Commercial premises — Purchase of freehold — Surrender of current lease — Sale of freehold with proviso for further payment if lease arranged within specified time after vacant possession obtained — Agreement for lease at initial rent with premium — Whether vendor entitled to further payment in respect of premium — High Court holding that additional sum only payable in respect of initial rent excluding premium
On December 9 1988 the plaintiff agreed to buy the freehold land and buildings 140-158 Kensington High Street, London W8, £11,750,000. The property comprised commercial premises on the ground floor and basement, with residential flats on the upper floors. A current lease of the ground floor and basement of nos 142/144 was in existence. The date for exchange of contracts was fixed at January 6 1989. After exchange of contracts the plaintiff entered into negotiations with the defendant for the sale of the property. An agreement was reached on January 18 1989. By clause 5(2), if the defendant obtained vacant possession of the relevant premises (142/144) no later than June 5 1989 and completed the relevant lease, or entered into a legally binding agreement for the grant of the relevant lease, within four months of the date upon which vacant possession of the premises was obtained, then the defendant should pay to the plaintiff a sum equal to 10 times the excess (if any) or £750,000, whichever was the lesser amount.
On March 8 1989 the defendant entered into an agreement with J, a shell company acquired for the purpose, whereby the defendant sold to J for a consideration equal to the deposit paid by the defendant under the January agreement, the full benefit of the January agreement. J then obtained the surrender of the lease of 142/144. J subsequently reached an agreement for the grant of a 25-year lease of 142/144 to Abbey National at an initial rent of £310,000 together with a premium consisting of an option to grant a long lease subject to and with the benefit of the initial lease for the sum of £6.5m at a peppercorn rent. Following the execution of the 25-year lease the defendant accepted that it was liable to make a payment of £100,000 pursuant to clause 5(2) of the January agreement. A dispute arose whether it was also liable to pay an annual figure representing the “rentalised” value of the premium. If not, the plaintiff argued that on its true analysis the transaction between J and Abbey National should be viewed as a sale of 142/144 for £6.5m thereby entitling the plaintiff to a payment of £500,000 under clause 5(4) of the January agreement.
Held Judgment for the defendant.
1. The words used by the parties in the definition of “the relevant lease” were perfectly clear and contained no ambiguity. Construed in their ordinary sense they included any lease of the relevant premises which the purchaser might choose to grant, on whatever terms in all respects the purchaser thought fit.
2. The 25-year lease was a “relevant lease” for the purposes of clause 5, being a lease of the relevant premises and gave rise to a liability to pay to the plaintiff a sum equal to 10 times the amount by which the initial rent exceeded £300,000.
3. J would not have granted the 25-year lease to Abbey National unless Abbey National had agreed to the option. However, it was impossible properly to construe the definition of “initial rent” in clause 5(1) to include the “rentalised” value of a premium. The use of the words “without taking a fine or premium” in that clause made clear that the initial rent was not to include anything in respect of a fine or premium. Accordingly, the initial rent of the relevant lease was £310,000.
4. The overall transaction between J and Abbey National could not be treated as a sale for the purposes of clause 5. Once it was conceded that the 25-year lease was not a sham, the grant of that lease could not be ignored. It was impossible to regard that transaction as a sale of 142/144 as it consisted of a genuine 25-year lease and genuine option to grant and take a long lease in the future.
5. Accordingly the plaintiff was not entitled to any payment under clause 5 of the January agreement apart from the £100,000 it had already been paid.
Romie Tager (instructed by Beckman & Beckman) appeared for the plaintiff; Neville Spencer-Lewis (instructed by Jaques & Lewis) appeared for the defendant.