COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
(MR. EVANS-LOMBE Q.C. sitting as a Deputy High Court Judge of the Chancery Division)
B e f o r e :
LORD JUSTICE NEILL
LORD JUSTICE BINGHAM
| ASHBURN ANSTALT
|WALTER JOHN ARNOLD and W.J. ARNOLD & COMPANY LIMITED
MR. R. C. PRYOR Q.C. and MISS ERICA FOGGIN (instructed by Messrs. Pritchard Englefield & Tobin) appeared for the Respondents (Defendants).
Crown Copyright ©
The issues arise in this way. Arnold & Co. and their predecessor, Mr. W. J. Arnold, have for many years carried on business at shop premises in Gloucester Road, London. I will refer to them as 126 Gloucester Road. Immediately prior to the agreement of 28th February 1973 to which I will refer in more detail later, Mr. Arnold owned a headlease of the premises for a term of 52-J years granted on 31st December 194-5 and Arnold & Co. owned a sublease expiring on 29th September 1973.
In the agreement of 28th February 1973 (which was made between Arnold & Co. of the one part and Matlodge Ltd. of the other part) Mr. Arnold sold the headlease to Matlodge for £205,000. By a further agreement of the same date (which I will call the 1973 Agreement) Arnold & Co. sold the sublease to Matlodge.
"5. From and after completion Arnold shall be at liberty to remain at the property as Licensee and to trade therefrom until 29th September 1973 without payment of rent or any other fee to Matlodge save that Arnold shall pay all outgoings so long as it is in occupation of the property from and after 29th September 1973 Arnold shall be entitled as Licensee to remain at the property and trade therefrom in the Like terms save that it can be required by Matlodge Limited to give possession on not less than one quarter's notice in writing upon Matlodge certifying that it is ready at the expiration of such notice forthwith to proceed with the development of the property and the neighbouring property involving inter alia the demolition of the property.
6. Matlodge hereby warrant that it intends either itself or its successor in title to redevelop the property and the neighbouring property by the erection inter alia of shops and hereby undertakes that in consideration of the disturbance to be suffered by-Arnold it or its successor in title will grant to Arnold on completion of the development a lease of a shop in a prime position at the development with an area available for trading of approximately 1000 square feet and with carpark facilities within development for a term of twenty one years and the rent in respect of such lease shall for the first seven years be 25 per cent less than the market rent and thereafter shall be at the market rent subject only to the rent being reviewed to the then market rate at the expiration of the seventh and fourteenth years from the date of its grant Arnold shall within fifty six days of being offered the grant of such lease elect in writing to Matlodge or its successor whether or not it will take up the lease and if it shall not so elect or if it shall elect not to take up the lease then the provisions of this clause shall lapse. In the event of Arnold taking up the lease then the lease shall be capable of assignment for seven years from the commencement of the term except at the full market rent. The market rent shall be such rent as may be agreed between the parties in accordance with the criteria laid down in the Landlord and Tenant Act (as amended) and in the event of the parties failing to agree such market rent then either party may upon giving notice to the other have the question of the market rent determined by a Chartered Surveyor acting as an expert and not as an arbitrator and to be appointed on the application of either party by the President for the time being of the Royal Institution of Chartered Surveyors whose decision shall be final and binding on the parties and whose fees shall be borne as directed by such expert. This provision for fixing the market rent shall apply to the initial market rent and to the market rent at the seventh and fourteenth years."
On 24th February 1973 the benefit of the 1973 Agreement was assigned by Matlodge to Cavendish Land Co. Ltd. ("Cavendish") which was the owner of the freehold. In 1976 the provisions of clauses 5 and 6 of the 1973 Agreement were novated between Cavendish and Arnold & Co. Cavendish subsequently transferred the freehold to the Legal and General Insurance Society who transferred it to the plaintiffs, Ashburn Anstalt ("Ashburn") in 1985. In our previous judgment we held, inter alia, (a) that clause 5 of the 1973 Agreement created a lease and not a mere licence and (b) that the provisions of clause 6 constitute an "overriding interest" under the Land Registration Act 1925 in respect of 126 Gloucester Road (i.e. the property actually in the occupation of Arnold & Co. when the freehold was sold to Ashburn). The provisions of clause 6 were never registered "by Arnold & Co. as an estate contract; accordingly Arnold & Co. have no enforceable rights in respect of clause 6 against Ashburn (with whom they have no contractual relationship) except such as they may have by reason of the overriding interest.
Ashburn owns, under several different registered titles, a block of property at Gloucester Road, part of which is 126 Gloucester Road. They intend to develop the whole block. As regards planning permission we were informed that Ashburn's plans for development have been approved but that there is an outstanding question as to a listed building consent. We have not seen any documents regarding planning permission.
We were also informed that in September 198? Ashburn had entered into an agreement with the local authority under section 52 of the Town and Country Planning Act 1971 by which most of the site occupied by Arnold & Co.'s premises will be used as a public way.
In January 1988 Arnold & Co. commenced proceedings in the West London County Court for the grant of a new lease at 126 Gloucester Road under the Landlord and Tenant Act 1954. The proceedings are based on the decision of this court that clause 5 of the 1973 Agreement created a lease.
Whether in the absence of an undertaking by Ashburn to offer to Arnold & Co. a lease of a shop elsewhere on the development, Arnold & Co. would be entitled to any of the following relief, namely:-
(a) to restrain Ashburn from proceeding with any development which did not provide suitable shop premises on the land now subject to the overriding interest;
(b) to compel Ashburn to offer Arnold & Co. a lease of a shop on the land now subject to the overriding interest if shop premises were in fact to be constructed thereon or
(c) damages in lieu of specific performance.
These questions relate to the extent of Arnold & Co.'s rights against Ashburn in respect of the provisions of clause 6 of the agreement. That clause constituted an estate contract. If Arnold & Co. had registered that estate contract under the Land Registration Act it would have been enforceable against Ashburn. However, Arnold & Co. failed to register it. The result is that clause 6 is void as against Ashburn save to the extent that its provisions constitute an overriding interest. In our previous judgment we held that there was only an overriding interest in respect of the land occupied by Arnold & Co. which Ashburn purchased, that is to say "126 Gloucester Road (to the site of which I will refer as "the Gloucester Road site"). Ashburn was never under any contractual liability to Arnold & Co. in respect of the provisions of clause 6; the clause was part of a contract between Arnold & Co. and Matlodge and by novation, with Cavendish; Ashburn was never a party to that contract. The following propositions appear to me to be correct:-
(1) Arnold & Co. cannot have any different rights against Ashburn than Arnold & Co. had, as a matter of contract, against Cavendish. The overriding interest merely protects existing rights in respect of occupied land; it does not extend or otherwise alter them. Thus, suppose, for example, that Arnold & Co. had contracted for a lease of the whole of the development site but only had an overriding interest in respect of a small part of it. Arnold & Co. could not insist upon a lease of that part at an apportioned rent (though it may be, as Mr. Goodhart was willing to concede, that it could insist upon a lease of that part - at any rate if it was a substantial part - at the full rent).
(2) Arnold & Co. has no enforceable rights at all under clause 6 over or in respect of that part of the development site to which its overriding interest does not extend. Accordingly it has no rights in respect of any land other than the Gloucester Road site.
(3) Clause 6 conferred no rights upon Arnold & Co. to require a shop to be built upon the Gloucester Road site. The only right conferred by clause 6 was on completion of the development to have a grant of a lease of a shop in a prime position, with certain special characteristics, for the term and at the rents and subject to the provisions stated in clause 6. It is entirely a matter for Ashburn to decide where it sites shops on the development. It is asserted, as I understand it, that there never was an agreement to grant a lease but merely a warranty sounding in damages. I do not agree with that. I think that the "undertaking" given in clause 6 was a contract. Accordingly, to compel Ashburn to build such a shop would be imposing upon Ashburn a different liability to that for which it contracted in clause 6.
(4) If Ashburn build a shop completely on the Gloucester Road site and do not offer to Arnold & Co. any other shop (within the description in clause 6) Arnold & Co. are entitled to insist upon the grant of a lease of the shop on the Gloucester Road site. Mr. Goodhart was, I think, disposed to accept that but in any event it seems to me to be correct. What is protected by the overriding interest is a contract to grant a lease. The question is in what circumstances could Cavendish, consistently with the provisions of clause 6, have been compelled to grant a lease to Arnold & Co. of the Gloucester Road site. In that connection, Ashburn cannot be in any worse position than Cavendish. For present purposes, the circumstances, I think, are two. First, if the only shop premises built upon the development are upon the Gloucester Road site, the grant of a lease of that shop would be the only way of giving effect to clause 6; secondly, if shop premises are built on the Gloucester Road site and other shop premises on other parts of the development but Cavendish refused to offer a lease of any shop at all. In those circumstances, I apprehend the court would permit Arnold & Co. to make a choice itself and would enforce the choice - which could be the Gloucester Road site. In the present circumstances, Arnold & Co. cannot insist upon a lease of a shop outside the Gloucester Road site but, if one is built upon that site and Ashburn refuses to grant a lease of any other, I do not see why Arnold & Co. should not be able to insist upon a lease of the shop on the Gloucester Road site. Arnold & Co. would have no better rights and Ashburn no worse rights than Arnold & Co. and Cavendish respectively would have had if Cavendish had remained the owners of the freehold.
I now come to Mr. Pryor's contention on behalf of Arnold & Co. He asserts that, if Ashburn's development is such that a shop is built partly on the Gloucester Road site and partly on land belonging to Ashburn, then Ashburn is bound to offer a lease of the shop to Arnold & Co. That, it is said, is the only way to give effect to the overriding interest. I do not feel able to accept that. Arnold & Co. have no interest which they can enforce over any part of the development other than the Gloucester Road site. Any other conclusion would involve, in effect, treating the overriding interest as applying to land to which it certainly does not apply. There are no circumstances in which Arnold & Co. could claim a lease of a shop built wholly outside the Gloucester Road site. That is simply because they had no overriding interest in respect of such land. For the same reason, Arnold & Co. can have no rights in a shop built partly on the Gloucester Road site and partly outside it. What clause 6 is dealing with is the lease of an entire shop premises. The fact that Arnold & Co. has an overriding interest in part of the premises is not a reason for conferring upon Arnold & Co. what is, in effect, the same right in respect of other land. The only reservation I make to that is that, if the overlap on the land outside the- Gloucester Road site was trivial, it might be possible for the court to disregard it, but I express no concluded view on the point since its determination would require a consideration of the precise facts of a situation which does not at present exist. If there is any hardship in that result it is essentially the consequence of Arnold & Co.'s failure to register its clause 6 rights as an estate contract. From what we know of the facts the point seems likely to be academic since it seems probable that no shop will be built on any part of the Gloucester Road site (either because of the section 52 agreement or because Ashburn do not wish to build there).
As regards any award of damages in lieu of specific performance, it is difficult to see in what circumstances that could arise. At the completion of the development, either Arnold & Co. is entitled as of right to a lease of some part of the development or it is not. In any event, the award of damages in lieu of specific performance is .a discretionary matter and I do not think we can usefully speculate upon the circumstances in which it might be appropriate. It was argued by Mr. Pryor for Arnold & Co. that it would be better if this court left the questions considered above to the judge in the Landlord and Tenant Act proceedings. I see no need for that course and it seems better that we should deal with them ourselves.
Order: Declarations made as sought. Plaintiffs to have costs of further argument. Leave to appeal to the House of Lords refused.