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Terry v. Albion Enterprises Ltd. [2001] IEHC 161 (14th November, 2001)

THE HIGH COURT

1998 No. 2500 P

BETWEEN

JOHN TERRY

PLAINTIFF

AND

ALBION ENTERPRISES LIMITED, JOHN HERRON, CHARLES HERRON,

MICHAEL HERRON, STANISLAUS HERRON, BERNARD HERRON AND AUGUSTINE HERRON

DEFENDANTS

Judgment of Mr Justice McCracken delivered the 14th day of November 2001

1. The plaintiff had for some years carried on a joinery and veneer business in premises forming part of the Parnell Industrial Trading Estate at Parnell Street in the City of Dublin as a tenant of the second to seventh named defendants (hereinafter called “Herron Brothers”). In or about 1995 he entered into negotiations with Herron Brothers for a lease of a different portion of the Industrial Estate, known as number 21 Parnell Industrial Trading Estate (hereinafter called “the premises”). Ultimately by lease dated 1st December 1996 Herron Brothers agreed to let the premises to the plaintiff for a period from 1st December 1996 to 31st August 1999 at a monthly rent of £900 to be paid by bankers order on or before the seventh day of each calendar month. The lease also provided:-

“A non-returnable deposit of £2,700 in the form of a bank draft or cash is to be paid upon signature of this lease by both parties - this is to be deemed as rental for the period 1/6/99 to 31/8/99 if this lease should run its term, otherwise it is non-returnable.”

2. The lease also contains certain special conditions which give rise to these proceedings. The first of these conditions appears in fact to be in conflict with the provision in relation to which I have quoted above, and reads:-

“On the signing hereof the tenant shall pay to the landlord a deposit of £2,700 as security for the due payment of the rent hereby reserved and for the performance of the tenants obligations under this agreement, such deposit to be retained by the landlord until the end of this tenancy or any extension thereof and so that the landlord shall not be bound to apply the same or any part thereof in payment of any monies owing by the tenant during the currency of the tenancy.”

3. The lease contained two further special conditions which give rise to these proceedings. They read as follows:-

“3. The tenant shall have the option to purchase the premises from the landlord for the sum of £130,000 on or before the 31st of January 1998.

4. The landlord shall within six months from the date hereof furnish satisfactory evidence of his title to the premises and shall furnish a copy of the map attached and referred to in an Indenture of Conveyance and Assignment dated the 23rd of December 1991 Hill Street Developments of the one part and John Herron, Stanislaus Herron, Michael Herron, Charles Herron, Augustine Herron and Brian Herron of the other part.”

4. At the date of the lease the plaintiff was in fact already in possession of the premises, and he duly furnished a standing order in favour of Herron Brothers for the rent and also paid the deposit of £2,700.

5. By a conveyance dated the 22nd July 1997 Herron Brothers conveyed inter alia their interest in this property to the first named defendant (hereinafter called “Albion”). The contract for sale in relation to this conveyance is dated 22nd July 1997, and in relation to these premises recites:-

“Occupied by J. Terry for a term of five years from April 1997 with an option to purchase at £130,000. Annual rent is £10,000 - copy agreement attached”.

6. While this is in fact an incorrect recital of the plaintiff’s interest, it is quite clear that Albion were aware of the option to purchase, and had in fact seen the plaintiff’s tenancy agreement. The plaintiff was not notified of this conveyance for some months, and continued to pay his rent by bankers order to Herron Brothers until October 1997. He then cancelled the bankers order, and did not in fact pay rent to either party.

7. By letter dated 9th January 1998 the plaintiff’s solicitors wrote to Albion in the following terms:-

“Dear Sirs,

We are instructed on behalf of John Terry care of 21 Parnell Trading Industrial Estate, Dublin 1.

We were instructed that by memorandum of agreement dated the 1st of December 1996 and made between John Herron and others to our client, it was agreed, inter alia, that our client had the option to purchase the premises from the landlord for the sum of £130,000 on or before the 31st of January 1998.

We note that you have since acquired the premises from John Herron and others and we hereby notify you on behalf of our client that our client is exercising the said option.

Please advise if you wish to proceed on the basis of the option agreement in which event, you might please furnish title deeds by return. In the alternative, if you require formal contracts to be executed, you might please furnish a draft now for approval.”

8. Albion’s solicitors replied by letter dated 13th January 1998, which letter was headed “subject to contract/contract denied. Strictly without prejudice.” That letter read:-

“Dear Sir

Your registered letter, addressed to our client company, Albion Property Company Limited has been forwarded to this office for attention.

We note that you act for Mr John Terry, trading as the Complete Fitout Company and understand that Mr Terry currently occupies the property known as 4 Temple Lane, Dublin 1.

As you are aware, our client recently purchased the entire of the Parnell Trading Estate from Herron Brothers on foot of a contract for sale dated the 22nd of July 1997.

The vendors did indicate to us that there was a possible option agreement in existence with Mr John Terry, however, we do not appear to have a copy of the memorandum of agreement dated the 1st of December 1996 referred to in your letter, and would appreciate hearing from you by return with a full copy of it.

Our client notes your client’s intention to exercise his option in respect of this property.

We have been asked to point out to you that your client is seriously in arrears with rent payable on the property and we are enclosing a note of the monies due to date.

We have specific and categoric instructions not to forward contracts for sale of the property unless and until your client complies with his obligations under his existing lease.

We have also been instructed to seek from you evidence that your client has a full written loan approval in respect of the premises before proceedings further with this matter.

Lastly, and as a matter of profession courtesy only, we would specifically draw attention to the fact that all of the original title documents to the property at 4 Temple Lane have been lost or destroyed for many years. Under the terms of our contract for sale we were precluded form raising any objections or requisitions in relation to this matter and the only title documents we have in our possession are:-”

9. There is then a list of five documents, four of which are memorials and the fifth is a statutory declaration.

10. The letter ends with a statement that Albion’s solicitors have no authority to bind their client in any manner and that no contract shall be deemed to exist. On 23rd January the plaintiff’s solicitors wrote to Albion’s solicitors enclosing a copy of the agreement of the 1st of December 1996, and explaining that rent for August, September and October 1997 had been paid to Herron Brothers because their client had not been notified of the change of ownership, and further stated that the plaintiff had thought that the deposit of £2,700 would pay the rent for the last three months, namely November, December and January. They again requested copies of the title deeds.

11. On 26th January 1998 Albion’s solicitors sent copies of the title documents and also stated:-

“We refer you to special condition number three in the lease furnished with your letter of the 23rd inst., and would advise that we require payment of the consideration in the sum of £130,000 no later than close of business on Monday next the 2nd of February, being the first business day after the 31st of January .”

12. This appears to have been followed by a telephone conversation between the respective solicitors, the contents of which are recorded in a letter from the plaintiff’s solicitors to Albion’s solicitors dated 29th January 1998, which reads as follows:-

“Dear Sirs

We refer you to the above and to our telephone conversation of even date with your Mr Flynn.

We note that your client is to arrange to issue contracts of sale in the standard Law Society format 1995 edition and we look forward to hearing from you in this regard.

In relation to the question of outstanding rent, we refer you to our telephone conversation of even date and to the contents of our letter of the 23rd of January last. We note that you are to contact Herron Brothers, Mr John Murchan directly in relation to the payments made by direct debit for the months of August, September and October. As our client was never notified of the change of ownership, he was not in a position to cancel the direct debit.

We confirm that we shall arrange for our client to put you in funds in respect of the last three months rent in the sum of £2,700 by close of business tomorrow.”

13. Apparently a cheque in that sum was furnished by the plaintiff, which was not acceptable to Albion, and on 2nd February the plaintiff’s solicitors sent a bank draft in the sum of £2,700 to Albion’s solicitors and sought the return of the cheque and also again sought the copy title documents. By letter dated 16th February 1998 the plaintiff’s solicitors again sought evidence of title and threatened specific performance proceedings.

14. The response to this was a letter of 17th February 1998 from Albion’s solicitors which provided as follows:-

“Dear Sirs

We are in receipt of your fax of the 16th inst.

We have discussed the alleged option agreement in detail with our client and with counsel and are satisfied that our client as successor in title to the original party namely John Herron and others is not bound by the alleged option agreement. In this regard please note:-

no memorial of the alleged option appears to have been registered in the Registry of Deeds, to put our client on notice of the existence and nature of the option.
there has been no novation of any alleged option agreement.
insofar as any alleged right, interest or covenant is created or has come into existence by virtue of special condition number three of the memorandum of agreement, made the 1st of December, 1996 and furnished with your letter of the 23rd ult., it is entirely a matter between your client and the original landlords.
the above mentioned special condition number three is not incorporated by reference into the lease and is of no effect and void.

At present your client is in fundamental breach in the terms of the lease as there remains outstanding rent for the months of August, September and October.

As previously advised, your client was personally notified of the change of ownership. If the outstanding rent is not paid within seven days of the date hereof, our client will have no option but to avail of the appropriate remedies including but not limited to forfeiture of the lease.”

15. I have heard evidence from the plaintiff and from Mr Conor McCormack who managed the Parnell Trading Estate at the relevant time. I am satisfied that the plaintiff first knew of the change of ownership in middle or late September 1997 and that he did pay rent for August, September and October 1997 to Herron Brothers. It would appear that he had allowed the direct debit payable in early October to go through after he became aware of the change of ownership, but this could be the only possible default in payment to Albion. I am also satisfied that he believed, wrongly, that the deposit could be used for the payment of the rent for November, December and January if he was exercising the option as of 31st January. In fact this is not what was envisaged by the terms of the Lease, which only provided that the deposit could be used to pay the rent for the last three months of the term granted by the Lease, if the Lease ran its full term. By exercising the option, of course, the plaintiff ensured the Lease did not run its full term. However, this would appear to have been put right by the payment of the three months rent, initially by cheque dated 30th January and subsequently by the bank draft on 2nd February.

16. I have quoted the correspondence in detail because it is the only evidence proffered to me of the events between 9th January 1998 when the plaintiff purported to exercise the option and 17th February 1998 when Albion, for the first time, challenged the option. I find the contents of the letter of 17th February to be quite astonishing. For the first time it put forward four grounds upon which it is alleged that Albion is not bound by the option agreement, none of which grounds have the slightest validity, and more significantly, none of which were relied upon in argument before me other than a suggestion that the option was personal to the plaintiff to exercise and therefore should be considered to be personal to the Herron Brothers. This contention is clearly untenable, as the option forms part of the tenancy agreement in which it is provided that the expression “the tenant” shall include his successors in title and the expression “the landlord” shall include the immediate reversioner for the time being expectant on the term created by the Lease. It is quite clear, therefore, that the option was not personal to either the plaintiff or Herron Brothers.

17. There were two principle submissions made on behalf of Albion. Firstly, it is said that the option was to purchase the premises on or before 31st January 1998, and that the proper construction of this is that the sale must be completed by 31st January 1998. The second argument is that the option could only be exercised if the plaintiff was not in breach of covenant at the time of the exercise of the option, and that as he was in arrears with his rent, the exercise of the option was invalid. I would propose to deal with these individually.

18. In relation to the first argument, Albion seeks to rely on the judgment of Kenny J., in Cassidy v. Baker 103 I.L.T.R. 40. In the course of his judgment the learned judge commented that it was very much a matter of first impression, but also stated that:-

“It is a general rule that any matters which by the terms of an option are made conditions precedent to its exercise, must be reasonably strictly observed.”

19. This statement was made in the context of an option which required three months notice of its exercise, while the purported exercise of the option did not give notice, and indeed if it had given three months notice, the notice would have expired outside the term of the lease in which the option was granted. In the present case, assuming that “purchase” means complete the sale of, there is undoubtedly an argument to be made that time should be of the essence of the contract, and that once 31st January had passed the plaintiff had no right to have the sale completed. In my view this could not be a valid argument in the present case because under special condition four the landlord was bound to furnish evidence of title within six months from the date of the lease, and this they clearly failed to do. It is quite understandable that time should be of the essence of the contract if the plaintiff had already been satisfied as to title, but the result of the landlord’s default to furnish the title meant in effect that the plaintiff could not complete within the specified time. In those circumstances I do not think there could be any question of time being of the essence of the contract or the plaintiff being bound to complete by 31st January.

20. In any event, it appears that on 29th January Albion’s solicitors agreed to issue contracts for sale in the standard Law Society form. Although they did not in fact do this, their undertaking to do so shows that they clearly were not treating the 31st January as being the closing date. Under all these circumstances I do not think that the plaintiff was in default in this regard so as to prevent the exercise of the option.

21. The other argument put forward by Albion is that the plaintiff was in breach of covenant at the date he purported to exercise the option, as he was at that date in arrears of rent. Undoubtedly he was technically in arrears of rent when the option was exercised, due to his mistaken belief that he could use the deposit to pay the last three months rent. However, by 31st January he had at least given a cheque for the rent, and on 2nd February, the first working day after 31st January, he furnished a bank draft. It should be noted that the option agreement does not contain any express provision making it a condition precedent to the exercise of the option so that there should be no breach of covenant. I am not prepared to imply such a condition precedent in the absence of any evidence that this might have been the intention of the parties.

22. In all the circumstances, therefore, I hold that the plaintiff validly exercised the option to purchase, and Albion wrongfully refused to complete.

23. Albion puts forward one further argument, namely that specific performance is an equitable remedy, and that I should refuse such a remedy on the grounds it would not be just and equitable to do so. This of course would not preclude me from making an award in damages.

24. I fully accept that I have a discretion, and that I have power to refuse an equitable remedy on the basis that the person seeking the remedy has acted improperly or inequitably. In the present case, the only way which the plaintiff acted improperly was in failing to pay the rent for the last three months, but when the error was pointed out to him, he did in fact make a payment reasonably quickly. On the other hand, for over a month after the exercise of the option Albion appeared to accept its exercise, and then out of the blue put forward a number of quite unsustainable arguments as to why it should not complete. I do not think there was anything inequitable in the plaintiff’s behaviour which would warrant a refusal of the remedy of specific performance and accordingly I will grant a Declaration that Albion is bound by the option agreement and I will order a specific performance thereof.