Assignment of lease — Respondent lessor having right of pre-emption — Whether tenant obliged to offer property to lessor — Date such obligation arising — Whether lessor’s rights having priority over those of proposed assignee — Appeal dismissed
The respondents were the lessors under a 47-year lease, dated August 1979, of premises in London SW7. The lease came within the protection of the Landlord and Tenant Act 1954. Clause 5 conferred a right of pre-emption on the lessors by stating that “if at any time during the term the lessee should wish to dispose of the term hereby created in the demised premises he shall first offer the same in writing to the Lessors…”.
By an agreement dated August 1986, the then tenants agreed to sell the lease to the first appellant, T, for £250,000. They did not first offer to sell to the lessors. In the event, the 1986 agreement was never completed by registration of the assignment. In December 1986, the tenants moved out of the property, so bringing the 1954 Act protection to an end. In 1999, T agreed to sell the lease, which was described as being held in trust for it by the tenants, to the second appellant, C, for £475,000. However, the lessors did not respond to the tenants’ request for consent to the assignment.
The appellants brought proceedings, claiming that the lessors were unreasonably withholding their consent to an assignment of the lease by the tenants to C. By their defence and counterclaim, the lessors contended that the events of 1986 gave rise to an option pursuant to clause 5 of the lease, entitling them to buy the lease for £250,000, in priority to any rights of T or C under either the 1986 or the 1999 agreements. They sought declarations that they were entitled to be registered as proprietors of the lease and that the appellants had no interest in it. The appellants argued that clause 5 of the lease had not operated to confer any option on the lessors because of its own terms and the provisions of section 17 of the 1954 Act, by which the provisions of Part I of that Act were to have effect notwithstanding any agreement to the contrary. The judge found in favour of the lessors, and the appellants appealed.
Held: The appeal was dismissed.
The tenants had breached clause 5 immediately prior to the conclusion of the 1986 agreement because they had not offered, at that time, to sell the lease to the lessors for £250,000 free from encumbrances. The wording of clause 5 imposed a positive obligation to make such an offer: Pritchard v Briggs [1980] Ch 338 and Bircham & Co Nominees (No 2) Ltd v Worrell Holdings Ltd [2001] EWCA Civ 775; [2001] 3 EGLR 83 applied. The lessors, as the holders of the right of pre-emption, were entitled to buy the lease, and were therefore entitled to an equitable interest in it commensurate with that of a purchaser under a binding contract for sale at a price of £250,000.
Section 17 of the 1954 Act did not affect the validity of clause 5 or any steps taken in its performance. Accordingly, it could not affect the creation in the lessors of the equitable interest that arose in consequence of the tenants’ breach. The equitable interest of the lessors undoubtedly arose before that of T, even if the latter’s interest arose in 1986. No grounds existed for concluding that the priority conferred on the lessors by time had been lost by any conduct on their part. Consequently, the judge’s decision should be upheld.
Paul Morgan QC and Timothy Dutton (instructed by Howard Kennedy) appeared for the appellants; John McGhee QC (instructed by Bircham Dyson Bell) appeared for the respondents.
Sally Dobson, barrister
