.
It therefore
seems to me that the governors’ summons should be dismissed, and that is what I
propose to do.
The
applicants’ summons was dismissed with costs. The master’s order was varied so
as to take effect that day. Legal aid taxation of costs ordered. Leave to
appeal was given.
