Vendor and purchaser –– Conditions of sale –– Implied easements –– Law Society’s general conditions –– Effect of condition 5(3) on sale of part of vendor’s land –– Quasi-easements without grant or prescription –– Whether vendor entitled to easements over land conveyed
In 1972 the respondent council acquired an area of land upon which a car park was provided. The land lay behind a parade of shops largely owned by the appellant company. The council encouraged the use of the car park as a means of access to the rear of the shops. Openings were made in the rear boundary walls, but no rights were expressly granted by the council.
In March 1990 the council sold the car park area to the company for redevelopment purposes. At the same time, the company granted to the council an option to reacquire the land. In November 1991 the council exercised the option and a contract was created between the parties incorporating the 1984 edition of the Law Society’s general conditions of sale.
Relying upon condition 5(3) of those conditions, the company contended at trial that, upon the reconveyance of the land, there should be reserved to it, as a vendor retaining some land, those rights that were quasi-easements over the land being reacquired and were enjoyed by the shops when the option was exercised. The trial judge decided that the effect of condition 5(3) was that the only rights to be reserved under the conveyance were those that were established easements, by prescription or express grant; the condition did not reserve quasi-easements, such as the access between the car park area and the rear of the shops. The company appealed, relying upon the applicability of the rule in Wheeldon v Burrows (1879) 12 ChD 31 and section 62 of the Law of Property Act 1925.
Held: The appeal was dismissed. The obvious purpose of condition 5(3) is to level the playing field as between the grant and the reservation of implied rights, by supposing simultaneous grants of the land that the vendor has agreed to convey and the land he is retaining. The condition redresses the imbalance that would otherwise exist as between vendor and purchaser under the general law. The implied rights and reservations are to be ascertained by the general law upon the deemed footing of hypothetical and simultaneous grants. The actual knowledge and intentions of the parties, at the date of the original purchase and grant of the option in March 1990, were to be considered in relation to the fictional conveyance posited by condition 5(3). On the evidence, the intentions of the parties in March 1990 were that they should be restored to the position prior to that date and the property be reconveyed without variation. The rule in Wheeldon v Burrows and section 62 of the 1925 Act were subject to those intentions. It was not intended that condition 5(3) should convert precarious quasi-easements to valuable property rights upon the reconveyance to the council.
The following cases are referred to in this report.
Birmingham Dudley & District Banking Co v Ross (1888) 38 ChD 295
Broomfield v Williams [1897] 1 Ch 602
Swansborough v Coventry (1832) 2 Moore & Scott 362
Wheeldon v Burrows (1879) 12 ChD 31
This was an appeal by the defendant, Samuel Smith Old Brewery (Tadcaster) Ltd, against a decision of Blackburne J giving judgment to the claimants, Selby District Council, on an agreed issue in proceedings by the claimants against the defendant.
Jonathan Gaunt QC (instructed by Dickinson Dees, of Newcastle upon Tyne) appeared for the appellant; Michael Briggs QC and John Machell (instructed by Walker Morris, of Leeds) represented the respondents.
Giving the first judgment, Peter Gibson LJ said: The central issue on this appeal is a question arising from the incorporation into a contract, created by the exercise of an option to repurchase, of general condition 5(3) of the Law Society’s general conditions of sale (1984 ed). By that condition, a vendor of part of his land is entitled to have expressly reserved out of the conveyance such rights as would be implied in favour of a purchaser of the retained land, if the vendor had conveyed the land to be sold and the land to be retained by simultaneous conveyances to different purchasers. Without that condition, the vendor would not be entitled to any implied easements (not being easements of necessity or those required to carry out the common intentions of the parties); section 62 of the Law of Property Act 1925, which causes certain rights to pass with a conveyance, does not operate in favour of retained land. The issue between the parties is as to the application of the condition in the circumstances of the case, to determine the rights reserved to the vendor over the land to be repurchased. Are they only those rights that were established easements at the date of the grant of the option, or do they include all quasi-easements enjoyed by the retained land over the land to be repurchased as at the date of the exercise of the option? The claimants, Selby District Council (the council), argued for the former. The defendant, Samuel Smith Old Brewery (Tadcaster) Ltd (Samuel Smith), argued for the latter. On 5 November 1998 Blackburne J decided that question in favour of the council. Samuel Smith now appeals against that decision. The judge also made an order requiring Samuel Smith to pay the council two-thirds of their costs of the trial to that date and one-half of the council’s other costs of the action to that date. Samuel Smith also appeals against the latter part of that order in any event.
The background to this case can be summarised like this. In the centre of Tadcaster, Kirkgate and Chapel Street are parallel streets running roughly north-south. At their southern ends, they meet High Street running roughly east-west. In 1972 the council compulsorily acquired just over an acre of land at the rear of the commercial buildings fronting Kirkgate, High Street and Chapel Street. Like the judge, I will
Towards the end of the 1970s, the council became concerned about the deteriorating state of the town centre and its lack of a supermarket. In 1984 the council prepared a planning brief for the redevelopment of the centre site, the focal point of which was to be a supermarket. The brief sought to secure the provision of rear service facilities for the shops, and stated expressly that individual points of access from the new development to existing premises should be agreed by the developer with the council and with the owners of the existing premises. The council proposed to grant themselves planning permission for such a development. Then, and thereafter, the council envisaged a development of the centre site that provided rear access for servicing the shops. That was necessary because parking restrictions had been introduced at the front of the shops.
In April 1986 the council and Samuel Smith reached agreement that Samuel Smith would pursue a more ambitious scheme, known as “the Vision of Tadcaster”, including the comprehensive redevelopment of the centre site and Samuel Smith’s property to the north, together with associated pedestrianisation and traffic rerouting schemes. Samuel Smith would itself be the developer and would purchase the centre site. Planning permission for the Vision of Tadcaster was granted by the council. There then followed protracted negotiations about the price to be paid for the centre site. Samuel Smith wanted the centre site to be transferred to it for no monetary consideration, the price to be Samuel Smith’s covenants, in a proposed agreement pursuant to section 33 of the Local Government (Miscellaneous Provisions) Act 1982, to carry out the development. The council insisted upon a monetary purchase price. Heads of terms were finally agreed in principle in November 1987, under which the council were to receive £90,000 for the centre site, plus the benefit of a watered-down section 33 agreement requiring Samuel Smith to use its best endeavours to complete the Vision of Tadcaster within five years.
Although the expectation was that the development work would start early in 1988, negotiations on the details dragged on throughout 1988 and 1989. Samuel Smith experienced difficulties in negotiating the surrender of a lease of a narrow strip of land, called the bowling club strip, needed for a road widening that was an essential part of the Vision of Tadcaster, and it was also facing opposition over the pedestrianisation proposals. On 30 January 1990 the council’s policy and finance committee passed a motion to the effect that the council should withdraw from the agreement in principle unless the sale of the centre site was completed and the price paid within 28 days.
This ultimatum led to a meeting the next day, at which an accord was reached. The council would sell the centre site to Samuel Smith for £90,000, to be completed before 31 March 1990, but the council would have an option to repurchase the centre site “at cost” if Samuel Smith did not, within 18 months, enter into a section 33 agreement committing itself to the development. In correspondence in early February, the meaning of “at cost” was agreed to be £90,000, indexed by reference to the retail price index (the RPI).
On 30 March 1990 eight documents were executed to give effect to the new bargain. Among the documents was an agreement for the sale by the council to Samuel Smith of the centre site and the bowling club strip for £90,000. The property agreed to be sold included the residue of a term of 21 years, which commenced on 1 January 1975 and was granted by Samuel Smith to the council on 12 September 1975, of a strip of land (the yellow strip), no more than 12 or so feet in width, running along the backs of 12-22 High Street. It also included the five years’ unexpired residue of a term of 21 years, which commenced on 1 April 1974 and was granted by Courage Brewery Ltd to the council on 22 August 1977, of two strips of land (the purple strips) on either side of, and, in effect, being a continuation of, the yellow strip. The purple strips adjoined the backs of 10, 24 and 26 High Street.
Clause 4 of the agreement also provided that, upon completion, Samuel Smith should grant the council a 21-month lease of the car park at a peppercorn rent from 30 March 1990. The lease was to contain a covenant by the council to keep the area thereby demised available for its existing purposes as a market, as a public car park and as public conveniences. Clause 5 provided for a similar lease by Samuel Smith to the council of 43 Kirkgate, where the council had their office premises. The council covenanted to use those premises as offices.
The crucial document entered into on 30 March 1990 was an option agreement. By it, Samuel Smith granted the council the option, conditional upon Samuel Smith failing to enter into a section 33 agreement by 31 October 1991, or such other date as the parties might agree, to repurchase the centre site (but not the bowling club strip) and to take leases of the yellow and purple strips, in identical form to the leases of 12 September 1975 and 22 August 1977 respectively and to expire on the expiry dates of the original leases. Clause 5 of the option agreement provided that the proper service of the option notice should create a contract that would be subject to the 1984 edition of the Law Society’s general conditions of sale, so far as the same were not varied by, or inconsistent with, the option agreement. Para (1) of clause 5 contained a number of variations, including a variation to condition 5(1), but condition 5(3) was left unvaried. It was in these terms:
(a) In this subsection “the retained land” means land retained by the vendor ––
(i) adjoining the property, or
(ii) near to the property and designated as retained land in a special condition.
(b) The conveyance of the property shall contain such reservations in favour of the retained land and the grant of such rights over the retained land as would have been implied had the vendor conveyed both the property and the material land by simultaneous conveyances to different purchasers.
The price for the property to be repurchased, upon exercise of the option, was to be £90,000, plus the RPI increase.
Completion took place on the same day. With the conveyance of the centre site to Samuel Smith, the leasehold interests merged in the reversions owned by Samuel Smith, and all cross-boundary rights between the centre site and the shops were extinguished. Thereafter, a more attractive development outside the centre of Tadcaster presented itself to Samuel Smith, the Vision of Tadcaster was never carried out and Samuel Smith never entered into a section 33 agreement to do so. By letter dated 1 November 1991, the council exercised their option by serving the option notice.
Following that service, there was correspondence between the parties concerning the terms of the reconveyance of the centre site. The parties were unable to reach agreement as to what rights should be reserved in favour of the shops retained by Samuel Smith. On 19 June 1992 the council served on Samuel Smith a notice to complete on 13 July 1992, and, when that did not take place, on 10 August 1992 issued a writ seeking specific performance.
The pleadings underwent numerous changes over a period of some four years, and included a reamended reply and an amended rejoinder. Until shortly before the trial, three main issues were raised by the pleadings:
(1) Had the council properly authorised the commencement of the proceedings?
(2) Had the council validly exercised the option?
(3) Were the council entitled to specific performance?
In the week before the trial began on 12 October 1998, Samuel Smith conceded those issues. The issue between the parties then became whether Samuel Smith was entitled to have certain rights over the car park reserved for the benefit of the shops. Those rights were said to be (a) easements of necessity; (b) intended easements; (c) easements arising under the rule in Wheeldon v Burrows (1879) 12 ChD 31; and (d) those rights and privileges that are deemed to be conveyed under section 62 of the Law of Property Act 1925. A number of rights claimed by Samuel Smith in favour of specific shops were conceded by the council. The rights remaining in issue were access and car-parking rights and rights of light.
At the trial, the judge was only asked to determine the limited question of whether Samuel Smith was entitled, by virtue of condition 5(3):
(i) only to those rights that were established easements, either by reason of express grant or by prescription at 30 March 1990, when the option was granted, as the council contended; or
(ii) to all quasi-easements enjoyed by the shops at 1 November 1991, when the option was exercised, as Samuel Smith contended.
The significance of the difference between the two does not lie in the dates, because none of the rights claimed by Samuel Smith first began to be exercised after 30 March 1990. In all cases, the use relied upon has been carried on at least since the car park was laid out, and it makes no difference whether the relevant date is 30 March 1990 or 1 November 1991. In either case, the use has been for less than the prescription period. The significance of the difference lies in the applicability (claimed by Samuel Smith but denied by the council) of: (a) the rule in Wheeldon v Burrows; and (b) section 62 of the Law of Property Act 1925. By that rule, the rights to be implied in favour of the grantee of part of a holding, against the owner of the remainder, are those rights that are needed for the proper enjoyment of the land granted, but that could not have been easements because of the common ownership prior to the grant (and so are called quasi-easements). They are, in the words of Thesiger LJ in Wheeldon v Burrows at p49:
all those continuous and apparent easements (by which, of course, I mean quasi easements), or, in other words, all those easements which are necessary to the reasonable enjoyment of the property granted, and which have been and are at the time of the grant used by the owners of the entirety for the benefit of the part granted…
By section 62, every conveyance, in the absence of a contrary intention in the conveyance, passes with it:
all… liberties, privileges, easements, rights, and advantages whatsoever, appertaining or reputed to appertain to the land or any part thereof, or, at the time of conveyance… enjoyed with… the land or any part thereof…
It was common ground before the judge that, by virtue of condition 5(3), Samuel Smith was entitled to have reserved out of the reconveyance to the council such rights as would be implied in favour of a fictitious purchaser of the shops if Samuel Smith had conveyed the centre site and the shops by simultaneous conveyances to different purchasers. The judge accepted that, where condition 5(3) applies, the rights to be implied, and to which the conveyances should give effect, would ordinarily depend upon the circumstances at the date of the contract. But the judge said of that condition that it did not define by what process the implied rights and reservations were to be ascertained, much less did it require the application, as at the contract date, of the rule in Wheeldon v Burrows or section 62, to determine what those rights were, the matter being left at large. He pointed out that the principle of non-derogation from grant that underlay the implication of rights upon a conveyance of land was based upon the presumed intention of the parties to the conveyance, and that the grant of rights under the rule in Wheeldon v Burrows, no less than the grant of rights under section 62, yielded to the parties’ intentions. He regarded the obvious purpose of the option as being to enable the council to restore the landholding position and the position of the parties to what it had been on 30 March 1990, immediately before the transaction was entered into. He treated as de minimis two differences between what had been conveyed on 30 March 1990 and what was to be reconveyed upon the exercise of the option (the fact that the new lease of the purple strips included an area of land not demised by the lease of 22 August 1977, and the fact that the bowling club strip was not included in the property to be reconveyed). He said that no consideration was given in March 1990 to the pattern of cross-boundary rights and liabilities, if and when the option was exercised, and that, in the option agreement, the need to recreate a pattern of cross-boundary rights was not addressed. He expressed the view that there was nothing in the language of condition 5(3) that required that the matter be looked at by reference to the pattern of use as at the date of exercise of the option, rather than as at the date of the option itself. He therefore rejected Samuel Smith’s contention, and accepted the council’s submission that Samuel Smith was entitled only to easements that were established at 30 March 1990.
In a separate judgment on costs, the judge referred to the course of the proceedings and made the order that the council should recover two-thirds of their costs of the trial. He then said that he ought to make some order as to the general costs of the action so far incurred. He bore in mind that Samuel Smith had abandoned its defence based upon specific performance and that costs had been incurred in relation to issues upon which the council had succeeded. He ordered that the council should have half of their costs up to the date of the trial.
The effect of the judge’s ruling on the question of construction was that there remained, and still remains, for decision what established easements should be expressly reserved in the reconveyance, the position to be assessed as at 30 March 1990. Samuel Smith had not even pleaded what its case was on this. That question awaits the outcome of this appeal, and, if the appeal is dismissed, in default of agreement between the parties, that issue will have to be tried.
On this appeal, we have had the benefit of excellent argument from Mr Jonathan Gaunt QC, for Samuel Smith, and Mr Michael Briggs QC for the council.
On the main issue, Mr Gaunt submitted that, giving condition 5(3) its ordinary and natural meaning, Samuel Smith was entitled to the reservation, as easements, of those rights, existing at 1 November 1991, that are to be implied under the rule in Wheeldon v Burrows and that pass under section 62. He accepted that, in relation to an actual transaction, the rule in Wheeldon v Burrows may be held not to apply to particular easements that the parties did not intend to be granted. He also accepted that section 62 applied only if, and in so far as, a contrary intention was not expressed in the conveyance, and had effect subject to the conveyance. But he submitted that those limitations could not apply to the fictional conveyance of the retained land to a fictional purchaser. The intention attributed to the parties to a different transaction, between Samuel Smith and the council, can hardly be attributed, he said, to the parties to the fictional conveyance, nor can a contrary intention be found in the fictional conveyance to exclude section 62. He pointed to the fact that condition 5(3) had not been modified. He stressed that the effect of the council’s submissions was to leave Samuel Smith in a worse position, because, as of 31 March 1990, it had 16 years or so of prescriptive user, which was lost when it took the conveyance of the car park, and on reconveyance to the council the prescription period started from scratch. While he accepted that, prior to 31 March 1990, Samuel Smith’s use was precarious, he submitted that it was quite likely to have ripened into easements acquired by prescription, but for the conveyance in 1990. He said that it was most unlikely that the parties’ common intention would have been for Samuel Smith to be left worse off upon the exercise of the option. He contended that if, contrary to his submissions, the parties to the fictional conveyance had the knowledge of the council and Samuel Smith at 30 March 1990, the inference to be drawn was that they intended that the retained properties should have the rights of access and parking over the centre site.
Mr Briggs submitted that the judge was right, for the reasons that he gave. He said that rights will only be implied to the extent that they are consistent with the actual or presumed intentions of the parties, and that the general rules as to what implied rights pass on a conveyance are no more than presumptions based upon the principle of non-derogation from grant. The exercise, he argued, was to ascertain the actual or
I start with condition 5(3). By including that condition in the option agreement, the council and Samuel Smith did address the question of what rights over the centre site should be reserved in favour of the retained properties (as well as the rights over the retained properties in favour of the centre site). The obvious purpose of condition 5(3) is, as the judge put it, to level the playing field as between the grant and the reservation of implied rights, by supposing simultaneous grants of the land that the vendor has agreed to convey and the land that he is retaining. It is well established that, where there are simultaneous grants by the grantor of different parts of a single piece of land, each grantee obtains the same easements over the land of the other as he would have obtained if the grantor had retained it: see Swansborough v Coventry (1832) 2 Moore & Scott 362; Megarry & Wade: The Law of Real Property (6th ed) 2000, para 18-106. Thus, I do not think that the judge was right to say that condition 5(3) did not define how the implied rights and reservations were to be ascertained. They were to be ascertained by the mechanism provided for in the condition, that is to say, by reference to the general law on the deemed footing of simultaneous grants.
In the ordinary case of a conveyance of part of the land of the vendor, not involving a repurchase, in the absence of evidence of a different intention, the ascertainment of the rights and reservations would be by reference to the position at the date of the contract for sale. But this is not the ordinary case of a sale of part of a previous entire holding, but one of repurchase, pursuant to the terms of the agreement in March 1990, of land that, prior to March 1990, had already been in separate ownership and had then been sold to facilitate a development that subsequently failed. Further, although condition 5(3) requires a fictional conveyance of the retained properties, the condition is a term of the actual agreement between the council and Samuel Smith, and its meaning must be what the parties intended it to mean. The knowledge to be attributed to the hypothetical purchaser cannot sensibly be different from the actual knowledge of Samuel Smith and the council, as the parties to the option agreement and the actual conveyance, simultaneously with which the fictional conveyance is deemed to occur. Further, Samuel Smith is the vendor in the hypothetical conveyance. For the purpose of determining the rights over the retained properties in favour of the centre site, the actual knowledge and intentions of the actual parties at 30 March 1990, when the conditions for the repurchase were laid down, must be considered. It would be anomalous if condition 5(3) were to be interpreted as requiring a different state of knowledge to be attributed to the fictional purchaser in the simultaneous fictional conveyance. As Mr Briggs said, it cannot be right that if there was a clear understanding between Samuel Smith and the council, inconsistent with the reservation of a right in favour of the shops over the centre site, condition 5(3) would require that reservation merely because of the presence of a hypothetical purchaser in the hypothetical conveyance of the shops.
The rule in Wheeldon v Burrows only operates to the extent that it is not inconsistent with the intention of the parties, which may be inferred from the circumstances. Similarly, section 62 will not apply where a contrary intention is apparent from the conveyance or contract. Mr Gaunt accepted that it is appropriate to look at the actual contract between the council and Samuel Smith for this purpose, even though the conveyance envisaged by condition 5(3) is a fiction. In applying the condition, by reference to the general law, it is appropriate to take account of how the parties’ intentions may affect the implication of rights. In Birmingham Dudley & District Banking Co v Ross (1888) 38 ChD 295, the lessee of a new building was held not entitled to a right of light to an extent inconsistent with the grantor’s intention, to be implied from the circumstances existing at the time of the lease and known to the grantee. As Cotton LJ said at pp308-309:
But when the question is as to an implied obligation we must have regard to all the circumstances which existed at the time when the conveyance was executed which brought the parties into that relation from which the implied obligation results…
From the circumstances, an intention inconsistent with what otherwise would be implied rights may be deemed inferred. But to exclude the right, that intention must be clearly inconsistent. For example, to exclude a grantee’s right to light, it is not sufficient that the retained land should be shown in the conveyance to the grantee as “building land”: see Broomfield v Williams [1897] 1 Ch 602. Each case must turn on its own particular circumstances.
The circumstances of the present case clearly demonstrate the intention of the parties, by the transaction of 30 March 1990, that if Samuel Smith did not enter into the section 33 agreement within the period allowed, the council, should they exercise the option, would restore the position to what it was prior to that date. There are several pointers to this being the mutual intention. First, the short leases granted to the council by Samuel Smith of the car park and 43 Kirkgate, on 30 March 1990, were plainly intended to preserve the status quo during the period of the option agreement. Second, there is the exact correspondence (save for the minor variations that, on the judge’s unchallenged view, were de minimis) between the property that was conveyed and the property that was repurchased. Third, there is the repurchase price “at cost”, the agreement on indexation indicating that the parties intended that Samuel Smith would be repaid, on the repurchase, in real terms, precisely what it had paid on 30 March 1990, regardless of any changes in the market value of the property between the sale and the repurchase. Fourth, there is the recreation of the exact terms of the leases of the yellow and purple strips in the new leases for what would have been the residues of the terms of the original leases if they had not merged on 30 March 1990 in the reversions belonging to Samuel Smith.
To treat condition 5(3) as requiring the conversion of precarious quasi-easements, dependent upon whatever happened to be the user that could be established at the date of the exercise of the option, would be to alter the property from that which was sold on 30 March 1990, through the conferring of valuable rights in perpetuity upon Samuel Smith. This change is not reflected in, and would be inconsistent with, the repurchase price exactly matching the purchase price. It would go far beyond the mere restoration of the position of the parties as it was at 30 March 1990 and would permanently encumber the centre site with easements over it.
Further, the position of the council, as owing a duty of care to their ratepayers, is, in my view, to be borne in mind. True it is that, on the unchallenged findings of the judge, there was no discussion between the council and Samuel Smith, at the meeting on 31 January 1990, of what the council would do with the centre site if the council exercised the option, and nobody gave any consideration to identifying what established easements existed over the car park in favour of the shops, or whether any development of the car park would be inhibited by any easements that were found to exist. It cannot be said that there was a common understanding that the council would be free to develop the car park and that, for that reason, the quasi-easements would not become easements. But the wide rights claimed as easements by Samuel Smith, such as the right for itself and its authorised visitors to the shops to have not only access over the car park but also the right to park anywhere in the car park free, would, in effect, prevent the use of the site other than for its existing use in perpetuity. That is a result hardly likely to have
I accept that, on the council’s argument, the position at 30 March 1990 would not be restored precisely upon the repurchase, because the 16 years’ user by Samuel Smith would be lost and time would have to start running again. But there can be no doubt which of the two rival approaches would more closely implement the intention of a restoration to the status quo ante. That user gave Samuel Smith no rights at 30 March 1990 and was truly precarious, liable to be interrupted at any time by the council, even by notice without necessarily stopping the user. By contrast, if Samuel Smith’s contentions were correct, it will have acquired easements in perpetuity.
On the council’s argument, the restoration of the position at 30 March 1990 requires the reservation of rights that existed as fully constituted easements at that date. Condition 5(3) is apt to achieve that purpose, and we have heard no argument to the contrary.
For these reasons, I prefer the arguments made on behalf of the council. I would dismiss the appeal on the main issue.
I turn next to the appeal on costs. Mr Gaunt submitted that the judge was wrong to have made any order as to the costs of the action, as distinct from the costs of the trial. He said that it was still possible that, upon the construction favoured by the judge, Samuel Smith would prove to be successful. He argued that the judge’s order was premature.
I cannot accept that submission. In my judgment, the judge was well within the proper scope of the exercise of his discretion to make the order that he did. At the time when he made his order, Samuel Smith had conceded the three main issues upon which it had resisted the council’s claim, and had no pleaded case in respect of the rights that it had upon the construction favoured by the judge. In these circumstances, it was entirely proper for the judge to make an order in respect of the costs incurred thus far. It might be thought that the judge was somewhat generous to Samuel Smith in requiring it to pay the council only half their costs of the action. However, the council took no point on that. I would therefore dismiss the appeal on costs also.
Agreeing, Chadwick LJ said: I agree that this appeal should be dismissed for the reasons given by Peter Gibson LJ. I add some observations of my own out of deference to the careful and helpful submissions addressed to us by counsel for both parties.
The issue for decision by the judge turned upon the effect to be given to condition 5(3)(b) in the 1984 edition of the Law Society’s general conditions of sale on a reconveyance by Samuel Smith to the council of what has been called the centre site, Tadcaster. The circumstances in which it had been agreed, in March 1990, that the centre site would be reconveyed to the council, in the event that Samuel Smith did not proceed with development under the Vision of Tadcaster proposals, were set out fully by the judge. They have been described by Peter Gibson LJ in his judgment. It is unnecessary for me to rehearse them in any detail.
Those circumstances demonstrate, as clearly as may be, that the intention of the parties was that, if Samuel Smith did not enter into an agreement with the council pursuant to section 33 of the Local Government (Miscellaneous Provisions) Act 1982 by 31 October 1991, the position should be restored to the status quo ante. The property that was to be conveyed by the council to Samuel Smith on 30 March 1990 would be reconveyed by Samuel Smith to the council without variation (save to some very minor extent that, as was accepted, was de minimis). The payment to be made by the council to Samuel Smith, in consideration for the reconveyance, would be the same (subject to indexation) as the payment that Samuel Smith was to make on 30 March 1990 in consideration for the conveyance.
It was in that context that the parties needed to make provision, in the option agreement of 30 March 1990, for the grant and reservation of easements in the event that there was a reconveyance of the centre site by Samuel Smith to the council following the exercise of the option. The need for provision is self-evident. The easements enjoyed by Samuel Smith over the centre site, and the easements enjoyed by the council over Samuel Smith’s adjoining land, immediately before the conveyance of the centre site by the council to Samuel Smith on 30 March 1990, whatever those easements might be, would merge and be extinguished upon that conveyance. So there was a need to address the position that would arise if and when the centre site was reconveyed by Samuel Smith.
In the absence of some provision in the option agreement (or in any subsequent agreement or in the reconveyance itself), the position upon a reconveyance of the centre site to the council would be that the council, as purchasers of the land conveyed by the reconveyance, would, as a matter of law, become the grantees of easements over the adjoining land retained by Samuel Smith. Those easements would not be limited to easements of necessity and intended easements; they would include easements arising under the rule in Wheeldon v Burrows (1879) 12 ChD 31 and rights and privileges deemed to be conveyed under section 62 of the Law of Property Act 1925. But Samuel Smith, as vendor of the land conveyed by the reconveyance, would not become entitled by way of reservation to any easements over the centre site other than easements of necessity and intended easements; in particular, it would not enjoy easements arising under the rule in Wheeldon v Burrows or the benefit of section 62. The position is explained at pp1105-1115 in Megarry & Wade: The Law of Real Property (6th ed) 2000, paras 18-097 to 18-115.
The purpose of condition 5(3)(b) in the Law Society’s general conditions of sale (1984 ed) is to redress the imbalance as between vendor and purchaser that would otherwise exist under the general law. The condition seeks to achieve that object by putting the vendor, in relation to the adjoining land that he retains, in the position of a purchaser of that retained land under a conveyance of the retained land executed at the same time as the actual conveyance of the land transferred. The condition is in these terms:
The conveyance of the property shall contain such reservations in favour of the retained land and the grant of such rights over the retained land as would have been implied had the vendor conveyed both the property and the retained land by simultaneous conveyances to different purchasers.
The effect may be illustrated by an example. Suppose A to be the owner of adjoining plots, Blackacre and Whiteacre. If A, by conveyances executed at the same time, were to convey Blackacre to B and Whiteacre to C, then each of B and C would obtain the same easements over the land conveyed to the other as they would have obtained if the land conveyed to the other had been retained by A: see Swansborough v Coventry (1832) 2 Moore & Scott 362, cited in Megarry & Wade: The Law of Real Property at p1110, para 18-106. In particular, C will obtain the same easements over Blackacre as he would have obtained under the rule in Wheeldon v Burrows and section 62 if A had retained Blackacre. But suppose that, instead of conveying Whiteacre to C, A retains Whiteacre. He conveys Blackacre to B, as in the previous example, but under a contract that contains condition 5(3). B obtains easements over Whiteacre under the rule in Wheeldon v Burrows and section 62 in the usual way. A obtains the easements over Blackacre that C would have obtained if Whiteacre had been conveyed to C, because that is what condition 5(3) requires.
In the example that I have just given, the easements over Whiteacre that are the subject of an implied grant to B, as purchaser of Blackacre, under the rule in Wheeldon v Burrows and section 62, will be determined by the circumstances that actually exist at the time of the conveyance of Blackacre by A to B, or, in a case such as the present, at the time of the agreement, or option, under which B becomes the purchaser of Blackacre. So, relating the example to the facts in the present case, the easements to which the council will become entitled, upon the reconveyance of the centre site, over the adjoining land retained by Samuel Smith, are determined by the circumstances in which the parties entered into the transaction on 30 March 1990. Those circumstances point, plainly, to an intention that the easements that were to be granted to the council upon a reconveyance of the centre site were to be the easements that had been enjoyed by the council as owners of the centre site before the conveyance to Samuel Smith on
Condition 5(3) of the Law Society’s conditions of sale (1984 ed) requires that the easements over Blackacre, reserved to A as owner of Whiteacre –– to return to the example –– are ascertained by reference to a hypothetical, and simultaneous, conveyance of Whiteacre by A to C. What easements over Blackacre would be the subject of an implied grant to C, as purchaser of Whiteacre, upon such a conveyance? As Peter Gibson LJ has pointed out, the grant of implied easements under the rule in Wheeldon v Burrows, and the operation of section 62 of the Law of Property Act 1925, are limited by the circumstances that exist at the time of the contract or the conveyance. Those circumstances may show that the intention that would otherwise be implied upon a conveyance of land by one party to another is inconsistent with the true intention of the parties; in which case, the effect of the rule and the operation of the section will be cut down. The question is: what further hypothesis (if any) is required as to the circumstances in which A is deemed to convey Whiteacre to C, in order to ascertain what easements over Blackacre would be the subject of an implied grant by A to C in such a conveyance? Relating the example to the facts of the present case, the question is: what further hypothesis (if any) is required as to the circumstances in which Samuel Smith (as owner of the centre site) is deemed to convey its adjoining land to the fictional purchaser?
Mr Gaunt’s answer to that question is, in effect, that no further hypothesis is required as to the circumstances in which Samuel Smith is deemed to convey its adjoining land to the fictional purchaser. All that condition 5(3) requires is that it be assumed that there is a conveyance by Samuel Smith of its adjoining land, that is to say, of the land that it is, in fact, going to retain, to a fictional purchaser, at the same time as the actual reconveyance of the centre site to the council. Nothing else is to be assumed. In particular, it is not to be assumed that there is any connection between the conveyance of the adjoining land to the fictional purchaser and the circumstances that have given rise to the reconveyance of the centre site to the council. It is said that that is the effect of the bargain that was made when the parties agreed to the inclusion of condition 5(3) in the option agreement.
I reject that submission. The effect of the bargain, made when the parties agreed to the inclusion of condition 5(3) in the option agreement, has to be determined by construing condition 5(3) in the context of the option agreement itself; and, for that purpose, it is necessary to have regard to the fact that the option agreement was part of a larger transaction effected on 30 March 1990. In the circumstances of the present case, it would, to my mind, be wholly inconsistent with the intention of the parties in March 1990 to hold that they had agreed that condition 5(3) was to have effect upon the basis that it was not to be assumed that there was any connection between the conveyance of the adjoining land to the fictional purchaser and the circumstances that had given rise to the reconveyance of the centre site to the council. The obvious purpose of condition 5(3) was to assist in restoring the position of Samuel Smith and the council to the status quo ante in circumstances that had, in fact, given rise to the need for a reconveyance of the centre site.
To return to the example. The question is: what further hypothesis (if any) is required as to the circumstances in which A is deemed to convey Whiteacre to C, in a case where that is, notionally, part of a larger transaction giving effect to a bargain under which A has agreed to reconvey Blackacre to B in order to restore the status quo ante? In my view, the answer is not open to doubt. The hypothesis required is that A’s obligation to convey Whiteacre to C arose under the original bargain between A and B. Upon that basis, A is deemed to have agreed with B (and, if necessary, with C), at the time of the original bargain, that, if circumstances arose under which A were required to reconvey Blackacre to B, then A would, at the same time, convey Whiteacre to C. I have already pointed out that the easements over Whiteacre that would be the subject of an implied grant to B, as purchaser of Blackacre, would be determined by the circumstances existing at the time of the original bargain. So, also, the easements over Blackacre that would be the subject of an implied grant to C, as purchaser of Whiteacre, would be determined by the circumstances existing at the time of the original bargain. In both cases, the easements to be the subject of implied grant and reservation are such easements as would, as between Blackacre and Whiteacre, restore the position to that which existed before those easements merged and were extinguished by the conveyance that had brought Blackacre and Whiteacre into the same ownership.
It follows that the hypothesis to be made in the present case is that the fictional conveyance of the adjoining land, that is to say, of the land that Samuel Smith is to retain, is a conveyance to a purchaser pursuant to an obligation arising as part of the bargain made between Samuel Smith and the council on 30 March 1990; and that, in the light of that bargain, the intention to be attributed to Samuel Smith and the fictional purchaser –– for the purpose of ascertaining the implied easements and other rights that are to be granted to the fictional purchaser under the rule in Wheeldon v Burrows and section 62 of the Law of Property Act 1925 –– is that the position as between the centre site and the adjoining land is to be as it was immediately before the conveyance of the centre site on 30 March 1990.
There is nothing that I wish to add to the observations of Peter Gibson LJ in relation to the judge’s order as to costs. I agree that the judge was entitled to make the order that he did.
Tuckey LJ agreed and did not add anything.
Appeal dismissed.
