England and Wales High Court (Chancery Division) Decisions

Chancery Division

		23 January 1987

1. Giving judgment, MR JOHN MOWBRAY QC said: The landlord here bought a second-floor flat (and, I think, the whole building) at 23 Belsize Crescent in London NW3 subject to a 99-year lease of the flat dated July 16 1979 between Lansdowne Securities Ltd and Moonmoor Ltd. The tenant company acquired the lease on August 11 1982, it says for £ 28,000. At that time the landlord was, as is now admitted, in serious breach of the lessor's structural repairing covenant in clause 5(3) of the lease. The local authority had served the landlord with a statutory notice to repair, and the writ in this action, then claiming specific performance of the covenant, was issued on August 17 1984, but the repairs were not done until a few days before December 20 1984, when the tenant sold the lease again. The tenant amended the writ and now claims consequential damages from the landlord for damage sustained while it was the tenant.
2. The landlord's first defence is that, when the tenant assigned the lease, all its rights passed to the assignee, including any right to damages such as are claimed under the pre-existing writ, so the tenant has no cause of action left to support its claim.
3. In my view, that defence is not well founded. No authority was cited on the precise question whether a tenant who has assigned his lease can afterwards recover damages from the landlord for breaches of the landlord's covenants committed while the tenant held the lease. It is common ground, though, that a tenant (not the original lessor) who has assigned his lease again remains liable to the landlord for breaches of covenant which he committed while tenant: see Megarry and Wade on The Law of RealProperty, 5th ed p 750 at 5. Woodfall on Landlord and Tenant, vol I, para 1-1095, and Halsbury's Laws of England 4th ed, vol 27, para 395.
4. Both this liability and the benefit of the landlord's covenants run with the lease at common law by privity of estate under Spencer's Case, see Smith LC 13th ed, vol 1 at p 51. There is a close analogy between the two. I take the view that by this analogy the landlord's liability to the tenant for existing breaches survives the assignment of the lease in the same way as the tenant's liability to the landlord.
5. Mr Moss argues for this landlord that the tenant's rights against the landlord did not survive the assignment of the lease, because on the assignment section 142 (1) of the Law of Property Act 1925 made a statutory transfer of the tenant's rights to the assignee of the lease. Section 142 (1) reads:

The obligation under a condition or 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, or the several parts thereof, notwithstanding severance of that reversionary estate, and may be taken advantage of and enforced by the person in whom the term is from time to time vested by conveyance, devolution in law, or otherwise; 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 enforced against any person so entitled.

6. Mr Moss argued that the middle part of section 142(1) carried out the transfer, that is the words '. . . and may be taken advantage of and enforced by the person in whom the term is from time to time vested by conveyance, devolution in law, or otherwise'. He pointed out that the Court of Appeal has held section 141 (1) to make a statutory transfer of the whole benefit of a tenant's covenant to an assignee of the reversion: Re King [1963] Ch 459, London & County
   (A & D) Ltd v Wilfred Sportsman Ltd [1971] Ch 764. He asked me to apply that principle by analogy to an assignment of the lease.
7. It is not possible to apply those decisions. They turned on words corresponding to the first part of section 142(1), '. . . shall . . . be annexed and incident to and shall go with that reversionary estate . . . '. The middle passage of section 142(1) is quite different. It does not say that the right to take advantage of the landlord's covenants is annexed or incident to the term, or 'shall go with' it, the graphic phrase specially relied on by Diplock LJ [1963] Ch at p 497. It is not possible to apply the Court of Appeal decisions to the middle passage. If the intention had been to effect a statutory transfer of the right to an assignee of the term, I should have expected words to have been used similar to those in section 141 (1) and the beginning of section 142(1) itself.
8. What is more, the middle passage of section 142(1) does not on its separate interpretation show any intention to restrict a tenant's proceedings to any particular period. The words 'from time to time' mean as occasion may require. If the intention had been to limit the tenant's rights to recover damages to the time when he was tenant, I should have expected the subsection to say 'for the time being'.
9. Mr Moss said that these conclusions could lead to anomaly and injustice, particularly that both assignor and assignee tenants might attack the landlord for the disrepair and both recover damages for it, which could overlap. He very reasonably referred to Re King on this point in the judgment of Upjohn LJ at p 489 and Diplock LJ at p 498. I do not see how there can be any overlap in the present case, because the repairs were done before the assignment. The mere consequential damages of the assignor are personal and could not overlap any consequential damages of an assignee, who, in the present case, could not suffer any damage anyhow. It is true that a possible overlap of rights could occur in a case where disrepair continued over the assignment, but section 142 would not prevent the assignee's damages from being reduced to allow for his having bought cheap because of the disrepair; contrast section 141(1) and Re King [1963] Ch 459, from 11 lines down on p 489.
10. Mr Moss also said that there could be several successive assignors who sold at depressed prices during the disrepair and each sued the landlord for the shortfall. I think this is a rather fanciful apprehension. It could arise only if the landlord delayed so long that a number of successive tenants sold in despair or disgust. Even where the disrepair lasted over the assignment, I do not see how any consequential damage to assignor or assignee could overlap, because each would be personal damages arising from the plaintiff's personal circumstances.
11. I conclude that the first defence which I have been considering, based on section 142 (1), fails.
12. As the landlord now admits that there was serious disrepair, in breach of the lessor's covenant, no evidence was called before me, but Mr Neuberger (for the tenant) outlined the heads of damage claimed. They are:

1 The costs of an abortive sale by auction.

2 The tenant's running loss on the flat while the disrepair was delaying its resale. The tenant says the interest on the mortgage raised to buy it, rent, rates and other expenses, exceeded what was gained from letting out (or rather licensing out) the flat. (The structural disrepair of the building did not prevent this.)

3 Loss of executive time in dealing with the landlord and the local authority in getting the repairs done, and

4 Loss of opportunity to make profits with the proceeds of the flat while sale at a suitable price was impeded by the disrepair.

13. The second defence, urged in answer to all four heads of damages, is that they are all too remote, because they arise from the tenant's having bought the flat as a speculation for early resale at a profit, something which neither the parties to the lease at its grant nor the present landlord when the present tenant bought the lease in 1982 could have known about. I turn to this defence in general in a minute, but in any case it does not answer the first head of damages claimed.
14. The first head of damages is the costs of an attempted sale of the flat by auction on September 5 or 6 1983. It did not reach its reserve and was withdrawn. I do not know whether it was reasonable to put it up for sale at all, or to sell by auction, or to put on the reserve, or withdraw the property, nor whether the highest bid received really showed an overall loss. But whether or not the tenant bought as a speculation, it was entitled to quantify its damage from the landlord's breach of covenant by selling the flat with the building in disrepair and then suing the landlord for the difference between the price it fetched and the value it would have had if the repairs had been done: see Calabar Properties Ltd v Stitcher [1984] 1 WLR 287* at pp 297-8 in the judgment of Griffiths LJ. (Incidentally, Griffiths LJ saw no difficulty in the tenant's suing the landlord after the sale.) Therefore, the second defence does not apply and the tenant should be given the opportunity of establishing that the auction costs are properly recoverable as damages. I am not prejudging that question, but I will leave the tenant free to address it by ordering an inquiry as to damages.
15. I now return to the second defence in general. Stephenson LJ said in the Calabar case at p 293 that speculative damages for loss of rental or capital value could be recovered if the landlord knew that the flat was bought as a speculation. And Griffiths LJ said at p 299 of the report, starting just below 'D':

If the tenant has rented the property to let it and the landlord is aware of this, then 'the difference in value to the tenant' may be measured by his loss of rent if he cannot let it because of the landlord's breach. If the tenant is driven out of occupation by the breach and forced to sell the property then 'the difference in value to the tenant' may be measured by the difference between the selling price and the price he would have obtained if the landlord had observed his repairing covenant. But each case depends upon its own circumstances . . .

16. Mr Moss said the landlord here had no knowledge, and was not aware, that the tenant had bought as a speculation; therefore on those statements the tenant could not recover damages for commercial loss. He may very well be right in saying that the necessary contemplation of the parties cannot be established, but I have concluded that it would not be right to shut the tenant out from trying to establish it on the inquiry.
17. My reasons are these. I do not take Stephenson and Griffiths LJJ in the passages I have just mentioned as meaning to define the precise circumstances in which commercial losses can be recovered in such a case as the present. They took imaginary examples of cases where the landlord actually subjectively knew, or was aware, of the tenant's speculative purpose. That brought their examples into the second branch of the rule in Hadley v Baxendale and avoided any question about what the parties might or might not reasonably have contemplated, the objective test in the first branch of the rule. But I do not read them as saying that the first branch of the rule could never apply or that there must always be actual knowledge or awareness on the part of the landlord. In the present case the lease is of a residential flat, but it was originally granted to a company and it expressly contemplates that it will be assigned and mortgaged during its 99-year life. Clause 3(9) requires all such dealings to be registered with the lessor's solicitors. So there is some evidence (though not much) to be considered on the inquiry from which it can be argued that the parties to the lease (or, if that is relevant, the parties to the action as the persons in privity of estate) must be taken to have contemplated that the lease would be treated as an item of commerce. In the circumstances, and as the landlord admits breaches of covenant and I am ordering an inquiry anyway, I will not make any direction which would prevent the tenant from putting forward such an argument, with any supporting evidence. It will be for the inquiry to decide whether the tenant can recover for executive time spent in administering the lettings and so forth, and the tenant will need to show why the large capital profit made on its ultimate resale for £ 50,000 should not be set off against any loss. This will all be a steeply uphill task, but on the whole I think the tenant should be left free to undertake it.
18. I will give directions though, preventing the award of any damages under heads three and four. Head three is an attempt to recover as damages something which is more like costs but is not recoverable as costs. There is no precedent for it, and Mr Neuberger himself disarmingly called head four a cheeky claim. I respectfully agree. Such damages are too remote.

The plaintiffs were awarded costs down to the costs of the inquiry,

The electronic text of this judgment was provided by Estates Gazette, whose assistance is gratefully acknowledged.