Injunction — Company acting as surety for rent — Tenant company in liquidation — Lease disclaimed by liquidator — Covenant against surety company for taking of new lease not enforced — Whether liability for rent — Landlord presenting petition to wind up surety — Whether surety indebted to landlord — Whether company bound by specifically enforceable agreement — Company seeking injunction to restrain winding-up — Injunction refused
By a lease dated June 19 1989 there was granted to the tenant a term of 20 years from January 4 1989 in respect of premises in Putney. Until January 3 1993 the yearly rent was to be £47,286 payable by equal quarterly payments in advance together with a service charge payable on demand in accordance with the provisions of the lease. Another company was party to the lease as surety for the tenant. The tenant company went into creditors’ voluntary liquidation on July 11 1990. On July 29 1991 the liquidator of the tenant company disclaimed the lease by notice of disclaimer under section 178 of the Insolvency Act 1986. That notice was agreed to be valid. It was also agreed that a disclaimer in the lease had the effect of releasing the company from its liability to pay the rent and service charge for which the tenant was primarily liable. The company paid a sum in respect of rent and service charge due on June 24 1991, which the landlord accepted on account of mesne profits. Before the date of disclaimer the company parted with occupation of the property whether by way of sublease or licence of the mezzanine floor and the ground floor. It continued to receive payments from those in occupation. The company also paid the rent and service charge due on September 29 1991 and that payment was accepted by the landlord. The 1989 lease had also provided that in the event of the tenant’s entering into liquidation and the liquidator’s disclaiming the lease the surety would accept a lease of the premises. The landlord notified the company that it was required to enter into such a lease on September 16 1991. No lease was executed, no counterpart delivered and no proceedings instituted for specific performance by the landlord against the company to enforce the covenant. On January 7 1992 a statutory demand was made by the landlord for £12,527.19 in respect of rent, service charge and interest due on December 25 pursuant to the 1989 lease. The company applied for an injunction restraining the landlord from presenting a petition to wind up the company on the basis of the statutory demand.
Held The injunction was refused.
1. The provisions of the 1989 lease constituted a contract by the company to take a lease of the premises conditional on: (a) the tenant’s entering into liquidation; (b) the liquidator’s disclaiming the lease; and (c) the landlord’s requiring the company to accept a lease. Those conditions were all satisfied by the time the company received the letter dated September 16 1991 requiring it to take a lease. An unconditional, binding, specifically enforceable contract came into existence before the statutory demand was served for the rent and service charge claimed to be due on December 25.
2. The company’s argument that, until a lease had actually been executed and the counterpart delivered, there had been no grant of a lease and therefore no liability to pay rent or service charge was flawed because it disregarded both the facts of the case and the application of the principle in Walsh v Lonsdale (1882) 21 ChD 9. The undisputed facts were that the company paid rent and service charge for the quarter ended September 29. That amounted to an acknowledgement of a yearly tenancy and of an obligation to take a lease for the term specified in the surety’s covenant.
3. The company had exercised rights of possession as a tenant in respect of the premises by continuing to allow those let into occupation by it to remain in occupation as sublessees or licensees and by receiving payment from them. The company was bound by a specifically enforceable agreement to take a lease for a term of years equal to the unexpired residue of the term at the date of the grant of such lease.
4. In all the circumstances the company was bound to pay the rent and service charge specified in the statutory demand in respect of the quarter ended December 25 1991. The position under Walsh v Lonsdale was as if the lease had been executed in proper form and, pending execution, the company was in the position of a yearly tenant under an obligation in equity to take a lease in the terms agreed in the surety’s covenant.
5. Accordingly, the company had neglected to comply with the demand properly made on it and was deemed by statute to be unable to pay its debts and the landlord was entitled as a creditor to proceed with the winding-up petition.
Penelope Reed (instructed by Guyer Ensors, of Southampton) appeared for the applicant company; and Thomas Seymour (instructed by Thomas Barth & Co) appeared for the landlord.
