England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM SOUTHAMPTON COUNTY COURT
RECORDER N J MURPHY
1IR81564

		Royal Courts of Justice Strand, London, WC2A 2LL
		2nd December 2014

Lord Justice Kitchin:

Introduction

1. This is an appeal against the judgment of Mr Recorder Murphy dated 4 June 2013 and his consequential order giving judgment for the respondent ("Lankester") upon its claim against the appellants ("Mr and Mrs Rennie") for arrears of rent and other sums said to be due under a lease and dismissing the counterclaim of Mr and Mrs Rennie for a declaration that the lease was no longer vested in them, having been assigned to a third party or surrendered by operation of law. Mr and Mrs Rennie appeal with the permission of Maurice Kay LJ granted by order dated 20 February 2014.

The background

2. By a lease ("the lease") dated 5 December 2007 Lankester demised to Mr and Mrs Rennie premises comprising a car showroom, a workshop and associated facilities on Janson Road in Southampton ("the premises") for a term commencing on 1 May 2007 and expiring on 28 August 2017. The lease provided for an annual rent, subject to review, of £35,000.
3. The lease contained the following, among other, covenants by Mr and Mrs Rennie:

i) to pay the rent without deduction or set off by equal quarterly payments in advance on the usual quarter days (clause 3.1);

ii) to pay, within 10 working days of demand, the amount which Lankester expended in effecting various insurances described in the lease (clause 6.2.1);

iii) to pay interest at 4% above the base rate of Lloyds TSB Bank plc from time to time in force on sums unpaid more than 14 days after falling due (clause 7.2);

iv) not to assign the benefit of the lease without Lankester's written consent, which consent was not to be unreasonably withheld (clause 7.10);

v) to pay on an indemnity basis the proper legal charges and expenses incurred by Lankester in connection with the recovery of arrears of rent or other amounts due under the lease (clause 7.2.2).

4. Clause 2.4 conferred upon Mr and Mrs Rennie an option to end the lease upon giving not less than six months' notice in writing of their intention to do so provided they had paid the rent and any other monies due. The clause contained two further important limitations: first, it was only ever exercisable by Mr and Mrs Rennie and not by any person to whom the lease might be assigned; second, it expired on 1 May 2012.
5. Upon taking up the lease, Mr Rennie began to use the premises for his motor car sales business. However, in October 2008, he decided that he wished to surrender the lease and approached Mr House, a director of Lankester, about doing so.
6. Shortly afterwards, Mr Rennie introduced Mr House to the directors of a company called The Car Agency Ltd ("TCA") which had expressed an interest in taking over the premises as a tenant. Discussions took place about a surrender of the lease and a new grant to TCA but these were replaced, in early November 2008, with discussions about the possible grant by Lankester to Mr and Mrs Rennie of a licence to assign the lease to TCA.
7. Mr House was sympathetic to Mr Rennie's wish to extricate himself and Mrs Rennie from their obligations under the lease and indicated that Lankester would be prepared to give its consent to the proposed assignment of the lease on condition that two directors of TCA, Mr Pestell and Mr O'Regan, each entered into a personal guarantee with Lankester that TCA would comply with its obligations under the various tenant covenants. No such guarantees were ever forthcoming.
8. Meanwhile, Mr and Mrs Rennie and TCA instructed solicitors, Messrs Kirklands ("Kirklands"), to act for them both in connection with, first of all, the surrender of the lease by Mr and Mrs Rennie and the grant to TCA of a new lease and then, as their intentions changed, the assignment by Mr and Mrs Rennie of the lease to TCA. At this point two further problems emerged, as I must now explain.
9. The first concerned the inability of Mr and Mrs Rennie to register their leasehold interest in the premises at the Land Registry. It emerged that Lankester was the freehold owner not just of the premises but also of adjacent retail premises ("the adjacent premises") which were at all material times let to Tesco Stores Ltd trading as Tesco Express ("Tesco"). On attempting to register the interest of Mr and Mrs Rennie at the Land Registry, Kirklands found this was not possible because the premises had been included within the scope of Tesco's registered title relating to the adjacent premises. It took some time to secure the appropriate rectification of the register and so it was not until 8 December 2009 that Mr and Mrs Rennie were able to and duly did register themselves as proprietors of their own leasehold interest.
10. The second concerned the position of TCA. Not only were its directors not prepared to enter into guarantees of TCA's liabilities under the lease but, in addition, TCA itself wanted the benefit of the break clause which Mr and Mrs Rennie enjoyed but which, upon the terms of the lease, would be lost upon assignment.
11. The Recorder found that Mr House was well aware that Mr and Mrs Rennie wanted to vacate the premises as soon as possible. However, he also found that Mr House warned Mr Rennie that if he and Mrs Rennie were to allow TCA to occupy the premises without there being a formal assignment then Mr and Mrs Rennie would remain fully responsible for their obligations under the lease. Nevertheless, in November 2008 Mr and Mrs Rennie did vacate the premises and allowed TCA to take up occupation. From about December 2008, Lankester began to receive from TCA, initially on a quarterly basis, sums referable to the rent payable by Mr and Mrs Rennie under the lease.
12. Mr and Mrs Rennie and TCA also proceeded with their preparations to assign the lease and, by January 2009, Kirklands held the transfer deed which Mr and Mrs Rennie had signed. The terms upon which Kirklands held it gave rise to one of the issues with which the Recorder had to deal.
13. Over the course of 2009 TCA and Lankester communicated with each other about TCA's occupation of the premises. So far as material, TCA asked Lankester to effect various repairs to the premises and sought Lankester's permission to make certain improvements to the workshop. Then, in November 2009, Lankester agreed to a request by TCA that, as from December 2009, payments on account of rent should be made monthly rather than quarterly.
14. There matters rested until, on 24 February 2010, Mr Pestell, on behalf of TCA, wrote to Mr House, on behalf of Lankester, giving notice of TCA's intention to vacate the premises. He said:

"I regret that we have been unable to accept the terms of the assignment of the above lease, therefore, have made a decision to vacate the premises. The main point that has led me to make this decision is that we were advised that there was a break clause in the lease. Other points were that we were lead (sic) to believe the rates were £500 per month and that the Valet Bay had full permission to operate.

The company has carried out extensive work in the workshop in that we have completely re-wired it and have fitted two ramps which we will be leaving behind.

I am disappointed that we have had to make this decision and hope that you will be able to find another tenant quickly."

15. On 8 March 2010 solicitors for Lankester, Messrs Warner Goodman LLP ("Warner Goodman"), wrote letters to Mr and Mrs Rennie, to TCA and to Mr Pestell and Mr O'Regan. In their letters to TCA, Mr Pestell and Mr O'Regan they asserted that the lease had been assigned to TCA, that TCA remained liable in respect of the various tenant covenants and that Mr Pestell and Mr O'Regan had executed personal guarantees and were jointly and severally liable with TCA. In their letter to Mr and Mrs Rennie they made the same assertions but made clear that it was their understanding that the documents necessary to effect an assignment had never been completed and, in the event the lease had not been assigned, Lankester would pursue them in respect of any sums due under it.
16. On 6 April 2010 Warner Goodman wrote further letters to Mr and Mrs Rennie and to TCA. In their letter to TCA they contended that TCA's actions in occupying the premises and paying the rent due under the lease estopped it from denying it was the assignee of the lease. In their letter to Mr and Mrs Rennie they again asserted that Mr and Mrs Rennie remained liable under the terms of the lease, and that the assignment had never been completed. They also explained they had been instructed, in the first instance, to pursue TCA for all sums outstanding under the lease but that Lankester reserved its right to pursue Mr and Mrs Rennie in respect of any shortfall.
17. In or about July 2010 TCA agreed to pay Lankester the sum of £15,000 in respect of its claim against it. On 28 September 2010 Warner Goodman wrote to Mr and Mrs Rennie seeking the balance of rental arrears, Lankester's legal expenses and the costs of securing the premises following the departure of TCA. They also notified Mr and Mrs Rennie that the next quarterly payment would fall due on 29 September 2010. Lankester issued these proceedings in December 2011.
18. The case came on for trial before the Recorder on 31 January and 1 February 2013. It was Lankester's case that the personal guarantees from Mr Pestell and Mr O'Regan had never been forthcoming; that no licence to assign the lease had ever been granted by Lankester to Mr and Mrs Rennie; that Mr Rennie permitted TCA to occupy the premises and did so at his own risk; and that no formal assignment of the lease by Mr and Mrs Rennie to TCA had ever taken place. Further, Mr and Mrs Rennie had never exercised their rights under the break clause and it was too late to do so now. They therefore remained liable under all of the tenant covenants.
19. Mr and Mrs Rennie argued that there had been an effective assignment of the lease, at least in equity, for they had executed and delivered the deed of transfer. It only remained to register the assignment but this could not be done until the entry on the register of Tesco's interest in the adjacent premises had been rectified. Further, Lankester was estopped from contending that TCA was not its tenant in respect of the premises as from December 2008, and this estoppel in some way operated in favour of Mr and Mrs Rennie so as to prevent Lankester from asserting its claim against them under the lease. Yet further, Lankester, Mr and Mrs Rennie and TCA had all acted upon the common assumption that, as from December 2008, TCA was Lankester's tenant in respect of the premises and so Lankester was bound by an estoppel by convention from asserting otherwise. Finally, the settlement of the claim by Lankester against TCA in July 2010 brought about a surrender of the lease by operation of law.
20. The Recorder heard evidence from Mr House and Mr Rennie. TCA was not a party to the proceedings and nobody gave evidence on its behalf, so making the evidence of Mr House and Mr Rennie particularly important. In the event they gave sharply conflicting accounts of the events which occured in late 2008. Mr Rennie said that Mr House agreed that if he, Mr Rennie, found a new tenant acceptable to Lankester then it would accept a formal surrender of the lease, and that in due course Mr House expressly agreed that TCA could occupy the premises before completion of the various formalities necessary to effect an assignment of the lease. By contrast, Mr House explained that although he initially considered the possibility of a surrender of the lease and then the grant of a new lease to TCA, he had made it clear to Mr Rennie by the end of October that this was not something to which Lankester could agree, but that Lankester would be prepared to allow Mr Rennie to assign the lease to TCA subject to completion of all of the necessary formalities, and further provided TCA's performance was guaranteed by its directors, Mr Pestell and Mr O'Regan.
21. In the end the Recorder much preferred the evidence of Mr House to that of Mr Rennie, and he found that Mr Rennie's evidence had been tailored to the issues. I have mentioned some of the specific findings made by the Recorder earlier in this judgment. But he also made the following further findings which have a bearing on this appeal. First, Lankester continued to insist upon the provision of personal guarantees by the directors of TCA as a condition of granting Mr and Mrs Rennie permission to assign the lease. Second, Mr Rennie not only knew but accepted that if he allowed TCA into occupation of the premises prior to the completion of the necessary formalities then he and Mrs Rennie would remain fully responsible for their obligations under the lease. Third, TCA entered into occupation without Lankester's knowledge or permission, so presenting Lankester with what was, in effect, a fait accompli. Fourth, it was unlikely that there was ever any completion of the formalities concerning the deed of assignment within Kirklands' offices, and that this was, at least in part, a result of the ongoing difficulties faced by Mr and Mrs Rennie in securing the registration of their own title. Fifth, the reason given by TCA for refusing to proceed in February 2010 and for vacating the premises, namely that it would not have the benefit of a break clause, was genuine. Sixth, that the approach taken by Warner Goodman in their letters to Mr and Mrs Rennie and to TCA in 2010 did not, when those letters were considered together, amount to an acknowledgment that TCA was Lankester's tenant under the lease. Finally, and importantly, there was no evidence that Mr and Mrs Rennie had ever acted to their detriment in reliance upon anything said or done by Lankester in its dealings with TCA.
22. Having made these findings, the Recorder then proceeded to reject the contentions that there was ever an effective assignment of the lease, that Lankester was estopped from asserting that Mr and Mrs Rennie remained its tenants under the lease and that Lankester was precluded from asserting that Mr and Mrs Rennie were liable under the tenant covenants. He also found that the parties had never acted under any common assumption that TCA was the assignee of the lease. And finally he rejected the argument that the settlement by Lankester of its claim against TCA in July 2010 in some way amounted to a surrender of the lease by operation of law.
23. Upon this appeal Mr Allston has appeared on behalf of Mr and Mrs Rennie, as he did below. He submits that the Recorder fell into error in rejecting each of the ways in which the case of Mr and Mrs Rennie was advanced. I will address them in turn.
24. Mr Allston contends first of all that the deed of transfer held by Kirklands was properly executed by Mr and Mrs Rennie and had the effect of transferring the lease to TCA, at least in equity. Further, Mr Alston continues, the transfer was operative even if Lankester had not given its consent.
25. It was common ground between the parties that the deed of transfer could not, of itself, confer legal title upon TCA, for this required registration of the transfer and such registration never occurred. In these circumstances I have to say that I entertain considerable doubt as to whether, even if Mr Allston is correct in saying that the deed was properly executed and delivered, it had any effect upon Lankester's rights as against Mr and Mrs Rennie, for, as Mummery LJ explained in Brown & Root Ltd v Sun Alliance Ltd [2001] Ch 733 at 742, it is important to keep clear and distinct the position as between the parties to the transfer of the lease and the position as between lessor and lessee. We are concerned here not with the rights as between Mr and Mrs Rennie and TCA but with the rights as between Lankester and Mr and Mrs Rennie. That means we are concerned with a question of legal, not equitable, rights. Be that as it may, and, not having heard full argument upon it, I prefer not to express a final view, I am nevertheless entirely satisfied that Mr Allston's submission must be rejected in the light of the findings of the Recorder to which I now turn.
26. It is of course well established that the final formality required in order for a deed to become effective is delivery. This is essentially a question of the intention of the maker of the deed, but it must be shown one way or another that the maker intends the document to be executed as his deed and to be binding upon him. Here the deed was held by Kirklands who were, perhaps somewhat unusually, acting for both the transferors, Mr and Mrs Rennie, and the transferee, TCA. Moreover the Recorder found there were several outstanding matters, namely the inability of Mr and Mrs Rennie to register their own title, the requirement of Lankester that there should be personal guarantees from the directors of TCA as a condition of its agreeing to an assignment of the lease, and the requirement of TCA that there should be a break clause as a condition of its agreeing to become assignee. I also have well in mind that the Recorder did not have the benefit of hearing evidence from any person with conduct of the matter at Kirklands, or from any person engaged with the transaction at TCA. Further, he preferred the evidence of Mr House to that of Mr Rennie. In all these circumstances it comes as no surprise to me that the Recorder found it was unlikely that the formalities of execution were ever completed. Put another way, Kirklands were holding the document on behalf of both Mr and Mrs Rennie and TCA pending final instructions for its delivery. I am satisfied that this was a finding with which we should not interfere.
27. That brings me to estoppel. Mr Allston has developed his submissions in the following two ways. First, Lankester is and was estopped from denying that TCA was the lawful assignee of the lease. Developing the argument further, Mr Allston contends that Lankester, by its officer, Mr House, and by its conduct, represented to Mr Rennie that TCA was its tenant by virtue of the assignment, and that Mr and Mrs Rennie relied upon this representation to their detriment. In all the circumstances it is unconscionable for Lankester to assert to the contrary in these proceedings and the Recorder should have held that it is estopped from so doing.
28. Second, an estoppel has arisen by convention. Here, Mr Allston continues, Lankester, Mr and Mrs Rennie and TCA have all, since late 2008, shared and acted upon a common understanding and agreement that TCA had become assignee of and tenant under the lease. Further, he says, all the parties communicated this understanding and agreement to each other in one way or another and it formed the basis of their dealings with each other. Accordingly, for these reasons too, it is unconscionable for Lankester now to assert otherwise.
29. Mr Allston relies in support of these submissions upon a number of matters. In relation to TCA, he points to the fact that TCA went into occupation of the premises in November 2008 and thereafter used the premises for the purposes of its business until 2010. Further, TCA paid the rent and insurance rent reserved by the lease throughout the period of occupation; procured Lankester to carry out various repairs to the premises; secured a new monthly rent payment regime; and carried out various improvement works to the premises. Moreover, it did so without the benefit of a break clause. As for Lankester, Mr Allston says that it accepted that TCA was in occupation in place of Mr and Mrs Rennie; accepted the rent and insurance rent from TCA; carried out the repairs to which I have referred and permitted TCA to make the various improvements to the premises. Further, it allowed TCA to take up occupation without the provision of personal guarantees from its directors. Finally, says Mr Allston, the conclusion that Lankester is estopped from contending that TCA is not the assignee of the lease is strongly supported by its conduct after TCA vacated the premises, and here he points to the correspondence from Warner Goodman in March and April 2010.
30. In assessing the contention that there is in this case an operative estoppel by representation it is, I think, important to keep well in mind the different relationships in issue. We are primarily concerned with the relationship between Lankester and Mr and Mrs Rennie, and not with the relationship between Lankester and TCA, for it is well established that an estoppel by representation is personal to the parties. In this connection it is necessary to have regard to the following further findings which the Recorder made, namely that Mr House told Mr Rennie (and Mr Rennie accepted) that Lankester would be prepared to allow an assignment of the lease if, and only if, personal guarantees from TCA's directors were forthcoming, but they never were and further, that if Mr Rennie allowed TCA into possession of the premises without there being a formal assignment then Mr and Mrs Rennie would remain liable in respect of all the tenant covenants under the lease; that Lankester never consented to TCA entering into occupation but were presented with a fait accompli; that TCA went into occupation without the knowledge or permission of Lankester; and that there was never a formal assignment of the lease. In these circumstances, and whatever may have been the position as between Lankester and TCA, I find myself quite unable to accept there was ever any representation by Lankester to Mr and Mrs Rennie that it had accepted TCA as the assignee of the lease, and the Recorder was right to so hold.
31. Nor, it seems to me, is the position improved by a consideration of the correspondence in March and April 2010. True it is that Warner Goodman wrote to TCA and to Mr Pestell and Mr O'Regan asserting that TCA had taken an assignment of the lease and was bound by the various tenant covenants, but Warner Goodman also wrote to Mr and Mrs Rennie asserting that they remained liable under all the terms of the lease, that Lankester had never given them permission to assign it, and that there was never an effective assignment in any event. As the Recorder put it, any representation to TCA that it was the assignee was countered by a representation to Mr and Mrs Rennie that they remained the tenants under the lease and that the assignment had never taken effect.
32. In my judgment, Mr and Mrs Rennie's case of estoppel by representation faces another insurmountable hurdle. It is, of course, an essential element of a valid estoppel of this kind that the representation has induced the representee to alter his position to his detriment. Yet here the Recorder has found that Mr and Mrs Rennie did not act in any way to their detriment in reliance upon anything said or done by Lankester in its dealings with them or with TCA. As he went on to explain, the rent was paid and the right to terminate the lease under the break clause was not lost until well after TCA had vacated the premises. It was no doubt true to say that at one point in time Mr Rennie believed that he and Mrs Rennie were no longer bound by the terms of the lease, only be told at a later time that this was not the case but, as the Recorder explained, this was not the result of any representation made by Lankester to him.
33. The submission that Lankester, Mr and Mrs Rennie and TCA are all bound by an estoppel by convention faces much the same difficulties. It must be shown that all these parties proceeded upon a shared understanding or convention as to the basis of their relationship. However, for all of the reasons I have given, no such shared understanding or convention of the kind contended for by Mr and Mrs Rennie ever existed, and the parties never conducted themselves on the basis that it did.
34. The final argument relied upon by Mr and Mrs Rennie is that the settlement between Lankester and TCA in July 2010 brought about a surrender of the lease by operation of law. Mr Allston has developed this argument in the following way. He submits that the conduct of Lankester and TCA in reaching this settlement unequivocally amounted to an acceptance by them both that the tenancy had ended and that in all the circumstances it is inequitable for either of them to assert to the contrary. The short answer to this submission, as I think Mr Allston was disposed to accept, is that this conduct could only ever have amounted to a surrender of such estate as TCA possessed and, for the reasons I have given, I consider the Recorder was right to hold that Mr and Mrs Rennie were at all material times the tenants under the lease and bound by the covenants it contained.
35. For all these reasons, I would dismiss the appeal.

Lord Justice Longmore:

36. I agree.

The Chancellor:

37. I also agree.