Property Ebook 2015 by The Solicitors Group

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Contents... 1

November 2014.................................................................................................................. 6

June 2015................................................................................................................................. 62

Statutory Notices under Part II Sections 24 to 28 Landlord and Tenant Act

Update on Quiet Enjoyment Covenants...................................................................................... 62

1954 & Agreements to Surrender.................................................................................................. 6

Century Projects Limited v Almacantar (Centre Point) Limited [2014] EWHC 394 (Ch)......... 62

Continuation and renewal of tenancies: s 24............................................................................. 6

The Facts.......................................................................................................................................... 62

Termination of tenancy by the landlord: s 25.............................................................................. 6

Interference with the Tenant’s View............................................................................................. 63 Case Law on Repairs involve Scaffolding.................................................................................... 63

Tenant’s request for a new tenancy: s 26.................................................................................... 6

Termination by tenant of tenancy for fixed term: s. 27............................................................... 8

Would Use of Scaffolding Breach Tenant’s Quiet Enjoyment?.................................................. 64

Long Acre Securities Ltd v Electro Acoustic Industries Ltd [1990] 06 EG 103............................ 8

Authorities on Principle (5).............................................................................................................. 65

Service of Notices under the 1954 Act......................................................................................... 10

Where Repair and Quiet Enjoyment have Parity........................................................................ 65

Section 23(1) LTA 1927: Service of notices.................................................................................... 10

Would the Landlord’s Proposed Works be Unreasonable?........................................................ 65

Valid Agreements to Surrender under s 38A(2)........................................................................... 10

Injunction Granted?........................................................................................................................ 66

Ultimate Leisure Ltd v Tindle [2007] All ER (D) 399 (Oct)............................................................. 12

Final Comment................................................................................................................................ 66

December 2014.................................................................................................................. 16

July 2015................................................................................................................................... 68

Overage Payments......................................................................................................................... 16

Misrepresentation............................................................................................................................ 68

Securing the Payment (A Non-Exhaustive List)............................................................................ 18

Implied Misrepresentation.............................................................................................................. 68

Three Cases...................................................................................................................................... 20

Fraud Act 2006................................................................................................................................ 68

Harris v Berkeley (Strategic Land) Ltd [2014] EWHC 3355 (Ch).................................................. 20

Disclaimer and Reliance Clauses.................................................................................................. 68

Transview Properties Ltd v City Site Properties Ltd [2009] EWCA Civ 1255................................ 20

Two Misrepresentation Cases........................................................................................................ 69

Side Letter........................................................................................................................................ 22

FoodCo UK LLP v Henry Boot Developments Ltd [2010] EWHC 358(Ch).................................. 69

Accidental Inclusion....................................................................................................................... 22

Can Foretelling the Future be a Misrepresentation?.................................................................. 69

Contract to be rectified?............................................................................................................... 22

Were False Representations Made?............................................................................................. 69

Chartbrook Ltd v Persimmon Homes Ltd [2010] 1 All ER (Comm) 365, [2009] UKHL 38........... 22

Did the Representations Later Become False?............................................................................ 70

Did a Duty to Correct Arise in This Case?..................................................................................... 70

January 2015......................................................................................................................... 26

Was the Non-Reliance Clause Effective?..................................................................................... 70

Pavilion Property Trustees Ltd v Permira Advisers LLP [2014] EWHC 145(Ch)............................ 26

Edwards v Ashik [2014] EWHC 2454 (Ch)...................................................................................... 71

Presumption of Inducement.......................................................................................................... 71

Clauses 3 to 13................................................................................................................................. 26

Ambiguity Caused by Inclusion of Recital 2 and Clause 14...................................................... 28

K/S Victoria Street v House of Fraser (Stores Management) Ltd [2011] EWCA Civ 904.......... 30

August 2015............................................................................................................................ 74

Summary of Conclusions by the Court......................................................................................... 30

Notices under Section 17 of the Landlord and Tenant (Covenants) Act 1995 – ‘the 1995

Tindall Cobham 1 Ltd v Adda Hotels [2014] EWCA Civ 1215..................................................... 30

Act’ 68 ............................................................................................................................................ 74

25 Agreement void if it restricts operation of the Act............................................................. 32

Recovering Money From Former Tenant or Guarantor of Former Tenant................................ 74

Prescribed Form of Notice and Service........................................................................................ 75

February 2015....................................................................................................................... 36

Too Much Money Demanded by Section 17 Notice75.............................................................. 75

Exempt Supplies of Land:............................................................................................................... 36

Right of former tenant or his guarantor to overriding lease under section 19......................... 76

Group 1 Schedule 9 Value Added Tax Act 1994 (as amended)............................................... 36

Scottish & Newcastle plc v Raguz [2009] 1 All ER 763, HL........................................................... 76

The Option to Tax (Formerly The Election to Waive Exemption) Schedule 10 VATA 1994,

Greene King Plc v Quisine Restaurants Ltd [2012] EWCA Civ 698............................................. 77

Substituted by the Value Added Tax (Buildings and Land) Order 2008 (as amended by

subsequent statutory instruments)................................................................................................. 38

Option Exercised in Error................................................................................................................. 38

Update on Part II Landlord and Tenant Act 1954........................................................................ 80

TC00494: Grenane Properties Limited........................................................................................... 38

Topic 1: Lease Renewal Sought by Joint Tenants in Partnership................................................ 80

Option Exercised Just Before Completion of a Sale................................................................... 40

2) What Section 41A Says............................................................................................................... 80

Evidence of Option Available?..................................................................................................... 41

Lie v Mohile [2014] EWCA Civ 728................................................................................................. 81

Purchase Price Always Exclusive of VAT?...................................................................................... 41

(B) Was Section 41A at all Relevant to this Case?....................................................................... 81

VAT Position on Leasehold Service Charge Payments on Opted Land.................................... 42

Topic 2: Possession Ground (c) and Extent of the Holding......................................................... 82

Background Note............................................................................................................................ 82

10 September 2015................................................................................................................. 80

March 2015............................................................................................................................. 44

Horne & Meredith Properties v Cox & Billingsley [2014] EWCA Civ 423.................................... 82

Dealing with the person whose tenant covenants are the subject of the guarantee.......... 44

Ascertaining the Extent of the Holding......................................................................................... 83

Topland Portfolio No.1 Ltd v Smith News Trading Ltd [2014] EWCA Civ 18............................... 45

The Two Questions to be Considered under section 30(1)(c)................................................... 83

Topland’s first Contention............................................................................................................... 46

Had the Judge Adopted the Correct Approach?..................................................................... 84

Topland’s second contention........................................................................................................ 47

Topland’s third contention: giving time........................................................................................ 48

April 2015.................................................................................................................................. 50

Background Note to Youseffi v Mussellwhite............................................................................... 50

Executory & Composite Contracts............................................................................................... 86

Section 30 Opposition by landlord to application for new tenancy........................................ 51

Entire Agreement Clauses.............................................................................................................. 87

Youseffi v Mussellwhite [2014] EWCA Civ 885............................................................................... 52

Inntrepreneur Pub Co (GL) v East Crown Ltd [2000] All ER (D) 1100......................................... 87

Was the judge’s approach correct on Ground A?.................................................................... 53

A Binding Agreement?................................................................................................................... 87

Ground C & The Lessee’s Refusal to Allow Access..................................................................... 53

Side Letters to Leases...................................................................................................................... 88

Ground C and Breach of user covenant..................................................................................... 53

Lotteryking Ltd v AMEC Properties Ltd [1995] 28 EG 104, ChD.................................................. 88

Final Result........................................................................................................................................ 54

System Floors Ltd v Ruralpride Ltd [1995] 07 EG 125, CA............................................................ 89

May 2015.................................................................................................................................. 56

Landlord and Tenant Covenants in Side Agreement................................................................. 90

Siemens Hearing Instruments Ltd v Friends Life Ltd [2014] EWCA Civ 382................................ 56

Hearing Instruments Ltd v Friends Life Ltd [2014] EWCA Civ 382................................................ 57

Decision on the Validity of the Break Notice............................................................................... 57

Cases that are Relevant to the Issues Raised in Siemens........................................................... 58

Scholl Mfg Co Ltd v Clifton (Slim-Line) Ltd [1967] 1 Ch 41.......................................................... 58

Garston v Scottish Widows Fund and Life Assurance Society [1996] 1 WLR 834, Ch D, upheld

by the Court of Appeal at [1998] 3 All ER 596.............................................................................. 59

Purpose of the Siemens Proviso..................................................................................................... 60

10 October 2015........................................................................................................................ 86 Sideletters......................................................................................................................................... 86

Section 2........................................................................................................................................... 86

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Chapter 1 November 2014

Statutory Notices under Part II Sections 24 to 28 Landlord and Tenant Act 1954 & Agreements to Surrender The following note relates to business tenancies that are subject to the provisions of Part II of the 1954 Act. Continuation and renewal of tenancies: s 24 Section 24 provides that a [business] tenancy to which Part II applies shall not come to an end unless terminated in accordance with the provisions of this Part; and, subject to the relevant provisions of this Act, either the tenant or the landlord under such a tenancy may apply to the court for an order for the grant of a new tenancy

(a) if the landlord has given section 25 notice to terminate the tenancy, or

(b)

if the tenant has made a section 26 request for a new tenancy.

Termination of tenancy by the landlord: s 25 Section 25 enables the landlord to terminate such a tenancy by a notice given to the tenant in the prescribed form specifying the date at which the tenancy is to come to an end (hereinafter referred to as “the date of termination”). As a rule, a s. 25 notice shall not have effect unless it is given not more than twelve nor less than six months before the date of termination specified therein. Tenant’s request for a new tenancy: s 26 Section 26 stipulates that a tenant’s request for a new tenancy may be made by notice in the prescribed form where the current tenancy is a tenancy granted for a fixed term exceeding one year, whether or not continued by s. 24, or granted for a fixed term and thereafter from year to year. A tenant’s request for a new tenancy shall be for a tenancy beginning with such date, not more than twelve nor less than six months after the making of the request, as may be specified therein: Provided that the said date shall not be earlier than the date on which apart from this Act the current tenancy would come to an end by effluxion of time or could be brought to an end by notice to quit given by the tenant.

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Within two months of the making of a tenantâ&#x20AC;&#x2122;s request for a new tenancy, the landlord may give notice to the tenant under s. 26(6) that he will oppose an application to the court for the grant of a new tenancy, and any such notice shall state on which of the grounds mentioned in s. 30 the landlord will oppose the application. Termination by tenant of tenancy for fixed term: s. 27 Where the tenant under a fixed term tenancy to which Part II applies gives to the immediate landlord, not later than three months before the date on which apart from this Act the tenancy would come to an end by effluxion of time, a notice in writing [pursuant to s 27(1)] that the tenant does not desire the tenancy to be continued, s 24 shall not have effect in relation to the tenancy, unless the notice is given before the tenant has been in occupation in right of the tenancy for one month. Section 24 shall not have effect in relation to a fixed term tenancy where the tenant is not in occupation of the demised property at the time when, apart from this Act, the tenancy would come to an end by effluxion of time: s 27(1A)1. A fixed term tenancy which is continuing by virtue of s 24 shall not come to an end by reason only of the tenant ceasing to occupy the demised property but may be brought to an end on any day by not less than three monthsâ&#x20AC;&#x2122; notice in writing [pursuant to s 27(2)] given by the tenant to the immediate landlord, whether the notice is given after the date on which apart from this Act the tenancy would have come to an end, or before that date, but not before the tenant has been in occupation in right of the tenancy for one month. 1

inserted by SI 2003/3096, arts 2, 25(1).

Long Acre Securities Ltd v Electro Acoustic Industries Ltd [1990] 06 EG 103 This case illustrates the overlap between s. 25 and s 27 notices. The landlords gave s. 25 notice to determine the tenancy on 1 March 1989, but the contractual term of the tenancy ended on 25 March 1988. The tenant in response served a s 27(2) notice to determine the tenancy on 24 June 1988, but gave up business occupation on 25 March 1988 (the original term date). The Court of Appeal held that was open to the tenant to serve the s. 27(2) notice. The tenant was not bound to await the expiration of the landlordâ&#x20AC;&#x2122;s much longer notice. However, the tenant was not entitled to bring its liability to pay rent to an immediate end just by quitting the premises on the original contractual term date

of 25 March 1988. That term date was subject to the provisions of section 24(1). The effect was that the tenant was liable to continue to pay rent up to June 24 1988 but not thereafter. Service of Notices under the 1954 Act Section 23 Landlord and Tenant Act 1927 shall apply for the purposes of LTA 1954: s 66(4) of the 1954 Act. Section 23(1) LTA 1927: Service of notices “Any notice, request, demand or other instrument under this Act shall be in writing and may be served on the person on whom it is to be served either personally, or by leaving it for him at his last known place of abode in England or Wales, or by sending it through the post in a registered letter addressed to him there, … and in the case of a notice to a landlord, the person on whom it is to be served shall include any agent of the landlord duly authorised in that behalf.” In the context of the 1954 Act, the term ‘place of abode’ includes a business address and is not confined to a personal residence: Price v West London Investment Building Society [1964] 2 All ER 318, CA. References in s 23(1) to registered post include recorded delivery: s 1 Recorded Delivery Service Act 1962.

Valid Agreements to Surrender under s 38A(2) Any agreement relating to a tenancy to which this Part of this Act applies (whether contained in the instrument creating the tenancy or not) shall be void (except as provided by section 38A of this Act) in so far as it purports to preclude the tenant from making an application or request under this Part of this Act or provides for the termination or the surrender of the tenancy in the event of his making such an application or request or for the imposition of any penalty or disability on the tenant in that event: section 38(1). The persons who are the landlord and the tenant in relation to a tenancy to which Part II applies may agree that the tenancy shall be surrendered on such date or in such circumstances as may be specified in the agreement and on such terms (if any) as may be so specified: s 38A(2). An agreement under section 38A(2) above shall be void unless

(a) the landlord has served on the tenant a notice (that an Agreement to

Surrender a Business Tenancy is to be Made) in the form, or substantially in

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the form, set out in Schedule 3 to the 2003 Order; and

(b) the requirements specified in Schedule 4 to that Order are met.

The Schedule 4 requirements include – 1) Either

The Schedule 3 notice must be served on the tenant not less than 14 days

before the tenant enters into the agreement [to surrender] under s. 38A(2),

or (if earlier) becomes contractually bound to do so; and the tenant, or

a person duly authorised by him to do so, before the tenant enters into the

said agreement to surrender, or (if earlier) becomes contractually bound

to do so, make a declaration in the form, or substantially in the form, set out

in paragraph 6; or

If less than 14 days notice is given, the tenant’s declaration has to be a

statutory declaration in the form, or substantially in the form, set out in

paragraph 7.

Ultimate Leisure Ltd v Tindle [2007] All ER (D) 399 (Oct) The freeholder of a property granted an option to purchase its freehold reversion to the Defendants as grantee. Clause 4.1 of the option provided that the lessee of part of the property (who was not the grantee) ‘should surrender its interest in the leasehold property to the seller such surrender to be effective in accordance with the terms of an agreed form of deed of surrender’. Clause 10 provided that the sale of the property by the freeholder to the Defendants was to be free from encumbrances. The Defendants exercised the option, but the lessee refused to surrender its tenancy. The Court of Appeal held that –

• The effect of s 38(1) was to render void any obligation owed by the lessee to

clause 4.1 was unenforceable by the freeholder against the lessee.

• Section 38(1) did not preclude the lessee from executing a deed of surrender if

the freeholder to execute the surrender of its leasehold interest. Therefore,

it chose to do so.

• The obligation to surrender in clause 4.1 did not purport to exclude the lessee

from making a request for a new tenancy.

• The seller’s obligation to transfer the freehold in accordance with clause 10 was not rendered void by s 38(1) because this obligation did not purport to exclude the second claimant from making application or request for a new tenancy, or to require a termination of that tenancy. • The freeholder’s failure to comply with its obligation under clause 10 was not excused by its inability to obtain a surrender from the lessee.

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Chapter 2 December 2014

Overage Payments 1

Simply stated, overage is an obligation to pay an additional sum of money if

and when certain conditions are satisfied; for example, if land is sold off at one

price and the seller reserves the right to an additional payment representing a

share in the increase in the value of the transferred land attributable to a

specified change of circumstance.

1.1 The payment trigger needs to be carefully defined. For instance, if the

payment is owed on the grant of planning permission, the possibility should not

be overlooked that the permission might later become impossible to

implement, leaving the purchaser with the obligation to make the

payment, but with the loss of development profits (Johnson v Secretary of

State for Communities and Local Government [2007] All ER (D) 58 (Jun)).

Equally, the condition needs to make clear whether full planning permission

is required or outline permission would suffice to trigger the payment obligation

(Castlebay Ltd v Asquith Properties Ltd [2005] EWCA Civ 1734). 1.1.1 In Walker v Kenley [2008] EWHC 370 (Ch), the overage payment was triggered

if planning permission was granted to develop the property as residential flats.

However, it did not extend to permission granted to build holiday

apartments. 1.2 The conveyancer is under a duty to explain the scope of the overage

provisions. For instance, in Titanic Investments Ltd and others v Macfarlanes (a

firm) [1998] All ER (D) 682, the Solicitors acting for the owners of adjoining

land were held to have been negligent for failing to advise their clients on

certain overage provisions contained in an option agreement: namely –

• a £12.1 million purchase price based on an agreed 765.0 net acre and a net

developable acreage (NDA) of 21.7 acres;

• with provision that if detailed planning permission pursuant to outline

planning consent number 15555 was granted to increase the NDA and

the number of units, then the additional acreage (developable) was to be

valued at the then current market value and 50% of that figure was to be

paid to the developer. 16

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The client should have been told that any additional acreage could only be

taken into account if the additional NDA arose out of detailed planning

consent pursuant to the outline consent number 15555; and that any additional

NDA arising out of other or subsequent planning applications would not give

rise to any overage payments.

1.3 The overage period, in which the payment obligation might arise, should be

specified. See Mayor and Burgesses of the London Borough of Barnet v Barnet

Football Club Holdings Ltd [2004] EWCA Civ 1191, where the vendor

inadvertently included a 10-year time limit in the agreement.

1.4 A carefully drafted overage will make provision for calculation of the overage

payment. A typical example is the difference in the value of the land with and

without planning permission at a defined date.

Securing the Payment (A Non-Exhaustive List)

2.1 In Akasuc Enterprise Limited v Farmar & Shirreff [2003] EWHC 1275 (Ch), the

seller’s Solicitor was negligent for having exchanged contracts without putting in place mechanisms to secure security for the overage provisions.

2.2 For instance, covenants to make overage payments in respect of freehold

land are positive covenants and, as a rule, the burden of such covenants

cannot be directly enforced against an original covenantor’s successors in

title. Furthermore, the seller might have retained no land to which the benefit

of the covenant has been annexed, so its successors in title would then be

unable to enforce the overage covenant.

A mere positive covenant, without any further security, would leave the

covenantee with an action to recover the debt against the original covenantor

in the event that the overage payment is triggered, even if the covenantor has

parted with its interest in the land.

2.2.1 One indirect way of enforcing such a positive covenant is to require the buyer

to enter on its title a Land Registry restriction requiring the seller’s certificate to

be obtained before any subsequent purchase of the land can be registered.

One possible purpose of such a restriction is to ensure that the covenantor’s

successors in title, upon each purchase, enter into a deed of covenant with the

covenantee to observe the overage obligation. In the absence of such a

restriction, the requirement for a fresh deed of covenant may be overlooked.

However, such successors may not want to be bound by the overage

obligation.

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19 97043374.indd 1

10/02/2015 11:29

2.3 Another possibility is to annex a right of entry to a rentcharge in order to

enforce the positive overage covenant: see section 1(2)(e) and s 4(3) Law of

Property Act 1925.

2.4 Other options for securing an overage payment obligation are beyond the

scope of this briefing.

Three Cases Harris v Berkeley (Strategic Land) Ltd [2014] EWHC 3355 (Ch) A question arose on the interpretation of an overage provision in a contract for sale as to whether 60 units with associated communal/care facilities (Use Class 2) were “units of residential accommodation”. The term ‘units’ was defined to mean, in essence, units of single dwellings of residential accommodation permitted to be constructed by the planning authority under planning permission. The Court held that the C units were “units of residential accommodation” because

• They were undoubtedly units: they had their own doors and could be

separated in terms of occupation and use.

• They were not only parts of a greater unit.

• They were areas of residential accommodation, as they provided

accommodation and their character was residential.

• The building having other facilities, such as a café, lounge and a hairdresser, did

not alter this conclusion.

Transview Properties Ltd v City Site Properties Ltd [2009] EWCA Civ 1255 City Site entered into an agreement for sale of a substantial London office block to its head lessee, Transview. It was anticipated that the use of the block would change to residential use. Consequently, Transview was obliged to make overage payments to City Site if it re-sold the property at a profit before the grant of planning permission, or if City Site obtained planning permission for residential development of the property. It was anticipated that the overage when payable would amount to at least £2.5m.

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The overage payment was secured by a second charge over the property in favour of the seller. Under a separate provision (clause 12), the buyer was obliged to pay off its rent arrears by six equal monthly instalments over the six-month period following completion. Transview did not make the required payments within this period. However, it did pay off the arrears before the seller had applied for planning permission. Side Letter The parties orally agreed that, through side letters, Transview would be released from its contingent liability for overage if it paid off its rent arrears within this six-month period. The intention of the parties had been to deal with overage abatement in side letters and not in the sale contract. Accidental Inclusion An overage abatement provision had accidentally been inserted into the second draft of the contract for sale by City Siteâ&#x20AC;&#x2122;s Solicitors, but not the exchanged version, in terms that as long as the rent arrears were paid before the seller made the planning application the Buyer would cease to be liable to make the overage payment. In any event, this clause did not reflect the partiesâ&#x20AC;&#x2122; earlier oral agreement as to the making of the payments within the said six-month period. Contract to be rectified? The Court of Appeal confirmed that the sale contract could not be rectified so as to include an overage abatement provision that extended the six-month period for payment. Therefore, Transview was not released from the overage liability because it had not paid off the rent arrears in the agreed six-month period.

Chartbrook Ltd v Persimmon Homes Ltd [2010] 1 All ER (Comm) 365, [2009] UKHL 38 Chartbrook and Persimmon entered into an agreement for the development of a site owned by Chartbrook. Persimmon was obliged to obtain planning permission for the construction of a mixed residential and commercial development (including flats). Persimmon also had the power to require Chartbrook to grant leases of the completed flats. 22

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The Price consisted of two elements: the Total Residential Land Value and the Balancing Payment. “The Balancing Payment” consisted of the “Additional Residential Payment,” which was defined as:

“23.4% of the price achieved for each Residential Unit in excess of the Minimum

Guaranteed Residential Unit Value less the Costs and Incentives.”

Residential Unit meant a flat. The Minimum Guaranteed Residential Unit Value (“MGRUV”) meant the Total Residential Land Value divided by the number of flats. Costs and Incentives (“C & I”) was defined as the additional expense which Persimmon might have to incur to induce someone to buy a flat; e.g., by providing fittings better than specification or paying legal expenses. Chartbrook contended that the ARP or Balancing Payment was to be calculated by taking take the price achieved, deducting the MGRUV and the C & I, and then calculating 23.4% of the result. However, the House of Lords disagreed with this contention, pointing out that the purpose of the overage provision was to allow for the possibility of an increase in the price if the market rose and the flats sold for more than expected. Therefore, this definition ought to be corrected to read:

“[ARP]” means the amount (if any) by which 23.4% of the price achieved for each

Residential Unit is in excess of the [MGRUV] less the [C&I].”

Lord Hoffmann explained

“The term ‘Minimum Guaranteed Residential Unit Value’, defined by reference

to Total Residential Land Value, strongly suggests that this was to be a guaranteed

minimum payment for the land value in respect of an individual flat. A

guaranteed minimum payment connotes the possibility of a larger payment

which, depending upon some contingency, may or may not fall due. Hence the

term ‘Additional Residential Payment’...

“On Chartbrook’s construction, there is virtually no element of contingency at all.

ARP is payable in every case in which the flat sells for more than £53,438” [which

was the amount of the MGRUV].

This interpretation meant that the ARP would have been just over £5.5 million. If the House had adopted Chartbrook’s interpretation, the ARP would have been just over £9.1 million. 24

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Chapter 3 January 2015

The overriding rules established by the Landlord and Tenant (Covenants) Act 1995 (‘the 1995 Act’) in relation to authorised guarantee agreements are:

i) that an AGA cannot require the assignor to guarantee the performance of

tenant covenants by anyone other than the assignee; and

ii) cannot impose on the assignor any liability that continues after the release of

the assignee from those covenants: s 16(4).

Pavilion Property Trustees Ltd v Permira Advisers LLP [2014] EWHC 145 (Ch) The underlease in question was dated 10 July 2008. The relevant tenant covenant required landlord’s consent to assign the lease and allowed the landlord, as a condition of such consent, to require the assignor to enter into an “authorised guarantee agreement” in accordance with a form of guarantee set out in Schedule 3 to the lease. On 30 April 2009, licence to assign the lease was given to the Second Defendant. On the same day, the Landlord and the Second Defendant entered into a further document that was in effect a guarantee, albeit not in the form set out in Schedule 3. The ‘guarantee’ started by defining various terms, including –

• “Assignee” was defined to mean the Second Defendant;

• “Next Assignee” was defined to mean: “the assignee to whom the Assignee

lawfully assigns the Lease in accordance with the provisions of clause 5.17

(Dealings with this Lease) of the Lease”.

Clauses 3 to 13 Morgan J concluded that if one paid attention to the language of clauses 3 to 13, the guarantee appeared to be in relation to the obligations of the Assignee only. For instance, clause 3 read -

“3 GUARANTEE If the Assignee fails to comply with any of the Lease Provisions, the Guarantor guarantees that it shall, on demand by the Landlord, immediately perform and discharge the obligations of the Assignee under them. Ambiguity Caused by Inclusion of Recital 2 and Clause 14 The second Recital and clause 14 read respectively – “It was a condition of the Landlord’s consent that the Guarantor guarantee the Assignee’s obligation and that this extended to the obligations of the Next Assignee.” “14 DURATION OF GUARANTEE The guarantee in this Guarantee shall remain in full force and effect until the earlier of –

(a) the determination of the Term; or (b) assignment of the Lease by the Next Assignee in accordance with the

provisions of clause 5.17 (Dealings with this Lease) of the lease;

Lease by virtue of s 11(2) Landlord and Tenant (Covenants) Act 1995,

but without prejudice to any accrued right of action or remedy of the Landlord.” Morgan J observed that the language used in the second recital and in clause 14 suggested that the guarantee had a wider scope. 1. The meaning of the second recital was reasonably clear in so far as it stated that the parties had agreed that the guarantee would extend to cover the obligations of the Next Assignee. However, the recital was less clear as to whether all, or only some, of the references to “the Assignee” in clauses 3 to 13 should be read as “the Assignee and/or the next Assignee”. 2. Clause 14 was itself open to two possible interpretations:

(a) If the guarantee was construed to be limited to the obligations of the

Assignee then it was undoubtedly valid.

(b) Alternatively, if the guarantee was held to extend to the obligations of the

Assignee and the Next Assignee, then the guarantee was either void in its

entirety or void as to some part, if one could [not] sever the provisions which

imposed a liability in relation to the obligations of the Next Assignee. This

would have been as a result of the effect of sections 5, 24 and 25 of the

1995 Act. 28

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(The word ‘not’ was seemingly omitted from the reported judgment.)

Faced with this ambiguity, the court preferred to construe the guarantee in a way which would produce the result that the guarantee, or a part of it, was valid. Accordingly, the guarantee was construed in accordance with the clear wording of clauses 3 to 13, so that the guarantee extended to the liability of the Assignee but not to the liability of the Next Assignee; and that all of the references in clauses 3 to 13 to “the Assignee” meant what they said, and no more. If this interpretation was wrong, then it would alternatively have been possible to save part of the guarantee so that it had more limited scope, in relation to the Assignee only, by severing the parts which could not have effect by reason of the 1995 Act. Therefore, clause 14 could have been severed from the guarantee by court order. Either way, the court stressed that the guarantee was a valid and effective guarantee in relation to the obligations of the Assignee only.

K/S Victoria Street v House of Fraser (Stores Management) Ltd [2011] EWCA Civ 904 Summary of Conclusions by the Court “[53] Reverting to the general effect of the 1995 Act on existing guarantors, our conclusion, as explained above is that the effect of ss 24 and 25 is that:

“i) an existing or contracting guarantor of a tenant cannot validly be required

to commit himself in advance to guarantee the liability of a future assignee,

ii)

subject to (iii) and (iv), a guarantor of an assignor cannot validly guarantee

the liability of the assignor’s assignee,

iii)

such a guarantor can validly do so by being party to an AGA which

otherwise complies with section 16, and

iv) such a guarantor can in any event validly guarantee the liability of an

assignee on a further assignment.

Tindall Cobham 1 Ltd v Adda Hotels [2014] EWCA Civ 1215 Two companies were original lessees under ten leases of hotels. Their parent company was the guarantor under those leases. In July 2014, the two companied assigned each of nine of those leases to nine companies without landlord’s consent.

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All the assignees concerned were associated companies in the Hilton Group. Clause 3.14.6, with emphasis added, provided that – “The Tenant shall not assign this Lease to any Associated Company of the Tenant without the prior consent of the Landlord Provided Always that for the purposes of Section 19(1A) of the Landlord and Tenant Covenants Act 1995, the Landlord shall be entitled to impose any or all of the following conditions set out in sub clauses (a) and (b) below:

(a) that the Tenant shall provide the Landlord with notice of any such

(b) that on any such assignment, the Tenant shall procure that the Guarantor

assignment within 10 Working Days of completion of the same;

and any other guarantor of the Tenant shall covenant by deed with the

Landlord in the terms set out in the Sixth Schedule at the Tenant’s sole cost

and subject to the Tenant’s compliance with such conditions the Landlords

consent shall be given”

The judge in the High Court had accepted the landlord’s contention that one of the conditions of giving consent (under sub-clause (b) of cl 3.14.6) entitled the landlord to require the assignors to procure a new guarantor (approved by the landlords) in place of the parent companies whose own guarantee would expire on the next lawful assignment of the leases. However, the Court of Appeal ruled that, as a matter of ordinary language, the reference to “the Guarantor and any other guarantor of the Tenant” denoted the persons who at the time of the assignment were the guarantors of the tenant’s obligations under the lease. These words did not include a requirement for any new guarantor to be approved by the landlord and it was not obvious why one should be implied. Accordingly, the condition imposed on the tenant was no more than that he should procure a new guarantee from those persons. The Effect of S 25 The material parts of section 25, with emphasis added, are – 25 Agreement void if it restricts operation of the Act (1) Any agreement relating to a tenancy, is void to the extent that

(a) it would apart from this section have effect to exclude, modify or

otherwise frustrate the operation of any provision of this Act

(b) ...

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(2)

To the extent that an agreement relating to a tenancy constitutes a covenant

(whether absolute or qualified) against the assignment ... of the premises

demised by the tenancy or any part of them -

(a) the agreement is not void by virtue of subsection (1) by reason only of the

fact that as such the covenant prohibits or restricts any such

assignment ...; but

(b) paragraph (a) above does not otherwise affect the operation of that

subsection in relation to the agreement (and in particular does not

preclude its application to the agreement to the extent that it purports to

regulate the giving of, or the making of any application for, consent to

any such assignment ...). The Court of Appeal held that s 25 applied to the whole of the proviso, not just to sub-clause (b) thereof. Patten LJ, delivering the Court’s judgment, observed “It seems to me that a condition which requires the tenant to procure a continuing guarantee from an existing guarantor does have the effect identified in s 25(1) (a). Section 25(1) is concerned to invalidate agreements which would have the s 25(1)(a) consequences. It is not limited to the exercise of the rights which such agreements contain. The ability of the landlords to bring about one of the prohibited consequences by the exercise of those rights is enough in my view to bring the contractual provision conferring those rights within the ambit of the section. I do not therefore accept [the tenants’] first argument that s.25(1) is only engaged when the power to impose condition (b) is exercised.” Moreover, the Court of Appeal found that it was not possible only to remove subclause (b) of the proviso, as both conditions (a) and (b) were parts of a composite, interdependent proviso under which the landlords must consent to the assignment if the conditions were fulfilled. This approach respected the structure of the contract and gave effect to the provisions of s 25(1), with the effect that the whole of the proviso was avoided by the legislation. This realistically treated the proviso as a complete term of the contract (which is what it was) and left cl 3.14.6 as a simple qualified covenant against assignment which could be operated according to its terms.

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Chapter 4 February 2015

Exempt Supplies of Land: 1.

Group 1 Schedule 9 Value Added Tax Act 1994 (as amended)

1.1 Group 1 sets out when supplies of land are exempt (so that VAT is not charged

on such supplies, unless the option to tax is exercised: see below).

1.2 The basic rule is that the grant of any interest in or right over land or of any

licence to occupy land is an exempt VAT supply, unless the grant falls within

a number of exceptions that are standard-rated supplies as set out in the

Schedule.

1.2.1

The term grant includes an assignment or surrender: Note 1 to Group 1

Schedule 9 VATA 1994. 2.

Pursuant to the Sixth European VAT Directive, article 13(b), â&#x20AC;&#x153;the leasing or letting

of immovable propertyâ&#x20AC;? is an exempt supply. Unless the landlord has opted to

tax, then VAT is not chargeable on the rent payable by the tenant.

2.1 It follows that the assignment or surrender of a lease are generally exempt supplies.

2.1.1

Where a landlord pays consideration for the surrender by the tenant of

an interest in land, the surrender is a supply deemed to be made by

the tenant and is exempt unless the tenant has opted to tax.

2.1.2

The assignment of a lease is deemed an exempt supply made the

outgoing tenant to the assignee, unless the assignor has opted to tax.

2.1.3

It is beyond the scope of this note to consider reverse surrenders, reverse assignments and reverse premiums.

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£39,500 Claim £39,500 £39,500 Settled £39,500

3. The Option to Tax (Formerly The Election to Waive Exemption) Schedule 10 VATA 1994, Substituted by the Value Added Tax (Buildings and Land) Order 2008 (as amended by subsequent statutory instruments) 3.1 The effect of exercising the option is that grants (e.g. dispositions) of land that

were previously exempt now become taxable: para 2. The person exercising the option is called the opter.

3.2 The law remains that an option to tax has effect in relation to the land specified

in the option: paragraph 18(1).

3.3 An option to tax has effect from (a) the start of the day on which it is exercised,

or (b) the start of any later day specified in the option: paragraph 19(1).

3.4 An option to tax has effect only if notification of the option is given to HMRC (a)

before the end of the period of 30 days beginning with the day on which the

option was exercised, or (b) before the end of such longer period beginning

with that day as the Revenue may in any particular case allow: paragraphs

20(1) & (2). Revenue and Customs recommend that recommend that the opter

“keep a written record, showing clear details of the land or buildings you are

opting to tax, and the date you made your decision” (para 4.1 VAT Notice

742A).

3.5 In TC03706: Honduras Wharf Ltd, the First-tier Tribunal (Tax) said

“We accept that it is necessary to have a ‘positive intention’ to make a valid

option to tax a property such as Pace House and that evidence as to what

was in the taxpayer’s mind at the time when an election is signed can be

difficult to deduce.”

Option Exercised in Error

TC00494: Grenane Properties Limited This appeal concerned the sale of a piece of development land. HRMC officers determined that in relation to the sale, the Appellant had failed to charge output tax, even though there was a pre-existing election to tax under paragraph 2(1) Schedule 10 VAT Act 1994. The Court - being the First-tier Tribunal (Tax) - accepted that the election was made as the result of a misunderstanding between the Appellant company’s director and the company’s Accountants.

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In this case, the Court accepted that the election to tax (using the former terminology) had been made, even though it had made no commercial sense to do so. Furthermore, a notification of election had been made. The Tribunal also accepted that the Appellant did not treat the Property as VAT elected after the notification had been made. Accordingly, the Appellant had not actually intended to make the election, and for this reason no valid election had been made.

Option Exercised Just Before Completion of a Sale

Marlow Gardner & Cooke Ltd v Commissioner of Revenue & Customs (2006) EWHC 1612 (Ch) The seller of commercial premises opted to tax them before completion but notified HMRC of its decision afterwards. The sale price was ÂŁ400,000 plus VAT. At the time of the case, the legislation then in force called opting to tax an election to waive the exemption for VAT. The High Court held that an election itself does not have to observe any formalities. What is required is that a sufficiently clear indication of intention to elect has to be sufficiently manifested or (so far as required) communicated. An election is a two-stage process; the decision to exercise the option and then the notification to HMRC within the period of 30 days beginning with the date on which the election is made. The election has no effect until the notification is made. The effect of a valid notification within 30 days is to make the effect of the election retrospective to the date of the election. Therefore, the post-completion notification by the seller was valid, notwithstanding that at the time it was made after the seller had disposed of the land. [Note: The same reasoning would apply to the exercise of an option to tax under current legislation.]

6. Evidence of Option Available? Percival observes that it is sometimes difficult to establish whether the option to tax has been exercised due to the difficulty for the buyer of obtaining all relevant VAT records, for example when buying from a liquidator or receiver, or when there is a quick deal: Weightmans’ Commercial Property Focus, November 2009.

Purchase Price Always Exclusive of VAT?

CLP Holding Company Ltd v Singh [2014] EWCA Civ 1103 The contract for the sale of a freehold property was based on the Standard Conditions of Sale (4th edition). Clause 1.4 of the Conditions provided that, ‘An obligation to pay money includes an obligation to pay any value added tax chargeable in respect of that payment’ and ‘All sums made payable by the contract are exclusive of value added tax’. The contract price was £130,000 and the sale was completed in 2006. However, the seller, as a VAT registered business, had opted to waive the VAT exemption in respect of the property in 1989. In 2007, HMRC raised a notice of assessment requiring payment of VAT on the transaction. The issue was whether the seller could compel the buyer to pay to the seller VAT at the then prevailing rate of 17.5%. The Court of Appeal ruled that clause 1.4 of the general conditions, read in isolation from the remainder of the contract, was susceptible of only one reasonable interpretation, namely that any liability for VAT should fall on the buyer. However, the contract had to be interpreted as a whole in the light of all of the circumstances of the parties’ relationship and the relevant facts surrounding the transaction as known to them. The Court, in so construing the contract, had little doubt that the parties had intended that nothing was or could become payable by the defendants over and above the specified purchase price of £130,000. One of the relevant factors was that the purchase price had been described as £130,000 but the contract did not specifically indicate that this price was exclusive of VAT.

VAT Position on Leasehold Service Charge Payments on Opted Land

8.1 Where a landlord has opted to tax commercial premises, the question of

whether VAT is chargeable on any sums not consisting of rent that are payable

by the tenant to the landlord is no longer straightforward as a result of the case

of Field Fisher Waterhouse LLP v Revenue and Customs Commissioners C-392/11, where the Court of Justice of the European Union ruled that the VAT

Directive must be interpreted as meaning that the leasing of immovable

property and the supplies of services linked to that leasing may constitute a

single supply from the point of view of VAT. It is for the referring (national) court

to determine whether, in the light of the interpretative guidance provided

by the CJEU in the Field Fisher judgment and having regard to the particular

circumstances of the case, the transactions in question are so closely linked to

each other that they must be regarded as constituting a single supply of the

leasing of immovable property.

8.2 The problem is illustrated by the case of Honourable Society of the Middle

Temple v Revenue and Customs Commissioners [2013] UKUT 0250 (TCC), where

the landlord opted to tax but it did not charge VAT on charges made to its

tenants for the supply of cold water, on the basis that such supplies are

ordinarily zero-rated.

See paragraph 60 for the numerous principles derived from CJEU cases. In this case, applying those principles, the First-tier Tribunal (Tax) ruled that because the tenants had no practical alternative to obtaining their supplies of water from their landlord, it followed that they could not choose to obtain water by way of a separate supply by a third party. Consequently, in this case the premises and the water were inseparable and indispensable, so that those elements had to be considered to be so closely linked that they formed, objectively, a single indivisible economic supply which it would be artificial to split. That supply was a single supply of the leasing of immovable property which was chargeable to VAT by virtue of the landlordâ&#x20AC;&#x2122;s option to tax.

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Chapter 5 March 2015

When dealing with the person whose tenant covenants are the subject of the guarantee 1

When dealing with the person whose tenant covenants are the subject of the

guarantee, the landlord has to be careful not to discharge the guarantor from

its own covenants. The general rule in this respect was set out in Holme v

Brunskill [1878] 3 QBD 495: if the principal debtor and creditor enter into an

agreement to alter the terms of a contract which is guaranteed, but do

so without the consent of the guarantor, the guarantor will be discharged from

its liability under the guarantee, provided the alteration is either substantial or

prejudicial to the guarantor.

The guarantorâ&#x20AC;&#x2122;s liability would be unaffected under this rule if the alteration was

insubstantial or if the guarantor had consented to the variation.

Consequently, the general rule is that a guarantor is only liable in respect of the

obligation that he guaranteed: St Microelectronics NV v Condor Insurance Ltd

[2006] EWHC 977 (Comm).

Guarantors covenants are usually accompanied by provisos intended to limit

or exclude the effect of the Holme v Brunskill rule in terms that the guarantorâ&#x20AC;&#x2122;s

liability will not be discharged or diminished on the happening of certain

events, such as (i) any time, indulgence or concession granted by the landlord

to the tenant, or any neglect or forbearance in enforcing breaches of tenant

covenant; (e.g. giving the tenant time for making payments owing or not

enforcing the payment) (ii) a variation in the terms of the lease; or (iii) the

liquidation or bankruptcy of the tenant.

4 In Howard de Walden Estates Ltd v Pasta Place Ltd [1995] 1 EGLR 79, the

defendants to the lease guaranteed the tenant covenants specified therein

or in any supplemental deed or document; and the landlord initially refused to

allow the tenant to sell wine as part of its delicatessen business. The proviso

to the guarantorâ&#x20AC;&#x2122;s covenants contained an agreement that any neglect or

forbearance of the landlord in seeking to enforce breaches of tenant covenant

contained herein or in any supplemental deed or document did not release

the guarantor from its liability. The landlord subsequently gave licence to the

tenants to sell Italian wine as ancillary to customer’s meal and for consumption

on the premises. The Court held that the licence might lead to an increase in

the rent on review. It further held that the licences fell outside the proviso,

which was designed for a breach or an apprehended breach of covenant

by the tenant. There was no question in this case of any such breaches having

occurred. Consequently, the guarantor was released from its covenant.

4.1 In Topland (referred to below), the Court of Appeal regarded the proviso in

Pasta Place to be substantially similar to the proviso in clause 1 of the

‘Topland’ lease. 5

Section 16(8) Landlord and Tenant (Covenants) Act 1995 provides that the

rules of law relating to guarantees (and in particular those relating to the

release of sureties) are, subject to its terms, applicable in relation to any

authorised guarantee agreement (AGA) as in relation to any other guarantee

agreement. The context of section 16 is an AGA entered into by an assigning

tenant with respect to the performance of the tenant covenants by the

assignee.

Topland Portfolio No.1 Ltd v Smith News Trading Ltd [2014] EWCA Civ 18 In 1987, the lessor under a commercial lease, whose 35-year term commenced in 1981, granted a licence to the lessee to make certain alterations to the demised premises. The lessee’s guarantor, being also its parent company, was not a party to the licence and had not consented to it. In 2001, the claimant (Topland) acquired the lessor’s reversion. On 5 May 2011, the lessee went into administration and the administrators disclaimed the lease. The Fifth Schedule sets out a number of covenants by the Surety. The key provision was clause 1, which provided (with emphasis added): “...that if the Lessee shall make default in the payment of the rent herein reserved or any part thereof or in observing and performing the said covenants and conditions or any of them the Surety will pay and make good to the Lessor on demand all loss damage costs and expenses thereby arising or incurred by the Lessor PROVIDED ALWAYS and it is agreed that notwithstanding any neglect or forbearance on the part of the Lessor to obtain payment of the rent herein reserved or any part thereof when the same shall become payable or to enforce observance or performance

of any of the covenants or conditions on the Lessees part to be observed and performed or any time which may be given by the Lessor to the Lessee or that the Lessee may have ceased to exist shall not release or exonerate or in any way affect the liability of the Surety under this covenant”. Topland’s first Contention

• Topland argued that the licence did not increase the Lessee’s obligations.

• This argument principally relied on the definition of “the demised premises”

in clause 1(b)(v) of the Lease, which incorporated any additions, alterations

and improvements thereto. Furthermore, there were a number of such

references in the lease to “the demised premises”.

• Accordingly, the Surety must be taken to have appreciated that all of the

Lessee’s covenants relating to the Property (including those relating to the

tenant’s obligations in clauses 5(a), 6(a), 7 and 8 to repair, decorate and yield

up) would also apply to the Property as added to, altered or improved.

The Court of Appeal, however, ruled that –

(i) so far as the burdens imposed on the Lessee by clauses 5(a), 6(a), 7 and 8 were

concerned, the Surety would have known at the time when it became party

to the Lease that those burdens could not be increased as a result of additions,

alterations or improvements to the demised premises, because no such

additions, alterations or improvements could be made unless the Lessor

consented outside the framework of the Lease. In that event, the Surety was

entitled to expect that its consent would be sought as well.

(ii) Accordingly, the Licence had the clear potential, to put it at its lowest, to

increase the obligations on the Lessee, and hence on the Surety in the event of

the Lessee’s default. It followed that, subject to Topland’s second main

contention, the rule in Holme v Brunskill applied.

Topland’s second contention The landlord’s next contention was that the Licence was a forbearance within the proviso. The Court held that

1) The proviso to clause 1 constituted a qualification on the earlier part of the

clause, which set out the lessee’s liability to pay the rent and observe the

tenant’s covenants.

2) The proviso also referred to a default by the Lessee in paying the rent or in

observing or performing any of the Lessee’s covenants.

3) Still further, the clear purpose of the proviso (ignoring the part which was

concerned with the Lessee ceasing to exist) was to ensure that the Surety was

not released by a mere failure on the part of the Lessor to enforce the

covenants in the Lease, whether that failure occurred as a result of “neglect”,

“forbearance” or “any time which may be given”. It was not concerned with

prior authorisation.

4) The word “forbearance” must be construed in its context and in accordance

with the purpose of this provision of the Lease.

5) It appeared that the draftsman intended “neglect”, “forbearance” and “time

… given” to mean different things; although each of these expressions took

colour from the other two as well as from the overall context.

6) Mr Justice Arnold, with whom Sullivan and Hallett LJJ agreed, concluded that -

“Neglect shades into forbearance which shades into giving time. Having regard to the context and purpose of the proviso, I consider that ‘forbearance’ connotes a decision by the landlord not immediately to enforce the observance or performance of a covenant against a tenant who is in breach of that covenant, but rather to tolerate the breach for the time being.”

7) In the present case, the deputy judge had correctly found that there was

no forbearance by the landlord (‘PAT’). The lessee had not been in breach

of the covenant against alteration at the time the licence was agreed, and

accordingly PAT did not decide not to enforce the observance of the

covenant. On the contrary, PAT positively authorised Payless to construct

the Works.

8) The proviso did not apply, so the rule Holme v Brunskill did.

Toplandâ&#x20AC;&#x2122;s third contention: giving time The Court of Appeal rejected the final contention that, even if the Licence was not a forbearance, it amounted to the giving of time by the Lessor to the Lessee, since it postponed the date on which the covenant against alterations was enforced. Again, the essential point was that the Lessee was not in breach of the covenant against alterations when the Licence was agreed. Accordingly, the Licence could not be said to have postponed until a later date the time at which the Lessor was entitled to call upon the Lessee to remove the Works. Rather, it granted the Lessee permission to construct the Works. Furthermore, the covenant the Licence did not give the Lessor an absolute right to require reinstatement of the premises, but only to do so if this was reasonable.

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Chapter 6 April 2015

Background Note to Youseffi v Mussellwhite (a) In Hammersmatch Properties (Welwyn) Ltd v Saint-Gobain Ceramics and

Plastics Ltd [2013] EWHC 1161 (TCC), Mr Justice Ramsey identified two

general principles for establishing whether a repairing covenant required

repairs to be carried out –

“(1) A covenant to keep in good repair and condition is not engaged

unless there exists a state of disrepair, that is a deterioration from some

previous physical condition...

(2)

If there is a state of disrepair it has to be established that the item

is below the standard of repair contemplated by the covenant and, if

so, what remedial work is needed to restore that item to that standard.”

(b) A lease of part of a building should allocate responsibility for repair of the

demised premises and the common parts. As the tenant is typically obliged

to repair the demised premises, the extent of those premises needs to be

clearly identified by the lease and lease plan.

or an improvement. For instance, Denning LJ in Morcom v Campbell-

Johnson [1956] 1 QB 106 said –

“… If the work which is done is the provision of something new for the

benefit for the occupier, that is, properly speaking, an improvement; but if it

is only the replacement of something already there, which has become

dilapidated or worn-out, then, albeit that it is a replacement by its modern

equivalent, it comes within the category of repairs and not improvements”.

(d) A user clause can be stated in positive or negative terms. Contrast clauses

4(12)(a) and 4(19) taken from a lease of a shop that formed the subject of

the dispute in Co-operative Insurance Society Limited v Argyll Stores (1997)

23 EG 141, (1997) 2 WLR 898, (1997) 3 All ER 297, HL.

Clause 4(12)(a) contained a negative user covenant:

“Not to use or suffer to be used the demised premises other than as a retail

store for the sale of food groceries provisions and goods normally sold from

time to time by a retail grocer food supermarkets and food superstores...”

Clause 4(19) was a positive user (aka ‘keep-open’) covenant:

“To keep the demised premises open for retail trade during the usual hours

of business in the locality and the display windows properly dressed in a

suitable manner in keeping with a good class parade of shops.”

(e) The positive covenant in the Youseffi case (below) was not a keep open

(f)

covenant, however. In so far as material, the relevant provisions of the 1954 Act provide as

follows:

“Section 30 Opposition by landlord to application for new tenancy

(1)

The grounds on which a landlord may oppose an application under

subsection (1) of section 24 of this Act are such of the following grounds as may be stated in the landlord’s notice under section 25 of this Act

or, as the case may be, under subsection (6) of section 26 thereof, that

is to say: (a) where under the current tenancy the tenant has any obligations

as respects the repair and maintenance of the holding, that the tenant

ought not to be granted a new tenancy in view of the state of repair of

the holding, being a state resulting from the tenant’s failure to comply

with the said obligations;

(b) that the tenant ought not to be granted a new tenancy in view of his

persistent delay in paying rent which has become due;

that the tenant ought not to be granted a new tenancy in view of

(c)

other substantial breaches by him of his obligations under the

current tenancy, or substantial breaches by him of his obligations under

the current tenancy, or for any other reason connected with the

tenant’s use or management of the holding;…”

Youseffi v Mussellwhite [2014] EWCA Civ 885 The issue in this case was whether the court had correctly granted a possession order on grounds (a) and (c) of section 30. Lady Justice Gloster, with whom Vos and Moore-Bick LLJ agreed, explained the correct approach to be taken by a court considering an application for possession on grounds (a), (b) and/or (c).

“Under s.30(1)(a), the court has to ask itself whether ‘in view of the state of

repair of the holding’, brought about by the tenant’s breach of its obligation

to repair and maintain the holding, the tenant ‘ought not to be granted’ a

new tenancy. This involves the court, for the purposes of this subsection,

focusing exclusively on the state of repair and asking itself whether, looking

forward to the hypothetical new term, ‘the proper interests of the landlord

would be prejudiced’, by continuing in a landlord/tenant relationship with this

particular tenant ...; or, put another way, whether it ‘would be unfair to the

landlord’ ..., having regard to the tenant’s past performances and behaviour

in relation to its obligation to repair and maintain the holding, if the tenant were

to be ‘foisted on the landlord for a new term’ ... The discretion is not

circumscribed in any way other than by the requirement that, in asking itself the

question whether the tenant ‘ought not to be granted’ a new tenancy, the

court has to focus on the state of repair of the holding. A similar approach

applies in relation to the court’s consideration of the question whether the

tenant ‘ought not to be granted’ a new tenancy under s.30(1)(b). In that

case the focus is on the persistent delay in paying rent which has become due

and nothing else. Under s.30(1)(c), however, the approach is broader. The

court, when considering the ‘ought not to be granted’ issue, is entitled to focus

not merely on ‘other substantial breaches’ but also, or alternatively, on ‘any

other reason connected with the tenant’s use or management of the holding.’

Lady Justice Gloster then made the following observation, which is relevant to a court’s determination of whether a fresh tenancy ‘ought not’ to be granted under any of these three subsections.

However, ... I do not consider that it is necessary for the landlord, in order for

him to demonstrate that his interests are prejudiced or that it would be unfair

for a new tenancy to be granted, to prove that the relevant breach adversely

affects the rental income or the value of the reversion - although of course in

many instances this might well be the case...”

Was the judge’s approach correct on Ground A? It was common ground between the parties that, for the purposes of s.30(1)(a), the neglect to repair had to be substantial. However, there had been no breaches of repairing covenant in this case because the alleged breaches, namely the unrestricted plant growth on the rear wall of the building and the failure to remove the creeper growth on the rear elevation of the premises, were outside the scope of that covenant. Since there was not a relevant substantial breach under s.30(1)(a), the judge had been wrong to find that ground A had been established. Ground C & The Lessee’s Refusal to Allow Access The appellant had on numerous occasions thwarted the proper attempts made by the landlord, her agents and experts to gain access to the premises for the precise purpose set out in the lease – namely to examine their condition. The judge, having found substantial breaches of the access covenant, then implicitly considered as a separate issue whether, “in view of other substantial breaches”, “the tenant ought not to be granted a tenancy”; and he had concluded that to expect the landlord to continue with the appellant as her tenant in light of her persistent and wilful refusal to comply with the terms of her tenancy would have been unfair to the respondent landlord and therefore prejudicial. The Court of Appeal held that the judge had been entitled to find that a new tenancy ought not to have been granted even on the basis of the access breach alone, although the “ought not” exercise would have been better undertaken taking into account all the breaches established under s.30(1)(c). Ground C and Breach of user covenant Clause 2(9)(b) of the lease required the tenant (with emphasis added)

“at all times during the said term to use the Premises for the purposes of any

retail trade within Classes A1 and A3 of the Town & Country Planning (Use

Classes) Order 1987 and not to use the Premises or any part thereof for any

other purpose without the written consent of the Landlord (such consent not to

be unreasonably withheld)…”

The tenant had not applied for consent for alternative use.

The Court of Appeal concluded that

The judge had been right to conclude on the construction of clause 2(9)

(b) of the lease that there was a positive obligation actually to use the

premises for one of the stipulated purposes and not merely a negative

obligation not to use the premises for some other purpose. In particular, the

positive obligation preceded the negative obligation, which served to

underline the positive nature of the first obligation.

The tenant had breached this user covenant in the following ways –

• She had not attempted to start a business within classes A1 or A3 within

three years of being notified by the respondent of her breach of the user

covenant; and

• She had no intention whatsoever of running any business on the premises

complying with the user covenant, whether a business within classes A1

and A3 or another business.

The judge had been entitled to conclude that the failure on the part of

the appellant to operate a business within the relevant classes was a

substantial breach of the user covenant that was prejudicial to the legitimate

interests of the respondent.

Therefore, the Court of Appeal upheld the judge’s decision to order possession on the basis of Ground C. Final Result Given the “exceptionally difficult relationship between landlord and tenant” and the two substantial breaches of the tenant’s obligations, the judge had been right to hold under s. 30(1)(c) that the appellant ought not to be granted a new tenancy.

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Chapter 7 May 2015

Siemens Hearing Instruments Ltd v Friends Life Ltd [2014] EWCA Civ 382 1. Background Note to the Case The following provisions of the Landlord and Tenant Act 1954 are relevant to the cases cited below.

1.1 Section 24(2) preserves the right of a business tenant to end a tenancy

protected under Part II of the Act by giving notice to quit, provided the

notice was given before the tenant had been in occupation in right of the

tenancy for one month.

1.2 Section 69 provides that, in the 1954 Act -

“’notice to quit’ means a notice to terminate a tenancy (whether a

periodical tenancy or a tenancy for a term of years certain) given in

accordance with the provisions (whether express or implied) of

that tenancy”.

1.3 Subsections (3) and (4) of section 25 provide, with respect to landlord notices

given under section 25, that –

“(3) In the case of a tenancy which apart from this Act could have been

brought to an end by notice to quit given by the landlord -

(a) the date of termination specified in a notice under this section shall not

be earlier than the earliest date on which apart from this Part of this

Act the tenancy could have been brought to an end by notice to quit

given by the landlord on the date of the giving of the notice under this

section; and

(b) where apart from this Part of this Act more than six months’ notice to

quit would have been required to bring the tenancy to an end, the

last foregoing subsection shall have effect with the substitution for

twelve months of a period six months longer than the length of notice

to quit which would have been required as aforesaid.

(4)

In the case of any other tenancy, a notice under this section shall not

specify a date of termination earlier than the date on which apart from

this Part of this Act the tenancy would have come to an end by

effluxion of time.”

1.4 Section 26(2) provides, with regards to requests under that section, that-

“A tenant’s request for a new tenancy shall be for a tenancy beginning with

such date, not more than twelve nor less than six months after the making of

the request, as may be specified therein:

Provided that the said date shall not be earlier than the date on which apart

from this Act the current tenancy would come to an end by effluxion of time

or could be brought to an end by notice to quit given by the tenant.”

2. Hearing Instruments Ltd v Friends Life Ltd [2014] EWCA Civ 382 A lease granted in 1999 for a 25-year term commencing on 24 August 1998 gave the tenant the right to break the lease on 23 August 2013, which pursuant to clause 19 thereof was exercisable –

“by giving the Landlord not more than 12 month’s and not less than six month’s

written notice, which notice must be expressed to be given under section 24(2)

of the Landlord and Tenant Act 1954.”

The break notice, which was given to the landlord on 28 September 2012, indicated the tenant’s intention “to terminate the Lease 23 August 2013 in accordance with clause 19 of the Lease so that the Lease will determine on that date.” The notice contained no express reference to section 24(2). Decision on the Validity of the Break Notice The Court of Appeal found that the break notice was invalid for the following reasons –

2.1 There is a well-established principle that in the case of a unilateral contract

such as an option, the terms of exercise must be fully complied with.

Accordingly, in the case of a tenant’s option to determine, even a trivial

non-compliance would defeat the tenant’s right.

2.1.1 Notices given under statutes and some kinds of notices given under

contracts (e.g. rent review notices) even if labelled “options” do not fall into

that special class of case, however.

2.2 A break notice is a “notice to quit”, as defined by section 69.

2.3 Clause 19 stated that any tenant’s break notice -

“... must be expressed to be given under section 24(2) of the Landlord and

Tenant Act 1954.”

2.3.1 The requirement that the notice “must” be expressed in a particular way had

to be construed as a mandatory provision.

2.4 The reasonable recipient test established by the House of Lords in Mannai

Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 949 did

not apply.

2.4.1 This test, if applicable, would have operated to save the break notice if its

2.4.2 However, the test did not apply because the notice had failed to comply

with the “indispensable” requirement that, in order to be valid, it had

to expressly state that it was being given under section 24(2). Its failure to do

meaning, notwithstanding the omission, was clear to a reasonable recipient.

so rendered the break notice invalid.

2.5. Clause 19 contained a technical error, as section 24(2) does not envisage

a notice being given “under” that sub-section. Rather it preserves the ability of the tenant to serve a contractual break notice or common law notice

to quit.

Cases that are Relevant to the Issues Raised in Siemens

Scholl Mfg Co Ltd v Clifton (Slim-Line) Ltd [1967] 1 Ch 41 A number of points emerged from this Court of Appeal decision.

Where a lease contains a landlord’s break clause and the lease is not

contracted out of the 1954 Act, then the landlord would not have to

serve a contractual notice, because the statutory methods of termination

were in substitution for, and not in addition to, the contractual methods. It

was thus sufficient if the landlord served a section 25 notice that complied

with the timing requirements in section 25 (3).

ii.

Subject to section 25(3), a section 25 notice shall not have effect unless it is

given not more than twelve nor less than six months before the date of

termination specified therein.

iii.

In accordance with section 25(3)(a), in the case of a tenancy for a term of

years certain which contains a landlord break right, the landlord could

determine the lease by giving a section 25 notice, provided the termination

date specified in the notice is not earlier than the date on which the break

clause could operate.

iv.

If a tenancy granted for a term of years certain contains no landlord’s break

right, then the section 25 notice would have to specify a termination date

that must not be earlier than the date on which, but for the Act, it would

come to an end by effluxion of time: see section 25(4).

If a tenancy granted for a term of years certain contains a tenant’s break

right, then the section 25 notice would have to specify a termination date

that must not be earlier than the date on which, but for the Act, it would

come to an end by effluxion of time: see section 25(4).

Garston v Scottish Widows Fund and Life Assurance Society [1996] 1 WLR 834, Ch D, upheld by the Court of Appeal at [1998] 3 All ER 596 In this case, the tenant’s break notice, given under a fixed term tenancy, included a purported request under section 26 for a new tenancy. However, Rattee J –

Held that, where a lease for a fixed term contained a tenant’s break clause,

the tenant was not entitled to make a request for a new tenancy under

section 26 if the date of termination was earlier than the date on which the

lease would have expired by effluxion of time at common law.

ii.

Rejected the tenant’s contention that would have required the proviso to s26(2) to be read as though it said:

‘Provided that the said date shall not be earlier than (1) the date on which

apart from this Act the current tenancy would come to an end by effluxion

of time or (2) if earlier, the date on which it could be brought to an end by

notice to quit given by the tenant.’

iii.

Concluded that -

“In my judgment, the actual words of the proviso on their natural

construction contemplate one relevant date only in respect of a given

tenancy, and the two alternative definitions of that date are to take

account of the fact that the relevant tenancy may be (a) one granted

simply for a term of years, in which case the relevant date under the proviso

will be the date on which it would come to an end by effluxion of time, or (b)

one granted for a term of years certain and thereafter from year to year, in

which case ... the tenancy will never come to an end by effluxion of time,

and the only possible relevant date specified in the proviso to s 26(2) is the

date on which, as at the date of the request under s 26(1), the existing

tenancy could be brought to an end by notice to quit given by the tenant.

Thus, in the case of a tenancy granted for a term of years exceeding one

year, the date for the commencement of a new tenancy cannot be earlier

than the date on which the current tenancy would, apart from the 1954 Act,

come to an end by effluxion of time.”

4 Purpose of the Siemens Proviso When the lease in the Siemens case WAS granted in 1998, the draftsman wished to ensure that a s. 26 request could not be given in lieu of a tenant’s contractual break notice. Accordingly he provided that the notice “must be expressed to be given under section 24(2) of the Landlord and Tenant Act 1954”. However, the subsequent Garston decision clarified that where a lease for a fixed term contains a tenant’s break clause, the tenant was not entitled to make a request for a new tenancy under section 26 if the date of termination was earlier than the date on which the lease would have expired by effluxion of time at common law.

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Chapter 8 June 2015

Update on Quiet Enjoyment Covenants Shebelle Enterprises Ltd v The Hampstead Garden Suburb Trust Ltd [2014] EWCA Civ 305 Kitchin LJ, with whom McCombe and Arden LLJ agreed, held, inter alia, that

• The covenant for quiet enjoyment is a covenant that the tenant’s lawful

possession of the property will not be substantially interfered with by the acts of

the lessor or those lawfully claiming under him.

• The covenant is prospective in nature.

• As Lord Millett explained in Southwark LBC v Mills; Baxter v Camden LBC (No 2);

sub nom. Southwark LBC v Tanner [2001] 1 AC 1, the covenant is an obligation

by the covenantor “not to do anything after the date of the grant which will

derogate from the grant or substantially interfere with the grantee’s enjoyment

of the subject matter of the grant...”

• Moreover, the subject matter of covenant for quiet enjoyment contained in a

• The scope of a quiet enjoyment covenant falls to be determined in

lease is usually expressed to be the demised premises.

accordance with ordinary contractual principles of interpretation.

• Kitchin LJ also compared the similarities between a quiet enjoyment and the

implied obligation of a grantor not to derogate from grant: see paragraphs

34 to 36.

[This note does not consider the issue of derogation from grant in detail.]

Century Projects Limited v Almacantar (Centre Point) Limited [2014] EWHC 394 (Ch) The Facts The Claimant, the lessee under a lease of premises at the top of Centre Point Tower, sought an interlocutory injunction restraining the defendant, its landlords and owners of the tower, from carrying out external works to the concrete façade of the tower

using scaffolding, on the ground that this would constitute a breach of the landlords’ covenant for quiet enjoyment and a breach of their obligation not to derogate from their grant. The Centre Point complex is a well-known development in Central London that is some 117m (385ft) high. The Claimant’s lease demised to the tenant the highest lettable space in the Tower, which afforded spectacular views across the West End and City of London. The Permitted Use under the Lease was as a high class restaurant bar and/or private members’ club, and for such reasonable proper purposes as are ancillary to such use. It was common ground that the concrete façade was not part of the property demised and had been retained in the ownership of the landlord. The landlord covenanted with the Tenant to enable the Tenant to enjoy quiet enjoyment of the Premises; but also covenanted to repair the structure and external parts of the Complex and the Common Parts. The defendants’ plan was to carry out necessary repairs and refurbish the building. Interference with the Tenant’s View The Court considered, without deciding, that it was distinctly arguable that the landlords, by blocking the view, would derogate from grant, even if the landlords were correct that there could be no breach of a covenant for quiet enjoyment if the only interference is with a view and the demise does not include any right to a view. Case Law on Repairs involve Scaffolding Reference was made to two cases where repair work had involved the erection of scaffolding.

• Owen v Gadd [1956] 2QB, 99 as an illustration of a case where the erection

of scaffolding by a landlord was held to be a breach of a covenant for quiet

enjoyment.

• However, in Goldmile v Lechouritis [2003] EWCA Civ 49, the repair work, which

was completed within six months, had required scaffolding and sheeting to be

fixed to the outside of the building; and the Court of Appeal held that the

landlord in necessarily carrying out his repairing obligation had taken all

reasonable steps to minimise the potential risks to the tenant’s business and, as

a result, there had been no breach of the covenant for quiet enjoyment.

Would Use of Scaffolding Breach Tenant’s Quiet Enjoyment? The Court did address whether there was a realistic prospect of the tenant establishing that the landlord would be in breach of their obligations [to allow the tenant quiet enjoyment] by proceeding to carry out the repairs using scaffolding rather than cradles. Nugee J then identified the following principles

“(1) It is common ground that repair is needed to the concrete façade.

(2)

The defendants, as landlords, are undoubtedly under a duty to carry out

those repairs. That means as landlords they have a right to do them.

(3)

Where repairs are needed, in any but the simplest of cases, there will always

be choices that have to be made as to what repairs are done, when they

are done, how they are carried out, who is engaged to do them and the

like. Prima facie, it is for the landlord or the person who is responsible for the

repairs to make all these decisions...

(4)

However, one can readily see that where there is a tenant in occupation,

occupying under a lease for a particular purpose and enjoying the benefit

of a landlord’s covenant for quiet enjoyment, the landlord’s duty and right

to do repairs does not give him carte blanche to carry them out in whatever

way he likes, regardless of the impact upon the tenant’s business. It is not at

all surprising that the landlord should be under a duty in those circumstances

to act reasonably in the choices he makes since they can have a serious

impact on the tenant.

Even without authority, therefore, I would have no difficulty in accepting that

(5)

where a landlord has let premises for a particular purpose and the lease

contains both a covenant for quiet enjoyment and an obligation or right

on the landlord to do repairs, neither provision trumps the other. On the

contrary, they have to be made to fit together. The landlord cannot say that

as the tenant took the demise subject to his repairing obligation, the tenant

has to put up with the landlord’s works, however unreasonably they are

carried out. But, equally, the tenant cannot say that having given the

covenant for quiet enjoyment, the landlord cannot carry out any work unless

it is shown to cause the least possible interference with the tenant’s business.

Both positions are too extreme. The way the two provisions fit together is that

the landlord can carry out work provided he acts reasonably in the exercise

of his right.”

Authorities on Principle (5) Nugee J, with reference to principle (5) above, observed that “46. This is what I regard Goldmile as establishing. In para. 8 Sedley LJ refers to the need to fit the two provisions together. In paras. 9 and 10 he, in effect, says that neither provision has primacy, a point which he picks up again at the end of para.15 where, after referring to the speech of the Lord Loreburn LC in Lyttelton Times Company Ltd v Warners Ltd [1907] AC 476, he says:

‘The Privy Council’s reasoning confirms our view that the two covenants must be

construed and applied so far as possible so as to coexist on a basis of parity, not of

priority, respecting the terms of both’.

Hence, Sedley LJ’s conclusion in para. 10 that just as the covenant for quiet enjoyment does not entitle the tenant to a guarantee against all disturbance, and he has to put up with repairs, so the landlord’s right to repair has to respect the tenant’s entitlement to quiet enjoyment ...” Where Repair and Quiet Enjoyment have Parity Therefore, Nugee J regarded Goldmile as establishing that where, under the lease there is parity between the landlord’s right to carry out repairs and the tenant’s right to quiet enjoyment, the landlord in exercising its right to repair is required to take all reasonable and proper steps to avoid disturbing the tenant’s business. Would the Landlord’s Proposed Works be Unreasonable? Nugee J concluded, at paragraph 49, that “... the claimant faces a very uphill task in establishing that the landlords, in following the consistent advice of their contractors, civil engineers and structural engineers, would be acting in breach of covenant. If the test is one of reasonableness I find it difficult to accept that the court at trial would find the landlords to have acted unreasonably in these circumstances... It is the landlords who have to place the contracts and with the help, no doubt, of their professional advisers devise and supervise the necessary works. The notion that the landlords can be held to be in breach of covenant in placing the contracts as advised by their apparently competent and reputable professional advisers, is one that I find surprising.” Another crucial factor was that the expert opinion before the court did not regard cradles as a practical solution.

Injunction Granted? The Court acknowledged that there was a significant risk of serious damage to the claimant’s business which may even lead to its permanent closure. Nevertheless, for a number of reasons, Nugee J found that the balance of convenience pointed inevitably to refusing an injunction and leaving the defendants to proceed with the contract as they have been advised to do. They would do so in the full knowledge that it was said by the claimant tenant that they would thereby be committing a breach of covenant and that if this did so, they would be liable for damages. However, this was, in the Court’s judgment, a more appropriate place to strike the balance between the interests of these parties than either to require the landlords to put their plans on hold or to require them to proceed with works against the advice of their own professional advisers. Final Comment Nugee J did not rule out the possibility, in an appropriate case, of a court ruling that the tenant’s right to quiet enjoyment had priority over the landlord’s right and obligation to repair; and that, in such circumstances, the landlord would be duty bound to take all possible steps, not merely all reasonable steps, to minimise the disruption to the tenant’s business that the repairs would cause. However, it is apparent from this decision and the cases cited therein that the courts, where possible, prefer to find parity, not priority, respecting the terms of both covenants. Permission to appeal has been granted by the Court of Appeal: [2014] EWCA Civ 922. The issues on appeal are likely to include the following –

Whether Nugee J failed to apply the correct test, as formulated by the

Court of Appeal in Goldmile Properties Ltd v Lechouritis; namely, that the

relevant question was whether the landlord had taken all reasonable

precautions to minimise disruption to the tenant’s business; and

Whether the judge had applied a less stringent test; namely, whether the

landlord had acted reasonably in simply following advice from contractors

and consultants in choosing the method of access without taking into

account the tenant’s business.

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Chapter 9 July 2015

Misrepresentation 1. Implied Misrepresentation In William Sindall Ltd v Cambridgeshire County Council [1994] 1 WLR 1016, CA, it was held that where a vendor in replies to enquiries responds ‘Not so far as the Seller is aware’ (e.g. regarding defects in title), such a statement carries with it a further implied representation that he has taken reasonable steps to ascertain the true position (e.g. to find out whether any such defect exists).

2. Fraud Act 2006 The Act introduced the offence of fraud by false representation. Fraud by false representation consists of a person:

(a) dishonestly making a false representation; with

(b) intention, by making the representation, either (i) to make a gain for himself

or another, or (ii) to cause loss to another or to expose another to a risk

of loss. “Representation” means any representation as to fact or law, including a representation as to the state of mind of the person making the representation or of any other person. Furthermore, a representation may be express or implied.

3. Disclaimer and Reliance Clauses A contractual disclaimer clause which purports to exclude or restrict liability for misrepresentation has no effect, unless it is “fair and reasonable … having regard to the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties when the contract was made” (s 3 Misrepresentation Act 1967, as substituted by s 8(1) Unfair Contract Terms Act 1977).

4. Two Misrepresentation Cases 4.1 FoodCo UK LLP v Henry Boot Developments Ltd [2010] EWHC 358(Ch) Various tenants at a motorway service station claimed that they were induced to enter into their commercial leases by fraudulent misrepresentations made by the landlord (Henry Boot) who owned the service station. In essence, the key alleged misrepresentations included misrepresentations about: the likely number of visitors to the site. In particular, the landlordâ&#x20AC;&#x2122;s marketing material had predicted 88,000 visitors a week on opening; Henry Boot had relied on an expert report in making this prediction. However, actual visitor numbers barely reached a tenth of the predicted number. Can Foretelling the Future be a Misrepresentation? Regarding the predictions of visitor numbers, the Court held that:

(i)

In most cases a prediction about the future (particularly in the context of

contractual negotiations) would necessarily be understood as implicitly

representing that the maker of the prediction had an honest belief in it.

(ii)

The existence (or otherwise) of a belief is a present fact at the moment that

the prediction is uttered. If, therefore, the maker of the prediction does not

have an honest belief in the prediction at the time when he makes it, he will

have made a false representation of fact.

(iii) In other cases, further implications may be appropriate. It may be that the

representation would necessarily be understood as meaning that the

prediction is based on reasonable grounds; or that the maker of the

prediction has the present intention to do what he can to make it come true.

However, in a case of fraudulent misrepresentation, it is necessary to go further. It is not enough that, objectively viewed, a prediction would be understood by the representee as implicitly representing that the maker of the prediction had reasonable grounds for making the prediction. It is also necessary to show that the representor understood the representation in that sense. Were False Representations Made? The Court found that none of the representations made by Henry Boot were false when made, and that Henry Boot believed them to be true and had reasonable grounds for such belief.

Did the Representations Later Become False? Lewison J then acknowledged the ‘well settled’ principle that a representation made in the course of negotiations may be treated as a continuing representation. He then explained the duty on the seller where such a representation has been made:

“The duty is to communicate a change of circumstance which the representor

knows has falsified a previous representation where the falsity exists at the date

when the contract is concluded. What matters is the state of affairs at the date

when the contract is concluded, and the representation is acted upon...”

[Author’s note: The reference to the contract being concluded must be taken to mean when contracts are exchanged, not when the contract is completed.] He further held it is sufficient that the communication is made to the counterparty or their conveyancer. Did a Duty to Correct Arise in This Case? A duty to correct would only have arisen if Henry Boot knew that previous representations that it had made had become false; or did not care whether previous representations had become false. However, the duty did not arise in this case as they continued to believe (rightly or wrongly) that it was reasonable to continue to rely on the aforesaid expert’s report. Was the Non-Reliance Clause Effective? The Court held that the landlord’s liability for the inaccurate predictions was excluded by the following entire agreement and non-reliance clause in the agreements for lease:

“The Tenant acknowledges that it is entering into this Agreement on the basis

of the terms hereof and not in reliance upon any representation or warranty

whatsoever whether written or oral expressed or implied made by or on behalf of

[Henry Boot] (save for written replies given by, [Henry Boot’s] solicitors to the

enquiries raised by the Tenant’s solicitors) and the documents produced to the

tenant’s solicitors prior to the date of this agreement”.

The Court’s ruling on this matter was arguably obiter, given its finding that there had been no misrepresentation. However, this particular ruling was influenced by the following legal principles

(i)

It is a matter of public policy that a contracting party cannot exclude liability

for his own fraud; and that if he wishes to exclude liability for the fraud of his

agent he must do so in clear and unmistakable terms on the face of the

contract. 70

(ii)

There are at least two good reasons why the courts should not refuse to give

effect to an acknowledgement of non-reliance in a commercial contract

between experienced parties of equal bargaining power – a fortiori, where

those parties have the benefit of professional advice.

4.2 Edwards v Ashik [2014] EWHC 2454 (Ch) In issue was whether the seller of a nightclub business who had also simultaneously granted a new lease from which the nightclub operated had made a fraudulent misrepresentation that entitled the buyer to rescission of the lease and sale agreement. The misrepresentation consisted of the seller’s failure to disclose in replies to enquiries that there had been complaints in the past resulting in visits by officers of the Council. By letter dated 7 February 2012, Mr. Edwards’ solicitors informed Mr. Ashik’s conveyancing solicitors of a claim for fraudulent misrepresentation based on the said replies. On 27 March 2012, Mr. Edwards’ wrote to the buyer’s solicitors electing to avoid the Contract. Presumption of Inducement It had been common ground that, in view of the fraudulent misrepresentation that she found, a presumption arose that Mr Edwards (the purchaser) was materially induced by the misrepresentations to enter into the Contract. In view of that, the onus shifted to Mr Ashik (the seller) to prove, on a balance of probabilities, that in fact the misrepresentation was not a material cause of the purchase. Findings on Inducement, Reliance Clause and Affirmation of Contract The High Court found that

In principle, knowledge of Mr Edwards’ solicitor was treated as Mr Edwards’

knowledge for these purposes. On the facts of this case, the effect of the

solicitor’s communication to Mr Edwards was that the effect of the Replies

was summarised to Mr Edwards and Mr Edwards was aware of the Replies

before he entered into the Contract. Therefore, the replies to enquiries

could have induced the purchaser to contract. Accordingly, the

presumption of inducement had not been rebutted.

The following clause in the contract did not amount to an agreement that

Mr Edwards was relying on formal replies to pre‑contract enquiries.

“The Purchaser admits that the Purchaser:...

10.3 enters into this agreement solely as a result of the Purchaser’s own

inspection and on the basis of the terms of the agreement and not in

reliance upon any representation or warranty either written or oral, statutory

or implied made by or on behalf of the Vendor (other than the warranties

set out in clause 16 and any representations contained in written replies

given by the Vendor’s Solicitors to any preliminary enquiries raised by the

Purchaser or the Purchaser’s Solicitors)...”

2.1. The purpose of the clause was to negative reliance on matters that the

Vendor or persons on his behalf have told the Purchaser. Those specified

matters were described as any representation or warranty other than the

excepted matters, which were the warranties in clause 16 of the sale

contract and the written replies to enquiries.

2.2 The clause operated as an admission by the Purchaser that he had not

relied on the specified matters in entering into the Contract. It did not

operate as an agreement between the Vendor and the Purchaser that the

Purchaser had positively relied on the excepted matters.

Mr Edwards had not affirmed the contract by continuing to use the nightclub

during the seven-week period starting from 7 February 2012 (when he

knew of his right to elect to avoid or affirm the Contract, having first spoken

with his solicitors about the misrepresentation) to 27 March 2012 (when his

solicitors wrote electing to avoid the Contract). In other words, this continued

use had not amounted to an unequivocal demonstration to Mr Ashik that Mr

Edwards intended to proceed with the Contract rather than avoid it.

3.1 Apart from the correspondence passing between Mr Edwards and Mr Ashik

(during the said seven week period), the continued occupation and business

use of the Premises by Mr Edwards probably would have amounted to

affirmation of the Contract.

3.2 However, the clear indication from Mr Edwards’ solicitor’s letter of 7 February

(and repeated subsequently through the period in question) that legal

action for fraudulent misrepresentation was about to be taken made that

business use equivocal in all the circumstances. Mr Edwards was clearly

intending to claim remedies for fraud and was only delaying for a while to

see what Mr Ashik had to say about the allegations.

3.3 In these circumstances, the continued business occupation had not been an

3.4 Had the use continued after the sellerâ&#x20AC;&#x2122;s dismissive response of 21 March for

a further substantial period of weeks and months, then a different conclusion

might well have been justified.

unequivocal election to affirm the Contract.

Note: The Court of Appeal has refused permission to appeal: see [2014] EWCA Civ 1704.

Chapter 9 August 2015

Notices under Section 17 of the Landlord and Tenant (Covenants) Act 1995 – ‘the 1995 Act’ 1

Recovering Money From Former Tenant or Guarantor of Former Tenant

1.1 Where a former tenant under a tenancy granted on or after 1 January 1996 has

entered into an authorised guarantee agreement with the landlord, the

landlord can only recover from him a fixed charge payable under a tenant

covenant to pay, by serving on the former tenant a s 17 notice.

1.1.1 Section 17 of the 1995 Act also applies to ‘old’ tenancies (i.e. irrespective of

whether they were granted before or after 1996), where the former tenant remains bound by such a covenant.

1.2 In the case of a tenancy (whether granted before or after 1996), such notice

may be served on a former tenant who remains bound by a covenant to

guarantee the performance by his assignee of a tenant covenant of the

tenancy under which any fixed charge is payable.

1.3 A section 17 notice, in order to be effective, has to be so served within six

months of the date when the charge becomes due; and the notice must

inform the former tenant - “(a) that the charge is now due; and (b) that in

respect of the charge the landlord intends to recover from the former tenant

such amount as is specified in the notice and (where payable) interest

calculated on such basis as is so specified”: s 17(2) of the 1995 Act.

1.4 A similar rule applies to a landlord seeking to recover a fixed charge from a

guarantor of the former tenant: s 17(3). The Act does not say that the landlord

must in enforcing a guarantee also serve the former tenant with the notice

required under section 17(2), even in a situation where for whatever reason the

landlord chooses not to proceed against the former tenant: Cheverell Estates

Ltd v Harris [1998] 1 EGLR 27.

1.5 A fixed charge is defined as rent, service charge or a liquidated sum payable

under the lease for breach of covenant: s 17(6).

1.6 Section 17 of the 1995 Act applies to ‘old’ and ‘new’ tenancies (i.e. irrespective

of whether they were granted before or after 1996).

Prescribed Form of Notice and Service

2.1 The prescribed forms of notice that may be given under section 17 are set

out in the Schedule to the Landlord and Tenant (Covenants) Act 1995 (Notices)

Regulations 1995 (SI 1995/2964).

2.2 Section 27(5) of the 1995 Act provides that –

“Section 23 of the Landlord and Tenant Act 1927 shall apply in relation to the

service of notices for the purposes of section … 17.”

2.3 Section 23(1) Landlord and Tenant Act 1927 is headed ‘Service of notices’ and,

so far as material reads –

“Any notice … under this Act shall be in writing and may be served on the

person on whom it is to be served either personally, or by leaving it for him at his

last known place of abode in England or Wales, or by sending it through the

post in a [recorded delivery] letter addressed to him there …”

2.4 In Commercial Union Life Assurance Co Ltd v Moustafa [1999] 24 EG 155, QBD,

Smedley J reached the following conclusion on the operation of section 17:

“I have to follow the decision of the Court of Appeal in Galinski v McHugh1…

by saying that a notice under section 17 of the Landlord and Tenant

(Covenants) Act 1995 is validly served if it is sent by recorded delivery to its

recipient at his last known place of abode, whether it is received by that

recipient or not.”

(1989) 57 P&CR 354

3 Too Much Money Demanded by Section 17 Notice 3.1 Section 17(4) of the 1995 Act provides that:

“Where the landlord has duly served a notice under subsection (2)… the

amount (exclusive of interest) which the former tenant or (as the case may

be) the guarantor is liable to pay in respect of the fixed charge in question shall

not exceed the amount specified in the notice unless –

(a) his liability in respect of the charge is subsequently determined to be for a

greater amount,

(b) the notice informed him of the possibility that that liability would be so

determined, and 75

determination, the landlord serves on him a further notice informing him

that the landlord intends to recover that greater amount from him (plus

interest, where payable)”.

3.2 In Commercial Union Life Assurance Co Ltd v Moustafa [1999] 24 EG 155, QBD,

Smedley J reached the following conclusion on the operation of section 17.

“The plaintiffs submit, with justification, in my view, that if a landlord includes

items within a notice to which he is not entitled the notice in itself is not

invalidated with regard to any items included in the notice to which he is

entitled. Under section 17(4) the sums recoverable shall “not exceed the

amount specified”. It is plain that parliament envisaged that the amount

recoverable might well be less than the amount specified in the section 17

notice and that thus the whole notice would not be invalidated if the landlord

included items to which he was found not to be entitled.”

4 Right of former tenant or his guarantor to overriding lease under section 19 4.1 Where the person on whom a s 17 notice is served pays with any interest the

amount demanded, he shall be entitled to require the landlord to grant him

an overriding lease of the premises demised by the tenancy (called the

‘relevant tenancy’): s 19(1) of the 1995 Act. The term of such a tenancy would

be –

“equal to the remainder of the term of the relevant tenancy plus three days or

the longest period (less than three days) that will not wholly displace the

landlord’s reversionary interest expectant on the relevant tenancy, as the case

may require”: s 19(2)(a).

4.2 A request for an overriding lease must be made by no later than 12 months

following the date of the payment: s 19(5)(b).

4.3 The landlord is not liable to grant an overriding lease if the relevant tenancy has

been determined: s 19(7). Scottish & Newcastle plc v Raguz [2009] 1 All ER 763, HL

The claimant was the original tenant of two underleases of hotel premises granted prior to 1996. There had been three subsequent assignments of the underleases since that time. The current undertenant was significantly in arrears of rent. Therefore, the reversioner served statutory demands on the claimant for the unpaid amount. At the time, there was a protracted and as yet unresolved rent review. 76

The question therefore was “whether, for the purposes of section 17(2), an increase under a rent review is to be treated retrospectively as having become due from the commencement of the rent review period, thereby triggering the six month period during which the landlord must serve a notice on the former tenant or lose the right to claim under the covenant” (per Lord Hoffmann). The majority of the House of Lords held that such an increase does not have this retrospective effect. The words ‘the date when the charge becomes due’ in section 17(2) mean the date when the landlord would have been entitled to sue for the money. The additional sums payable under a rent review clause do not “become due” until the increase has been agreed or determined. Therefore, landlords are not required to serve regular notices on former tenants saying that nothing is owing but there is a possibility that something may become owing in the future. There is no requirement to serve s 17 demands in respect of the amount of the increase in rent on determination of the review within six months of every rent payment date pending determination. 6

Greene King Plc v Quisine Restaurants Ltd [2012] EWCA Civ 698

An underlease dated 30 November 2003 was demised by Greene King (GK) to QRL for a term expiring 27 September 2032. Under cl. 2 of the underlease a rent of £95,000 per annum (subject to review) was payable in advance on the usual quarterly days; and a service rent was payable on each succeeding quarter following demand. QRL was a company wholly owned and controlled by a Mr Shasha. Mr Shasha was a guarantor for QRL in the underlease. On 28 November 2007, he assigned the underlease with GK’s consent to a Mr Dite. In the licence to assign, Mr Shasha and QRL (the Appellants) both entered into guarantees of the assignee’s liabilities in respect of the rent and the tenant covenants. They were released from their original covenants by the operation of s 5 Landlord and Tenant (Covenants) Act 1995. In clause 8 of the licence to assign, GK (as landlord) undertook “… with the Undertenant’s Guarantor to use all reasonable endeavours to give written notice to the Undertenant’s Guarantor each and every time the rents reserved by the Underlease are more than two months in arrear.” 77

Within a few months of the assignment, Mr Dite had fallen into arrears of rent and service charge payments. The first two quarters’ rent was deducted from the rent deposit. Thereafter, the arrears increased. On 9 December 2008 GK served a 17 notice on QRL and Mr Shasha in respect of the last six months’ rent and interest amounting to £78,787.09. However, no notice had yet been served under clause 8 in respect of all the accumulated arrears which had remained unpaid for at least two months. Seven further s 17 notices were served on the Appellants, and then GK issued proceedings to recover the arrears. QRL and S contended that GK had breached its obligations under cl 8 of the licence by failing to notify them whenever any instalment of rent had become more than two months in arrears. The Court rejected the further contention that cl 8 was a condition precedent to the liability under the guarantee, so that a failure to provide notice as required by clause 8 would bar recovery of the arrears in question. Instead, cl 8 operated more as a condition subsequent rather than as a condition precedent to liability. The giving of notice was not expressed as a pre-condition to the operation of the guarantor’s covenant, but arose as a separate obligation on the part of GK in the licence. Furthermore, breach of cl. 8 did not release the Appellants from further performance of the guarantee.

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Chapter 10 September 2015

Update on Part II Landlord and Tenant Act 1954 Topic 1: Lease Renewal Sought by Joint Tenants in Partnership 1) The Genesis of Section 41A Law of Property Act 1954 Section 41A was inserted into the Landlord and Tenant Act 1954 by section 9 Law of Property Act 1969, in order to create an exception to the rule in Jacobs v Chaudhuri [1968] 2 QB 470 (referred to later in this note). Section 41A is relevant in the context of partnerships where not all of the joint tenants under a tenancy protected under the 1954 Act have continued to use the demised premises for the purpose of the partnership business. 2) What Section 41A Says Section 41A(1), as far as material, provides ‘(1) The following provisions of this section shall apply where –

(a) a tenancy is held jointly by two or more persons (in this section referred to as

(b) the property comprised in the tenancy is or includes premises occupied for

the joint tenants); and

the purposes of a business; and

of the tenancy carried on in partnership by all the persons who were then

the joint tenants or by those and other persons and the joint tenants’ interest

in the premises was then partnership property; and

(d) the business is carried on (whether alone or in partnership with other persons)

by one or some only of the joint tenants and no part of the property

comprised in the tenancy is occupied, in right of the tenancy, for the

purposes of a business carried on (whether alone or in partnership with other

persons) by the other or others.’

“(2) In the following provisions of this section those of the joint tenants who for the time being carry on the business are referred to as the business tenants and the others as the other joint tenants. ... (5) An application under section 24(1) of this Act for a new tenancy may, instead of being made by all the joint tenants, be made by the business tenants alone...” Note: An application under section 24(1) of the 1954 Act is a tenant’s application for the grant of a new tenancy pursuant to the Act.

Lie v Mohile [2014] EWCA Civ 728 (A) The Four Conditions of Section 41A(1) Explained Patten LJ, with whom Underhill and Vos LLJ agreed, explained that –

“4. Under section 41A(1), there are therefore four conditions which require to

be fulfilled in order for a section 24 application for a new tenancy by the business

tenants as defined to be a valid application: first, the lease must be vested in

at least two joint tenants; secondly, the demised premises must include premises

occupied for the purposes of the business; thirdly, the business must at some time

during the tenancy have been carried on in partnership by all the joint tenants;

and fourthly, the business must now be carried on by at least one of the joint

tenants, either alone or in partnership with other persons, with no part of the

property being occupied under the tenancy for the purposes of a business carried

on by the other joint tenant or tenants.”

(B) Was Section 41A at all Relevant to this Case? The Court of Appeal made clear that if the Claimant seeking a new tenancy under the 1954 Act is in a partnership but is also the sole tenant under the existing tenancy, then the Claimant would not need to rely on section 41A in order to request and claim a new tenancy under the Act. This is neither the first nor the fourth of the section 41A(1) conditions would be satisfied: the existing tenancy would not be held jointly by two or more persons (the section 41A(1)(a) condition); nor would the business be carried on by “one or some only of the joint tenants” (the section 41A(1) (d) condition). However, in this case, the Claimant was a joint tenant and the conditions of section 41A were not satisfied. Given that section 41A did not apply, the Court was bound by the decision in Jacobs v Chaudhuri, which meant that the request and claim for

a new tenancy under the Act would have to be made by all partners and could not be validly made by one alone. Note: Tenancy Held on Trust & Premises Occupied by Beneficiaries The practitioner acting for business partners who propose to become joint business tenants should explore all relevant options for holding the tenancy where it is to be protected under the Act. For instance, section 41(1) LTA 1954 provides that – “Where a tenancy is held on trust, occupation by all or any of the beneficiaries under the trust, and the carrying on of a business by all or any of the beneficiaries, shall be treated for the purposes of section twenty-three of this Act as equivalent to occupation or the carrying on of a business by the tenant...”

Topic 2: Possession Ground (c) and Extent of the Holding Background Note

(i)

Grounds (a) and (b) of section 30(1) are discretionary possession grounds

for breach of tenant’s repair and maintenance obligations, and for persistent

delay in paying rent.

(ii)

Section 30(1)(c) gives the court discretion to order possession on the ground

that –

“the tenant ought not to be granted a new tenancy in view of other

substantial breaches by him of his obligations under the tenancy or for any

other reason connected with the use or management of the holding.”

(iii) Section 23(3) reads –

“In the following provisions of this Part of this Act the expression “the holding”,

in relation to a tenancy to which this Part of this Act applies, means the

property comprised in the tenancy, there being excluded any part thereof

which is occupied neither by the tenant nor by a person employed by the

tenant and so employed for the purposes of a business by reason of which

the tenancy is one to which this Part of this Act applies.”

Horne & Meredith Properties v Cox & Billingsley [2014] EWCA Civ 423 The tenant occupied premises purposes of their business and the judge had ordered that the tenancy be terminated on the ground specified in section 30(1)(c).

Ascertaining the Extent of the Holding The Court of Appeal held that the property comprised in the tenancy includes not only the corporeal hereditaments demised by the tenancy - ie the parcels - but also incorporeal hereditaments, such as rights of way: see Note 2 below). Therefore, in the context of this case, the judge had been correct in concluding that the holding included the two rights of way and the right to park in six private car parking spaces that had been granted to the tenant. The Two Questions to be Considered under section 30(1)(c) The Court of Appeal ruled that

In the context of this case there were two questions contained in section

30(1)(c). One: were the matters relied upon reasons connected with the

tenant’s use or management of the holding? Two: if so, were they such that

the tenant ought not to be granted a new tenancy of the holding?

In respect of the first ‘limb’ of section 30(1)(c), the material parts are in two

disjunctive parts:

“Other substantial breaches by him of his obligations under the tenancy or

for any other reason connected with the use or management of the

holding.”

2.1 The word “or” separating these parts of the sub-section makes it clear that it

is not necessary to find a breach of obligation in order for the reason to come within the sub-section.

2.2 In Turner and Bell v Searles (Stanford Le Hope) Ltd [1977] 33 P & CR 208,

the Court of Appeal held that the words “for any other reason connected

with the tenant’s use or management of the holding” are not confined

to matters which are directly connected with the relationship of the parties

qua landlord and tenant.

In respect of the second ‘limb’, the phrase “ought not” does suggest that

there would usually be some fault or culpability on the part of the tenant.

3.2 The mere fact that the landlord and tenant had been in litigation would not

necessarily lead to the refusal of a new tenancy.

3.3 The overall question under this head is whether it would be fair to the

landlord, having regard to the tenant’s past behaviour, for him to be compelled to re-enter into legal relations with the tenant.

Had the Judge Adopted the Correct Approach? The Court of Appeal held that the judge had been–

(i)

Entitled to refuse to grant the new tenancy because for 16 years or more the

parties had been in frequent litigation over alleged obstructions to the right

of way, and the tenants had initiated all the proceedings; and

(ii)

Right in finding that the parties’ extensive litigation had been connected with

the tenants’ use or management of the holding; and that this litigation was

capable of being “a reason connected with the use or management of the

holding” such as to ground the refusal of a new tenancy.

Note 1: Cases under ground (c) have been rare over the years. However, in Youseffi v Mussellwhite [2014] EWCA Civ 885, the Court of Appeal held that the judge in this case had been entitled to grant possession under ground (c) on the basis of one serious breach of tenant covenant. However, the Court also said that the “ought not” exercise would have been better undertaken taking into account all the breaches that had been established under s.30(1)(c). Youseffi was decided after, but without reference to the decision in Horne & Meredith. Note 2: It was established by the Court of Appeal in Pointon York Group Ltd v Poulton [2006] EWCA Civ 1001; [2006] 3 EGLR 37 at 23 that the property comprised in the tenancy includes not only the corporeal hereditaments devised by the tenancy – i.e. the parcels - but also incorporeal hereditaments, such as rights of way and a right to occupy a parking space. The Court of Appeal in Horne and Meredith applied this case in reaching its conclusion on the extent of the ‘holding’.

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Chapter 11 October 2015

Side Letters 1

Section 2

Section 2 Law of Property (Miscellaneous Provisions) Act 1989 provides that:

“2 - (1) A contract for the sale or other disposition of an interest in land can only

be made in writing and only by incorporating all the terms which the parties

have expressly agreed in one document or, where contracts are exchanged, in

each.

(2) The terms may be incorporated in a document either by being set out in it or

by reference to some other document.

(3) The document incorporating the terms or, where contracts are exchanged,

one of the documents incorporating them (but not necessarily the same one)

must be signed by or on behalf of each party to the contract.

(4) … (5) …

(6) In this section -

... “interest in land” means any estate, interest or charge in or over land or in or

over the proceeds of sale of land.”

Executory & Composite Contracts

2.1 Section 2 only applies to “executory contracts” not executed contracts.

Therefore, it ceases to apply on completion of the contract: Tootal Clothing Ltd v Guinea Properties Management Ltd [1992] 2 EGLR 80.

2.2 A genuinely collateral contract which is not for a disposition of an interest in

land can be enforceable, even though it does not comply with s 2: Inntrepreneur Pub Co (CPC) and another v Sweeney [2002] All ER (D) 419

(May).

Entire Agreement Clauses

3.1 Inntrepreneur Pub Co (GL) v East Crown Ltd [2000] All ER (D) 1100

A dispute arose between landlord and tenant as to whether a contract,

collateral to the agreement for lease of a public house for a 30-year term, had

come into existence releasing the tenant from the beer tie.

The Court held that the entire agreement provision in the contract prevented a

collateral contract from coming into existence. This provision, taking into

account the construction of the contract, meant that the agreement

contained all the terms of lease agreed between the parties.

The entire agreement provision stated thus:

‘Any variations of this agreement which are agreed in correspondence shall

be incorporated in this agreement where that correspondence makes express

reference to this clause and the parties acknowledge that this agreement (with

the incorporation of any such variations) constitutes the entire agreement

between the parties.’

The Court also stated that even without this provision, the alleged conditional

contract would not have been found to have come into existence.

3.2 North Eastern Properties v Coleman & Quinn [2010] EWCA Civ 277

The Appellants were businessmen who wanted to acquire eleven flats off-plan

for onwards sale or letting. Eleven contracts were exchanged for each of

the flats on 24 October 2007 and each contract expressly gave the buyer a

right of assignment, as the Appellants and Respondents had agreed in

negotiations. Completion of the development was then significantly delayed.

A Binding Agreement?

Neither part of the contract included an agreed term of sale that the

Respondent builders would pay the Appellant purchasers upon exchange a

sum equal to 2% of the advertised list price for the flat in question. The intention

had been that the 2% fee was to be invoiced to the builder upon exchange of

contracts as a finder’s fee for each of the flats, and then paid to the

purchasers. The finder’s fee was to be the Appellants’ profit from participating

in the chain of sales. On exchange of contracts, the 2% fee was not paid and

was not paid subsequently.

The contract provided that:

“This Agreement contains the entire agreement between the parties”.

The Court found that the parties had agreed that the sale contract would not

refer to the 2% fee. Thus, the assignment of the contracts to individual sub-

purchasers would not include benefit of the finder’s fee.

By including the entire agreement provision, the parties had made clear

that the finder’s fee, being another part of the composite transaction, was

not a condition for the performance of the land contract. In fact, it was

payable on exchange in consideration of finding contracting purchasers, not

for procuring completed sales.

The finder’s fee agreement was a collateral contract (i.e. an independently

enforceable contract). 3.3 One reason for the different conclusions reached in the above cases is that in Inntrepreneur Pub Co (GL) v East Crown Ltd [2000] All ER (D) 1100, Lightman J

made the following observations on the nature of entire agreement clauses -

“For such a clause constitutes a binding agreement between the parties that

the full contractual terms are to be found in the document containing the

clause and not elsewhere, and that, accordingly, any promises or assurances

made in the course of the negotiations (which, in the absence of such a clause,

might have effect as a collateral warranty) shall have no contractual force,

save in so far as they are reflected and given effect in that document.”

However, the Court of Appeal in North Eastern Properties v Coleman & Quinn

[2010] EWCA Civ 277 qualified these remarks. Longmore LJ in particular noted

that

“…if (as in the present case) there is a collateral agreement supported by its

own consideration and the contract sued upon is not conditional on

compliance with the collateral agreement, that agreement will be enforceable

in its own right.”

4 Side Letters to Leases 4.1 Lotteryking Ltd v AMEC Properties Ltd [1995] 28 EG 104, ChD. AMEC, the freeholder of two commercial units entered into 25-year leases of

‘unit M’ with Rollerbowl Ltd and of ‘unit N’ with Lotteryking Ltd. AMEC also entered into simultaneous collateral agreements with each tenant to rectify a

damp problem.

There were differences between the two collateral contracts, but simply stated

they provided that AMEC would use reasonable endeavours to carry out works

to rectify the damp problem within six months at its own cost, and that the rent

was to be reduced while the works were ongoing.

The Court held that the collateral agreements bound the landlord’s reversion

both as regards the repair covenant and the rent abatement. If the landlord

parted with its reversionary interest, the agreements would have bound its

successors in title.

4.2 System Floors Ltd v Ruralpride Ltd [1995] 07 EG 125, CA

A landlord (Midland Oak) granted three 21-year leases of commercial units

to System Floors. The leases contained upward-only rent review provisions, a

full repairing covenant, a covenant not to underlet or assign, and a proviso that

the tenant had no right to surrender the term.

However, on the same day the landlord wrote on its headed paper to

System Floors, one copy of which was countersigned by the tenant by way of

acknowledgment and agreement, that the tenant:

• could surrender within three months after any rent review date,

• was not responsible for certain major repairs to the structure or to electrical or

• had the right (subject to three provisos) to underlet the whole of two of the

mechanical systems, and

units with the prior consent of Midland Oak.

The collateral agreement concluded with the following clause that was

personal to the tenant:

“The terms and provisions of this letter and the rights granted thereby are

personal to your company and not capable of assignment to any other party

and will cease to have any effect on the determination surrender or expiration

of the Leases or any one of them.”

The Court held that, notwithstanding the last provision, the obligations in the

letter were clearly intended by both parties to be binding both on Midland

Oak and its successors in title. This decision was based on the construction of

the letter, which expressed Midland Oak’s obligations in the letter to have

been given “in consideration of your today taking from us Leases” and “in

relation to the Leases”. It also took into account the nature of the matters set

out in the letter regarding surrender, and the modifications of the tenant

covenants in respect of repair and underletting. 89

Equally, the commercial reality was that, in the absence of any restriction on

Midland Oak’s ability to dispose of the reversion, the parties could have not

intended to allow Midland Oak to defeat the terms of the agreement by

parting with its interest and thereby extinguishing its provisions.

4.3 Section 2 of the 1989 Act does not apply to side letters to leases or to

agreements that are collateral to a lease.

5 Landlord and Tenant Covenants in Side Agreement 5.1 In the case of leases granted on or after 1 January 1996, tenant and landlord

covenants may be contained in a “’collateral agreement’, [which] in relation

to a tenancy, means any agreement collateral to the tenancy, whether made

before or after its creation”: s 28(1) Landlord and Tenant (Covenants) Act 1995.

5.2 In essence, s 3 of the 1995 Act provides that landlord and tenant covenants in

the lease are binding on the landlord and tenant for the time being.

5.3 Section 28(1) defines “landlord covenant”, in relation to a tenancy, as a

covenant falling to be complied with by the landlord of premises demised by

the tenancy; and “tenant covenant”, in relation to a tenancy, as a covenant

falling to be complied with by the tenant of premises demised by the tenancy.

Therefore, such covenants appearing in a collateral agreement will run with the

reversion or the lease (as the case may be).

5.4 However, where covenants are expressed to be, and are genuinely, personal to

the parties thereto, they can neither be landlord nor tenant covenants. The

rationale behind this was explained in BHP Petroleum Great Britain Ltd v

Chesterfield Properties Ltd [2001] EWCA Civ 1797.

“The crux, as we see it, is the definition of ‘landlord’ in section 28(1) as meaning

‘the person for the time being entitled to the reversion expectant on the term of

the tenancy’ (my emphasis). We find it impossible to read that definition as

meaning only the original landlord… It follows that, transposing that definition

into the definition of the expression “landlord covenant”, what one has is an

obligation “falling to be complied with by [the person who may from time to

time be entitled to the reversion on the tenancy]”. An obligation that (that is

to say, the burden of which) is personal to the original landlord is, by definition,

not such an obligation, since it does not fall to be performed by the person who

may from time to time be entitled to the reversion on the tenancy”: Jonathan

Parker LJ delivering the judgment of the Court of Appeal.