COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM WILLESDEN COUNTY COURT
His Honour Judge Copley
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE JONATHAN PARKER
LORD JUSTICE HOOPER
| Avonridge Property Co Ltd
|- and -
|Amit Mashru & Ors.
Smith Bernal Wordwave Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
Nathan Wells (instructed by Messrs Gattas Denfield) for the Respondents
Crown Copyright ©
Lord Justice Jonathan Parker :
"'Landlord' includes the person for the time being entitled to the reversion immediately expectant on the termination of the Term".
"The Landlord COVENANTS with the Tenant as follows (but not [-] in the case of Avonridge Property Company Limited only [-] so as to be liable after the Landlord has disposed of its interest in the Property) …"
THE 1995 ACT
The background to the 1995 Act
"In the law of landlord and tenant privity of contract means that the original landlord and the original tenant normally remain liable to perform their respective obligations for the whole of the period for which the lease was granted, even if they have parted with all interest in the property. Privity of estate means that the landlord and the tenant for the time being automatically assume responsibility for the lease obligations which relate directly to the property for the period during which they own an interest in it, but they are not necessarily bound to comply with all the terms of the lease."
"4.5 For landlords, we propose a rule that when they part with their interest in the property let by a lease they will escape further responsibiliby for the lease obligations if, but only if, they comply with prescribed conditions. These will involve their giving notice to the tenant and his being able to withhold consent if it is reasonable for him to do so. …."
"4.16 In relation to the liability of landlords, we should have preferred our proposals to have mirrored precisely our recommendations for tenants' covenants. However, that is not possible because tenants rarely, if ever, have a right to give or withhold consent to dispositions by their landlord. They would therefore not be in a position to require continuing liability after an assignment of the reversion and to block an assignment if the condition is not agreed. Moreover, there is less need here for radical change. In most leases, the landlord undertakes far fewer obligations than the tenant and landlords may not be troubled by the prospect of continuing responsibility.
4.17 For these reasons, we do not propose that an assignment of the landlord's reversionary interest should automatically affect his continuing liability. Rather, we recommend that an assigning landlord should have an option to operate a procedure which could end his liability, and his entitlement to benefits, under the lease. A landlord who wished to escape further responsibility would have to give the tenant notice of his proposal to assign. In the notice, the landlord would propose that after the assignment he should no longer have any liability under the lease. It would give the tenant four weeks in which to reply."
"4.57 We could have put forward our proposals for reform as a voluntary code, for parties to adopt if they wished, or as a set of rules to apply as a fall-back in cases where the parties did not expressly agree an alternative. We do not see either of these possibilities as satisfactory. The continuing liability effect of the privity of contract principle can be excluded voluntarily at the moment, but this is rarely done. We think it unlikely, given that there will be no change in the relative bargaining power of landlords and tenants, that new rules which the parties could exclude by agreement would have much effect in implementing the principles underlying our proposed reform. We therefore recommend that the new rules should apply notwithstanding any contract between the parties. In making this recommendation, we bear in mind that our proposals themselves have inherent flexibility when variation of the basic rule is reasonable.
4.58 Clearly, there are many ways in which the parties could seek to circumvent the rules we are proposing. Agreements for this purpose might be made outside the lease or agreement to assign, and might be made with third parties. We cannot foresee all the ways in which it could be done, and we do not consider that it would be satisfactory for statute to try to identify and nullify each individually. We recommend a general provision aimed at invalidating all contracts to the extent that they have the effect of subverting the rules we propose."
"The obligation …. of a covenant entered into by a lessor with reference to the subject-matter of the lease shall, if and as far as the lessor has power to bind the reversionary estate immediately expectant on the term granted by the lease, be annexed and incident to and shall go with that reversionary estate …. and may be taken advantage of and enforced by the person in whom the term is from time to time vested ….; and, if and as far as the lessor has power to bind the person from time to time entitled to that reversionary estate, the obligation aforesaid may be taken advantage of and entered against any person so entitled."
The 1995 Act itself
"An act to make provision for persons bound by covenants of a tenancy to be released from such covenants on the assignment of the tenancy, and to make other provision with respect to rights and liabilities arising under such covenants; to restrict in certain circumstances the operation of rights of re-entry, forfeiture and disclaimer; and for connected purposes".
"In this Act (unless the context otherwise requires) – …."
'landlord' and 'tenant', in relation to a tenancy, mean the person for the time being entitled to the reversion expectant on the term of the tenancy and the person so entitled to that term respectively;
'landlord covenant' in relation to a tenancy, means a covenant falling to be complied with by the landlord of premises demised by the tenancy;
'new tenancy' means a tenancy which is a new tenancy for the purposes of section 1;
'reversion' means the interest expectant on the termination of a tenancy;
'tenancy' means any lease or other tenancy and includes –
(a) a sub-tenancy, …."
"(1) The benefit and burden of all landlord …. covenants of a tenancy –
(a) shall be annexed and incident to the whole, and to each and every part, of the premises demised by the tenancy and of the reversion in them, and
(b) shall in accordance with this section pass on an assignment of the whole or any part of those premises or of the reversion in them.
(6) Nothing in this section shall operate –
(a) in the case of a covenant which (in whatever terms) is expressed to be personal to any person, to make the covenant enforceable by or (as the case may be) against any other person; …."
"(1) This section applies where a landlord assigns the reversion in premises of which he is the landlord under a tenancy.
(2) If the landlord assigns the reversion in the whole of the premises of which he is the landlord –
(a) he may apply to be released from the landlord covenants of the tenancy in accordance with section 8; and
(b) if he is so released from all of those covenants, he ceases to be entitled to the benefit of the tenant covenants of the tenancy as from the assignment.
"(1) For the purposes of section 6 or 7 an application for the release of a covenant to any extent is made by serving on the tenant, either before or within the period of four weeks beginning with the date of the assignment in question, a notice informing him of –
(a) the proposed assignment or (as the case may be) the fact that the assignment has taken place, and
(b) the request for the covenant to be released to that extent.
(2) Where an application for the release of a covenant is made in accordance with subsection (1), the covenant is released to the extent mentioned in the notice if –
(a) the tenant does not, within the period of four weeks beginning with the day on which the notice is served, serve on the landlord or former landlord a notice in writing objecting to the release, or
(b) the tenant does so serve such a notice but the court, on the application of the landlord or former landlord, makes a declaration that it is reasonable for the covenant to be so released, or
(c) the tenant serves on the landlord or former landlord a notice in writing consenting to the release and, if he has previously served a notice objecting to it, stating that that notice is withdrawn.
(4) In this section –
(a) 'the tenant' means the tenant of the premises comprised in the assignment in question ….;
(b) ….; and
(c) 'the court' means a county court."
"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 …."
"16. It seems to me that the words in parenthesis in clause 6 of the lease are tantamount to an agreement to release in advance, and I respectfully agree with the learned editors of Megarry and Wade that such a provision, by virtue of the 1995 Act, and particularly section 25, is void. There is no doubt that the 1995 Act …. had far-reaching effects, and one of the effects was that as from 1st January 1996 …., when the Act came into force, it is not possible, as it were, to contract out, and that for a landlord to escape continuing liability under his covenants in a lease the procedure under the Act has to be gone through, and the words in parenthesis in clause 6 which, on the face of them, seek to avoid that procedure, cannot be other than avoided under section 25."
"The wording of section 25 of [the 1995 Act] is in clear and unequivocal terms, and the provision in the lease to limit the landlord's liability is clearly an attempt to 'exclude, modify or otherwise frustrate' the operation of sections 6 and 8 thereof and is void, thus precluding the landlord from relying thereon in the claim against them for breach of covenant."
THE ARGUMENTS ON THE APPEAL
"Nor can we see anything in the 1995 Act to fetter the freedom of contracting parties to place a contractual limit on the transmissibility of the benefit or burden of obligations under a tenancy. On the contrary, that no such fetter was intended by Parliament is clearly demonstrated, in our judgment, by section 3(6)(a) …."
"Any agreement relating to a tenancy is void to the extent that it would, but for the anti-avoidance provision, have effect to exclude, modify or otherwise frustrate the operation of any provision of the [1995 Act]. Thus, a term of a lease that a guarantor for the lessee should remain liable on all the tenant covenants in the lease, however varied during the term granted, and for the duration of the term notwithstanding any assignment, would be void on account of the provisions of the [1995 Act] relating to release of guarantors and non-liability for the consequences of post-assignment variations. Similarly, an agreement expressly limiting the applicability of one or more of the sections of the [1995 Act] would be void because it would have effect to modify the operation of the Act. Limb (a) [a reference to section 25(1)(a)] goes yet further, seemingly for the avoidance of any doubt, and makes void any agreement which would 'otherwise frustrate' the operation of any provision of the Act. It is not obvious how an agreement which does not have effect to exclude or modify the operation of any provision of the Act can frustrate the operation of any such provision; but it is possible that it was intended to catch an agreement delaying the operation of provisions of the Act. The [1995 Act] does not provide for landlords to remain liable on their covenants after assignment of the reversion; it provides that, in certain circumstances, a landlord can be released from any such continuing liability. It is therefore considered that a term of a lease, which provided for a landlord's liability under his covenants to terminate upon an assignment of the reversion, would not be void under the anti-avoidance provision; yet, in one sense, it would 'frustrate' the operation of sections 6, 7 and 8 of the Act," (Emphasis supplied)
"Agreements to release in advance void. Although either party to a tenancy may release the other from a covenant, any provision in the lease by which a tenant binds himself to release the landlord on an assignment of the reversion will be void as contravening the anti-avoidance provisions of the Act. The expressed intention of the provisions is that a tenant should be able to object to the release of landlord covenants in cases where it is unreasonable for the landlord to seek it. For a tenant to undertake in advance to give such a release on an assignment by the landlord, regardless of the circumstances that might then prevail, would plainly frustrate that purpose."
Lord Justice Hooper:
Lord Justice Pill: