Summary

Lessors were entitled to an equitable interest in a lease where assignees of a long lease contracted to sell the lease to a third party without first offering the lease to the lessors, as they were obligated to do under the lease. Section 17 Landlord and Tenant Act 1954 did not preclude the creation of that equitable interest.

Facts

Appeal from the decision of Lindsay J that an equitable interest in a lease vested in the lessors because assignees of a long lease ('the Bailies') had failed to perform an obligation to offer to sell their lease to the lessors. Clause 5 of the subject lease conferred a right of pre-emption on the lessor if ever the lessees wished to dispose of the lease. In 1986 the Bailies agreed to sell the lease to the first appellant ('Tiffany'). The 1986 agreement was never completed by registration of the assignment of the lease to Tiffany. The Bailies moved out of the property with the effect that the protection of the lease offered by Part I Landlord and Tenant Act 1954 ceased. In 1999 Tiffany agreed to sell the lease to the second appellant ('C'). On the same day the Bailies sought the lessors' consent to an assignment of the lease to C and gave notice under clause 5. The lessors declined to exercise their right of pre-emption but failed to respond to the request for consent to assign. In 2002, as a result of a compromise agreement, the Bailies gave notice under clause 5 offering to sell the lease to the lessors and the lessors accepted. By a Tomlin order the Bailies were required to assign the lease to the lessors for consideration of £250,000. Tiffany and C subsequently commenced the instant proceedings. The judge concluded that: (i) under clause 5 the Bailies had an obligation to offer to sell the lease to the lessors immediately before the conclusion of the 1986 contract to sell the lease to Tiffany; (ii) that obligation was not affected by s.17 of the Act; (iii) due to failure to perform that obligation an equitable interest in the lease vested in the lessors in 1986; and (iv) that equitable interest had priority over any interest of Tiffany or C.

Held

(1) The judge was correct that clause 5 imposed a positive obligation on the Bailies (Pritchard v Briggs (1980) 1 Ch 338 and Bircham & Co Nominees Ltd v Worrell (2001) EWCA Civ 775 considered). In the case of a right of pre-emption, the making of an offer was essential to the right conferred because without it the landlord was unable to compel the tenant to give effect to it. (2) The relevant time at which the obligation was to be performed depended on the proper interpretation of the language by which the right was conferred. "Dispose" in clause 5 included "assign" but there was no reason why it should be limited to "assign". The judge was correct to conclude that at the moment of the conclusion of the 1986 agreement the failure of the Bailies to offer to sell the lease to the lessors for £250,000 constituted a breach of clause 5. (3) The lessors, as holders of the right of pre-emption, became entitled to an equitable interest in the lease commensurate with that of a purchaser under a binding contract for sale at a price of £250,000. (4) The judge was correct to conclude that s.17 of the Act did not preclude the creation of the equitable interest in 1986, although he gave a wider operation than was justified to the observations of Sir Anthony Plowman V-C in Re Hennessey (1975) 1 Ch 252. Section 17 did not affect the validity of clause 5 or any steps taken in its performance. It could not therefore affect the creation of in the lessors of the equitable interest that arose. (5) The lessors equitable interest had priority over any interest of either Tiffany or C.

Appeal dismissed.