Residential lease subject to Landlord and Tenant Act 1954 — Lessee required to offer first refusal to lessor if wishing to assign — Lessee contracting to assign to company without making such offer — Whether obligation to offer arising at that time — Whether obligation negated by section 17 of 1954 Act
The first and second defendants (Bircham) and the third and fourth defendants (the Bailies) were respectively lessors and lessees of a house in London SW7, under a 47-year lease made by their predecessors in 1979. Clause 2(9) of the lease contained a lessee’s covenant not to assign the premises without the lessor’s written consent, such consent not to be unreasonably withheld. However, that clause was subject to clause 5, whereby, if the lessee wished to dispose of the term, he was first required to offer the same to the lessor, at the price at which he was prepared to sell; the offer was to remain open for 21 days. In August 1986, the Bailies entered into a written contract to sell the residue of the lease, for £250,000, to the first claimant, a Jersey company (the company) associated with another party, N, and the second claimant, C. Without proceeding to completion, the Bailies vacated the house, and allowed N and C into possession.
On 2 March 1999, the Bailies applied to Bircham for its consent to the assignment of the lease to C, and, by the same notice, made a clause 5 offer to Bircham at the reported sale price of £375,000. On 16 March 1999, the Bailies, who had been litigating against the claimants and N, entered into a compromise agreement with them, which stated that: (i) pursuant to the 1986 contract of sale, the Bailies held the lease on trust for the company; and (ii) the Bailies would give their utmost co-operation to the completion of a sale of the lease by the company to C, who had agreed to pay £475,000. On the same day, the Bailies made a fresh licence application to Bircham, accompanied by a second clause 5 offer at the price of £475,000. By a letter dated 31 March 1999, Bircham intimated that it was not interested in taking back the house at the offered price. Although entertaining the licence application, Bircham was alerted to C’s presence in the house, following which it made detailed enquiries into what had occurred since the Bailies had acquired the lease. In May 2000, Bircham queried the validity of the clause 5 offers made by the Bailies. Litigation then ensued between Bircham and the Bailies, leading to a compromise pursuant to which the Bailies transferred the house to Bircham for £250,000, such sum being held on deposit pending the outcome of the present action.
In the present action, the claimants, relying upon the 1999 agreement, claimed that they were entitled to a transfer of the house. In its defence, Bircham claimed a prior equitable interest based upon the alleged failure by the Bailies to make a clause 5 offer at £250,000 before agreeing to sell the house to the company in August 1986. The claimants argued that no such offer was required because: (i) no assignment as such had taken place in 1986; (ii) in any event, a contract to surrender the lease to Bircham would have been rendered void by section 17 of the Landlord and Tenant Act 1954, which was then applicable to the lease by virtue of the Bailies’ residential occupation.
Held: The claim was dismissed.
1. Although in some cases it might be difficult to pinpoint exactly when the obligation to make the clause 5 offer arose, it was plain from the wording of the clause that this would have arisen on the very brink of making an enforceable contract of sale. This view was supported by the authorities: see the observations of Chadwick LJ in Bircham & Co Nominees (No 2) Ltd v Worrell Holdings Ltd [2001] EWCA Civ 775; [2001] 47 EG 149 and Vinelott J in Kling v Keston Properties Ltd (1983) 49 P&CR 212.
2. With regard to the argument based upon section 17, Bircham had correctly argued, adopting the reasoning of Sir Robert Megarry V-C in Allnatt London Properties Ltd v Newton (1980) 257 EG 174, that the section did no more than make void an agreement to surrender, which could not be known until it was determined whether the landlords had accepted or rejected the offer. Accordingly, the obligation to offer was not struck down by the section: Re Hennessy’s Agreement [1975] Ch 252 distinguished.
3. A lessee’s failure to make an offer that he was obliged to make had the effect of conferring upon the lessor at that date an equitable interest in the remainder of the term: see Pritchard v Briggs [1980] Ch 338 and the further observations of Chadwick LJ in Worrell.
Timothy Dutton (instructed by Amhurst Brown Columbotti) appeared for the claimants; John McGhee (instructed by Bircham Dyson Bell) appeared for the first and second defendants; Edward Denehan (instructed by Williams Sturgess & Co) appeared for the third and fourth defendants.
Alan Cooklin, barrister
