Lease – Service charge – First defendant lessor assigning freehold to third party – First defendant requiring advance payment of service charge – Claimant lessee disputing liability to pay sums claimed – Parties seeking declarations as to first defendant’s entitlement to demand service charge – Whether first defendant ceasing to be lessor following assignment – Declaration granted in favour of first defendant
The claimant was formed for the purpose of acquiring the old Wembley stadium and building a new stadium on the same site. The freehold of the site of the old stadium and much of the surrounding land, comprising a conference centre, car parks, merchandising booths, roads and footpaths, was owned by the first defendant. By a transfer and lease dated 15 March 1999, the first defendant granted the claimant a lease of the old stadium and the land on which it stood for a term of 125 years for £93.7m. The consideration for the lease included the payment of a service charge. The old stadium was demolished in early 2001 and the building of its replacement was commenced.
In July 2001, the first defendant transferred the freehold of land, including the land over which it had demised rights by the lease and subject to the lease, to the second to fifth defendants (Gideon). In the transfer of the freehold of that property and in separate documents executed by each of the defendants, Gideon declared that it held the same as nominee and trustee for the first defendant absolutely. The transfer to Gideon was registered on 7 June 2002.
By letter dated 17 November 2006, the first defendant sought payment by the claimant of six invoices totalling £660,831 for sums allegedly due under the lease in respect of the service charge. Following failed negotiations between the parties, the claimant sought declarations that it was not liable to pay any of the amounts claimed. It contended, inter alia, that the effect of the assignment of the reversion by the first defendant to Gideon was to transfer the benefit of the tenant’s covenants to Gideon. It argued, alternatively, that the effect of section 3 of the Landlord and Tenant (Covenants) Act 1995 was that Gideon alone was entitled to claim and sue in respect of the service charge or advance payments thereof since it was entitled to the benefit of the covenants to pay them.
The first defendant sought a declaration that it was entitled to the amounts claimed. It contended that, under section 6(2) of the 1995 Act, absent a release under section 8, it remained liable as lessor and entitled to the benefit of the tenant’s covenants.
Held: A declaration was granted in favour of the first defendant.
It was plain from the terms of the lease that, at all times since its grant in 1999, the first defendant had been bound by the lessor’s covenants and was entitled to the benefit of the lessee’s covenants under the lease.
Whether or not the burden of the lessor’s covenant had passed to Gideon, it was plainly implicit in section 6(2) of the 1995 Act that the first defendant was not released from it. Accordingly, both before and after the assignment of the reversion to Gideon, the first defendant was bound to provide the lessor’s services, and the expenditure incurred to that end was expenditure as defined in the lease for purposes of the service charge.
Furthermore, the original contractual entitlement to the benefit of the tenant’s covenants had not been discharged by the 1995 Act since, in the circumstances of this case, section 6(2) so provided. As the absolute beneficial owner of the reversion, the first defendant had always been entitled to sue for the service charge and advance payments, either in its own name, if necessary joining Gideon as a defendant, or in the name of Gideon. Moreover, the various declarations of trust were assignments within the definition in section 28(1) and entitled the first defendant, as absolute beneficial owner of the rents and profits under the tenancy, to enforce the tenant’s covenants pursuant to section 15(1). In any event, the terms of section 23 indicated that the equitable assignee was entitled to the benefit of a tenant’s covenant, at least after its assignment to it, and before if it expressly so provided: Schalit v Joseph Nadler Ltd [1933] 2 KB 79 distinguished; Scribes West Ltd v Relsa Anstalt (No 2) [2004] EWCA Civ 965; [2005] 1 WLR 1847 considered.
Katharine Holland (instructed by Pinsent Masons) appeared for the claimant; Michael Driscoll QC and Ciaran Keller (instructed by Nabarro) appeared for the defendants.
Eileen O’Grady, barrister
