Relationship between Leslie Plc and Target - Essay Example

Order 147415 – extra added at end in bold In answering the above an analysis of the legal relationships of the parties involved needs to be conductedso as to define which parties have privity of contract and which have privity of estate and then to examine the covenants made between the original covenantor and original covenantee to establish the binding nature of the covenant. Once the relationships are defined the position regarding burden and benefit can be processed and any breaches highlighted with possible resolutions to remedy the breaches. Looking first at the relationship between Leslie Plc and Target there would be both privity of contract1 and privity of estate2 between Leslie Plc and Target as they were the original lessor and lessee. By the action of Target assigning the lease to Ace the relationship between Leslie and Ace would only be on the basis of privity of estate as there is no contractual relationship between them. Similarly by Leslie selling the property to Rake there would be no privity of contract between Rake and Target or Rake and Ace3, only a privity of estate4. The further subletting of the lease by Ace to Simon creates neither privity of estate of privity of contract as there was no agreement with Rake to sublet the property. If Rake had agreed to the sublet then a privity of estate would have been created and Rake could enforce the repair covenant against Simon5. The differences that apply under privity of contract and privity of estate will affect the ability of Rake to enforce the covenant. Under a privity of contract all covenants bind6 whereas under privity of estate7 only the covenants which are regarded as typically part of the landlord and tenant relationship will be bound8. Privity of estate only affects the benefit and burden on the assignee and the landlord in respect of covenants that touch and concern the land9. Having established the relationship of the parties it is necessary to look as to whether the burden and benefit of the covenants can pass with the assignments. Looking first at the position of pre 1996 leases the general rule was that the original tenant could not pass the burden to the assignee. If the lease began prior to 1996 then the assignment of the tenancy would not absolve Target from the liability10 in accordance with the contract11. This would mean that Target would be bound by the covenants throughout the duration of the lease even though his interest has been assigned12. Covenants in leases are deemed to be made on behalf of the covenantor and his successors in title unless a contrary intention is expressed13. Leases issued prior to the Landlord and Tenant (Covenants) Act 1995 allowed liability of the original tenant to continue even though the original tenant has no control over the assignee14. Although the burden of the covenants did not pass to the assignee in pre 1996 contracts the landlord would normally seek redress against the assignee15 in the first instance. As there is no requirement in law for the landlord to seek redress from the assignee first the landlord could opt to seek redress from the original lessee instead of the assignee16. This was particularly useful where the assignee had become insolvent17. One way in which Target could pass the burden to Ace would be by way of an indemnity from Ace18. This would mean that Ace would not be liable to the landlord for the covenants if he assigned the lease to someone else19 but would still be liable to Target under the indemnity20. As the lease began after 1995 the Landlord and Tenant (Covenants) Act 1995 s5 releases Target from the burden of the covenant and passes the burden to Ace21. Under s3 of the LT(C)A 1995 the benefit and burden of all covenants22 shall be annexed to each and every part of the demised premises and shall pass on assignment and the test of touching and concerning does not apply23. Covenants expressed in a personal way are not transferred to the assignee24. If the assignment had been in breach of the covenant than both Target and Ace would have joint and several liability25. If this were the case then Target could claim a contribution from Ace. Covenants against assignment can either be absolute26 or qualified27. An absolute covenant would prevent any assignment or subletting. A qualified covenant entitles the tenant to sublet or assign with the landlords consent28. Under the Landlord and Tenant Act 1927 s19 (1) the landlord cannot withhold consent unreasonably29. Should he decide to withhold consent he would have to show that consent is being withheld reasonably30. Reasonableness is not defined in the legislation but has been defined by case law. When the assignment was agreed to by Leslie plc she could have insisted upon an authorised guarantee agreement31 so long as she was acting reasonably32. The above would seem to suggest that as the assignment was agreed by Leslie there is no breach of the covenant and the burden would pass to Ace. The assignment of the reversion by the selling of the property to Rake would mean that the benefit and the burden of the covenants would pass to Rake33. With pre 1996 leases the original landlord would also remain liable34. The next issue to address is the sublet of part of the property by Ace to Simon. The subletting could be viewed as a licence as opposed to a lease as Simon does not have full rights of ownership as he would have if a lease had been created35. In a commercial agreement the distinction between lease and licence is made by examining where the control of the premises lies36. The effect of this being viewed as a licence would mean that Simon would be able to claim proprietary estoppel if Ace attempted to revoke the licence37. It could be argued that the assignment of the sub-tenancy to Simon has waived the right of Rake to claim forfeiture for the breach of the covenant to repair the property, as only restrictive covenants can be enforced against a sub tenant38. As Rake has control over the property he should still have the burden of the covenants. If the only breach was the repair covenant and Ace did the repairs there would be no breach and Rake could not take forfeiture action39. The action by Ace of subletting without the consent of Rake is a breach of the covenant if the business run by Simon is separate from Ace’s business40. This would allow Rake to take forfeiture action for the breach of the subletting covenant and to force Simon to surrender his share of the property as it had been sublet in breach of the covenant41. The effect of this would be to bring the term of the lease to a premature end. It has already been stated in the scenario above that a condition was inserted into the leasing agreement that any breach of the covenant would entitle the covenantor to take forfeiture action42. Under s146 of the Law of Property Act 1925 it is possible in some circumstances for the breach to be remedied. As the breach was due to the subletting the only way in which this could be rectified would be for Ace to terminate the agreement with Simon and resume possession of the property. It is likely that Rake would enforce his right to forfeiture action as Ace might have difficulty revoking the licence issued to Simon whereas Rake would be able to force Simon to surrender his share of the property as discussed above. Part B I began my research by looking at the relationships of the parties concerned and analysing what relationships existed at the time of making the contract and what relationships continued to exist after the assignment of the lease and the assignment of the reversion. I looked at privity of contract and estate as the rights over the enforcement of the covenant can be directly affected if there is only privity of estate. I considered this both from a pre 1995 standpoint and a post 1995 standpoint. I then looked at the types of covenants that can be made and analysed the circumstances under which the burden and the benefit of the covenants was able to transfer between the various parties. I also addressed the ways in which the parties could avoid remaining liable for covenants in pre 1996 leases by looking at the issue of indemnity. I then analysed whether the assignment of the lease was in breach of the covenant and came to the conclusion that as the landlord had agreed to the assignment there was no breach. For completeness I looked at the situation from the perspective of if the contract had been created before the 1995 Act and compared it with the changes that have been introduced by the 1995 Act. This was done to show that when advising a client as to whether a covenant is binding on an original covenantor and covenantee it is essential to know when the lease was created. Having established that there was no breach of the covenant when the assignment passed to Ace I then examined any breaches that had occurred in respect of Ace. I established that the subletting of the premises could be regarded as a breach as the landlord had not agreed to the sublet. From the research done I was able to state that the covenant to repair was still the responsibility of Ace as he still had possession of the property whilst Simon only had a licence to use part of the property. I went on to address the issue of licence or lease as the difference between the 2 affects the position as to the binding nature of covenants. In my research I looked at the position that Simon would be in if a lease could be inferred and contrasted that with the position he would be in if a licence was inferred. Having discussed the differences between a licence and a lease I researched the possibility of Simon being able to claim proprietary estoppel if Ac attempted to revoke the licence. To back up my argument I supported as many points possible by case law and legislation. My main source of electronic research was Westlaw for cases to support my argument and www.opsi.gov.uk for relevant legislation. I also used electronic search engines to get up to date information on any recent changes surrounding the law on covenants. A useful site that looked at a situation very similar to the one outlined above was http://www.propertylawuk.net/ltssublettingandsharingoccupation.html. This particular site highlighted several similar cases some of which have been cited in the report above. The information gleaned from this site helped me to reach the conclusion that Rake would be able to force Simon to surrender his share of the property as the sublet had occurred in breach of the covenant. I was able to back up my argument with case law that had been used on this site. My overall conclusion was that Rake should take forfeiture action as using this he could force Simon to surrender his share of the property. Simon would not be able to claim proprietary estoppel under these circumstances as the sublet was made in breach of the covenant. Bibliography Bryn Perrins, Understanding Land Law, 3rd Ed, 200, Cavendish Publishing Ltd Gravells, N P, Land Law Text and Materials, 2nd Ed, 1999, Sweet and Maxwell Thomas, M, Statutes on Property Law, 8th Ed. 2001, Blackstone’s Transfer of land: The Law of Positive and Restrictive Covenants (1984) Law Commission No 127 Law Commission Report No 238, Landlord and Tenant: Responsibility for State and Condition of Property (1996) http://www.landregistry.gov.uk http://www.propertylawuk.net www.opsi.gov.uk Table of Cases Addiscombe Garden Estates Ltd. v Crabbe [1958] 1 Q.B. 513 Allied London Investments Ltd v Hambro Life Assurance Ltd (1985) 50 P & CR 207 Amsprop Trading Ltd v Harris Distribution Ltd [1997] 1 W.L.R. 1025 [1997] 2 All E.R. 990 [1997] 2 E.G.L.R. 78 [1997] 47 E.G. 127 [1996] N.P.C. 154 Times, November 13, 1996 Arlesford Trading Co. Ltd. v Servansingh [1971] 1 W.L.R. 1080 Avonridge Property Co Ltd v Mashru [2005] UKHL 70 [2005] 1 W.L.R. 3956 [2006] 1 All E.R. 127 [2006] 1 P. & C.R. 25 [2006] L. & T.R. 4 [2006] 1 E.G.L.R. 15 [2006] 01 E.G. 100 [2005] 49 E.G.C.S. 88 (2006) 103(1) L.S.G. 16 (2006) 150 S.J.L.B. 28 [2005] N.P.C. 138 Times, December 5, 2005 Baker v Merckel [1960] 1 QB 657 Beegas Nominees Ltd v BHP Petroleum Ltd [1997] C.L.Y. 3093 1997 Clinton Cards (Essex) Ltd v Sun Alliance & London Assurance Co Ltd [2002] EWHC 1576 [2003] L. & T.R. 2 [2002] 3 E.G.L.R. 19 [2002] 29 E.G.C.S. 150 Crestfort Limited v Tesco Stores Limited [2005] EWHC 805 (Ch); [2005] 37 EG 148. Dellneed Ltd v Chin [1987] 1 E.G.L.R. 75 Edlington Properties Ltd v JH Fenner & Co Ltd [2005] EWHC 2158 [2006] 1 All E.R. 98 Hall v Ewin (1888) 37 Ch.D. 74; Tulk v Moxhay (1848) 2 Ph 774 Harris v Williams-Wynne [2005] EWHC 151 Homebase Ltd v Allied Dunbar Assurance plc [2002] EWCA Civ 666; [2002] L&TR 27; [2002] 27 EG 144; [2003] 1 P&CR 6 Johnsey Estates Ltd. v Lewis & Manley (Engineering) Ltd. (1987) 54 P. & C.R. 296 London & County (A.D.) Ltd. v Wilfred Sportsman Ltd. [1971] Ch. 764 Lynnthorpe Enterprises Ltd v Sidney Smith (Chelsea) Ltd [1990] 08 E.G. 93 [1989] E.G.C.S. 63 Mahon v Sims [2005] 3 E.G.L.R. 67 [2005] 39 E.G. 138 Times, June 16, 2005 MEPC Plc v Scottish Amicable Life Assurance Society [1996] B.P.I.R. 447 Oceanic Village Ltd v United Attractions Ltd [2000] Ch 234 Onslow v Corrie (1817) 2 Madd. 330; 56 E.R. 357 Pacific Wash-a-Matic v RO Booth Holdings [1978] 5 W.W.R. 525 Plimmer v Wellington Corporation (1884) 9 App. Cas. 699 (M&B(L) 589; G 641) PW & Co v Milton Gate Investments Ltd [2003] EWHC 1994 R A Securities Ltd v Mercantile Credit Co Ltd [1995] 3 All ER 581 R v Tottenham and District Rent Tribunal Ex p. Northfield (Highgate) [1957] 1 Q.B. 103 [1956] 3 W.L.R. 462 [1956] 2 All E.R. 863 (1956) 120 J.P. 472 54 L.G.R. 421 (1956) 100 S.J. 552 Re King [1963] Ch. 459 (M&B(L) 506) Scottish & Newcastle Plc v Raguz (No.3) [2006] EWHC 821 [2006] 4 All E.R. 524 Shell-Mex & B.P. Ltd. v Manchester Garages Ltd. [1971] 1 W.L.R. 612 Smith v Spaul [2002] EWCA Civ 1830 [2003] Q.B. 983 [2003] 2 W.L.R. 495 [2003] 1 All E.R. 509 [2003] H.L.R. 38 [2003] 2 P. & C.R. 21 [2003] L. & T.R. 17 [2003] 1 E.G.L.R. 70 [2003] 17 E.G. 148 [2003] 3 E.G.C.S. 125 (2003) 100(9) L.S.G. 28 (2003) 147 S.J.L.B. 27 [2002] N.P.C. 164 [2003] 1 P. & C.R. DG19 Times, December 28, 2002 Spencers Case (1585) 5 Co.Rep. 16a; 77 E.R. 72 (M&B(L) 503) Street v Mountford [1985] A.C. 809 (M&B(L) 417; G 386) Stuart v Joy [1904] 1 K.B. 362 Thames Manufacturing Co Ltd v Perrots (Nichol & Peyton) Ltd (1984) 50 P & CR 1 Unity Joint Stock Banking Association v King (1858) 25 Beav. 72; 53 E.R..563 Vision Golf Ltd v Weightmans [2006] EWHC 1766 Walkers Case (1587) 3 Co.Rep. 22a; 67 E.R. 676 Wallis Fashion Group Ltd v CGU Life Assurance Ltd (2000) 81 P. & C.R. 28 Warnford Investments Ltd v Duckworth [1979] Ch 127 Waycourt Ltd v Viscount Chelsea [2006] EWCA Civ 511 Table of Statutes Land Registration Act 1925 Landlord and Tenant (Covenants) Act 1995 Landlord and Tenant Act 1927 Landlord and Tenant Act 1985 Landlord and Tenant Act 1987 Landlord and Tenant Act 1988 Law of Property Act 1925 Law of Property Act 1926 (2) Your principal has also asked you to do a separate piece of research, unconnected with above facts, to produce a report of 600 words on the cases in which the case of Ashburn Anstalt v Arnold [1989] Ch 1 has been considered and/or applied in relation to (c) certainty of term in leases (d) the distinction between a lease and a licence (e) the extent to which a licence can bind a purchaser. In order to construct a report it is necessary to look at the facts of Ashburn and then analyse cases were this has either been applied or has been overruled. In Ashburn R sold to M a headlease and sublease of premises in Kensington. The sale agreement provided by clause 5 that R could remain in the premises without payment of rent as "Licensees" until M should give one quarters notice in writing and should certify that it was ready at the expiration of such notice to redevelop the premises; and further provided by clause 6 that upon completion of such redevelopment M should grant to R "a lease of a shop in a prime position at the development with an area available for trading of approximately 1,000 s. m. and with car parking facilities...". M subsequently sold the headlease and sublease to the freeholder A, who claimed that R were licensees only and sought possession. R claimed that the agreement with M created a tenancy which took effect as an overriding interest under the Land Registration Act 1925 s. 70(1)(g); alternatively that, if they were licensees only, the licence was binding upon A by reason of the decision in Errington v Errington and Woods [1952] 1 K.B. 290, or by reason of the doctrine of constructive trust. The judge held that the agreement had created a licence only, but that the licence had been binding upon A; and he refused to order possession. On Appeal the court held that the reservation of a rent is not necessary for the creation of a tenancy; the period of the occupation agreement was sufficiently certain in that the agreement could be determined by both parties in circumstances in which there could be no doubt as to whether the determining event had occurred and the agreement had accordingly created a tenancy, which took effect as an overriding interest under s. 70(1)(g) of the 1925 Act. The court also stated that clause 6 of the agreement was sufficiently clear to be capable of enforcement as a contract, and took effect as an overriding interest under s. 70(1)(g). The case of Canadian Imperial Bank of Commerce v Bello (1992)43 applied the principal of Ashburn Anstalt v Arnold by stating that the arrangement that the plaintiff and the respondent had made was sufficient to find that a tenancy had been created. This case involved a house that required extensive refurbishment. The owner of the house contracted Bello to refurbish the property. Bello received no ore for the work at the time and the agreement made between him and the householder was that he would be entitled to live in the property until the owner returned to the UK and paid him in full. The mortgagees attempted to take possession of the property and Bello appealed stating that the occupation of the property should amount to a tenancy. The court applied the judgment of Ashburn and held that the circumstances were sufficient for a tenancy to be inferred. In IDC Group Ltd v Clark (1993)44 the courts refused to accept that the grant of a licence in a lease did not create an easement which binds a successor. In this case the courts considered Ashburn but came to the conclusion that a licence was distinct from a lease and could not be binding on successors, and could not find, as they did in Ashburn, that they conduct of the parties gave rise to the creation of a tenancy as opposed to a licence. The case of Prudential Assurance Co Ltd v London Residuary Body [1992]45 also overruled the decision in Ashburn. In this case the courts held that a lease that states that land is leased until it is required for a certain purpose is void through uncertainty. The court held that a lease must be for a certain or determinable period of time. The court further decided that as the tenant paid yearly the lease would be a yearly a yearly lease which the owner could lawfully terminate. Read More