Lessors’ claim against guarantors of lessees’ obligations under lease — Amount claimed from guarantors resulted from arbitrator’s award in pursuance of a review clause in lease — Position complicated by liquidation of lessee company and by liquidator’s surrender of lease — Question as to whether surrender of a lease prevented lessor from recovering from the lessees (and consequently from the lessees’ guarantors) the difference between the old rent and the new rent under a review clause, for the period between review date and surrender, where the amount of the new rent was fixed by arbitration after the surrender — Authorities reviewed by judge — Held that the sum claimed should be paid by the guarantors — The lessees’ duty to pay this sum was correlative with the lessees’ right to possession during the period even though the surrender intervened before the actual amount was fixed — The guarantors’ liability necessarily followed
In this action
the plaintiffs, Torminster Properties Ltd, lessors of a factory unit at
Harpenden, Hertfordshire, claimed a sum of £2,947.82 from the defendant
guarantors, Mr Green and Mr Kerridge, of the obligations of the lessees, Cadac
(London) Ltd, under a lease. The lease, for 25 years from June 24 1973,
contained a rent review clause with a provision for arbitration in certain
events. The sum claimed resulted from the rent fixed by the arbitrator.
V R Chapman
(instructed by Slowes) appeared on behalf of the plaintiffs; R Wakefield
(instructed by Lane & Partners) represented the defendants.
Giving
judgment, MR JOHN MOWBRAY QC said: The plaintiff company claims as lessor
£2,947.82 from the defendants Mr Green and Mr Kerridge as the guarantors of the
lessee company’s obligations under a lease of a factory unit at Harpenden in
Hertfordshire. The lessee was Cadac (London) Ltd. The lease was for 25 years
from June 24 1973. The rent was £7,100 a year until June 24 1978, then for the
next five years either that rent or the open market rental value of the demised
premises, whichever was the higher. The rent was payable quarterly in advance
on the usual quarter days. The fourth schedule to the lease, in provisos (3)
and (4) to paragraph (B), read like this:
(3) The open market rental value shall be determined
in manner following, that is to say it shall be such annual sum as shall be (a)
specified in a notice in writing signed by or on behalf of the lessor and
posted in a prepaid envelope addressed to the lessee at the demised premises at
any time after the beginning of a clear period of six months immediately
preceding the review date (and such notice shall be conclusively deemed to have
been received by the lessee in due course of post) or (b) agreed between the
parties before the expiration of three months immediately after the date of
posting of such notice aforesaid in substitution for the said sum, or (c)
determined at the election of the lessee (to be made by a counternotice in
writing served by the lessee upon the lessor not later than the date of
expiration of the said three months) by an independent surveyor appointed for
that purpose by the parties jointly in writing or upon their failure to agree
upon such appointment within one month immediately after the date of service of
the said counternotice then by an independent surveyor appointed for that
purpose on the application of either party alone by the president for the time
being of the Royal Institution of Chartered Surveyors and in either case in
accordance with the provisions of the Arbitration Act 1950.
(4) In the event of failure to agree or of the
determination of such independent surveyor not having been published prior to
the review date for any reason whatever, then in respect of the period of time
(hereinafter called ‘the delay period’) beginning with the review date or the
date of the lessor’s notice under sub-clause (3)(a) (whichever shall be the
later) and ending on the quarter day immediately following the date on which
such a determination shall have been agreed or published, the lessee shall pay
to the lessor in manner hereinbefore provided rent at the yearly rate payable
immediately before the review date PROVIDED that at the expiration of the delay
period there shall be due as a debt payable by the lessee to the lessor on demand
a sum of money equal to the amount whereby the yearly rent agreed or determined
by such independent surveyor shall exceed the yearly rent at the yearly rate
aforesaid but duly apportioned on a daily basis in respect of the delay period.
Before the
review date, June 24 1978, an attempt was made to agree the new rent, but none
was agreed, despite an extension of time for the lessee’s counternotice under
the schedule to July 15 1978. On July 13 1978 the lessee served a
counternotice. The lessee paid a quarter’s rent in advance at the old rate on
June 24 1978, but paid none at all on September 29 because it was in financial
difficulties. In October a debenture holder of the lessee appointed a receiver
and Candystrope Ltd (a company connected with some former directors of the
lessee) acquired from the receiver all the lessee’s assets other than the
lease, and was allowed by the lessee into occupation of the factory unit.
Candystrope was anxious to secure the use of the unit until the end of 1978 and
willing to pay £2,500 for it. In early November 1978 Candystrope paid that sum
to the lessor’s solicitors,
solicitors.
On November 8
1978 the receiver released the lease from the debenture. On November 13 an
order was made to wind up the lessee. On January 22 1979 the president of the
Royal Institution of Chartered Surveyors appointed an arbitrator under the
schedule. Candystrope stayed in occupation into 1979 and paid rent direct to
the lessor at the yearly rate of £13,500. On March 7 1979 the arbitrator gave
directions for the reference to be dealt with on written submissions. The
lessor’s surveyors made written submissions dated March 16, but on hearing that
the liquidator might soon be prepared to disclaim the lease wrote to the
arbitrator on March 19 asking him to defer his consideration of the case for
the time being.
The lessee’s
liquidator did not disclaim the lease, but by an exchange of letters dated
April 4 1979 between him and Messrs Slowes surrendered it to the lessor, which
accepted it in consideration of the lessee’s surrendering any claim to any
payment received from the occupier of the premises after June 24 1978. This
referred to the £2,500 paid by Candystrope to Messrs Slowes, which was thereby
released to the lessor, and presumably also to the sums paid direct by
Candystrope to the lessor for its occupation into 1979. The letters exchanged
made no reference to the rent review or the arbitration. On April 20 1979 the
liquidator sent the lease to Messrs Slowes.
On May 8 1979
Messrs Slowes demanded from the defendants, as sureties, the sum of £2,947.82
later claimed in this action. It was calculated as two quarters’s rent at the
new yearly rate of £13,500 which the lessor was prepared to agree plus a total
of £472.82 for insurance and service charges, less the quarter’s rent at the
old rate paid in advance on June 24 1978 and the £2,500 paid by Candystrope.
The insurance and service charges are not disputed.
Negotiations
followed, but they broke down and the lessor’s surveyors reactivated the
arbitration. The defendants’ solicitors contended that as the lease had been
surrendered any award would be a nullity, but the arbitrator went on without
them and, on January 25 1980, fixed the open market rental value at £13,500 per
annum, that is the same as was used in calculating the demand for £2,947.82.
It is in those
circumstances that the lessor claims that amount from the guarantors. The only
defence previously pleaded that was relied on at the trial was that there was
never a valid determination of the open market value entitling the lessor to
make that claim, because the arbitrator’s determination took place after the
surrender. That raises an undecided point of law that I shall come to shortly.
At the trial an alternative defence was added by amendment that the
determination was a nullity in that the lessor, by Messrs Slowes, and the
lessee, by its liquidator, agreed that the arbitration should be abandoned or
not proceeded with. The agreement was pleaded as made orally or in writing on
or about April 4 1979 as either an implied term of the surrender or an express
term collateral to the surrender, and the defendants relied on certain letters
which I need not recount. They are in the agreed bundle and are listed in the
defence, as amended at the trial.
It was common
ground that I should treat the agreed correspondence as evidence and I am
therefore free to make deductions of fact from it. Mr Wakefield, for the
defendants, submitted that I should deduce from the correspondence that there
had been such a collateral agreement to abandon the arbitration as was pleaded.
He pointed out, correctly enough, that the lessor’s surveyors had gained the
impression that it was to be abandoned and that they gained this impression
from Messrs Slowes, who had done nothing to correct it, and that though there
was no direct evidence that the liquidator understood it was to be abandoned it
was no great leap of faith to suppose that he would share that intention, since
it could only be beneficial to his liquidation, the review rent being the old
rent or the arbitrated rent whichever was higher.
Those
arguments were attractively presented, but I cannot accede to them. The
correspondence does not give rise to an inference of any collateral agreement
by the liquidator, at any rate that could prevail against the oral evidence of
the partner in Messrs Slowes who had the supervision of the matter. He
categorically denied any agreement and no witness was called on the other side.
In the
circumstances which I have described and in the light of Richmond v Savill
[1926] 2 KB 530 it is not possible to imply a term into the surrender for the
abandonment of the arbitration, especially as the surrender letters refer to
the £2,500 but say nothing about the arbitration, which was well advanced,
though temporarily suspended.
That leaves
the legal question whether the surrender of a lease prevents the landlord from
recovering the difference between the old rent and the new rent under a review
clause for the period between the review date and the surrender, where the
amount of the new rent is fixed by arbitration after the surrender.
No authority
cited was precisely in point. Richmond v Savill shows that
accepting a surrender does not extinguish rights of action for existing
breaches of covenant or (by dicta, citing Attorney-General v Cox
(1850) 3 HL Cas 240, and other authorities) for rent which has already accrued.
But a surrender does not deprive a landlord of a tenant’s covenant which is to
arise and take effect after the surrender: Re Morrish, ex parte Hart Dyke
(1882) 22 ChD 410. Those authorities fall either side of a case like the
present. Here, at the surrender, the landlord was entitled to be paid as a
contract debt the difference, if any, between the old rent and the review rent
for the period after the review date. It was a present right based on a partly
executed consideration: United Scientific Holdings Ltd v Burnley
Borough Council, Cheapside Land Development Co Ltd v Messels Service Co
[1978] AC 904, especially at p 913 C to E where Lord Diplock states the nub of
both those decisions. But it was a present right not yet actionable, to a
future payment, because the difference was not payable until the quarter day
after the arbitrator fixed the new rent and there might be no difference; but
again, the landlord could, apart at least from the surrender, compel the
arbitration to be carried through.
I am not
assisted by any dicta either. Sir George Jessel’s dictum at p 425 of the earlier
case, that the surrender puts an end to the lease, not just the term, if
universally applied would prevent the landlord from bringing an action after
surrender for a breach of covenant committed by the tenant before it, but that
could not stand with Richmond v Savill. Bankes LJ’s dictum at p
538 of that case, that a surrender only excuses covenants rendered
unperformable by it, if applied universally would mean (for instance) that the
lessee in the present case had to go on paying rent today, in 1981, because
rent can always be paid by anyone who has the money. But that cannot be right.
Obviously a surrender puts an end to the rent for the period after the
surrender, when the tenant is no longer entitled to possession.
Without
precise guidance from the authorities, I have to decide the case on principle.
It seems to me that the tenant’s duty to pay the difference between the old and
the review rent for the period after the review date is correlative with the
tenant’s right to possession during that period and so it should be paid, even
though the surrender intervenes before its amount is fixed. As the lessee here
continued in possession during the period after the rent review date, it ought
to pay the difference between the arbitrator’s rent and what the lessor has
received for that period. That plus undisputed service and insurance charges is
what the lessor claims. I shall give judgment for the sum claimed.
Judgment was
given for the plaintiffs with costs and interest on the amount claimed.
