Souglides v Tweedie & Anor [2012] EWHC 561 (Ch)

Case No HC11C01152[2012] EWHC 561 (Ch)IN THE HIGH COURT OF JUSTICECHANCERY DIVISIONVenue The Rolls Building, Royal Courts of Justice,, 7 Rolls Buildings, London, EC4A 1NLDate 12/03/2012
Before
MR JUSTICE NEWEY
Between
JOHN ZENO SOUGLIDESClaimantTHOMAS CUNNINGHAM TWEEDIEDefendantsJOHN MATHESON TWEEDIEDefendant
Miss Marilyn Kennedy-McGregor (instructed by B.D. Laddie) for ClaimantMr David Holland QC (instructed by Howes Percival LLP) for DefendantsHearing Hearing dates: 24 and 28 February 2012
JudgmentMr Justice Newey :
[1]Mr John Souglides, the Claimant, is a sub-lessee of a flat at 53 Ennismore Gardens, London SW7. The Defendants, who are brothers, are the freehold owners of 53 Ennismore Gardens. By these proceedings, the Claimant seeks to enforce an option which the Defendants granted to the First Defendant when he was the sub-lessee of the flat in which the Claimant now lives. Among other things, the case raises issues as to the interpretation of section 9(1) of the Perpetuities and Accumulations Act 1964.

The facts

[2]In the 1940s the then freeholder leased 53 Ennismore Gardens to a company called Rosennis Properties Limited for a term of 80 years from 25 December 1948. That lease (“the Head Lease”) is now vested in the residents’ association for the building, 53 Ennismore Gardens Residents Association Limited (“the Head Lessee”).[3]In 1981 the First Defendant, Mr Thomas Tweedie, was registered as the proprietor of an underlease of one of the flats at 53 Ennismore Gardens (Flat 5). The underlease (“the Underlease”), which had been entered into in 1975, related to the fourth floor of the property and was for a term of 55 years less three days from 25 December 1973. It would thus expire three days before the Head Lease.[4]The First Defendant presumably borrowed money from Alliance Building Society to fund his purchase of the Underlease. At all events, the First Defendant entered into a charge dated 20 February 1981 (“the Charge”) under which the Underlease was charged by way of legal mortgage with the payment of all moneys payable to the Alliance Building Society by the First Defendant.[5]In 1985-1986 the First Defendant added a further floor to his flat by extending into the roof space of the building. He also built a roof terrace.[6]On 2 October 1986 the Head Lessee and the First Defendant entered into a deed varying the Underlease. The deed, which was expressed to be supplemental to the Underlease, confirmed that the demised premises included the recently-constructed fifth floor, but no reference was made to the roof terrace. The Underlease, as varied, was afterwards re-registered at HM Land Registry.[7]The option at issue in the present proceedings (“the Option”) was granted by a deed dated 10 April 1987. The Defendants by now having acquired the freehold title to 53 Ennismore Gardens, the parties to the deed were the Defendants as “the Freeholders” (an expression which was stated to “include the successors in title of the Freeholders”) and the First Defendant as “the Lessee” (an expression which was stated to “include the successors in title of the Lessee”). A recital to the deed explained what was intended in these terms:
“The Lessee is desirous of extending the term of the Lease and the Freeholders are agreeable to granting such extension but, in view of the intermediate interest of the Residents Company, the Freeholders are unable to do so as at the date hereof and accordingly it has been agreed between the parties hereto that the Lessee shall be granted an option to require the grant of an extension lease on the terms hereafter set out”
. The deed proceeded to provide as follows by clause 1:
“In consideration of the sum of one pound (£1.00) now paid by the Lessee to the Freeholders … the Freeholders hereby grant to the Lessee the right to require that the Freeholders shall grant to the Lessee an extension lease for a term of 60 years from 25th December 2028, such right not to become exerciseable (subject to Clause 4 below) until the 25th day of December 2008 and to cease to be exerciseable if not exercised by the 20th day of December 2028”
. Clause 2 explained as follows:
“The consideration payable on the grant of the said extension lease shall be one red rose and the Lessee shall pay and indemnify the Freeholders against any costs incurred by the Freeholders in effecting the grant of the said extension lease”
. Clause 3 stated that the extension lease was to be “on the same terms mutatis mutandis as the Lease” subject to minor modifications with regard to rent (which was to be £75 per annum) and maintenance costs. Clause 4 dealt with the position if the Head Lease was surrendered.[8]Particulars of “the Lease” were given in a schedule to the deed. This was in the following terms:
“Fourth Floor Flat, 53 Ennismore Gardens, London SW7 The Lease: Date: 2nd June 1975 Parties: (1) Patrick Joseph Doherty (2) Andrew Derrick John Farmiloe as extended by a Supplemental Deed dated 2nd October 1986 and made between 53 Ennismore Gardens Residents Association Limited (1) and the Lessee (2)”
Parties: (1) Patrick Joseph Doherty (2) Andrew Derrick John Farmiloe[9]On 23 October 1987 the First Defendant entered into a further agreement with the Alliance & Leicester Building Society (as the Alliance Building Society had become). This agreement, which was embodied in a deed, provided for the Charge to be varied so as to incorporate the 1985 mortgage conditions of the Alliance & Leicester Building Society (“the Society”). Clause 7(1) of those conditions stated as follows:
“So far as he is able (but subject to redemption) the Borrower (i) Assigns all Related Rights to the Society (ii) Declares and agrees that he will hold all Related Rights in trust for the Society ….”
The expression “Related Rights” was defined to include:
“(a) the benefit of any covenant agreement option guarantee undertaking charge right indemnity or remedy relating to the Property … … (c) all rights whether or not in being at the date of the Mortgage which may be or become exercisable by the Borrower and any sums which (under any statute or law or contract and whether as of right or ex gratia or otherwise) may be or become payable in respect of the Property or any damage or injury to it or depreciation of it ….”
[10]It seems that the First Defendant fell into arrears with his mortgage payments. The Society took possession of Flat 5 and arranged for it to be marketed with the benefit of a further 60-year lease pursuant to the Option. On 25 June 1993 the Society contracted to sell the Underlease to the Claimant and his then wife. Since, however, the Option had not been registered against the freehold title, the contract gave each party the right to rescind if the Society did not manage to achieve registration. The relevant clause (clause 13) was in these terms: “This Agreement is strictly conditional upon the seller using their reasonable endeavours to register the Deed dated the 10th April 1987 made between:-(a) Thomas Cunningham Tweedie and John Mathieson Tweedie(b) Thomas Cunningham Tweedie and(c) Lloyds Bank plc a copy of which is annexed to this Agreement, against the Freehold Title number LN 100095, such registration to be effected within 28 days of the date of this Agreement, subject to the Buyer assisting in the lodging of the Freehold Charge Certificate as aforesaid at HM Land Registry. In the event that the seller is unable to comply with the aforementioned condition, either party shall be at liberty to rescind this Agreement with written notice and upon rescission, the seller shall forthwith return the deposit paid on exchange … together with all accrued interest”.[11]In the event, the transaction proceeded to completion in July 1993, and the Claimant and his wife were registered as the proprietors of the Underlease (as varied in 1986). The solicitors acting for the Claimant and his wife had obtained written or verbal consent to the Option being registered at the Land Registry from the Defendants, their solicitor and the Bank of Scotland, which was the Defendants’ mortgagee.[12]In advance of completion, the Society had made an application for the registration of the Option at the Land Registry. By August 1993 the Defendants had objected to the Option being noted on the register, but the Land Registry nevertheless concluded that the Option should be noted against the freehold title to 53 Ennismore Gardens. An entry was made with effect from 26 July 1993.[13]In 1993-1994 steps were taken to confirm that the premises demised to the Claimant and his wife extended to the roof terrace. A letter of 13 September 1993 from the Claimant’s wife to the Head Lessee recorded that it had been decided that it was “preferable to enter into a Deed of Variation which expressly incorporates the right of access to the roof, thereby corresponding with the actual position as a result of the works effected by Mr Tweedie” (i.e. the First Defendant). A deed (“the 1994 Deed”) made between the Head Lessee of the one part and the Claimant and his wife of the other part on 20 May 1994 provided for a new plan to be annexed to the Underlease, for the areas marked on that plan to form the demised premises and for the repairing covenant to extend to the roof terrace. The deed was expressed to be supplemental to the Underlease, as varied by the 1986 deed. It also contained the following clause: “5. SAVE as hereby modified the Lease [i.e. the Underlease] shall continue in full force and effect in all respects and every reference in the Lease to Lessee’s covenants generally howsoever expressed including the proviso for re-entry, for breach or non-observance thereof shall be read and construed as including a reference to the said substituted covenant in place of the said existing repairing covenant as well as to the other Lessee’s covenants in the Lease contained”.[14]The execution of the 1994 Deed led to a new title being created at the Land Registry in respect of the term “created by a Supplemental Deed of Variation which varied the extent of an earlier Lease dated 2 June 1975 (as varied by a Supplemental Deed dated 2 October 1986)”.[15]A few years later, the Claimant and his wife were divorced and Flat 5 was transferred into the sole name of the Claimant.[16]On 20 February 2009, solicitors wrote to the Defendants on the Claimant’s behalf to give notice of his exercise of the Option. As required by the Option, a red rose was enclosed and a costs indemnity was given.

The parties’ positions in brief

[17]The Claimant’s case is that he has validly exercised the Option and so is entitled to have a 60-year “extension lease” granted to him in accordance with its terms. According to the Claimant, the First Defendant assigned the Option to the Society by way of mortgage when he entered into his further agreement with the Society of 23 October 1987 (see paragraph 9 above); the Option, it is said, fell within the definition of “Related Rights” in the 1985 mortgage conditions and was therefore assigned “subject to redemption”. The Society subsequently (so it is argued) transferred the Option to the Claimant and his wife, and the Claimant became the sole owner of the Option following his divorce.[18]The Defendants, however, dispute that they are obliged to grant an extension lease on a number of grounds. They assert, in particular, that the Option is void as infringing the rule against perpetuities; that it was not capable of being assigned to the Society and was not in any event transferred on to the Claimant and his wife; and that the 1994 Deed would anyway mean that the Claimant could not exercise the Option.

The issues

[19]The issues to which the case gives rise can, as it seems to me, be summarised as follows: i) Is the Option void for perpetuity? ii) Was the Option capable of being assigned to the Society? iii) Was the Option validly transferred to the Claimant and his wife? iv) Did the Option become nugatory when the 1994 Deed was executed?[20]These issues are examined in turn below, but I should first deal more generally with the impact of the rule against perpetuities on options in a landlord-and-tenant context.

Perpetuities in the context of leases and options

[21]At common law, options to purchase land were in general subject to the rule against perpetuities (see e.g. London and South Western Railway Co. v Gomm (1882) 20 Ch D 562). However, there was an exception in relation to options for the renewal of leases. Where a lease contained a covenant to renew, the covenant was considered to run with the land and, hence, to fall outside the rule against perpetuities (see e.g. Muller v Trafford [1901] 1 Ch 54). In contrast, an option entitling a tenant to buy the freehold had to comply with the rule against perpetuities. Thus, in Woodall v Clifton [1905] 2 Ch 257, the Court of Appeal said (at 279):
“The covenant is aimed at creating, at a future time, the position of vendor and purchaser of the reversion between the owner and the tenant for the time being. It is in reality not a covenant concerning the tenancy or its terms. Properly regarded, it cannot, in our opinion, be said to directly affect or concern the land, regarded as the subject-matter of the lease, any more than a covenant with the tenant for the sale of the reversion to a stranger to the lease could be said to do so. It is not a provision for the continuance of the term, like a covenant to renew, which has been held to run with the reversion, though the fact that a covenant to renew should be held to run with the land has by many been considered as an anomaly, which it is too late now to question, though it is difficult to justify.”
[22]The Law Reform Committee considered the rule against perpetuities in its fourth report, published in 1956. Paragraphs 35-38 of the report were devoted to options. Having noted that “options for renewal contained in a lease” were “altogether exempt from the rule against perpetuities” (paragraph 35), the Committee turned (in paragraph 36) to:
“what are in actual practice the two principal categories of options within the rule, namely, options contained in a lease enabling the lessee for the time being to purchase the freehold or other superior interest (which we may call ‘leasehold options’), and other options to acquire an interest in land (which we may call ‘options on gross’)”
. The Committee went on:
“In general, leasehold options enure for the public good, for by enabling the lessee to secure for himself the fruits of his expenditure on the land, they encourage the only person who is normally in a position to develop leasehold land (namely, the lessee) to preserve and develop it to its full capacity. Further, such an option is most unlikely to create any conveyancing difficulties, for, as it will be contained in the lease itself, all concerned with either the lease or the reversion will of necessity have notice of it. Options in gross, on the other hand, tend to discourage rather than foster the maintenance and development of the land in question ….”
On that basis, the Committee concluded (paragraph 37) that “whereas leasehold options ought to be wholly exempt from the rule against perpetuities, options in gross ought to be more closely restricted than they are at present”. The Committee recommended that “no leasehold option (in the sense we have used the term) should be subject to the perpetuity rule, even in so far as the option creates an interest in land” (paragraph 37).[23]The Law Reform Committee’s thinking is reflected in Perpetuities and Accumulations Act 1964. Section 9 of that Act provides as follows:
“(1) The rule against perpetuities shall not apply to a disposition consisting of the conferring of an option to acquire for valuable consideration an interest reversionary (whether directly or indirectly) on the term of a lease if— (a) the option is exercisable only by the lessee or his successors in title, and (b) it ceases to be exercisable at or before the expiration of one year following the determination of the lease. This subsection shall apply in relation to an agreement for a lease as it applies in relation to a lease, and ‘lessee’ shall be construed accordingly. (2) In the case of a disposition consisting of the conferring of an option to acquire for valuable consideration any interest in land, the perpetuity period under the rule against perpetuities shall be twenty-one years ….”
[24]Where, therefore, the perpetuity rule applies to an option, the perpetuity period will simply be 21 years (section 9(2)). However, the rule is not applicable to options to purchase “an interest reversionary (whether directly or indirectly) on the term of a lease” if the option is exercisable only by the lessee or “his successors in title” and ceases to be exercisable within a year after the end of the lease (section 9(1)).[25]If an option falls foul of the rule against perpetuities, it is void even as between the original contracting parties. That flows from section 10 of the 1964 Act, which is in these terms:
“Where a disposition inter vivos would fall to be treated as void for remoteness if the rights and duties thereunder were capable of transmission to persons other than the original parties and had been so transmitted, it shall be treated as void as between the person by whom it was made and the person to whom or in whose favour it was made or any successor of his, and no remedy shall lie in contract or otherwise for giving effect to it or making restitution for its lack of effect.”
[26]The enactment of the Perpetuities and Accumulations Act 2009 means that, in the future, the rule against perpetuities will not apply to options. However, the 2009 Act does not affect options granted before the Act came into force in 2010. The 1964 Act will thus remain important for some years.

Issue 1: Is the Option void for perpetuity?

[27]It is common ground between the parties that the Option is void for perpetuity unless section 9(1) of the 1964 Act is applicable. For that sub-section to apply, the Option must relate to “an interest reversionary (whether directly or indirectly)” on the term of a relevant lease. Miss Marilyn Kennedy-McGregor, who appeared for the Claimant, argued that it does. The Defendants, however, dispute this. Mr David Holland QC, who appeared for the Defendants, contended that, to come within section 9(1), an interest has to be either the freehold of the premises comprised in the lease or an existing leasehold interest superior to the lease.[28]Where the parties differ is essentially as to whether an interest carved out of a superior leasehold or freehold interest can constitute an “an interest reversionary (whether directly or indirectly)” on the term of a lease for the purpose of section 9(1). Miss Kennedy-McGregor maintained that it can. Mr Holland, on the other hand, suggested that both Parliament and, previously, the Law Reform Committee had been concerned with the acquisition of existing interests.[29]On balance, I prefer the view for which Miss Kennedy-McGregor contended. I can summarise my reasons as follows: i) Section 9(1) does not in terms limit the reversionary interests to which an option can relate to existing interests; ii) While the Law Reform Committee doubtless had in mind options to acquire either existing intermediate leases or freeholds, its reasoning suggests that options such as the Option should also be exempt from the rule against perpetuities. The Committee considered that “leasehold options” should be immune from the rule on the basis that they “encourage the only person who is normally in a position to develop leasehold land (namely, the lessee) to preserve and develop it to its full capacity”. If a freeholder grants a sub-lessee an option to call for a new lease at the expiry of his sub-lease, that will encourage the sub-lessee to develop the land; iii) I can think of no good reason for options such as the Option to be subject to the rule against perpetuities when the rule does not apply to either(a) options for renewal contained in leases or(b) options for lessees to acquire existing superior or freehold interests. Moreover, Mr Holland did not identify any circumstances in which Miss Kennedy-McGregor’s construction of section 9(1) could be expected to produce unsatisfactory outcomes; iv) It is apparent from the terms of section 9(1) that a relevant reversionary interest need not be immediately expectant on the lease held by the grantee of the option. Were the position otherwise, then section 9(1) would not apply to the grant to a sub-lessee of an option to purchase the freehold. Both sides accepted, however, that section 9(1) is applicable in such a case. That conclusion is borne out by section 9(1)’s use of the words “directly or indirectly”. It is also consistent with the Law Reform Committee’s report; v) Miss Kennedy-McGregor sought support for her submissions in the fact that section 9(1) speaks of “an” interest rather than “the” interest. I am not persuaded by this point: I agree with Mr Holland that the “an” would also be consistent with Parliament having in mind the possibility that there might be more than one superior interest already in existence (say, a head lease and the freehold). While, however, the “an” may not actively help Miss Kennedy-McGregor, neither is it of any assistance to Mr Holland. Both parties’ submissions can accommodate it; vi) Mr Holland suggested that section 9(1) does not apply to options to renew contained in leases. Were that correct, it would tend to indicate that section 9(1) does not extend to interests carved out of superior interests; after all, a renewed lease could be said to be carved out of the immediate lessor’s interest in the same way as the extension lease the Claimant seeks would be carved out of the freehold of 53 Ennismore Gardens. However, section 9(1) nowhere states that it is not, and I do not think it matters whether it does. An option to renew contained in a lease will still be unaffected by the rule against perpetuities (a) because (as Miss Kennedy-McGregor submitted) it will inevitably satisfy the requirements of section 9(1) and/or (b) because section 9(1) adds an extra basis on which a disposition can be exempted (so that an option granted to a lessee will be outside the rule against perpetuities if it either falls within section 9(1) or is an option for renewal contained in the lease).[30]It follows that I consider that the Option fell within section 9(1) of the 1964 Act and so was exempt from the rule against perpetuities. In my view, therefore, the Option is not void for perpetuity.

Issue 2: Was the Option capable of being assigned to the Society?

[31]In his skeleton argument, Mr Holland queried whether the Option was, according to its terms, “exercisable only by the lessee or his successors in title” (as section 9(1) requires). During his oral submissions, Mr Holland was inclined to accept, in the light of cases such as Re Button’s Lease [1964] Ch 263 (especially at 273), that the fact that the Option defined “Lessee” to include “the successors in title of the Lessee” indicated that those who could exercise it were limited to “the lessee or his successors in title”. That being so, however, the Option could not (Mr Holland submitted) be validly assigned to the Society. The Society was not a “successor in title” of the First Defendant. The fact that the First Defendant’s 1987 agreement with the Society provided for the assignment to the Society of “all Related Rights”, including “the benefit of any … option … relating to the Property”, is therefore irrelevant. The purported assignment will (Mr Holland contended) have been ineffective.[32]Mr Holland said that the position might have been different had land still been mortgaged in the way it was before 1925. If, as could have happened in the past, the Underlease had, like the Option, been assigned to the Society by way of mortgage, the Society would have been a “successor in title”. However, the Law of Property Act 1925 rendered it impossible to mortgage land by assignment, and all the Society in fact had was a charge by way of legal mortgage. Such a charge may give the mortgagee “the same protection, powers and remedies” as a “sub-term less by one day than the term vested in the mortgagor” (see section 87(1) of the 1925 Act), but it does not pass title. Title to the Underlease thus remained with the First Defendant.[33]Mr Holland referred me to a number of authorities in support of his submissions on this aspect of the case. It is sufficient to quote from two of them, Weg Motors Ltd v Hales [1962] Ch 49 and Thompson v Salah [1972] 1 All ER 530. In Weg Motors Ltd v Hales, Lord Evershed MR observed (at 74):
“[Section 87 of the Law of Property Act 1925] provides that the mortgagee shall have the same protection and so forth as if a mortgage term had been created in his favour. That is to say that he has in fact no term”
. In similar vein, Megarry J said this about legal charges in Thompson v Salah (at 533):
“Such a charge, authorised for the first time by the Law of Property Act 1925, s 87, does no more than give the chargee ‘the same protection, powers and remedies’ as if a mortgage term of 3,000 years had been created in his favour. When the wife had executed the legal charge on this property she had not ‘relinquished her right in it’; for she retained her legal fee simple, quite apart from her rights in equity.”
[34]On the other hand, there are several reasons for thinking that a chargee of an option such as the Option is properly to be considered a “successor in title” of the lessee. In the first place, while a chargee by way of legal mortgage does not obtain a true legal estate (within section 1(1) of the Law of Property Act 1925), he does acquire a legal interest in the land (see section 1(2)(c) of the 1925 Act). A chargee is, moreover, assimilated to a very great extent to an old-fashioned mortgagee. As already mentioned, section 87 of the 1925 Act provides for him to have “the same protection, powers and remedies” as if he had had a sub-term. The “protection, powers and remedies” apply, moreover, as against third parties as well as in relation to the chargor (see e.g. Emmet & Farrand on Title, at paragraph 25.004). In Regent Oil Co Ltd v J.A. Gregory (Hatch End) Ltd [1966] 1 Ch 402, Harman LJ commented (at 431):
“the new charge by way of legal mortgage created by section 87 was intended to be a substitute in all respects for a mortgage by demise, and anything which would be good in the one is good in the other. It would indeed be a trap if the rights of the mortgagee depended on whether his charge were created in one way or the other.”
In the same case, Salmon LJ said this (at 435):
“In my view it is plain that the policy of the legislature, as expressed in section 87, was to put a mortgagee in exactly the same legal position whether he entered into a mortgage in the form of a legal charge or in the form of a sub-demise. The legal effect was to be the same whichever form was chosen. In the one case the mortgagee is the tenant; in the other he is deemed to be so.”
Willmer LJ said this (at 438):
“The effect of this section was considered by Upjohn J. in Grand Junction Co. Ltd. v. Bates, where it was held that a chargee of a lease by way of legal mortgage was entitled to relief against forfeiture under section 146 (4) of the Act in the same way as if he were an underlessee. As Upjohn J. said: ‘The chargee by way of legal mortgage is entitled to say: “I am to be put in the same position as if I had a charge by way of sub-demise, and in that right, therefore, I can claim as an underlessee for the purposes of section 146.”’ The effect of this, I think, is that a chargee by way of legal mortgage is to be deemed to have a charge by way of sub-demise, and, therefore, a legal estate in the property charged. If so, I see no difficulty in holding that the chargee, though not actually clothed with any legal estate himself, is notionally so clothed, and is therefore competent to create a legal estate in his tenant by attornment.”
[35]A second point is that the interest that the chargee has will have been derived from the chargor. That lends support to the proposition that, where a lessee grants a charge, the chargee is a “successor in title” of the lessee.[36]Thirdly, Mr Holland’s submissions, if correct, could produce very unfortunate consequences. It is hard to see how an option for a lessee to purchase a superior leasehold or freehold interest could ever be the subject of a mortgage if it were not contained in the lease. To escape the rule against perpetuities, the option would have to be “exercisable only by the lessee or his successors in title”, but a mortgagee could not be a “successor in title”. That would make little sense. It could, in particular, prevent a lessee from entering into sensible borrowing arrangements.[37]There might, furthermore, be doubt as to whether an option to purchase a superior leasehold or freehold interest could be validly mortgaged even if granted to the lessee in his lease. Mr Holland suggested otherwise on the basis that the option would then be part and parcel of the lease and so susceptible to being charged with the lease. However, an option of this type is not considered to touch and concern the land and so does not run with it (see paragraph 21 above and also the passage from Griffith v Pelton [1958] 1 Ch 205 quoted in paragraph 44 below). It therefore seems questionable whether such an option is capable of being charged (as opposed to being assigned by way of mortgage).[38]The better view, to my mind, is that Parliament did not intend section 9(1) of the 1964 Act to prevent an option being assigned by way of mortgage to a chargee of the relevant lease. Nor, in my view, should the Option be construed as precluding such an assignment.[39]In all the circumstances, I agree with Miss Kennedy-McGregor that the Society was a “successor in title” within the meaning of both the Option and section 9(1) of the 1964 Act.

Issue 3: Was the Option validly transferred to the Claimant and his wife?

[40]Mr Holland submitted that, even if the Option was validly assigned to the Society, it was not transferred on to the Claimant and his wife. There is, he argued, no sufficient evidence of an assignment by the Society to the Claimant and his wife.[41]The authorities to which I was taken on this part of the case included In re Westerton [1919] 2 Ch 104 and Griffith v Pelton [1958] 1 Ch 205.[42]The facts of In re Westerton are summarised in the headnote as follows:
“About a year before his death, which happened in 1917, the testator handed to his landlady Mrs. G. an envelope addressed to her describing it as a present to her. She was about to open it, when he took it from her hand and said he would keep it for her and locked it up in his despatch box. After the testator's death there was found in his despatch box an envelope containing: (1.) A deposit receipt for 500l. deposited with his bank in 1914; (2.) an order in writing signed by the testator directing the bank to pay to Mrs. G. the sum of 500l. then on deposit; and (3.) a letter addressed to Mrs. G.: "You have been very kind to me and I desire to make some return by giving you the amount of 500l. now on deposit at the .... bank as per receipt enclosed." The deposit receipt was not indorsed by the testator and no notice was given to the bank of any assignment till after his death, the interest on the sum on deposit having been carried by the bank to his current account”
. Sargant J concluded that there had been a valid and complete gift of the sum on deposit by way of assignment. He said (at 109-110):
“The first question is whether the testator purported to make a clear gift then and there to Mrs. Gray or whether he was only expressing a desire to make a gift to her in the future. The letter written by the testator to Mrs. Gray, according to the construction which I place on it, amounted to an out and out gift and not to an expression of a mere desire to make a gift. In the same way the direction to the bank to pay to Mrs. Gray the sum on deposit seems to me to be a direct order to the bank operating by way of transfer to Mrs. Gray of the testator's right to receive the money from the bank, and I do not think that there was anything future or hypothetical or contingent about it. On the face of that letter I think it was a direct assignment to Mrs. Gray of the sum of 500l. on deposit at the bank. Those documents were delivered by the testator to Mrs. Gray, and what subsequently happened was in my view a return by Mrs. Gray to the testator of those documents on the terms that he was to put them in his safe and take charge of them for her. It does not seem to me that there was any renunciation or retransfer or repudiation of the gift by her. There was a mere return by her of the documents to the testator for the purpose of holding them in safe custody on her behalf, which in no way affected the result of the previous delivery.”
[43]I agree with Miss Kennedy-McGregor that In re Westerton shows that even a legal assignment can be effected in a relatively informal way.[44]Griffith v Pelton concerned a lease containing an option for the lessee to purchase the fee simple of the demised premises. The question arose whether an assignment of the term had carried with it the benefit of the option. The Court of Appeal held that it had. Jenkins LJ, giving the judgment of the Court, said (at 227-229):
“The first of the two questions stated above therefore seems to us to come down to the narrow issue whether the assignment of August 3, 1948, being on the face of it a mere assignment of the term, without any reference to the benefit of the option, operated, in view of the terms of the proviso, or, in other words, the contract, creating the option, as an assignment of the benefit of the option; or whether an express reference to the benefit of the option in the assignment of the term was necessary to produce that result. We think that upon the true construction of the proviso, including the definition to be read into it of the term lessee as including the lessee's assigns, the original parties to the lease must be taken to have agreed that the option should be exercisable by Miss Blaker herself [i.e. the original lessee] or by any assignee of the term to whom she might assign the benefit of the option, and that a mere assignment of the term should operate as an assignment of the benefit of the option to the assignee of the term. On this point we find ourselves in complete agreement with the following passage from the judgment of Vaisey J.: ‘I now come to what seems to me to be the main point of the case, which is whether the benefit of the option passed by the assignment of 1948, or, if not, then by the assignment of 1956. Taking the assignment of 1948 first, it seems to me that the benefit of the option did pass by it to the plaintiff notwithstanding the omission of any reference to it. Admittedly it was a collateral contract, independent in some respects of the main contract between the parties as lessor and lessee. I think the point is covered by In Re Adams and Kensington Vestry; see per Pearson J.’ Then he reads part of what I have already quoted from the judgment of Pearson J., including: ‘If the lease had been simply assigned, without any more words, the option would have passed with it.’ Then the judge continues: ‘In the same case in the Court of Appeal the decision of Pearson J. was affirmed’…. For these reasons we are of opinion that the first of the two questions raised should be answered in the affirmative, that is to say, in the sense that the assignment of August 3, 1948, did, as Vaisey J. held, effectually vest the benefit of the option in the plaintiff.”
[45]In Griffith v Pelton, therefore, the benefit of an option was held to have passed with the term granted by a lease notwithstanding the fact that it was not mentioned. As Mr Holland pointed out, the option in question, unlike the Option, was to be found in the lease itself. In common with the Option, however, the option with which the Court of Appeal was concerned could be exercised by a limited class: it was taken to be “exercisable by [the original lessee] or by any assignee of the term to whom she might assign the benefit of the option”. The fact that the Option was exercisable only by the First Defendant and his successors in title is, I think, of significance when considering whether the Society transferred the Option to the Claimant and his wife. It means that there was no point in the Society retaining the Option. It would not be able to exercise it. The only way in which the Society could realise value from the Option was by selling it with the Underlease.[46]The contract by which the Society agreed to sell the Underlease to the Claimant and his wife did not in terms state that the Option was included in the sale. It did, however, specifically provide (by clause 13) for each party to be able to rescind if the Option was not registered against the freehold title. The premise must have been that the Option was being transferred. If that had not been the case, it would have been of no significance to the parties whether the Option was registered. The concern underlying clause 13 of the contract (which is quoted in paragraph 10 above) was evidently that the Option might be unenforceable if it were not registered. That will have been of concern to the parties only because it was understood that the Society was passing the benefit of the Option to the Claimant and his wife.[47]As Lord Hoffmann explained in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 (at 912), “Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract”. When considering whether a term is to be implied in a contract, the Court will similarly look at “what the contract, read as a whole against the relevant background, would reasonably be understood to mean” (Attorney General of Belize v Belize Telecom Ltd [2009] UKPC 10, [2009] 1 WLR 1988, at paragraph 21). In my judgment, the contract for the sale of the Underlease to the Claimant and his wife would reasonably be understood to encompass the Option. Clause 13, in particular, conveys that meaning. A reasonable person would also take into account the inherent likelihood of the Option being included in the sale, for the reasons mentioned in paragraph 45 above. On this basis, the contract will, as it seems to me, have effected at least an equitable assignment of the Option.[48]Further, the Land Registry returned the deed creating the Option to the Society once it had been noted on the freehold title. On 25 October 1993, the Society sent the deed on to the solicitors acting for the Claimant and his wife under cover of a letter in these terms:
“I have just received the original Deed relating to the option for the extension of the lease back from the Land Registry and enclose the same herewith for you to keep with your client’s deeds”
. It appears to me that, in the context, this sufficiently manifested an intention to transfer the Option to the Claimant and his wife. Why else would the Society have been sending the deed to the solicitors acting for the Claimant and his wife?[49]In the circumstances, I consider that the Option was validly transferred to the Claimant and his wife.

Issue 4: Did the Option become nugatory when the 1994 Deed was executed?

[50]A purported variation of a lease will take effect as a surrender and re-grant if the variation cannot be effected without the grant of a new lease. That will be so, in particular, if the extent of the demise or the length of the term is increased. See Woodfall: Landlord and Tenant, at paragraph 17.026.[51]It is common ground that, since it served to enlarge the demised premises, the execution of the 1994 Deed gave rise to a surrender and re-grant. It was doubtless on this basis that the Land Registry opened a new title for the term “created by a Supplemental Deed of Variation which varied the extent of an earlier Lease dated 2 June 1975 (as varied by a Supplemental Deed dated 2 October 1986)”.[52]Mr Holland argued that, in consequence, the Claimant cannot be a “successor in title” for the purposes of the Option. The title to which a person had to succeed to be a “successor in title” was, Mr Holland submitted, that specified in the schedule to the Option, viz. the Underlease as “extended” in 1986. The Option could not be read as allowing its exercise by a lessee under a different lease of different premises.[53]While, however, the 1994 Deed brought about a surrender and re-grant as a matter of law, it can also be described as varying the Underlease. In fact, the 1994 Deed is called “Supplemental Deed of Variation”, explains in a recital that the parties “are desirous of altering the terms of the Lease” and provides that, save as modified, the Lease is to “continue in full force and effect in all respects” (emphasis added). In a similar way, the Land Registry referred to a term “created by a Supplemental Deed of Variation which varied the extent of an earlier Lease dated 2 June 1975 (as varied by a Supplemental Deed dated 2 October 1986)” (emphasis added). Likewise, the Option itself identified the “Lease” with which it was concerned as the Underlease “as extended by a Supplemental Deed dated 2nd October 1986” (emphasis added).[54]Further, the 1994 Deed did not remove any premises from the Underlease; it added to them. The Claimant remains lessee of all the premises comprised in “the Lease”, as that expression is used in the Option.[55]In the circumstances, it seems to me that the 1994 Deed will not have affected the Claimant’s position as one of the First Defendant’s “successors in title”. I do not consider that the expression “successors in title”, as used in either section 9(1)(a) of the 1964 Act or the Option, was intended to exclude a person in the Claimant’s position. I cannot see why Parliament should have wanted a lessee whose lease was “varied” by the addition of extra premises to lose the benefit of an option. Nor, to my mind, would the Option have conveyed to a reasonable person that it would cease to be exercisable in such circumstances (compare the first of the principles of construction given by Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society, at 912-913).[56]Accordingly, the Option did not, in my view, become nugatory when the 1994 Deed was executed.

Conclusion

[57]The upshot is that the claim succeeds. The Claimant is, in my judgment, entitled to be granted an extension lease in accordance with the terms of the Option (and so of the fourth and fifth floor premises, but not the roof terrace), and I shall make an order to that effect.[58]I am glad to have arrived at this conclusion since the Claimant could otherwise have suffered a serious injustice. He and his wife will have bought the Underlease on the basis that they would be entitled to acquire a 60-year extension lease for a small consideration. The price paid will have reflected that, and the First Defendant’s indebtedness to the Society will have been reduced as a result. The Claimant would nonetheless now stand to be left with a lease expiring in 16 years’ time as a result of the Defendants using rather technical legal rules to disavow an option which they freely entered into. To make matters worse, the Claimant’s solicitors obtained consent to the registration of the Option from the Defendants and their solicitors before the Claimant and his wife proceeded with their purchase of the Underlease.

Cited in 1 later judgment