Plaintiff claiming damages for breach of repairing obligations in underlease – Second defendant registered proprietor of underlease – First defendant acquiring share capital of second defendant – Assignment of headlease – Assignee forfeiting underlease and surrendering headlease – Whether plaintiff entitled to recover damages for breach of covenants in underlease against second defendant and from first defendant under Building Societies Act 1986, section 22 – Judgment for defendants on preliminary issues – Appeal dismissed
The plaintiff became the freehold owner of the premises, 19-21 Crawford Street, and 2-2A Durweston, London W1, and was registered as proprietor in 1987. There then subsisted a headlease, and an underlease of which the second defendant was registered as proprietor in March 1985. At that date there was no connection between the first and second defendants. The first defendant acquired the share capital of the second defendant on November 30 1988. The headlease was assigned to Cedarwise Ltd on July 1 1993. Cedarwise forfeited the underlease on May 23 1994 by peaceable re-entry on the ground of non-payment of rent and surrendered the headlease on June 7 1994.
The plaintiff alleged that for several years before the forfeiture of the underlease there were serious breaches its the repairing covenants. Notices under section 146 of the Law of Property Act 1925 and section 1 of the Leasehold Property (Repairs) Act 1938 were served on the second defendant in October 1991 and June 1992 and counternotices under the 1938 Act were served on the headlessees in October 1991 and 1992. The plaintiff as freeholder claimed to be entitled to recover damages for breach of the repairing covenants in the underlease against the second defendant, which had gone into administrative receivership, and further claimed to recover those damages from the first defendant by virtue of section 22 of the Building Societies Act 1986. Between November 30 1988 and November 30 1992 the second defendant was a subsidiary of the first defendant. The first defendant contended that the plaintiff had no right to sue and that on its true construction section 22 of the 1986 Act did not give the plaintiff a claim against the first defendant. On a preliminary hearing of the issues the judge found for the defendants. The plaintiff appealed.
Held The appeal was dismissed.
1. The covenants to repair were extinguished when the sublease was forfeited. Therefore when the headlease was surrendered to the plaintiff on June 7 1994 there was no continuing estate under the underlease in respect of which the provisions of sections 139 and 141 of the 1925 Act would operate. When the underlease was forfeited, Cedarwise had an accrued right to sue for rent and for damages for any breach of the repairing obligations. Because those rights were not assigned until after the surrender, no right passed to the plaintiff to sue.
2. Applying section 22 of the 1986 Act, the obligation to discharge the liabilities of an associated body only arose if it was a subsidiary. The second defendant ceased to be a direct subsidiary of the first defendant on January 1 1990 and therefore the obligation on the first defendant would only relate to the period between November 30 1988 and January 1 1990.
3. The language of section 22 pointed to a narrow construction and policy did not require the wider purposive construction which would require the first defendant to make payment to the plaintiff. The approach adopted in Gyoury v Northern Rock Building Society, [1997] EGCS 56, was approved.
Michael Barnes QC and Edward Denehan (instructed by Philippsohn Crawfords Berwald) appeared for the appellant; Elizabeth Ovey (instructed by Rees Page, of Bilston) appeared for the respondents.
