Perpetuities – Option to extend lease – Validity – Perpetuities and Accumulations Act 1964 – Option to extend underlease not becoming exercisable until future date falling outside 21-year perpetuity period – Option assigned to mortgagee of underlease – Mortgagee taking possession and selling underlease – Whether option void as infringing rule against perpetuities – Whether falling within exemption in section 9(1) of 1964 Act – Whether option exercisable by purchaser of underlease from mortgagee – Appeal allowed
The first appellant held an underlease of a flat for a term expiring in December 2028. He charged that interest to a building society by way of legal mortgage, on terms that assigned to the building society all related rights including the benefit of any option relating to the property. The appellants subsequently acquired the freehold of the building. They wished to extend the first appellant’s underlease but were unable to do so directly since the whole building was subject to a headlease, held by a residents’ association, for a term expiring three days after the underlease. Instead, they granted an option, exercisable not earlier than December 2008 or later than December 2028, to extend the underlease for 60 years on payment of a consideration of one red rose. The option was granted to “the Lessee”, defined to include successors in title.
The building society later took possession of the flat and sold the underlease to the respondent and his wife, who were duly registered as its proprietors. In 1994, a deed of variation of the underlease was executed by the respondent, his wife and the headlessee, to take account of the earlier addition of a roof terrace to the flat; this resulted in the creation of a new registered title. The respondent later became sole proprietor of the underlease.
In 2009, the respondent gave notice to exercise the option. The appellants claimed that the option was void as infringing the rule against perpetuities. In the court below, it was held that the option was valid since it fell within the exemption, in section 9(1) of the Perpetuities and Accumulations Act 1964, for options to acquire, for valuable consideration, an interest reversionary on the term of a lease, where the option was exercisable only by the lessee or his successors in title: see [2012] EWHC 561 (Ch); [2012] 2 EGLR 95; [2012] 20 EG 94.
The appellants appealed. They contended that the respondent was not a “successor in title” within the meaning of either the option or section 9 of the 1964 Act since the variation of the underlease had effected a surrender and regrant of the underlease and the respondent did not hold the original interest to which the option related.
Held: The appeal was allowed.
The variation of a lease to include further land took effect in law as a surrender by the lessee of the original lease and the regrant of a lease of both the original and the additional land, for a term equal to the unexpired term under the surrendered lease and otherwise on the equivalent terms and conditions. The surrender and regrant effected by the deed of variation was a legal consequence of the parties’ wish to add premises to those demised by the earlier underlease. The parties could not contract out of that consequence and the terms of the deed of variation could not affect the proper construction of the term “successors in title” as they appeared in the earlier option and in section 9 of the 1964 Act.
The respondent was not a “successor in title” for those purposes. To be a successor in title, in the context of both the option and section 9, the title in question had to be that in existence as at the date of the option or its grant. In the case of the option, the interest to be granted was an extension of the underlease referred to in the recital thereto. In the case of section 9(1)(a) of the 1964 Act, the interest to be granted had to be “reversionary” on a lease. The “successors in title” to which section 9 referred had to be successors in title to the lease to which the interest being conferred by the option was reversionary. The successor in title therefore had to be a successor to the original lessee in respect of the same title, namely that lease. There was no basis on which a surrender and regrant could be excepted from that requirement as a matter of the construction of either the option or the section: WEG Motors Ltd v Hales [1962] Ch 49 applied. The phrase “successors in title” concerned title to property not its actual occupation and could not be extended so as to include the occupiers of the relevant land for the time being: Snape v Snape (1959) 173 EG 697 considered. Accordingly, the respondent was not entitled to exercise the option.
Per curiam: Although that result might seem harsh and contrary to common sense, the problem had arisen because the appellants, as freeholders and grantors of the option, were not parties to the deed of variation of the underlease, while the headlessee, which was a party to the variation, was not also a party to the option. In the more normal case where the grantor of the option was also the lessor, there might be scope for arguing that the regrant included a regrant of the option.
David Holland QC (instructed by Howes Percival LLP) appeared for the appellants; Marilyn Kennedy-McGregor (instructed by BD Laddie) appeared for the respondent.
Sally Dobson, barrister
Perpetuities – Option to extend lease – Validity – Perpetuities and Accumulations Act 1964 – Option to extend underlease not becoming exercisable until future date falling outside 21-year perpetuity period – Option assigned to mortgagee of underlease – Mortgagee taking possession and selling underlease – Whether option void as infringing rule against perpetuities – Whether falling within exemption in section 9(1) of 1964 Act – Whether option exercisable by purchaser of underlease from mortgagee – Appeal allowedThe first appellant held an underlease of a flat for a term expiring in December 2028. He charged that interest to a building society by way of legal mortgage, on terms that assigned to the building society all related rights including the benefit of any option relating to the property. The appellants subsequently acquired the freehold of the building. They wished to extend the first appellant’s underlease but were unable to do so directly since the whole building was subject to a headlease, held by a residents’ association, for a term expiring three days after the underlease. Instead, they granted an option, exercisable not earlier than December 2008 or later than December 2028, to extend the underlease for 60 years on payment of a consideration of one red rose. The option was granted to “the Lessee”, defined to include successors in title.The building society later took possession of the flat and sold the underlease to the respondent and his wife, who were duly registered as its proprietors. In 1994, a deed of variation of the underlease was executed by the respondent, his wife and the headlessee, to take account of the earlier addition of a roof terrace to the flat; this resulted in the creation of a new registered title. The respondent later became sole proprietor of the underlease.In 2009, the respondent gave notice to exercise the option. The appellants claimed that the option was void as infringing the rule against perpetuities. In the court below, it was held that the option was valid since it fell within the exemption, in section 9(1) of the Perpetuities and Accumulations Act 1964, for options to acquire, for valuable consideration, an interest reversionary on the term of a lease, where the option was exercisable only by the lessee or his successors in title: see [2012] EWHC 561 (Ch); [2012] 2 EGLR 95; [2012] 20 EG 94.The appellants appealed. They contended that the respondent was not a “successor in title” within the meaning of either the option or section 9 of the 1964 Act since the variation of the underlease had effected a surrender and regrant of the underlease and the respondent did not hold the original interest to which the option related.Held: The appeal was allowed.The variation of a lease to include further land took effect in law as a surrender by the lessee of the original lease and the regrant of a lease of both the original and the additional land, for a term equal to the unexpired term under the surrendered lease and otherwise on the equivalent terms and conditions. The surrender and regrant effected by the deed of variation was a legal consequence of the parties’ wish to add premises to those demised by the earlier underlease. The parties could not contract out of that consequence and the terms of the deed of variation could not affect the proper construction of the term “successors in title” as they appeared in the earlier option and in section 9 of the 1964 Act.The respondent was not a “successor in title” for those purposes. To be a successor in title, in the context of both the option and section 9, the title in question had to be that in existence as at the date of the option or its grant. In the case of the option, the interest to be granted was an extension of the underlease referred to in the recital thereto. In the case of section 9(1)(a) of the 1964 Act, the interest to be granted had to be “reversionary” on a lease. The “successors in title” to which section 9 referred had to be successors in title to the lease to which the interest being conferred by the option was reversionary. The successor in title therefore had to be a successor to the original lessee in respect of the same title, namely that lease. There was no basis on which a surrender and regrant could be excepted from that requirement as a matter of the construction of either the option or the section: WEG Motors Ltd v Hales [1962] Ch 49 applied. The phrase “successors in title” concerned title to property not its actual occupation and could not be extended so as to include the occupiers of the relevant land for the time being: Snape v Snape (1959) 173 EG 697 considered. Accordingly, the respondent was not entitled to exercise the option.Per curiam: Although that result might seem harsh and contrary to common sense, the problem had arisen because the appellants, as freeholders and grantors of the option, were not parties to the deed of variation of the underlease, while the headlessee, which was a party to the variation, was not also a party to the option. In the more normal case where the grantor of the option was also the lessor, there might be scope for arguing that the regrant included a regrant of the option.David Holland QC (instructed by Howes Percival LLP) appeared for the appellants; Marilyn Kennedy-McGregor (instructed by BD Laddie) appeared for the respondent.Sally Dobson, barrister
