Lease Covenants
UK Cases
P&A Swift Investments v Combined English Stores group plc
(House of Lords)
(1988) 3 W.L.R. 313
Lord Oliver of Aylmerton: The relationship between the landlord anda surety in a case such as the present is, of course, contractual only. The surety has no interest in the land the subject matter of the demise and there is thus no privity of estate. In seeking, therefore, to enforce the surety’s covenant, an assignee of the reversion cannot rely upon the Grantees of Reversions Act 1540 (32 Hen. 8, c. 34), the provisions of which were substantially re-enacted in section 141 of the Law of Property Act 1925 and which apply only to covenants between landlord and tenant. His claim to enforce rests upon the common law rule, under which the benefit of the covenant would run with the land if, but only if, the assignee had the legal estate in the land and the covenant was one which “touched and concerned” the land. There is no question but that the first of these conditions is complied with in the instant case, but it is said, first, that a reversion on a lease is not “land” for the purposes of the application of the common law rule and, secondly, and in any event, that the covenant of a surety is no more than a covenant to pay a sum of money which is entirely collateral and does not therefore touch and concern the land.
As to the first point, Mr Barnes has argued with his usual persuasiveness that although there is no specific authority on the point the reversion of a lease clearly could not have been treated as “land” under the old common law rule since, if it had, the Grantees of Reversion Act 1540 would have been unnecessary. Certainly that seems to have been so as regards covenants between the tenant and his landlord, but, of course, the tenant’s covenants ordinarily endure only during the term of the lease and this may, therefore, have been peculiar to that particular relationship. There seems to be no logical reason in the case of a third party covenant why the mere fact that the land is let, either at the time of the covenant or of its transfer to a successor, should prevent the benefit from running with the land. Certainly it appears that some incorporeal hereditaments (for instance an easement) rank as “land” for this purpose: see Gaw v. Coras lompair Eireann [1953] IR 232. As was pointed out by Romer L.J. in Grant v. Edmondson [1931] 1 Ch. 1, 28, it is impossible in this area of the law to argue safely either by reason or by analogy for “The established rules concerning it are purely arbitrary, and the distinctions, for the most part, quite illogical.” We are, in any event, concerned with what is the position in 1988 and not in 1539 and there being no direct decision upon the point I am, for my part, not prepared to assume that the common law has not developed in the four centuries which have elapsed since the Act of 1540 nor that “land” for the purposes of the common law rule has not, over this period, come to bear the same meaning as it does in the context of landlord and tenant.
In my opinion the question of whether a surety’s covenant in a lease touches and concerns the land falls to be determined by the same test as that applicable to the tenant’s covenant. That test was formulated by Bayley J. in Congleton Corporation v. Pattison (1808) 10 East 130 and adopted by Farwell J. in Rogers v. Hosegood [1900] 2 Ch. 388, 395:
the covenant must either affect the land as regards mode of occupation, or it must be such as per se, and not merely from collateral circumstances, affects the value of the land.
The meaning of those words “per se, and not merely from collateral circumstances” has been the subject matter of a certain amount of judicial consideration and the judgment of Sir Nicolas Browne-Wilkinson V.-C. in Kumar v. Dunning [1987] 3 W.L.R. 1167 (where the problem was identical to that in the instant case save that the covenant was given on an assignment and not on the grant of the lease), contains a careful and helpful review of the authorities. No useful purpose would be served by repeating this here and I am both grateful for and content to accept both his analysis and his conclusion that the correct principle was that pronounced by Best J. in Vyvyan v. Arthur(1823) 1 B. & C. 410,417, and approved by this House in Dyson v. Forster [1909] A.C. 98:
The general principle is, that if the performance of the covenant be beneficial to the reversioner, in respect of the lessor’s demand, and to no other person, his assignee may sue upon it; but if it be beneficial to the lessor, without regard to his continuing owner of the estate, it is a mere collateral covenant, upon which the assignee cannot sue.
The Vice-Chancellor stated his conclusion, at p. 1177:
From these authorities I collect two things, First, that the acid test whether or not a benefit is collateral is that laid down by Best J., namely, is the covenant beneficial to the owner for the time being of the covenantee’s land, and to no one else? Secondly, a covenant simply to pay a sum of money, whether by way of insurance premium, compensation or damages, is a covenant capable of touching and concerning the land provided that the existence of the covenant, and the right to payment thereunder, affects the value of the land in whom soever it is vested for the time being.
It is objected that this states the matter too broadly because, for example, it is said that it would involve the conclusion that a simple covenant to pay an annuity of £x per annum to the owner for the time being of Blackacre would then be treated as a covenant touching and concerning the land because it would enhance the value of the land. This is, I think, to read the Vice-Chancellor’s words too literally, for it is, as it seems to me, implicit in them that he is referring to a monetary obligation related to something which issues out of or is to be done on or to the land. His approach to the problem (which, again, I respectfully adopt) emerges from the following passage from his judgment, at p. 1174:
The surety covenant is given as a support or buttress to covenants given by a tenant to a landlord. The covenants by the tenant relate not only to the payment of rent, but also to repair, insurance and user of the premises. All such covenants by a tenant in favour of the landlord touch and concern the land, i.e. the reversion of the landlord. The performance of some covenants by tenants relates to things done on the land itself (e.g., repair and user covenants). Other tenants’ covenants (e. , payment of rent and insurance) require nothing to be done on the land itself. They are mere covenants for the payment of money. The covenant to pay rent is the major cause of the landlord’s reversion having any value during the continuance of the term. Where there is privily of estate, the tenants’ covenant to pay rent touches and concerns the land: Parker v. Webb (1822) 3 Salk. 4. As it seems to me, in principle a covenant by a third party guaranteeing the performance by the tenant of his
obligations should touch and concern the reversion as much as do the tenants’ covenants themselves. This view accords with what, !o my mind, is the commercial common sense and
justice of the case. When, as in the present case, the lease has been assigned on the terms that the sureties will guarantee performance by the assignee of the lease, justice and common sense ought to require the sureties, not the original tenant, to be primarily liable in the event of default by the assignee. So long as the reversion is not assigned, that will be the position. Why should the position between the original tenant and the sureties be rendered completely different just because the reversion has been assigned, a transaction wholly outside the control of the original tenant an·d the sureties?
I entirely agree and would add only this. It has been said that the surety’s obliga tion is simply that of paying money and, of course, in a sense that is true if one looks only at the remedy which the landlord has against him in the event of default by the tenant. But for my part I do not think that this is a complete analysis. The tenant covenants that he will do or refrain from doing certain things which undoubtedly touch and concern the land. A surety covenants that those things shall be done or not done as the case may be. Now it is true that the remedy for breach will sound in damages only, but the primary obligation is the same, namely that that which is covenanted to be done will be done. Take for instance the tenant’s covenant to repair. There is nothing here requiring personal performance by the tenant. The effect of the covenant is that the tenant must procure the premises to be kept in repair. Equally, a guarantee by the surety of the repairing covenant is no more than a covenant or warranty that the guarantor will procure that the tenant, in turn, procures the premises to be kept in repair. The content of the primary obligation is, as it seems to me, exactly the same and if that of the tenant touches and concerns the land that of the surety must, as it seems to me, equally do so.
Formulations of definitive tests are always dangerous, but it seems to me that, without claiming to expound an exhaustive guide, the following provides a satisfactory working test for whether, in any given case, a covenant touches and concerns the land: (1) the covenant benefits only the reversioner for time being, and if separated from the reversion ceases to be of benefit to the covenantee; (2) the covenant affects the nature, quality, mode of user or value of the land of the reversioner; (3) the covenant is not expressed to be personal (that is to say neither being given only to a specific reversioner nor in respect of the obligations only ofa specific tenant); (4) the fact thata covenant is to pay a sum of money will not prevent it from touching and concerning the land so long as the three foregoing conditions are satisfied and the covenant is connected with something to be done on, to or in relation to the land. For my part, I am entirely satisfied that the decision of the Court of Appeal in Kumar v. Dunning [1987]3 W.L.R. 1167 was correct and was reached for the correct reasons. The instant case is indistinguishable in any material respect. NothingI think turns upon the precise terms of the covenant in either case.
Re King
RE KING, DECEAS:Eo, ROBINSON V. GRAY
(Court of Appeal)
[1963] Ch. 459; [1963] 2 W.L.R. 629; [1963] 1 All E.R. 781
Upjohn L.J.: I turn, then, to a consideration of the meaning of section 141 and construe the language used in its ordinary and natural meaning, which seems to me quite plain and clear. To illustrate this, consider the case of a lease containinga covenant to build a house according to certain detailed specifications beforea certain day. Let me suppose that after that certain day the then lessor assigns the benefit of the reversion to an assignee, and at the time of the assignment the lessee has failed to perform the covenant to build. Who can sue the lessee for breach of covenant? It seems to me clear that the assignee alone can sue. Upon the assign ment the benefit of every covenant on the lessee’s part to be observed and per formed is annexed and incident to and goes with the reversionary estate. The benefit of that covenant to build, therefore, passed; as it had been broken, the right to sue also passed as part of the benefit of the covenant and, incidentally, also the right to re-enter, if that has not been waived. I protest against the argument that becausea right to sue is itself a chose in action it, therefore, has become severed from, and independent of, the parent covenant; on the contrary it remains part of it. The right
to sue on breach is merely one of the bundle of rights that are contained in the concept “benefit of every ‘covenant’.”
The assignor has by the operation of section 141 assigned his right to the benefit of the covenant and so has lost his remedy against the lessee. Of course, the assignor and assignee can always agree that the benefit of the covenant shall not
pass, in which case the assignor can still sue, if necessary, in the name of the assignee.
Then suppose the lease contains a covenant to keep in repair which is broken at the date of the assignment, and that at all material times the premises were out of repair; that is, a continuing breach. It is an a fortiori case to the exampleI have just dealt with. Indeed, with all respect to the argument to the contrary, you cannot give any sensible meaning to the words of the section unless the entire benefit of a repairing covenant has passed, leaving the assignor without remedy against the lessee. Look at the absurd results if that were not so. The assignor of the reversion remains at liberty to sue the lessee for breaches down to the moment of the assignment. After assignment he sues and obtains judgment for certain damages. But then the premises are still out of repair and the breach continues. The assignee claims to re-enter or to sue because the premises are out of repair. What is the situation of the lessee? Either he has to pay damages twice or pay damages to the assignor and then reinstate the premises because otherwise the assignee will re enter. This is impossible. Alternatively, the assignee’s right to re-enter or to sue in respect of post-assignment breaches is in some way adversely affected by reason of the fact that the assignor has recovered a judgment for damages for pre assignment breaches; therefore, the benefit of the covenant to keep in repair did not pass wholly to him even in respect of post-assignment breaches. That directly contradicts the words of the section.
Dlplock L.J.: Looked at purely as a matter of the meaning of the words used in section 141 of the Law of Property Act 1925, I take the view that the effect of this section is that after the assignment of the reversion to a lease, the assignee alone is entitled to sue the tenant for breaches of covenants contained in the lease whether such breaches occurred before or after the date of the assignment of the reversion. The effect of the section so construed is to enact a simple, rational and just rule of law. The measure of damages for breach of a covenant in a lease which runs with the land – the only kind of covenant with which the section is concerned – is the diminution in the value of the reversion consequent upon the breach and is sustained by the person entitled to the reversion. If upon an assignment of the reversion the benefit of such covenants, including the right to exercise remedies in respect of existing breaches, is transferred from the assignor to the assignee, justice is done to all three parties concerned. The assignor suffers no loss, for the sale price of the reversion will take account of the value of the rights of action or other remedies against the tenant for antecedent breaches of covenant which are transferred to the assignee; the assignee will be able to enforce these remedies against the tenant; the tenant will remain liable for the diminution in value of the reversion caused by his breaches of covenant whenever committed. Any other solution would lead to complication and injustice, particularly where there is a continuing covenant to keep in repair which, as in the present case, overlaps a covenant to reinstate within a limited time. What would be the tenant’s position if the assignor could sue for breaches committed before the date of the assignment of the reversion? If the tenant put the premises into repair after the date of the assignment, either voluntarily or under threat of forfeiture by the assignee, what would happen to the assignor’s right of action for lack of repair before the assignment and what would be the measure of damages? If the assignor sued the tenant after the assignment and recovered damages representing the diminution in value of the reversion at the date of the breach or breaches relied upon, could the assignee nevertheless subsequently enforce a forfeiture for failure to put the premises into repair or bring an action against the tenant and recover a similar measure of damages? I need not set out the permutations and combinations of complications and injustices which would result.
City of London Crop v Fell
[1993] 2 All E:R. 449; [1993] 04 E.G. 115
Nourse L.J.: The principal question
Section 24(1) of the 1954 Act provides that the “tenancy” shall not come to an end unless terminated in accordance with the statutory provisions. That word is not defined in the 1954 Act. It must therefore be given its ordinary legal meaning. To what does it refer in a case where the original tenant had assigned the tenancy before the end of the contractual term? In order that that question may be answered, some elementary propositions in the law of landlord and tenant must be restated.
A lease of land, because it originates in a contract, gives rise to obligations en forceable between the original landlord and the original tenant in contract. But because it also gives the tenant an estate in the land, assignable, like the reversion, to others, the obligations, so far as they touch and concern the land, assume a wider influence, becoming, as it were, imprinted on the term or the reversion as the case may be, enforceable between the owners thereof for the time being as conditions of the enjoyment of their respective estates. Thus landlord and tenant stand together in one or other of two distinct legal relationships. In the first it is said that there is privity of contract between them, in the second privity of estate.
To what, in ordinary legal parlance, do we refer when we speak of a “tenancy”? I think that we refer to a particular legal relationship between tenant and landlord under which land is held by the one of the other. A ”tenant”, both by derivation and by usage, is someone who “holds” land of another, for which purpose it is immaterial whether he does so by contract or by estate. Although he may remain contractually liable to the landlord, an original tenant who has assigned the tenancy, equally with an assignee who has himself assigned, cannot properly be described as the tenant. He no longer holds the land. It is the assignee who now holds the land. It is he who has the tenancy.
It follows that where an original tenant has assigned the tenancy before the end of the contractual term the tenancy which s 24(1) provides shall not come to an end is, and can only be, the tenancy of the assignee. Since the contractual obligations of the original tenant form part of the legal relationship between the landlord and the assignee, and since they are not independently continued by the subsection, they are in no way affected. If, as here, the original tenant has covenanted to pay rent only during the contractual term, the landlord cannot recover from him any rent payable in respect of a period after that date. Further elaboration of the principal question could only obscure the clarity of the answer. The defendants are entitled to succeed on this appeal.
The basic submission of Mr Arden QC for the plaintiffs was that because a tenancy can only originate in contract its continued existence is dependent on con tinued contractual support. Accordingly, the effect of s 24(1) must be to continue, not only the obligations arising by privity of estate between the landlord and the assignee, but also those arising by privity of contract between the original landlord and the original tenant. For the reasons already stated, that submission, afflicted as it is by a confusion between the creation and the continuation of a tenancy, must be rejected. A tenancy needs a contract to create it. It does not need one to continue it. The contractual obligations which touch and concern the land having become imprinted on the estate, the tenancy is capable of existence as a species of property independently of the contract.
Mr Arden helpfully referred us to many other provisions of the 1954 Act. None of them provides any support for the view that “tenancy” ins 24(1) is to be given any other than its ordinary meaning. Indeed, by their exclusive concern with the tenant in occupation they affirm the contrary. Mr Arden also took us to all the previous authorities on s 24(1). They establish that the effect of the subsection is to continue the common law tenancy with a statutory variation as to the mode of its determination: see for example, Comish v. Brook Green Laundry Ltd [1959] 1 All ER 373 at 383, [1959] 1 BQ 394 at 409. In some of them reference has been made to the continuation, not of the tenancy, but of the ‘term’; see for example Re Bleachers’ Association Ltd’s Leases, Weinbergs Weatherproofs Ltd v. Radcliffe Paper Mill Co. Ltd [1957] 3 All ER 663 at 668, [1958] Ch 437 at 446. There is no significance in this distinction in language. The term is an integral part of the tenancy and, if the one is continued, so is the other.
Unfortunately, as it now appears, the insignificance of judicial references to the continuation of the term or the contractual term was not fully grasped in the courts below, where counsel for the respective landlords invoked them as authority for the proposition that the contractual obligations of the original tenant are also continued by s 24(1). That line of argument involves a clear non sequitur. Although the term is created by contract, it is continued by statute. Accordingly, while it is usual to speak of the continuation of the contractual term, it does not follow that the contractual obligations of the original tenant are continued. The true view is that none of the references in the previous authorities to the continuation of the tenancy or the term has illuminated the meaning of “tena,ncy” in its application to a case such as the present. A decision of my own at first instance, GMS Syndicate Ltd v. Gary Elliott Ltd [1981] 1 All ER 619, [1982] Ch 1, which was much relied on in the courts below, is especially unilluminating. Rather more helpful, although by analogy only, are Junction Estates Ltd v. Cope (1974) 27 P & CR 482 and A Plesser & Co Ltd v. Davis (1983) 267 EG 1039, in each of which it was held that a covenant guaranteeing the tenant’s payment of rent and performance of his covenants was limited to the contractual term of the lease and did not extend to the period of a continuation tenancy under s 24(1).
Herbert Duncan Ltd v Gluttons
This case has two additional features. First, the landlord claims that the covenant in the lease for payment of rent obliges the original tenants to pay it, not only during the contractual term, but also during any continuation tenancy under s 24(1). Secondly, the landlord claims that the original tenants are liable during that period, not simply for the contractual rent, but for an interim rent determined pursuant to s 24A of the 1954 Act by a consent order made in proceedings between the assignee and the landlord. The first question raised by the defendants’ appeal was the principal question, on which Mr Denyer Green for the defendants, and Mr Brock for the plaintiff, were content to adopt the arguments advanced by Mr Neuberger and Mr Arden respec tively. For the reasons already stated, that question must be resolved in favour of the defendants. It then becomes necessary to consider two subsidiary questions.
The subsidiary questions
The first subsidiary question is whether, by virtue of the particular provisions of the lease, the defendants were liable to pay the contractual rent of £70,000 per annum, not only during the contractual term, but also during the continuation tenancy under s 24(1). This is a very simple question. The combined effect of the reddendum and cl 2(1)(a) of the lease was that the defendants covenanted to pay the yearly rent of
£70,000 during ”the said term” which, by cl 5(g), was defined to include, not only the contractual term, but also ”the period of … any extension thereof whether by statute or at common law”. In other words, there was a covenant to pay the rent during the period of any statutory extension of the contractual term, i.e. bys 24(1) of the 1954 Act. The first subsidiary question must be decided in favour of the plaintiff.
The plaintiff, by its success on that question alone, cannot acquire any financial benefit as against the defendant. That is because it has already received the full amount of the contractual rent during the continuation tenancy from Warringtons. However, its success is a necessary preliminary to the second subsidiary question, which is whether the defendants are liable, not for the contractual rent, but for the interim rent instead. This question is almost as simple as its predecessor.
So far as material, s 24A provides:
(1) The landlord ofa tenancy to which this Part of this Act applies may-, (a} if he has given notice under section 25 of this Act to terminate the tenancy… apply to the court to determinea rent which it would be reasonable for the tenant to pay while the tenancy continues by virtue of section 24 of this Act, and the court may determinea rent accordingly.
(2) A rent determined in proceedings under this section shall be deemed to be the rent payable under the tenancy …
Mr Denyer Green submitted, correctly, that in a case such as the present ‘the tenant’
referred to in sub-s (1) can only be the assignee. He added that Parliament cannot have intended that the original tenant should be liable for payment ofa rent which, although it might be reasonable for the assignee to pay, might be unreasonable for the original tenant to pay, especially when it fell to be determined in proceedings to
which he would not be a party.
AlthoughI see great force in that submission, it is unnecessary to resort to it in this
case, where everything depends on the contract between the parties. All that the defendants covenanted to pay was the yearly rent of £70,000. True it is that they covenanted to pay it during the continuation tenancy. But they did not covenant to pay any other rent. They certainly did not covenant to pay an interim rent determined pursuant tos 24A and, the principal question having been decided as it has, they cannot be fastened with any liability to do so. I cannot accept Mr Brock’s submission that the deeming provision in sub-s (2) in some way translated the contract into one
for payment of the interim rent.
…–
Selous Street Properties Ltd v Oronel Fabrics Limited
(1984) 270 E.G. 643, 743
Hutchison J.: AsI understand it, Mr Hurnton’s argument, expressed in its simplest form, proceeds as follows. First it is conceded that on a proper construction of the covenant to pay rent the original lessee, Oronel, agreed to be bound by an agree ment or determination made between the landlord and an assignee without refer ence to Oronel. Second, it is, however, only on the basis that the rent review is that to which the original lessee agreed that he is bound by its result. As an illustration of this point, Mr Burnton gives the example of a lease which contains an absolute prohibition against change of user or alteration, notwithstanding which the landlord and an assignee agree to a dramatic change – perhaps from warehouse to office use
– witha resultant dramatic increase in the rental value of the premises. He submits thata rent review conducted after the landlord had agreed to a variation of the lease to permit business user would not be such a rent review as that by which the original lessee had agreed to be bound. Third, what is all important, says Mr Burnton, is the agreement of the landlord to a variation. He concedes that a breach of covenant by the tenant, which may result in the premises being altered and their rental value increased, will not of itself relieve the original lessee from liability to pay the reviewed rent; but he says that since the original lessee’s undertaking is subject only to such alterations as are permitted by the lease that he signs, agreement by the landlord to vary the terms of the lease by expressly assenting to some alteration in the user or construction of the premises not permitted by the original lease is fatal and discharges the original lease. He says that in this case the licence, both because it expressly authorises the retention until the end of the term of the toilets on the second floor and because in other respects it varies the lease by imposing on the lessee additional onerous terms, resulted in the rent review being conducted ona different basis from that agreed to by Oronel. I shall shortly consider whether,
properly construed, the licence does provide the foundation for this argument, but for the present I shall assume that it does.
These submissions, though framed in terms somewhat similar to those that might be made on behalf ofa guarantor, are expressed in language intended deliberately to distinguish them from those on which a guarantor could rely and on which Mr Morgan does rely in this case. The reason is that Mr Burnton is faced with the decision in the case of Baynton v. Morgan (1888) 22 QBD 74. That case decided that
the original lessee is not a surety and pointed out that none of the usual suretyship doctrines had ever been held to furnish a defence to an action against the original tenant for arrears of rent which occurred after he had assigned the term. It also decided that a subsequent tenant might deal with the property, at least by surrender, without discharging the liability of the original lessee. Mr Burnton, while reserving his position in case of appeal, accepted that for present purposes he must proceed on the basis that that decision, which of course is binding on me, precluded him from advancing any argument contrary to either of those propositions.
Mr Burnton contends, however, that Baynton v. Morgan and the other two cases on which in this context Mr Cherryman relied, Centrovincial Estates PLC v. Bulk Storage Ltd (1983) 268 ESTATES GAZETTE 59 and Allied London Investments Ltd V. Hambro Life Assurance Ltd (1983) 269 ESTATES GAZETTE 41, can be distinguished from the present case. He contends that, whereas those three cases are cases where the argument was that there had been a total discharge, the present is the first case in which it has been contended that the lessee is bound by a variation which has increased his liabilities. Mr Burnton accordingly suggests that I am free to hold, notwithstanding Baynton v. Morgan, in favour of the principle for which he contends, which is that the lessee cannot be bound by a rent review which has taken place on a basis which was not predicated by the terms of the original contract. He argues that it is a question of construction, looking at the content of the original covenant, as to what the lessee agreed to; and that if, as he suggests has occurred in the present case, there has been a rent review on a different basis, that cannot bind him. Before I consider Mr Cherryman’s answers to those contentions, I ought to refer in more detail to the three cases I have mentioned.
In Baynton v. Morgan the original lessee was sued on a covenant in the lease whereby he agreed to pay the rent. The term had been assigned and the first assignee, Evans, had before himself assigning to Morgan, surrendered a small part of the premises to the landlords. An official referee had determined that, assuming that there could be an apportionment of rent for the purposes of the covenant, £4 out of the rent reserved of £50 was attributable to the portion surrendered. The original lessee appealed against a judgment in the county court for the amount of the apportioned rent. It was held that the liability of the defendant on the covenant was not extinguished by the surrender of part of the demised premises and that the original lessee was not in the position of a surety.
In a passage at p. 78, Lord Esher MR, having concluded that the original lessee’s obligation was not that of a surety, continued:
Even if this were a contract of guarantee, I do not think the defendant could establish a defence on that ground. It is one of the conditions to which such a contract is by law subject that, if the terms of the contract as between the principal debtor and the creditor are altered without the knowledge or authority of the surety, the latter is released from liability on the guarantee. In this case I think that the terms of the lease, though altered without the knowledge of the lessee, were not altered without his authority, for I agree with the opinion expressed by AL Smith J in the court below – that is to say, that a lessee by assigning all his interest in the term to an assignee empowers the assignee, if he so desires, to surrender to the lessor all or any part of the demised premises. He gives to his assignee the powers which he might himself have exercised, and, as he himself might have surrendered part of the premises, he authorises his assignee to do so.
In his judgment at p. 82 Lopes LJ said:
The action is brought upon an express covenant by the lessee, couched in clear and unambiguous terms, for the payment of the rent reserved by the lease on the proper quarter days at all proper times during the term. The rule of law is that a lessee remains liable upon his express covenants, notwithstanding an assignment and acceptance by the landlord of rent from the assignee, and there is an implied promise on the part of each successive assignee to indemnify the lessee against b eaches of the covenants of the lease in his own time.
It is, of course, true that in that case no question of a rent review arose, and the only alteration had been the surrender of part of the demised premises. However, the passages I have quoted in a case which has been recognised for almost a hundred years as a leading authority are in very wide terms, and the invitation to distinguish the case on grounds advanced by Mr Burnton would be more attractive if in the period that has elapsed since it was decided there were any cases to support the view that those wide statements of principle should be regarded as being confined to particular circumstances. As it is, the two recent authorities which I have already mentioned support the opposite view.
In Centrovincial Estates the defendant was the original lessee whose interest had subsequently been assigned. The lease was for a term of 21 years from December 1964 at an annual rent of £17,000 subject to a review clause taking effect at the expiry of the first 14 years, under which the rent could be reviewed either by agree ment or by the determination of a surveyor acting as an expert. By an agreement in January 1979 the plaintiffs and the assignee agreed a revised rent of £40,000 per annum and in 1981, upon the assignee’s failure to pay a quarter’s rent, the plaintiffs sued the defendant. The defendant’s contention was that its liability, if any, was confined to the amount of the rent originally reserved. The question for decision was posed by Harman J in the following terms: “Is the defendant, who had no knowledge of or connection with the agreement:made, bound to pay rent at the rate fixed by that agreement?”
Two contentions were advanced;on behalf of the defendant, one being an argu ment on the construction of the clause in that lease but the other a general conten tion that the original tenant was not bound by acts prejudicial to him done by the assignee of the term. Harman J, having rejected an argument that each successive assignee was an agent of the original lessee, said this:
But if there is, as I hold, no agency enabling an assignee to bind the original tenant, what is the position? In my judgment the basic answer which any real property lawyer would give to a question about an assignee’s power to deal with a tenancy interest is that each assignee is the owner of the whole estate and can deal with it so as to alter it or its terms. The estate so altered then binds the original tenant, because the assignee has been put into the shoes of the original tenant and can do all such acts as the original tenant could have
.
Harman J then goes on to point out that his formulation of the law is supported by the decision of the Court of Appeal in Baynton v. Morgan.
In the case of Allied London Investments Ltd the plaintiff lessors sued the original lessees for arrears of rent occurring due after they had assigned the term to another company. The defendants’ defence was based on the fact that at some stage in the course of a complicated series of actions the plaintiffs had released unconditionally a surety who had joined in the assignment as guarantor of the assignees’ obligations. The argument, put simply, was that the defendants too were in a position of a surety and that, accordingly, the release by the plaintiffs of a cosurety discharged them.
Walton J, in dismissing this argument, considered a large number of authorities and regarded as completely decisive the case of Baynton v. Morgan. After extensive citation from that case he continued:
So there is a decision of the Court of Appeal not only that the relationship is not that of suretyship but going much further and pointing out that down to that date there had been no case in which any of the usual suretyship doctrines had ever been held to furnish a defence to an action against the original tenant for arrears of rent which had occurred after he had assigned the term. The position is now very much reinforced, for equally in the ensuing 95 years also there has been no such case.
Walton J then drew attention to the fact that Baynton v. Morgan had been approved in the House of Lords, though P.erhaps on another aspect, in the case of Matthey v. Curling [1922] 2 AC 180 and had received the express approval of Younger LJ in the Court of Appeal in that case. He cites a passage from the judg
ment of Younger LJ and then states his own conclusion as to the result of these two
cases in the following words:
These two cases, then, make it perfectly clear that when he is sued, as in the present case, on the covenants contained in the original lease, the original tenant’s only possible defences are either (1) that he has performed the covenants or (2) that the relevant assignee has performed the covenants or (3) that there has been some operation conducted upon the lease- for example, surrender of the whole – which has put a complete end to the liability to pay rent. Short of one of these three defences, there is no defence. In particular, the defence sought to be set up in the present case that the original tenant is only ina position analogous to that of the surety has been deliberately rejected by the Court of Appeal and Younger LJ, so that there is no possibility of his relying upon any circumstance which might
have discharged him if he had been truly in that position.
In the light of these authorities, the conclusion I have reached is that, even assuming that the effect of the licence of June 9 1976 was to increase the burden on the original lessees, that is not a ground for distinguishing the present case from Baynton v. Morgan or for holding that the original lessees are for that reason discharged from the continuing liability which it is conceded they are otherwise under for payment of rent. I have yet to consider whether the licence did have that effect, but on the assumption that it did, I regard myself as bound by the statements of principle contained in the judgments in Baynton v. Morgan to hold that such an alteration does not in any. way discharge the original lessee. That case applies, in my view, where the landlord agrees to variations of the lease and/or alterations of the premises of any kind, whether the lessee’s obligations are increased asa result or not. I adopt the formulation of principle in the judgment of HarmanJ which I have
cited.
Middlegate Properties Limited v Bilbao, Caroline Construction Co Limited
Willis J.: The defendant’s claim to be indemnified rests primarily upon Part IX of Schedule 2 to the Law of Property Act 1925 and clause 2 of the assignment. The plaintiffs [sic: Caroline?), for their part, rely on Part IX of Schedule 2 and also on clause2 of the agreement and Part II of Schedule 2. Part II reads as follows, so far
as is material:
Further Covenant … in a Conveyance of Leasehold Property … by a Person who Conveys
… as Beneficial Owner. That, notwithstanding anything by the person who … conveys, or any one through whom he derives title … made [etc.], the lease … creating the term … is, at the time of conveyance, a good, valid, and effectual lease … and is in full force … and has in nowise become void or voidable, and that, notwithstanding anything as aforesaid … all the covenants … have been … observed, and performed up to the time of conveyance.
Part IX, so far as material, provides:
Covenant ina Conveyance … of … the Land comprised in a Lease for the Residue of the Term … That the assignees … will at all times, from the date of the conveyance … duly pay all ren.t.. under the lease … and observe and perform all the covenants… therein contained and thenceforth on the part of the lessees to be … performed. And also will at all times, from the date aforesaid … keep indemnified [the assignors] against all proceedings
… on account of … any breach of any of the said covenants ….
Mr Stogdon takes a short point. He submits that Parts II and IX must be read together and that, so read, together with their enabling sections 76 and 77, they provide that, unless anything to the contrary appears in the bargain, the date of the conveyance determines the respective liabilities of the parties as between themselves, namely, that the assignor is liable for breaches up to that date and the assignee for those occurring thereafter. This, he submits, applies also to continuing breaches such as a repairing covenant. He concedes that in this case the landlord could have sued either the defendant or Caroline in respect of the lack of repair and that by reason of clause 2 of the assignment Caroline would have had no recourse against the defendant had the landlord chosen to sue Caroline. Once, however, it is accepted that Parts II and IX are to be read together and that the purchasers’ indemnity under Part IX is to run in respect of all breaches only from the date of the assignment, then, he submits, if the landlord sues the assignor the latter is liable for breach of the covenant to put and keep in repair, quantified as at the date of the assignment, and the indemnity under Part IX does not avail the assignor in this case. These were premises which were seriously out of repair to the knowledge of all parties at the date of the assignment and it seems to me clear that the way in which Mr Stogden asks me to construe Parts II and IX together with clause 2 of the assignment and clauses 2 and 3 of the agreement leads to a radically different result so far as concerns liability for the breach of the repairing covenant according as the landlord elects to sue either the assignor or the assignee. AlthoughI understand that this result may follow in respect of other covenants, I ask myself whether the parties to the assignment of these premises could ever have intended such a result. It seems to me that this would be surprising in the absence of express words, and Mr Stogdon acknowledges that, with hindsight, express words might have provided a more reliable route to the goal which he asks me to reach.
Mr Chadwick in his very helpful analysis of the provenance of Parts II and IX submits that what was intended in Schedule 2 was to provide a balance between assignor and assignee in cases where premises were out of repair at the date of assignment, the landlord being able to sue either party for substantial damages if the breach continued by reason of the assignee failing to comply with the covenant to put and keep in repair. Since the landlord could sue either party, each is concerned between themselves to bear only the loss proportionate to his own default. Since, therefore, in a case where the covenant is to keep in repair, the assignee is bound under Part IX by the implied covenant to indemnify the assignor fully, he will either reduce his price or, if he pays the full price, will take a warranty that the assignor will make good any liability due to his failure to perform the covenant. This is met, says Mr Chadwick, by Part II in which a warranty is implied unless excluded by the bargain. Although the prospective bargain between the defendant and Mrs Lister did not materialise in the event, Mr Chadwick points to the contract of September 4, 1970, in which special condition of sale c limited the implied covenant under Part II to the extent provided for by general condition 10(7). This indicates, he submits, that vis-a-vis Mrs Lister as prospective -assignee the parties’ intention was for the assignee to be responsible for the cost of repair whoever was sued by the landlord, and that, when the assignment was eventually made to Caroline, clause 2 and the reduction in the amount of the consideration is at least consistent with the continua tion of that intention.
Finally, Mr Chadwick has referred me to the express covenant 2 appearing in
The Encyclopaedia of Forms and Precedents, 4th edn (1969), vol. 19, at p. 1462, for the similarity in language to that of the implied covenant in Part IX.
It is regrettable that this case, upon which there seems to be no direct authority, should not have come for decision in the Chancery Division where it naturally belongs. I have found myself in very unfamiliar territory, but I have had to do my best with the great assistance of both counsel. I have reached the clear conclusion that Mr Stogdon’s submission fails. It may well be that in the case of other lessees’ covenants the combined effect of Parts II and IX is to make the date of the conveyance the watershed for liability. But I can find no reason for thinking that Parts II and IX must be read together in the case of a repairing covenant such as that with which I am concerned where the lack of repair constitutes a continuing breach in such a way as to provide that the assignee’s implied covenant to indemnify is limited to breaches occurring after the date of assignment, unless the bargain provides otherwise. If this be the right view, Mr Stogdon concedes that he must fail. If, however, I am wrong in rejecting Mr Stogdon’s submission that Parts II and IX must be read together as a code, so to speak, it seems to me clear from the documents to which I have referred that the proper inference to be drawn as to the bargain made between the defendant and Caroline was that Caroline accepted responsibility for putting and keeping the premises in repair. If, therefore, the plaintiffs have chosen to sue Caroline, clause 2 of the assignment would effectively have debarred any recourse by Caroline to the covenant. I find it impossible to think that a quite different result was intended in the event of the landlord electing to sue the defendant.
In my judgment, the combined effect of Part IX and clause 2 of the assignment requires Caroline to indemnify the defendant in respect of any amount for which she may be found liable for breach of clause 2(5) of the lease.
Duncliffe v Caerfelin Proerties Limited
[1989] 27 E.G. 89
Garland J.: What is submitted on behalf of the plaintiff (and I speak now of the plaintiff in the singular) is that the obligation referred to in section 142, of which it is said that it may be taken advantage of and enforced against any person so entitled, necessarily includes the sort of situation we have in this present case, where past breaches have given rise to causes of action (or a single cause of action) which remain unsatisfied, so that the obligation is the continuing obligation by the lessor and his assignee not only to keep the premises in repair but also to make good, as it were, any damages arising from the past breaches. The difference between the parties really amounts to that. For the plaintiff to succeed, one has to see whether the situation with which we are confronted falls within the wording of section 142, the matter being, as far as I am aware, devoid of any direct or even helpful authority.
I have formed the conclusion, albeit with some reluctance because of the unhappy state that the plaintiff finds herself in, that what section 142 is talking about is the obligation arising under the lease to observe and perform the repairing covenant as a repairing covenant running with the land and binding the assignee of the reversion. I would find it very hard indeed to construe “obligation” as it is used in this section as meaning the consequences of a past breach prior to the assignee becoming entitled to the reversion, where that breach has accrued into a cause of action in respect of damage to chattels or other property, and is no longer a continuing breach of the covenant to keep in repair. Of course, a continuing breach of covenant to keep in repair can be measured in terms of economic loss to the value of the tenant’s interest, but I cannot construe it as covering the accrued causes of action for what is described as matters of consequential loss. This is, of course, a matter of first impression on the construction of the statute. As I have said, as far as I am aware it is the first time the matter has come before the court in precisely these terms.
Doing the best I can as a matter of construction and assisted as far as I am by the authorities (which, as I have said, are not in point) that must be the conclusion which I have reached on the preliminary issue as formulated in this case. Therefore, in strict terms of answering the question whether the defendants (that is the present defend ants) are liable to the plaintiff in law for damages in respect of breach of covenant for consequential loss and damage suffered by the plaintiff, when it is admitted such loss and damage and breach of covenant occurred prior to the defendants becoming freehold reversioners of the property, the answer is “No”.
Liability of a Surety
Kumar v Duning
[1987] 3 W.L.R. 1167; [1987] 2 All E.R. 801; (1987) 283 E.G. 59
Sir Nicolas Browne-Wilkinson V.-C.: It must be noted that there is no privity of contract between H. & B. and the sureties. Nor is there privity of estate. Accordingly, the Grantees of Reversions Act 1540 (now sections 141 and 142 of the Law of Property Act 1925) is not directly in point. Those provisions only apply to covenants between landlord and tenant. Where there is neither privity of contract nor privity of estate, the benefit of a covenant rur;,s with the land of the covenantee at law if, but only if, the covenant touches and concerns the land of the covenantee: Megarry and Wade, The Law of Real Property, 5th edn (1984), pp. 764-765. Sucha covenant, if it does touch and concern the land, is ·enforceable by an assignee of the land against the covenanter, whether or not the covenanter has any land: Smith v. River Douglas Catchment Board [1949] 2 K.B. 500. Although this case is not concerned directly with covenants between landlord and tenant, authorities on the latter type of case are in
point: as between landlord and tenant only covenants which touch and concern the land are enforceable. ‘
The test whether a covenant touches and concerns land is that formulated by
Bayley J. in Congelton Corporation v. Pattison (1808) 10 East 130 and adopted by Farwell J. in Rogers v. Hosegood [1900] 2 Ch. 388, 395:
the covenant must either affect the land as regards mode of occupation, or it must be such as per se, and not merely from collateral circumstances, affects the value of the land.
But although the test is certain, its exact meaning when applied to different sets of
circumstances is very obscure. In Grant v. Edmondson [1931] 1 Ch. 1, 28 Romer L.J. said:
In connection with the subject of covenants running with land, it is impossible to reason by
analogy. The established rules concerning it are purely arbitrary, and the distinctions, for the most part, quite illogical.
Before seeking to analyse the authorities, I will first state how the matter strikes me asa matter of impression. The surety covenant is given asa support or buttress to covenants given by a tenant to a landlord. The covenants by the tenant relate not only to the payment of rent, but also to repair, insurance and user of the premises. All such covenants by a tenant in favour of the landlord touch and concern the land,
i.e. the reversion of the landlord. The performance of some covenants by tenants relates to things done on the land itself (e.g., repair and user covenants). Other tenants’ covenants (e.g., payment of rent and insurance) require nothing to be done on the land itself. They are mere covenants for the payment of money. The covenant to pay rent is the major cause of the landlord’s reversion having any value during the continuance of the term. Where there is privity of estate, the tenants’ covenant to pay rent touches and concerns the land: Parker v. Webb (1822) 3 Salk. 4. As it seems to
me, in principlea covenant by a third party guaranteeing the performance by the
tenant of his obligations should touch and concern the reversion as much as do the tenants’ covenants themselves.
This view accords with what, to my mind, is the commercial common sense and justice of the case. When, as in the present case, the lease has been assigned on the terms that the sureties will guarantee performance by the assignee of the lease, justice and common sense ought to require the sureties, not the original tenant, to be primarily liable in the event of default by the assignee. So long as the reversion is not assigned, that will be the position. Why should the position between the original tenant and the sureties be rendered completely different just because the reversion has been assigned, a transaction wholly outside the control of the original tenant and the sureties?
From [the] authorities I collect two things. First, that the acid test whether or not a benefit is collateral is that laid down by Best J., namely, is the covenant beneficial to the owner for the time being of the covenantee’s land, and to no one else? Secondly, a covenant simply to pay a sum of money, whether by way of insurance premium, compensation or damages, is a covenant capable of touching and concerning the land provided that the existence of the covenant, and the right to payment there under, affects the value of the land in whomsoever it is vested for the time being. Therefore, in my judgment, these cases (which were not cited to Walton J.) show that he was in error in holding that a covenant at double remove could not touch and concern the land.
Applying the test laid down by Best J., a covenant by a surety securing the per
formance of a tenant’s covenants in a lease satisfies it. The surety covenant increases the value of the reversion in that the landlord can look not only to the tenant but also to the sureties for the payment of a sum equal to the rent and for damages for failure to comply with the other tenant’s covenants. Such surety covenant is of value to no one other than the owner for the time being of the reversion since it is in support of the tenant’s covenants and the tenant’s covenants can only be enforced by the reversioner for the time being. Once the lease has been assigned, the assignor cannot enforce the tenant’s covenants in respect of breaches occurring after the date of assignment and a fortiori cannot enforce the surety covenant. No one other than the landlord can enforce the surety covenant. The fact that it is a covenant only to pay a sum of money or damages is not inconsistent with it touching and concerning the land.
Associated Dairies Limited v Pierce
(Court of Appeal) (1983) 265 E.G. 127
Waller L.J.: The judge held that the liability of the surety was coextensive with the liability of the tenant. Our attention has been called to Moschiv Lep Air Services Ltd [1973] AC 331. In that case one of the questions being considered was whether the fact that the creditor treated the debtor’s conduct as repudiation of the contract also terminated the guarantor’s liability. Lord Reid, at p 344G, said this:
With regard to making good to the creditor payments of instalments by the principal debtor there are at least two possible forms pt agreement. A person might undertake no more than
that if the principal debtor fails to pay any instalment he will pay it. That would bea condi tional agreement. There would be no prestable obligation unless and until the debtor failed to pay. There would then on the debtor’s failure arise an obligation to pay. If for any reason the debtor ceased to have any obligation to pay the instalment on the due date then he
could not fail to pay it on that date; The condition attached to the undertaking would never be purified and the subsidiary obligation would never arise.
On the other hand, the guarantor’s obligation might be of a different kind. He might under take that the principal debtor will carry out his contract. Then if at any time and for any reason the principal debtor acts or fails to act as required by his contract, he not only breaks his own contract but he also puts the guarantor in breach of his contract of guarantee. Then the creditor can sue the guarantor, not for the unpaid instalment but for damages. His contract being that the principal debtor would carry out the principal contract, the damages payable by the guarantor must then be the loss suffered by the creditor due to the principal debtor having failed to do what the guarantor undertook that he would do.
(See also Lord Diplock at 351B).
In that case the House of Lords were of opinion that the surety’s liability wasa pri mary liability, that is to say not coextensive. Applying those principles to the present case, in my judgment the clause imposing liability of the surety for loss, the clause
with which this case is concerned, was a primary liability, that is to say not coextensive with the debtor.
In such circumstances the surety will, in my opinion, be liable for the loss suffered by the landlord asa result of the tenant’s failure to pay rent from December 25 1976, and failure to yield possession to the landlord from April 16 1977, when the writ was served. No question arises before us about the rent before March 25. However, on the determination of the tenancy there will be rent owing up to April 16 and then damages for failure to hand over possession until August 12. These damages are mesne profits but they form the loss suffered by failure to yield possession. In my
judgment unless there is some compelling reason to the contrary the surety is responsible under the deed to pay this to the landlord.
The appellant submits, however, that the fact that the landlord sued for mesne profits was an election to sue for tort, and therefore the landlord cannot now claim
fora contractual loss under the covenant. In United Australia Ltdv Barclays Bank Ltd [1941] AC 1 at p 18, Viscount Simon LC says:
The true proposition is well formulated in the Restatement of the Law of Restitution promulgated by the American Law Institute, p 525, as follows: “A person upon whoma tort has been committed and who brings an action for the benefits received by the tortfeasor is sometimes said to ‘waive the tort’. The election to bring an action of assumpsit is not, however, a waiver of tort but is the choice of one of two alternative remedies”. Contrast with this, instances of true waiver of rights, the waiver of forfeiture by receiving rent.
And at p 21 the Lord Chancellor makes it clear that where it is merely procedural
there is no waiver if there is no satisfaction of the first judgment.
In my judgment, in this case there is no substance in the argument that the landlord had waived its rights to sue the surety in contract. The contract that we are considering is between the landlord and the surety, not the landlord and the tenant. The loss which the landlord suffered was the loss of use of the premises, the subject of the lease. The measure of damage is not described as use and occupation because to do so might have the effect of giving the former tenant rights. The measure of damage is described as mesne profits. The loss which resulted from the failure to yield possession was the mesne profits between April 16 and August 12. I find it difficult to say that the landlord in suing for mesne profits was making an election which would bar a claim for loss, ie mesne profits. Even if it would otherwise be an election, since the judgment was fruitless and the parties are different, the difference between suing for mesne profits because the tenant has held over in breach of covenant and suing for breach of covenant is procedural and therefore does not bar the claim.
Finally, I would be disposed to hold in this case that it would be carrying technicality too far to say that the tortious element barred the claim where damages for mesne profits are part of the loss occasioned by the failure to yield possession.
May L.J.: When the underlying contract between creditor and principal debtor and the contract of guarantee are still subsisting, then in order to ascertain the extent of the surety’s liability, if any, to the creditor, it is first necessary to determine the amount and nature of the principal debtor’s debt to the creditor and the circum stances in which it has arisen. Having done so, one must then construe the contract of guarantee strictly and see whether it covers the nature, extent and circumstances of the principal debt sought to be recovered from the surety. If it does, then the surety is liable: if it does not, in whole or in part, then pro tanto the surety is not liable. It is within these strict limitations only that it is correct to say that a surety’s liability is coextensive with that of the principal debtor.
A Plessser & Co Limited v Davis
(1983) 267 E.G. 1039
French J.: Is the defendant liable under the guarantee for the three quarters’ rent which fell due during the statutory continuation of the tenancy? The manner in which I should approach this problem seems respectfully to me to be set out with admirable clarity in the judgment of May LJ in Associated Dairies Ltd v Pierce (1982) 265 ESTATES GAZETTE 127 at p 129, where the learned lord justice said the following:
When the underlying contract between creditor and principal debtor and the contract of guarantee are still subsisting, then in order to ascertain the extent of the surety’s liability, if any, to the creditor, it is first necessary to determine the amount and nature of the principal debtor’s debt to the creditor and the circumstances in which it has arisen. Having done so, one must then construe the contract of guarantee strictly and see whether it covers the nature, extent and circumstances of the principal debt sought to be recovered from the surety.
The plaintiff of course submits that in answering the question posed I should come to the conclusion that the answer should be ”yes”. He submits that the tenancy as created by the lease and as continued by the 1954 Act is one and indivisible. The parties, it is said, must have been aware of the provisions of the 1954 Act. When the defendant covenanted ”that the Assignee will duly pay the rents reserved by the Lease on the days and in the manner therein provided”, those words should be construed to include that they would duly pay the rents payable during any statutory continuation of the contractual period.
Reliance is placed on the judgment of Nourse J in the case of GMS Syndicate Ltd v Gary Elliott Ltd [1982] Ch 1. In that case the learned judge had before him an assign ment of a sublease with the consent of the lessor and of the lesse.e. The assignees had covenanted with the head lessor during the residue of the term granted by the underlease as extended by a supplemental agreement to perform certain covenants in the underlease inter alia against nui.sance and against immoral user of the premises. The assignees claimed that when the underlease as extended by the supplemental agreement expired and they (that is the assignees) continued in occupation under the 1954 Act, they could with impunity carry on an immoral massage parlour in the
premises and with impunity cause a: nuisance to other occupants. It will cause little
surprise to the reader that Nourse J rejected that contention. He construed the covenants as being covenants in favour, be it noted, not of the mesne landlord but the head landlord and as continuing during the statutory continuation of the sublease. I do not doubt the correctness of that decision, but I do doubt its applic ability as persuasive authority in the very different circumstances of the instant case. On facts very much closer to those which concern me and on wording which for all practical purposes I find indistinguishable MacKenna J held in favour of the
guarantor: see Junction Estates Ltd v Cope (1974) 27 P & CR 482.
At the time the defendant in this case executed the licence agreement the contractual term had about half its course yet to run. Any statutory continuation might, for all he knew, have continued for years, even for decades. The plaintiffs might have got an order for a swingeing interim rent, depending upon the ravages of inflation or possibly an increase in property values, and counsel for the plaintiffs felt constrained in the course of argument to concede that the defendant would not be bound by the terms of the guarantee to pay in default an increased interim rent under section 24(A) of the Act. It seems to me anomalous in those circumstances that he should be bound to pay the rent at all during the continuation period so long as the interim rent remained the same as the contractual rent.
If the plaintiffs are right, the defendant was binding himself for an indefinite period and, on one view at least, in respect of unascertainable sums. I cannot construe the relevant words so as to produce this result. It is clear that in some contexts and for some purposes the contractual term and the statutory continuation thereof are to be regarded if not as one and the same, then at least as part of one continuum. See Scholl Mgf Co Ltd v Clifton (Slim-Line) Ltd [1967] Ch 41, in the course of which Diplock LJ (as he then was) gave an analysis of the effect of Part II of the 1954 Act in words which I would not have the temerity to applaud, but which Winn LJ described as having been given in terms of such cogency and lucidity as he (that is to say Winn LJ) could not possibly have matched.
But while that is clear, it is equally clear that a contractual term anda statutory continuation are distinguishable as concepts. A document may be couched in language which without doubt or equivocation points to a guarantee of liability in rtspect of contractual term obligations or in respect of statutory continuation obliga tions or it may be of both. An example is to be found in the document which the court had before it in Associated Dairies Ltd v Pierce. Clause 31 of each of the leases under consideration in that case started with the words: “To yield up at the expiration or sooner determination of the term or any statutory continuation thereof as the case may be.” Some such expression could have been used here and, in my judgment, should have been used here in order to produce the result for which the plaintiffs contend.