Summary

Transfers of property had not provided for the seller's positive covenants, concerning the grant of leases conditional on the obtaining of planning permission or on the exercise of an option, to be enforceable against the buyer. The covenants were not annexed to the property under the Landlord and Tenant (Covenants) Act 1995 s.3, as the Act did not apply to options to take a lease that had not been exercised, or to conditional agreements to grant a lease.

Facts

The claimants (R) claimed damages against the defendant (V) for breach of ten agreements permitting R to develop properties owned by V.

The properties were filling stations, which R planned to develop by building flats and offices above and around them. The agreements provided that R would obtain planning permission and then develop the properties pursuant to a building lease granted by V. On completion of the development R would acquire a freehold or long leasehold. Some of the agreements were conditional agreements to grant a building lease, some were options to take a building lease. There was no express restriction on assignment of the leases by V. Before any planning permission was obtained, V sold its interest in the properties. The sale transfers contained covenants that the buyer would observe and perform all registered covenants. R alleged that the effect of the sale was that V was in breach of the agreements, had put them out of its power to perform, had renounced them, had rendered them impossible to perform and had committed a repudiatory breach. V agreed that there was an implied term that it was bound not to do anything to prevent performance of the agreements. The preliminary issues were whether (i) a term should be implied that V was prohibited from disposing of the properties during the currency of the agreements; (ii) the sale put it out of V's power to perform its obligations under the agreements; (iii) R had repudiated the agreements; (iv) time ran from the date of the contract to sell, which would make the action statute-barred, or whether it ran from the date of the transfers; (v) V was liable for damages for non-repudiatory breach.

V argued that the Landlord and Tenant (Covenants) Act 1995 s.3, which annexed to a property the benefit and burden of all landlord and tenant covenants of a tenancy and provided that they would pass with assignment of the reversion, applied to the agreements, as the definition of "tenancy" in s.28 included agreements for a tenancy.

Held

(1) On the true construction of the agreements there was nothing prohibiting assignment by V and there was no proper basis for implying such a term. No term should be implied prohibiting sale of the properties by V (see para.37 of judgment). (2) The 1995 Act did not apply to option agreements in which the option was not exercised. The 1995 Act was intended only to apply to the running of covenants in landlord and tenant relationships. There was no necessary justification for extending the principle to options, which were not strictly speaking either offers or conditional contracts, Spiro v Glencrown Properties Ltd [1991] Ch. 537 considered. The 1995 Act did not apply to the conditional agreements. Conditions precedent to the grant of a lease were not covenants that were part of the agreement for a tenancy, nor were they comprised within the landlord or tenant covenants within the meaning of a tenancy in s.28(1). Therefore, the burden of the personal obligations undertaken by V could not have passed automatically to purchasers from V on an assignment. After the assignments V was unable to bring about performance of the agreements as the clauses in the assignments were insufficient to render the covenants in the agreements enforceable against the buyers. There was no valid distinction between the instant case and the case of Harris v Boots Cash Chemists (Southern) Ltd [1904] 2 Ch. 376, which held that the true object of a covenant to "perform and observe" was to indemnify and protect the original lessee, Boots considered. To place an assignee under a specific obligation to the assignor to perform, going beyond mere indemnity, there had to be a clear covenant in unequivocal terms. Accordingly, V had put it out of its power to perform the agreements by assigning the properties in the way that it did (paras 46, 51, 55-56, 68, 71, 74). (3) There was clear evidence that R had affirmed the agreements. If that were wrong, R had not communicated any acceptance of repudiation (para.97). (4) V could have performed the agreements in breach of the sale agreements. If it was sued for specific performance by the buyers, R's interests would have prevailed as they had been created first in time. Therefore, the claim was not statute-barred (paras 108-109). (5) R's claim for non-repudiatory breach was adjourned for further argument (para.113).

Preliminary issues determined