Variations that increase the area of demised premises take effect as a surrender and regrant, irrespective of the parties’ intentions, because the additional land cannot be added without itself being demised: Friends Provident Life Office v British Railways Board [1996] 1 All ER 336.
The parties in Souglides v Tweedie [2012] EWCA Civ 1546 clashed over the exercise of an option for the grant of a new 60 year sub-lease of a flat in a valuable part of London. The landlord rejected the tenant’s claim on the ground that the option was void for perpetuity. He also claimed that the tenant had lost the right to exercise the option because one of the previous owners of the flat had varied the lease to include a roof terrace, which had been omitted from the demise by mistake.
The High Court decided that the option fell within the ambit of section 9(1) of the Perpetuities and Accumulations Act 1964, which saved it from being void for perpetuity, and refused to accept that the deed of variation had affected the tenant’s position. The landlord accepted the judge’s ruling on the perpetuity point, but challenged the decision on the basis that the option had become nugatory when the lease was varied.
The Court of Appeal began by analysing section 9(1) of the 1964 Act. It provides that the rule against perpetuities does not apply to options to acquire for valuable consideration an interest reversionary on the term of a lease where the option is exercisable by the tenant or his “successors in title” during, or within one year after the determination of, the lease.
What precisely does the phrase “successors in title” mean? The court ruled that section 9(1) refers to a lease that is already in existence when the option is granted and applies to the successors in title to that lease. In other words, the claimant must hold the same title, and not a different one. Therefore, the option was exercisable only while the original lease had continued to subsist.
The result might seem harsh and contrary to common sense. However, it was not possible to exclude a surrender and regrant from this requirement, even though the roof terrace constituted a minor addition to the demise.
The problem had arisen because the grantee of the option had leapfrogged his immediate landlord to strike a deal with the freeholder that would enable him to take a further lease, in due course, in order to extend his sublease. The freeholder was not a party to the deed of variation that added the roof garden to the demise, and the immediate landlord, who varied the sublease to include the roof garden, was not a party to the option. In a case where the grantor of the option is also the landlord, Sir Andrew Morritt C suggested that there might be scope for arguing that the surrender and regrant included a regrant of the option. In that event, the problem that had occurred here might not have arisen.
The case alerts us to one of the dangers of overlooking the effect of a surrender and regrant when varying existing leases and when investigating title to both leases and leasehold investments.
Allyson Colby is a property law consultant
