Sale of land — Subsales — Standard conditions of sale — Contract for sale of residential property — Purchaser seeking to effect subsale by direct transfer from vendor to subpurchaser — Vendor refusing to transfer to party other than purchaser — Vendor forfeiting purchaser’s deposit for non-completion — Whether subsale contrary to clause 1.5 of standard conditions (4th ed) prohibiting transfer of benefit of contract — Whether purchaser entitled to return of deposit
In July 2007, contracts were exchanged on a sale by the defendant to the claimant of a leasehold residential property for £2.7m. The contract incorporated the standard conditions of sale (4th ed), clause 1.5 of which prohibited the purchaser from transferring “the benefit of the contract”. Prior to completion, the claimant had found subpurchasers to whom he proposed to subsell the property for the same price that he had agreed to pay, with the two contracts to be completed by a single transfer from the defendant to the subpurchasers. However, he did not inform the defendant of this at the time. The defendant became aware of the subsale arrangements early in June 2008, shortly before the date for completion of the sale to the claimant. He insisted that he would transfer the property only to the claimant. Thereafter, the subpurchasers withdrew from the subsale, on which contracts had not been exchanged. The claimant therefore lacked the necessary funds with which to complete the purchase from the defendant.
The defendant served a notice to complete, with which the claimant did not comply. The claimant instead purported to rescind the contract, claiming that the defendant was in breach of contract for improperly refusing to execute a subsale transfer. Thereafter, the defendant also purported to rescind, in reliance on the claimant’s failure to complete, and forfeited the claimant’s deposit.
The claimant brought proceedings to recover the deposit, contending that his failure to complete had been caused by the defendant’s wrongful refusal to transfer to the subpurchasers. He also alleged a failure on the part of the defendant to provide the necessary licence to assign from the landlord by the relevant date. The defendant argued that he had been entitled to refuse a transfer to a subpurchaser because a subsale breached clause 1.5 of the standard conditions.
Held: The claim was allowed. (1) An assignment of the benefit of a contract is not the same as a requirement to effect the conveyance in favour of a third party. In the absence of a contractual provision to the contrary, be it express or implied, a purchaser is entitled to require the vendor to transfer the property on completion to a third party of its own choosing. It can therefore effect a subsale and require the vendor to execute a conveyance or transfer directly in favour of the subpurchaser. The standard conditions of sale (4th ed) do not alter that position under the general law. Unlike the standard commercial property conditions of sale (2nd ed) that apply to commercial property sales, the standard conditions for residential conveyancing do not expressly prohibit subsales; nor are there any grounds for implying such a prohibition. A vendor, when adopting the non-commercial standard terms, may include an explicit exclusion of subsales to the same effect as that in the commercial standard terms. If it does not do so, however, subsales will not be precluded under clause 1.5 of the standard conditions. Accordingly, the claimant had been entitled to rescind the contract of sale following the defendant’s refusal to transfer to a subpurchaser. (2) On a sale of a leasehold interest, clause 8.3 of the standard conditions obliges the vendor to obtain a licence to assign only to the original purchaser. It is the responsibility of that purchaser to obtain consent for any assignment to a subpurchaser. That position is not inconsistent with the purchaser being entitled to nominate its subpurchaser as transferee, provided that it obtains the necessary additional consent. The defendant had failed to procure a written licence to assign to the claimant three working days before the contractual completion date, such that the claimant had been entitled to rescind on that ground also, pursuant to clause 8.3.3 of the standard conditions. The claimant was entitled to the return of his deposit.
The following cases are referred to in this report.
Aubergine Enterprises Ltd v Lakewood International Ltd [2002] EWCA Civ 177; [2002] 1 WLR 2149
Curtis Moffat Ltd v Wheeler [1929] 2 Ch 224
Earl of Egmont v Smith; Smith v Earl of Egmont (1877) LR 6 Ch D 469, Ch
This was the hearing of a claim by the claimant, Daniel Pittack, against the defendant, Muhammad Naviede, for the return of a deposit paid under a contract for the sale of land.
Timothy Dutton (instructed by Lucas McMullan Jacobs) appeared for the claimant; the defendant appeared in person.
Giving judgment, Mr Mark Herbert QC said:
[1] This is an action concerning property conveyancing. It raises a question of construction on the standard conditions of sale (4th ed), namely whether a clause excluding the transfer of the benefit of the contract operates to exclude subsales. There is no doubt that the parties entered into a contract, and no doubt that the contract has been rescinded. The only question is whether it was the purchaser or the vendor who was entitled to rescind, and the answer to that question determines which of them is entitled to the deposit. Neither side claims damages.
[2] Both parties are individuals, and the property in question is a townhouse in Regents Park held on a long lease from the Crown Estate Commissioners. The claimant is the purchaser, Mr Daniel Andrew Pittack, and he appeared before me by Mr Timothy Dutton of counsel. The defendant is Mr Muhammad Maximilian Naviede, and he appeared before me in person.
[3] On the purchaser’s side, I heard evidence from Mr Pittack himself, from his personal assistant Ms Sarabjeet Howard-Brown (also known as Ms Sally Howard) and from his solicitor Mr Garry Stephen Lucas, of Lucas McMullan Jacobs. I also read a short witness statement from Mrs Asha Narang, who was at one time intending to be a subpurchaser of the property. On the vendor’s side, I heard evidence from Mr Naviede |page:96| himself and also from Mr Emanuel Langley, a business associate of Mrs Narang’s son. Mrs Narang is in India, and her statement was admitted under the Civil Evidence Act 1968. All the other witnesses were cross-examined. I may say that although oral evidence took up more than five hours of the court’s time, it contained little of value that was not clear from the documents.
Facts
[4] The basic facts are that, in July 2007, Mr Pittack and Mr Naviede exchanged contracts to buy and sell a leasehold residential property and the contractual completion date was originally in July 2008 but, in the event, was brought forward to 20 June 2008. During 2008, Mr Pittack formed the intention of subselling the property, but no contracts for the subsale were ever exchanged and, on 16 June, the subpurchasers withdrew. Mr Pittack had no means immediately available to complete the contract himself, and he did not do so. He claims, however, that Mr Naviede was already in breach of contract in two ways, namely that: (i) Mr Naviede had wrongly refused to transfer the property to any subpurchasers; and (ii) he had not received the landlord’s licence to assign the lease to Mr Pittack in due time. He claims that each of these alleged breaches entitled him to rescind and recover the deposit. If Mr Pittack is wrong on both those points, it is obvious that he himself was in breach and Mr Naviede can keep the deposit.
[5] In more detail, the facts are these. A lease of the property was granted by the Crown Estate Commissioners to Mr Naviede in 2002 for a term of more than 105 years, and the lease is therefore a “new tenancy” for the purposes of the Landlord and Tenant (Covenants) Act 1995 (the 1995 Act). This means, among other consequences, that, under section 5 of the Act, an assignment of the lease by Mr Naviede would release him from liability under the tenant’s covenants in the lease, even though he is the original lessee.
[6] On 25 July 2007, after several months of precontract negotiations, Mr Pittack and Mr Naviede exchanged contracts for the sale of the property to Mr Pittack for £2.7m. The contract incorporated the standard conditions of sale (4th ed). Clause 1.5 provides:
1.5 Assignment
The buyer is not entitled to transfer the benefit of the contract.
Clause 8.3 dealt with obtaining consent where the contract was for the assignment of a lease, as was the case. For this purpose, “consent” means consent in the form that satisfies the requirement to obtain it, and clause 3.29.3(c) of the lease, read with clause 1.16, provides for written consent, signed by or on behalf of the landlord, such consent not to be unreasonably withheld. Clause 8.3.2 requires: (a) the seller to apply for the consent at his own expense and to use all reasonable efforts to obtain it; and (b) the buyer to provide all information and references reasonably required. Clause 8.3.3 provides:
8.3.3 Unless he is in breach of his obligation under condition 8.3.2, either party may rescind the contract by notice to the other party if three working days before completion date (or before a later date on which the parties have agreed to complete the contract):
(a) the consent has not been given, or
(b) the consent has been given subject to a condition to which a party reasonably objects.
In that case, neither party is to be treated as in breach of contract and condition 7.2 applies.
Clause 7.2 provides:
7.2 Rescission
If either party rescinds the contract:
(a) unless the rescission is a result of the buyer’s breach of contract the deposit is to be repaid to the buyer with accrued interest
(b) the buyer is to return any documents he received from the seller and is to cancel any registration of the contract.
[7] There were also special conditions, including the following:
(a) The contractual date for completion was fixed at 25 July 2008, a whole year after the date of the contract, but the vendor was given the right to bring the completion date forward by serving three months’ notice.
(b) The deposit was to be held by the solicitor as the vendor’s agent, so that the vendor had the use of it straightaway.
(c) Against those conditions, which were of benefit to the vendor, he agreed not to increase the borrowing secured on the property without the buyer’s consent.
(d) Special condition 9 provides:
The Buyer will join in any Licence to Assign issued by the Landlord and will enter into any covenants and adhere to any conditions reasonably required by the Landlord. The Buyer will also produce to the Landlord such references as the Landlord shall require.
[8] On 31 July 2007, soon after exchange, Lucas McMullan Jacobs asked Mr Naviede’s solicitor Zatman & Co whether it was contacting the landlords’ agent to find out their requirements in respect of the licence to assign. Zatman & Co responded rather slowly, perhaps understandably so in view of the long completion date. On 21 September 2007, it did indeed write to the Crown Estate and, on 28 September 2007, Cluttons responded on its behalf enclosing a printed form of application incorporating a request for the information required from an assignor. Some 12 weeks later, on 17 December 2007, Zatman & Co forwarded that to Lucas McMullan Jacobs and, on 2 January 2008, the latter replied that it was obtaining the references and information required and that it would forward these when they were to hand. In the end, that did not literally happen, as will appear.
[9] Some weeks after exchange of contracts, Mr Pittack considered that he might want to borrow money to effect the purchase and through his personal assistant, Ms Howard, asked Mr Naviede for a surveyor to have access to the property for the purpose of an inspection. This was refused, despite Ms Howard speaking on several occasions to Mr Naviede himself and also to his associate, Mr Steve Lavin. Mr Pittack then began considering selling on the property to one or more subpurchasers.
[10] One potential subpurchaser, although not the first, was Mrs Narang. By the beginning of April 2008, Lucas McMullan Jacobs was in correspondence with Goldkorn Matthias Gentle, which wrote that it had been instructed by Mrs Narang and Mr Langley as co-purchasers. The proposal was that the subpurchasers would buy the property for the same price that Mr Pittack had agreed to pay, namely £2.7m, and Lucas McMullan Jacobs intended that the two contracts would be completed by a single transfer from Mr Naviede to the subpurchasers. It did not, however, inform Mr Naviede or his solicitor of that intention at that time.
[11] On 20 March, Mr Naviede’s solicitor duly gave notice bringing the contractual date for completion forward to 20 June 2008.
[12] From that point, matters moved somewhat more quickly. During May, there was correspondence between Goldkorn Matthias Gentle and Lucas McMullan Jacobs with regard to the proposed subpurchase, and references were obtained for Mr Langley, as was a bank reference for Mrs Narang. On 6 June, Lucas McMullan Jacobs sent a draft transfer to Zatman & Co for approval, but this was for a transfer to Mr Pittack alone. However, Lucas McMullan Jacobs had also been communicating with Cluttons, as agent for the Crown Estate and, by 10 June, a draft licence to assign to Mrs Narang and Mr Langley was in its final form, and Pemberton Greenish, acting for the Crown Estate, had written that it did not expect the Crown to want Mr Pittack to be a party to the licence.
[13] On 11 and 12 June 2008, there was a comparative flood of correspondence that is not easy to analyse because it does not all appear in strict chronological order in the trial papers. First, Cluttons must have given Zatman & Co the names of the intended subpurchasers, and Mr Naviede’s view on potential subsales was revealed to those acting for the Crown Estate. On 11 June, Zatman & Co wrote to Cluttons and Pemberton Greenish to say that it had come to its attention that Lucas McMullan Jacobs had been corresponding directly with it in connection with a licence to assign to Mr Langley and Mrs Narang, and that Mr Naviede did not know Mr Langley and Mrs Narang because |page:97| he had contracted to sell the property to Mr Pittack. To Pemberton Greenish, it added that Mr Naviede had notified it that he was not prepared to be a party to a licence to anyone other than Mr Pittack. On 12 June, Cluttons replied to Zatman & Co confirming that Cluttons and Pemberton Greenish had been contacted by Lucas McMullan Jacobs in connection with the assignment and that it had received satisfactory references for Mr Langley and Mrs Narang. It also wrote that it had advised Pemberton Greenish not to action the assignment any further until the matter was clarified. Pemberton Greenish wrote that it had been instructed to take no further action on the matter.
[14] Also on 12 June, Lucas McMullan Jacobs wrote to Zatman & Co that Mr Pittack may exchange contracts to sell the property prior to completion, and enclosed a second draft transfer, this being for a transfer direct from Mr Naviede to the subpurchasers.
[15] On the same day, Zatman & Co first replied by fax to Lucas McMullan Jacobs’ letter of 6 June. It approved the form of the draft transfer (which was expressed as a transfer to Mr Pittack). As to the licence to assign, it wrote that it did not understand why Lucas McMullan Jacobs had written to Cluttons and Pemberton Greenish, pointing out that the contract provides for this to be done by the vendor. The fax also mentioned that Mr Pittack had not provided the references requested on 17 December 2007. Still, on 12 June, Lucas McMullan Jacobs replied to the fax of that day, writing that it did not understand Zatman & Co’s objection to its approach to the Crown’s agent directly, and that this was now academic because the Crown was prepared to grant the licence. At around the same time, Zatman & Co faxed a short second letter stating that the contract was not assignable and that Mr Naviede was not prepared to transfer the property to anyone other than Mr Pittack. Lucas McMullan Jacobs therefore added a postscript to its reply, to the effect that Mr Pittack was not assigning the contract, and that he was entitled to direct Mr Naviede to transfer the property to a third party because the contract did not contain a prohibition on subsales.
[16] On 13 June, Zatman & Co repeated Mr Naviede’s insistence that he would transfer only to Mr Pittack and that Mr Pittack was obliged to provide references for himself. At the same time, it spoke to Cluttons by telephone, which told it that, since Mr Pittack was a current lessee of the Crown Estate, references for him may not be required. Zatman & Co faxed Cluttons to ask it to confirm this in writing.
[17] The next working day was Monday 16 June. Zatman & Co telephoned Cluttons again and, after receiving confirmation that the Crown Estate would not require references for Mr Pittack, asked Cluttons to arrange for a licence to assign to be prepared authorising a transfer to Mr Pittack. Cluttons duly replied, stating that Pemberton Greenish had been instructed to continue with the granting of the licence in favour of Mr Pittack. That letter was sent by post, and there is no evidence that it was either delivered by hand (to Zatman & Co in Manchester) or transmitted to it or anyone else by fax or by e-mail.
[18] Also on 16 June, Goldkorn Matthias Gentle e-mailed Lucas McMullan Jacobs to say that its clients were not proceeding with the purchase, and it confirmed this by letter the following day. Mrs Narang and Mr Langley gave differing reasons for the withdrawal: she that Mr Naviede was not co-operating with the landlords, he that Mr Naviede had not allowed access to the property (and it is the case that Mrs Narang and Mr Langley had only ever seen the outside). However, the reasons do not matter. The fact is that no contracts for any subsale were exchanged. I should record that Mr Langley gave evidence before me that he never intended to be a co-purchaser himself, despite having apparently authorised Goldkorn Matthias Gentle to represent to all relevant parties that he was. This casual attitude to accuracy raised doubts concerning his evidence generally, but in the end nothing turned on it.
[19] Mr Lucas was away from the office for the entire week beginning 16 June, and an assistant solicitor, Mr Mughal, was holding the fort at Lucas McMullan Jacobs. On 19 June, Mr Mughal e-mailed Zatman & Co that Mr Pittack would not be completing the purchase because Mr Naviede had improperly refused to execute a subsale transfer and had not provided a licence to assign. Zatman & Co replied by fax, repeating that Mr Naviede was obliged to transfer the property only to Mr Pittack (referring to para 14.3.1 of the Law Society’s Conveyancing Handbook), and stating that the reason why the licence to assign had not been provided was that Mr Pittack had failed to provide references. Even so, it had found that the Crown Estate would grant the licence, and the letter enclosed a draft licence that needed only the addition of Mr Pittack’s full address.
[20] During 19 June, there was some attempt to negotiate terms for a supplemental agreement, but this did not result in a concluded agreement. Instead, on 20 June, Zatman & Co served a standard-form notice to complete, giving 10 working days to complete by 4 July and making time of the essence.
[21] After that date, there was no attempt on the part of Mr Pittack to complete the purchase. Instead, on 1 July, Lucas McMullan Jacobs wrote a formal letter that reasserted the argument that clause 1.5 does not exclude direct-transfer subsales, so that Mr Naviede’s refusal to transfer on those terms was improper, and gave notice rescinding the contract on the basis of Mr Naviede’s repudiatory breach and, alternatively, because the licence to assign was not available by the required date. On 7 July, Zatman & Co replied, relying on Mr Pittack’s failure to complete on 4 July in accordance with the notice to complete, and rescinded the contract.
Clause 1.5 of the standard conditions (4th ed)
[22] At the root of this case is the true construction of clause 1.5 of the standard conditions, which provides that a purchaser is not entitled to transfer the benefit of the contract to a third party.
[23] On behalf of the purchaser Mr Pittack, Mr Dutton said that it means what it says but no more, and that it does not prevent subsales. He also pointed to special condition 9, which would be irrelevant with regard to a new lease to which the 1995 Act applies except in the case of a subsale completed by a direct transfer to the subpurchaser. This implies, he said, that the possibility of a direct transfer to a subpurchaser was impliedly acknowledged in the terms of the contract.
[24] According to this argument, what clause 1.5 prevents is the actual transfer to a third party of the benefit of the contract, by which, after due notice to the vendor, the assignee takes the place of the original purchaser and can maintain a claim against the vendor itself. The general law provides that the purchaser is generally entitled to obtain a transfer to itself or as it directs, and clause 1.5 does not remove that right. If this is right, then when, on 12 and 13 June 2008, Mr Naviede refused outright to transfer the property to anyone other than Mr Pittack, that amounted to an improper repudiation of the contract and Mr Pittack was entitled to rescind on the strength of that repudiation, as he did on 1 July, and will be able to recover the deposit. For this purpose, said Mr Dutton, it is immaterial that Mr Langley and Mrs Narang withdrew from the purchase on 16 June.
[25] Mr Dutton showed me the corresponding clause in the standard commercial property conditions of sale (2nd ed). I shall call these the “commercial” standard terms to distinguish them from the “non-commercial” standard terms that were incorporated into the Pittack-Naviede contract. Clause 1.5 of the commercial standard terms has a different heading and an extra subclause:
1.5 Assignments and sub-sales
1.5.1 The buyer is not entitled to transfer the benefit of the contract.
1.5.2 The seller may not be required to transfer the property in parts or to any person other than the buyer.
That clause makes it clear that subsales are not authorised, so that the purchaser is not entitled to nominate a third party to take a direct transfer from the vendor. Mr Dutton argued that, in the absence of clause 1.5.2 or its equivalent from the non-commercial standard terms, there is nothing in those terms explicitly to exclude subsales, and there is no reason to imply such an exclusion; special condition 9 even points the other way.
Subsales in general
[26] The first step is to establish what the position would be in the absence of clause 1.5. Some of the modern textbooks on land law and |page:98| conveyancing do not deal with subsales at all. Nor has Mr Dutton’s research discovered recent judicial authority on the matter. What he does point to is a dictum of Sir George Jessel MR in Earl of Egmont v Smith (1877) LR 6 Ch D 469. That case primarily concerned the purchaser’s ability to insist on the property being conveyed to him in separate lots, but the relevant clause also mentioned subsales. Clause 6 of the contract provided:
The purchaser shall be at liberty to require the vendors to convey the property to him, or as he shall direct, in such portions and by such separate conveyances as he shall think fit; provided that the purchaser shall bear and pay all additional expense whatever incurred or sustained by the vendors in consequence thereof; and if the vendors or their solicitor shall enter, at the request or on behalf of the purchaser, into any negotiation or communication with, or furnish any abstracts, evidence, or information to any sub-purchaser or sub-purchasers from him, the same shall be without prejudice in any way to the vendor’s rights and the purchaser’s liabilities under this agreement, and shall not be deemed to be a recognition of such sub-purchaser or sub-purchasers, or a waiver or abandonment of any of the vendor’s rights under this agreement; and the vendors shall not be required to execute any conveyance of any part of the premises except on payment of the entirety of the purchase-money and all interest, if any, due thereon, and all costs and expenses payable by the purchaser under this agreement or otherwise.
[27] Sir George Jessel MR said this about that clause, at p474:
As I understand that condition, it is no more than the law would require. I take it that in no case can a vendor object to convey the sold property in parcels on receiving the whole purchase-money. Whether he could or could not object to convey it at various times is another matter, but that he could not object to convey on his being paid the additional expense occasioned by his joining in several conveyances instead of one, I am quite clear.
An ordinary contract of sale is not only to convey to the purchaser, but to convey as the purchaser shall direct. Whether or not he could be asked to keep his legal estate for a long period, and convey it in portions at various times is a question perhaps deserving of more consideration. But this condition does not exceed the ordinary law; it gives the vendors the additional expense; it gives them the whole purchase-money, and is not to operate as a waiver or abandonment of any of their rights.
[28] Mr Naviede submits that this should be read in a narrow sense, limited by the context, namely that a purchaser can direct the vendor to convey the land, to the purchaser itself, in whatever lots it requires. However, Mr Dutton said that it should be taken as meaning also that a purchaser is entitled to direct the vendor to transfer the property to a third party, such as a subpurchaser, on completion. He pointed out that the wider reading was adopted by no less an authority than Williams on Vendor and Purchaser (4th ed, 1936), at pp641-642:
On the side of the grantee or grantees under the conveyance, the purchaser himself is in general the only necessary party. But… the vendor’s obligation is to execute a conveyance of the land sold to the purchaser, or as he shall direct. The purchaser is therefore entitled to require the conveyance to be made to some other person or persons than himself, or to himself and others, and the vendor is bound to assure the lands sold accordingly. It appears that in such case the vendor may in general demand that the purchaser, with whom alone he has contracted, shall be made a party to the conveyance in order to testify that he has directed the conveyance to be made to a stranger to the contract and that the vendor has duly performed his part of the contract by complying with this direction. But if the purchaser should have made an absolute assignment of all his interest in the contract, and the assignee has given notice of the assignment and is willing to take upon himself the whole burden of the original contract and prove his title by assignment from the purchaser, then it seems that the vendor ought to complete the contract with the assignee alone, without requiring any further concurrence of the purchaser.
[29] That passage does not use the word subsale or subpurchaser, but to my mind the meaning is clear enough. In the absence of a provision to the contrary, express or implied, a purchaser may effect a subsale and require the purchaser to execute a conveyance or transfer in favour of the subpurchaser direct; although the original purchaser may be required to participate for the reason stated. There is also a clear distinction between an assignment of the benefit of the contract and a requirement to effect the conveyance in favour of a third party.
[30] A similar question arose in Curtis Moffat Ltd v Wheeler [1929] 2 Ch 224, which also concerned a contract for the sale of leasehold property having a prohibition on assignment without the landlord’s consent. The landlord was not prepared to grant a licence to assign to the plaintiff, being a company, but it was willing to grant a licence in favour of an individual as nominee for the company. The plaintiff requested an assignment in favour of a nominee, and it was held that the vendor was not entitled to refuse. After referring to authorities in which a lessor that has entered into a contract to grant a lease to a particular person can be compelled to grant the lease to a solvent nominee, Maugham J applied the same principle to the case of an assignment of a lease, at p237:
In my opinion, treating the matter as one of substance, the principle of these cases should be followed in the case of a sale of leaseholds where, as here, the contract was not entered into upon considerations personal to the purchaser. The restriction on assignment was so qualified that the defendant was always able to compel the [landlord] to assent to an assignment to any proper person, and no difficulty has in fact arisen on this head.
The reference to the restriction on assignment being qualified was a reference to a proviso that consent should not be withheld to an assignment or underletting of the premises to a respectable and responsible person.
[31] The conclusion that I draw from these passages is that, in the absence of provision to the contrary, a buyer is entitled to require the vendor to transfer the property on completion to a third party of its choosing. In my view, this applies similarly to the sale of leasehold property, including cases where the prohibition on assignment without consent (if any) cannot be unreasonably withheld, although in this last case the fact may be that the landlord withholds its consent reasonably, in which case other considerations arise.
Effect of clause 1.5
[32] It remains to decide what effect clause 1.5 of this particular contract has on that general statement of law.
[33] Mr Dutton was prepared to acknowledge a potential difficulty with his construction in the context of a lease where the vendor has covenanted not to assign the lease without the consent of the landlord. That was the case here. The relevant clause is clause 8.3, the important parts of which I have quoted in [6] above. The essence is that the purchaser is required to provide references and other information as required by the landlord, and the vendor is then required to obtain the licence at his own expense. If there is a subsale, in whose favour should the licence to assign be obtained? Moreover, if the purchaser initially intends to take the assignment itself and the vendor obtains a licence to assign to it and then the purchaser contracts to subsell and requires the vendor to complete by a direct transfer to the subpurchaser, what is the vendor obliged to do? Does it have to obtain a further licence in favour of the subpurchaser, again at its own expense?
[34] In such a case, it seems to me that unless and until the purchaser informs the vendor of the identity of the subpurchaser, the only obligation on the vendor is to obtain a licence to the original purchaser, and a prerequisite to that is for the purchaser to provide whatever references and other information are required by the landlord. In addition, it is no doubt required under its own contract to obtain the licence to assign to its subpurchaser, subject to the subpurchaser providing its references and other information. Under the main contract, it remains the duty of the vendor only to obtain consent for the assignment to the purchaser. The purchaser will have to obtain consent for the assignment to the subpurchaser.
[35] I therefore find that the difficulties under clause 8.3 do not truly help me to construe clause 1.5. Clause 8.3 creates an obligation only to obtain consent for the assignment to the purchaser, but that does not seem to me inconsistent with the purchaser being entitled to nominate its subpurchaser as transferee, provided that the purchaser obtains the necessary additional consent.
[36] Mr Naviede resists all this analysis of clause 1.5. He acknowledges, doubtless in deference to the passage from Earl of Egmont on which Mr Dutton relied, and also Curtis Moffat, that a |page:99| purchaser may require the vendor to transfer the property direct to a nominee of the purchaser, but that this applies only to a true nominee. He acknowledges, too, that there is nothing to stop a purchaser effecting a subsale and arranging for a separate transfer from the purchaser to the subpurchaser, after (perhaps immediately after) the vendor has effected a transfer in favour of the original purchaser. In short, he says, clause 1.5 does not prevent a transfer to a nominee or back-to-back transfers. However, he says that a direct transfer from the vendor to a subpurchaser involves the transfer of the benefit of the contract to the subpurchaser and is therefore prohibited by clause 1.5. On the other hand, he accepts that if he is wrong about clause 1.5 and it does not exclude subsales by direct transfer to the subpurchaser, Mr Pittack was entitled to rescind when he, Mr Naviede, refused to complete in favour of anyone other than Mr Pittack. He made that concession first in the witness box and repeated it in his closing submissions.
[37] The most strongly expressed ground for his hostility to a substituted transferee was that a direct transfer would, or might, avoid stamp duty land tax (SDLT) and that the vendor should not be compelled to be party to a document effecting any such transaction. He also pointed out that the property is a listed building and that he was apprehensive (if I may paraphrase his concerns) about being made personally liable for breaches of the regulations committed in future by successors in title.
[38] I am unimpressed by those reasons. As to SDLT, either a direct subsale does avoid the imposition of two charges to tax or it does not, and there are provisions in the Finance Act 2003 (as amended) determining that question. To my mind, there is therefore nothing improper in a purchaser and subpurchaser seeking to effect the subsale by a direct transfer and no impropriety in the vendor acceding to such a request, even if it is not required to do so. As to the rules relating to listed buildings, a vendor either is or is not exposed to possible fraudulent claims by successors in title alleging that defaults of their own were effected by it, but that does not seem to me to be affected one way or the other by the subsale being effected by a direct transfer as opposed to back-to-back transfers.
[39] Mr Naviede has also seized on the qualification expressed by Maugham J in the passage cited from Curtis Moffat, in [30] above, that the freedom to substitute a subpurchaser of a lease applies only if “the contract was not entered into upon considerations personal to the purchaser”. He points to the prohibition in special condition 9 against him borrowing more than a stated amount. However, that is not, in my view, a consideration that is personal to the purchaser. If anything, it is a consideration that is personal to the vendor, but in reality it is neither. It is a prohibition inserted by agreement, in recognition of the long completion date and the deposit being available to the vendor. The term was designed to ensure, as Mr Pittack stated in his evidence, that the property would not become overburdened with debts secured on it, a circumstance that might have hindered the vendor in satisfying its obligation to discharge incumbrances on completion. It is a term of benefit to any transferee. I do not regard it as a consideration that is personal to the individual purchaser. In any case, what Maugham J referred to was a contract (not individual terms in a normal contract) made for personal considerations.
[40] Even so, Mr Naviede has respectable support for his argument, namely the Law Society’s Conveyancing Handbook (16th ed). Part B.14 of this handbook is headed “Sub-sales”, and para 14.3 states (in part) as follows:
14.3 Contractual restriction on sub-sales
14.3.1 Where a buyer intends to sell the property to a third party by way of sub-sale he must ensure that his existing contract to purchase the land contains no restriction which would prevent the sub-sale. Standard Condition 1.5 and Standard Commercial Property Condition 1.5 both state that the buyer is not entitled to transfer the benefit of the contract. As a result the seller cannot be forced to transfer the title to anyone other than the buyer named in the contract. This provision will not prevent sub-sales of freeholds nor sub-assignments of leases. However, the buyer will have to complete the second transaction separately and subsequent to his own purchase. The provision does however provide protection on the grant of a lease as the seller (landlord) cannot be forced to grant the lease to anyone other than the buyer (tenant) in the contract. A seller should resist a buyer’s request to remove Condition 1.5 from the contract, because its presence ensures that the seller will take the benefit of the covenants given by the first tenant on grant of a lease.
14.3.2 If a restriction against sub-sales is included in the buyer’s contract, he will be able to contract to resell the land to a third party, but will have to complete this second transaction separately and subsequently to his own purchase.
…
14.3.4 Where there is a restriction on sub-sales in the contract it may be possible for the buyer to assign the benefit of his contract with the seller to the third party and then to complete the purchase as nominee for the third party.
[41] To the same effect is para 16.9 of Frances Silverman’s The Standard Conditions of Sale: A Conveyancer’s Guide (7th ed); unsurprisingly so, given that Mrs Silverman is, I am told, also the author of the Law Society’s Conveyancing Handbook.
[42] If it is correct that clause 1.5 of the non-commercial standard terms excludes subsales, then I agree with the passage just cited. However, I regret that I find Mrs Silverman’s commentary unsatisfactory because it does not mention, let alone emphasise or explain, the difference between the texts of the commercial and non-commercial standard terms. It asserts, but does not explain, that the short-form clause 1.5 of the non-commercial standard terms does prohibit subsales, and at the same time it points out that subsales completed by back-to-back transfers cannot be prevented. I certainly accept that subsales completed by back-to-back transfers cannot in practice be prevented, however clause 1.5 is construed and whichever version of the standard terms is in issue. The vendor in such a case is not being asked to do anything but execute a transfer to the contractual purchaser subject to receiving the balance of the sale price. However, I find difficulty with two remaining questions:
(1) If a direct transfer to a nominee is permitted in the sense that the purchaser can insist on it, as Mr Naviede accepts, how is it that a direct transfer to a subpurchaser is not also permitted?
(2) If a subsale completed by back-to-back transfers is permitted, so that ex hypothesi it does not amount to a transfer of the benefit of the contract, exactly how and when does a subsale completed by direct transfer become a transfer of the benefit of the contract so as to be excluded by clause 1.5?
[43] I do not find satisfactory answers to those questions. The most promising answer at first sight, preserving some consistency, is that on reflection a vendor cannot be required to effect a direct transfer in favour of a nominee, and that every subsale does, on analysis, amount to the transfer of the benefit of the contract. After all, clause 1.5 is not couched in technical terms, and it might therefore be right to read it in a non-technical way that does equate the substitution of a subpurchaser with a transfer of the benefit of the contract. If correct, that would allow a vendor to refuse any demand by the purchaser to execute a transfer in favour of a third party. It would nevertheless have to recognise that the vendor cannot in practice prevent back-to-back transfers.
[44] However, in the end, I am persuaded that such a construction of clause 1.5 is not justified. The Egmontdictum and particularly the passage from Williams on Vendor and Purchaser that I have cited in [28] above, show that there are two potential difficulties for a vendor and that they are different although perhaps often connected. One difficulty is the purchaser assigning the benefit of the contract to a third party, thus exposing the vendor to unwanted contractual obligations owed to the assignee. The draftsmen of the standard terms (in both versions) evidently regard it as commonplace for a vendor to want to exclude that difficulty. The other difficulty is a subsale not including a transfer of the benefit of the contract, and the draftsmen of the commercial standard terms evidently regard it as commonplace for a vendor of commercial property to want to exclude that possibility too. However, the draftsmen of the non-commercial standard terms have not visibly reached the same conclusion with regard to residential conveyancing.
[45] In my judgment, Mr Dutton’s approach to clause 1.5 is correct. It is possible to include an exclusion of subsales, as clause 1.5.2 of the commercial standard terms does, and it is open to any vendor adopting the non-commercial standard terms to include an explicit exclusion |page:100| to the same effect. However, if that explicit exclusion is not present, clause 1.5 of the non-commercial standard terms should, in my view, be read as not excluding subsales. It is significant that the commercial standard terms are different, and the Law Society’s Handbook and the Conveyancer’s Guide mentioned above are unfortunate or even misleading in failing to draw a distinction between the two.
Licence to assign
[46] Mr Dutton has also relied on a second argument, added by a relatively late amendment to his pleading, based on the licence to assign. Under clause 8.3.2, the buyer is required to provide all information and references reasonably required and, under clause 8.3.3, it is the obligation of the vendor to procure the licence. If the licence has not been received three working days before the contractual date for completion, the purchaser is entitled to rescind and recover the deposit, unless it is itself in breach of its obligations under clause 8.3.2. The contractual completion date was 20 June 2008, so the requirement was to “receive” the licence by the close of business, or possibly before midnight on 16 June: see Aubergine Enterprises Ltd v Lakewood International Ltd [2002] EWCA Civ 177; [2002] 1 WLR 2149, in [46]. Accepting that no particular form may be needed, it nevertheless does need to be in writing, and it needs to be received. Mr Naviede relies on the letter from Cluttons dated 16 June, mentioned in [17] above. That letter might indeed have been adequate confirmation that the licence would formally be given, but there is no evidence that it was received until 17 June at the earliest. In particular, there is no evidence that it was received by fax or e-mail on 16 June. There was also an earlier draft of a licence to be issued in favour of Mr Pittack, but that was clearly no more than a draft.
[47] I have therefore [had] to conclude that Mr Naviede did not receive a written licence to assign three working days before 20 June. The factual question therefore is whether Mr Pittack had provided “all information and references reasonably required”. On that question, the Crown Estate did not require references from Mr Pittack, and there is no question of it requiring any other information not already provided, except perhaps for Mr Pittack’s address (which I regard as trivial). Mr Pittack was therefore not in breach, and he was entitled to rescind.
Conclusions
[48] For both those reasons, I have come to the conclusion that Mr Pittack was entitled to rescind and, not being himself in breach of the contract, is entitled to the return of the deposit with interest.
[49] I reach that conclusion without a great deal of satisfaction. Mr Pittack strikes me as fortunate in the extreme, having failed to prepare for the possibility of his intended subpurchasers withdrawing, that Mr Naviede reacted so uncompromisingly to the suggestion of a subsale. Mr Dutton described Mr Naviede as “too clever by half” in his attempt to box Mr Pittack into a corner. That phrase has a pejorative connotation that I do not endorse, even though by refusing access to the property Mr Naviede had acted consciously in making things difficult for Mr Pittack. The fact is that a substantial degree of mistrust had arisen on both sides. I would characterise Mr Naviede merely as unfortunate that he objected to the subsale before the subpurchasers withdrew. As for the licence to assign, the fact is that Mr Naviede never made a formal application for the licence, relying on Mr Pittack’s failure to provide him with references. He was again unfortunate that Mr Pittack himself had provided what Cluttons needed. Even so, by the time he discovered the position on 16 June, he could have obtained written confirmation from Cluttons by fax or e-mail that day, and I can only suppose that the urgency of the matter was not then appreciated.
[50] Mr Pittack’s pleadings include a claim for a lien over the property to enforce the return of the deposit. However, this was not pressed at the hearing, and indeed Mr Dutton’s only submission (if that is the word) on this point was that he handed up copies of two pages from Megarry & Wade: The Law of Real Property (7th ed), containing para 15056, a paragraph with a plethora of authorities, none of which I was invited to read, and none of which Mr Naviede had any proper opportunity to answer. I make no order on this part of the claim.
Claim allowed.
