Contract for underlease–Proposed lessee let into occupation pending superior landlord’s consent to grant–Lessee pays deposit and ultimately whole price, consent still not received and underlease not executed–A few instalments of rent also paid–Rights of lessee when contract goes off–Construction of condition 7 of National Conditions of Sale (18th ed)
This was an
action by Mr Peter Irving Vangeen, of 14 Brackendale, London N21, against Mr
Irving Seymour Benjamin and Mr Malvyn Anthony Benjamin, of 3-7 Portman Square,
London W1, for damages for breach of a contract dated October 25 1973 for the
grant of a lease of part of the premises at 3-7 Portman Square, known as the
ground and first floors of Orchard House, and for the return of moneys paid.
The defendants counterclaimed specific performance of the contract.
Mr G Lightman
(instructed by Ziman & Co) appeared for the plaintiff, and Mr J B W
McDonnell (instructed by Benjamin & Benjamin) represented the defendants.
Giving
judgment, BRIGHTMAN J said that the defendants were subtenants of part of a
block of offices known as Orchard Court, Portman Square, London W1. Their
landlords were Sovereign Property Investments (Portman Square) Ltd. Sovereign
were in turn tenants of the Prudential Assurance Co Ltd. On October 25 1973 the
defendants entered into a contract to grant an underlease to the plaintiff of a
part of the premises leased from Sovereign. The contract incorporated by
reference the 18th edition of the National Conditions of Sale. The underlease
was to be for a term commencing on the ‘completion date’ and expiring in 1992.
The completion date was defined by the general conditions, in the absence of a
specified date, as five weeks from the delivery of the abstract of title. No
abstract of the defendants’ title as lessees from Sovereign was requested,
though it could have been demanded under section 44 of the Law of Property Act
1925. On October 11 1973 the defendants had applied for Sovereign’s consent to
the proposed underletting, as required under the terms of their demise from
Sovereign. They sent references and a plan of the space proposed to be
underlet. As between the plaintiff and the defendants it was proposed to
complete on October 29, when the balance of the purchase-money would be paid
and possession given. This was on the assumption that Sovereign’s consent to
the underletting would be forthcoming in time. According to the correspondence,
the defendants gave the plaintiff the keys on October 26 so that his builders
could start work the next day, and the balance of the purchase-money was paid
to the defendants on or shortly before November 1. The underlease was not
executed, however, because no formal consent had been received by the
defendants from Sovereign. Negotiations between the defendants and Sovereign
for consent to underlet, which began with the defendants’ letter of October 11
1973 already referred to, were still in progress in the summer of 1975. The
sticking points were first, that the rent under the proposed underlease was
less than the rack rent; secondly, that Sovereign had to refer the matter to
their own landlords; and thirdly, that Sovereign claimed against the defendants
payment of substantial arrears of service charges which Sovereign had omitted
to demand in the past. The defendants did not wish to pay the arrears until
they had secured a due proportion from their own previous subtenants. The
plaintiff was, in the meantime, in possession under the contract. Rent
instalments were demanded from time to time, and some were paid. In 1974 the
plaintiff, with the consent of the defendants, granted to North Sea Petroleum
Ltd a licence on a monthly basis to share part of the office accommodation.
A fresh
problem then arose. A subclause of the underlease, on his (Brightman J’s)
interpretation of its wording, provided that the lessee would not without the
previous consent of the lessors underlet any part of the premises, such consent
not to be unreasonably withheld. Such right to underlet a part of the premises
as envisaged by the form of
objection was taken by the plaintiff, not as a technicality, but because, as he
made clear in correspondence and in his oral evidence, his ability to sublet
accommodation which he did not need was important to him. The defendants
sought, so far as this point was concerned, to rely on clause 19 (1) of the
general conditions, which provided that where the interest sold was leasehold
for a term of years to be granted by the vendor, the lease or underlease should
be prepared in accordance ‘as nearly as the circumstances admit’ with the draft
annexed to the contract. The argument was that this provision entitled the
defendants to modify the wording of a subclause of the underlease because
‘circumstances’ did not permit that clause to be included in the lease
unmodified. That argument must be rejected. Clause 19 (1) of the general
conditions, in permitting a departure from the annexed draft, only contemplated
formal departures such as the substitution of personal representatives for a
party who had died. The provision did not enable a contracting party to escape
by a sidewind from the strict terms of an obligation he had assumed.
In May 1974
Sovereign finally declined, as they were entitled to do, to consent to an
underlease to the plaintiff at less than the full market rent. The defendants
then told Sovereign that a market rent of £5,000 would be inserted in the
underlease, it being the defendants’ intention, as between themselves and the
plaintiff, to waive payment of the difference. The defendants proposed to
incorporate that waiver in the underlease itself, which would have satisfied
the plaintiff, but it was clear, and he (his Lordship) so found, that Sovereign
would not have consented to an underlease in that form, because a rent of which
£3,650 was formally waived by the terms of the underlease would have been no
different from a rent of £1,350. Sovereign had offered their consent to an
underlease at £5,000 on the basis that the excess of £3,650 would only be the
subject of a personal waiver by the defendants in favour of the plaintiff which
would be outside the terms of the underlease and not binding on Sovereign. It
was clear, and once again he (his Lordship) so found, that the plaintiff did not
accept and would not have accepted a waiver which would have failed to bind the
successors in title of the defendants. It followed, therefore, that the
defendants not only could not grant a demise in the terms agreed so far as
underleases of parts were concerned, but also could not obtain the consent of
their landlords to the underlease which they had agreed to grant.
On June 6 1975
Sovereign sent the defendants a licence to underlet. The plaintiff rightly
rejected this, because it related only to (1) an underlease at £5,000 a year,
and (2) an underlease containing an unqualified prohibition against
under-letting part of the premises. Furthermore, it related only to a
subletting of 850 sq ft on the first floor instead of a contractual first-floor
area of 1,380 sq ft, and it omitted any reference to premises on the mezzanine
floor. That might have been a mistake, and remediable, since the defendants had
sent a plan to Sovereign in October 1973 when consent to an underletting was
first sought. The other two objections, however, were, on the facts as found,
incapable of remedy. On June 27 1975 the plaintiff issued his writ claiming
damages for breach of contract and return of the purchase-money, alternatively
rescission. The defendants counterclaimed specific performance. For the reasons
given, the defendants’ claim to specific performance failed inevitably, because
they were never able to perform their contract. The plaintiff, at the opening
of the case, abandoned rescission and elected to affirm the contract and sue
for the breach. The court was then left with the question what were the rights
of the parties where a person had contracted for an underlease which the other
party was unable to grant for reasons of title and (1) the intending
undertenant had been let into possession, (2) he had paid a deposit to the
intending underlessors as stakeholders and had also subsequently paid them the
balance of the purchase-price, and (3) he had paid some of the rent instalments
payable under the proposed underlease. The plaintiff claimed that his rights
were (1) return of the deposit with interest, (2) repayment of the balance of
the purchase-money with interest, (3) repayment of rental instalments with
interest, (4) a right to retain for his own use the licence payments received
from North Sea Petroleum, (5) a sum equal to the costs incurred by him in
renovating and improving the premises, and (6) the costs of investigating the
defendants’ title etc, under the principle in Bain v Fothergill
(1874) LR 7 HL 158.
That case established
that if a vendor of land broke his contract owing to inability to make title,
the buyer could recover as damages whatever money had been paid by him with
interest, plus his expenses, but could not recover, in addition, damages for
the loss of his bargain. The plaintiff was clearly entitled to the return of
his deposit, because the defendants received it as stakeholders and could not
retain it against him. The balance of the purchase-money was also plainly
returnable to him in accordance with the Bain v Fothergill
principle. With regard to the question of interest on the deposit and
purchase-money, clause 7 of the National Conditions of Sale came into play. The
condition was headed ‘Occupation pending completion’ and provided:
(1) If the purchaser (not being already in
occupation as lessee or tenant at a rent) is let into occupation of the
property before the actual completion of the purchase, then, as from the date
of his going into occupation and until actual completion, or until upon
discharge or rescission of the contract he ceases to occupy the property, the
purchaser shall (i) be the licensee and not the tenant of the vendor; (ii) pay
interest on the remainder of the purchase-money at the prescribed rate; (iii)
keep the property in as good a repair and condition as it was when he went into
occupation; and (iv) pay, or otherwise indemnify the vendor against, all
outgoings and expenses (including the cost of insurance) in respect of the
property, the purchaser at the same time taking or being credited with the
income of the property, if any.
(2) Upon discharge or rescission of the contract
the purchaser shall forthwith give up the property in such repair and condition
as aforesaid.
(3) A purchaser going into occupation before
completion shall not be deemed thereby to have accepted the vendor’s title.
In his
(Brightman J’s) judgment, the effect of condition 7 was to quantify an
occupation rent which was to be paid by the purchaser to the vendor if the
purchaser was let into possession. There was nothing to prevent the parties
agreeing that if the buyer was let into possession, an occupation rent was to
be paid pending completion or discharge or rescission of the contract. General
condition 7 was such an agreement. Such an occupation rent so agreed belonged
to the vendor in any event. The plaintiff went into possession under the terms
of clause 7, and on that basis the defendants would have been able to claim
from the plaintiff interest on £24,750, representing the balance of the
purchase-money, if it had not been paid to the defendants. As the plaintiff had
paid the balance, he could not claim interest on the money when repayed. It
followed, by implication, that the plaintiff could not require the defendants
to pay interest on the deposit.
Regarding head
(4) of the claim, general condition 7 (1) (iv) entitled the plaintiff to retain
for his own use the licence money received from North Sea Petroleum. Regarding
head (5), the defendants conceded that they ought to pay for the renovations
and improvements. The costs under head (6) were within Bain v Fothergill
and recoverable under the general rule. That left head (3) for decision, which
posed the questions (1) whether the sums of money representing prospective
instalments of rent, paid by the plaintiff to the defendants, were recoverable
by him, and (2) alternatively, whether unpaid rental instalments were
recoverable by the
intended to apply (a) where the subject of the contract was a freehold estate,
(b) where the subject of the contract was an existing term of years, (c) where
the subject of the contract was a lease to be granted by a so-called vendor,
and (d) where the subject of the contract was an underlease to be granted by a
so-called vendor. Condition 7 must be treated as designed to deal indifferently
with all four situations. The scheme of the condition was to let the buyer into
occupation on the basis that both parties were approximately in the same
position pending completion as if the contract had been completed. Also, the
condition was directed to the sort of outgoings which the purchaser would have
to continue to discharge once the contract had been completed. Construing the
condition’s provisions in a manner which made business sense, as was desirable
in view of the fact that they formed part of a business document, he (his
Lordship) had reached the conclusion that where the subject of the contract was
a lease or underlease to be granted by the vendor, the word ‘outgoings’ was
inclusive of payments which would be outgoings payable by the buyer/lessee or
buyer/underlessee if completion had taken place. Therefore, that included rent
which would be payable if the underlease had been granted, but did not include
a head rent which would continue to be paid by the vendor. The condition was
intended to provide a sensible code which defined an occupation rent for all
cases where the buyer was let into possession before completion, and he
(Brightman J) did not see how a buyer could justly go into occupation without
paying sums comparable to those he would be liable to pay if he were in
occupation after completion. The plaintiff must accordingly pay a sum equal to
that which he would have had to pay by way of rent if the term had begun at the
date he went into occupation.
The plaintiff
was awarded the costs of the claim and counterclaim, and an inquiry was
ordered.
