City of London Corporation v Fell [1993] UKHL 11

House of Lords
Between
City of London CorporationAppellantFellRespondent
Before
Lord TemplemanDate 2 December 1993
It is Ordered and Adjudged, by the Lords Spiritual and Temporal in the Court of Parliament of Her Majesty the Queen assembled, That the said Order of Her Majesty's Court of Appeal of the 25th day of November 1992 complained of in the said Appeal be, and the same is hereby, Affirmed and that the said Petition and Appeal be, and the same is hereby, dismissed this House: And it is further Ordered. That the Appellants do pay or cause to be paid to the said Respondent the Costs incurred by him in respect of the said Appeal to this House, the amount thereof to be certified by the Clerk of the Parliaments if not agreed between the parties.Cler: Parliamentor:

Judgment: 2 December 1993

HOUSE OF LORDS

MAYOR ETC. OF THE CITY OF LONDON (APPELLANTS)

v.

FELL AND OTHERS

(RESPONDENTS)

Lord Templeman Lord Goff of Chieveley Lord Jauncey of Tullichettle Lord Browne-Wilkinson Lord Mustill

LORD TEMPLEMAN

My Lords.By a Lease dated 15 July 1977 the appellant landlords, the Corporation of the City of London, granted to the respondent partners in Wilde Sapte & Co. premises in New Broad Street "to hold the premises . . . from 25 March 1976 for the term of ten years . . . (hereinafter called 'the term')". The Lease contained 23 covenants by the tenant firm including a covenant to pay the rent. Those covenants were of course limited to the ten year period which constituted the term.In 1979 Wilde Sapte with the consent of the landlords assigned the Lease to Grovebell Group Ltd. By privity of contract and pursuant to the covenants contained in the Lease, Wilde Sapte remained liable to the landlords to pay the rent and perform and observe the tenant's covenants contained in the Lease during the remainder of the term. By privity of estate, Grovebell became liable to the landlords to pay the rent and to perform such of the other tenant's covenants contained in the Lease as touched and concerned the land. The contractual liability of Wilde Sapte was due to end on 24 March 1986 upon the expiration by effluxion of time of the term granted by the Lease. However, Part II of the Landlord and Tenant Act 1954 then applied:
"where the property comprised in the tenancy is or includes premises which are occupied by the tenant and are so occupied for the purposes

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of a business carried on by him or for those and other purposes:" see section 23(1) of the Act of 1954.By section 69(1) of the Act of 1954 a tenancy is:
"a tenancy created either immediately or derivatively out of the freehold, whether by lease or underlease, by an agreement for a lease or underlease or by a tenancy agreement ..."
In the circumstances of the present case, the Act of 1954 operated to protect the occupying tenant, Grovebell Group Ltd., in respect of the tenancy, that is to say the term granted by the 1977 Lease. This was effected by section 24 of the Act of 1954 which, so far as material, provided as follows:
"(1) A tenancy to which this part of this Act applies shall not come to an end unless terminated in accordance with the provisions of this Part of this Act: and, ... the tenant under such a tenancy may apply to the court for a new tenancy -
if the landlord has given notice under section 25 of this Act to terminate the tenancy, orif the tenant has made a request for a new tenancy in accordance with section twenty-six of this Act.(2) The last foregoing subsection shall not prevent the coming to an end of a tenancy by notice to quit given by the tenant, by surrender or forfeiture, or by the forfeiture of a superior tenancy, ..."The term granted by the 1977 Lease did not come to an end on 24 March 1986 under the Lease but was continued under the Act. The term continued until 23 January 1987 when the liquidator of an insolvent Grovebell surrendered the term. There was then owing rent and outgoings amounting to £33,460.64 in respect of the period between 25 March 1986 and 22 January 1987.In these proceedings the landlords seek to recover the sum of £33,460 from Wilde Sapte. The Deputy High Court judge Desmond Perrett Q.C. and the Court of Appeal (Nourse and Evans L.JJ. and Sir Michael Kerr) held that the landlords were not entitled to recover and the landlords now appeal.Wilde Sapte are not contractually bound to pay the landlords any rent for the period after 24 March 1986 because Wilde Sapte only contracted to pay rent until that date. If Wilde Sapte are liable to the landlords after that date, that liability must have been imposed by the Act of 1954. That Act does not expressly impose any liability on anybody except the landlords and the occupying tenant. There is no reason why any liability on Wilde Sapte should

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be implied. The Act was intended and expressed to protect occupying tenants against their landlords not to impose liability on former tenants who ceased to have any interest in the property before or after the Act of 1954. Mr. Arden, who appeared for the landlords, attempted to wring some comfort out of the words of the 1977 Lease, the language of the Act of 1954 and finally divers sentences snatched like straws from passages in judgments which had nothing to do with the Act of 1954 or were useless for present purposes. His gallant attempts failed.Mr. Arden relied on the following propositions. The Lease contained covenants by the original tenant Wilde Sapte. As assignee of the Lease, Grovebell was bound to perform and observe those covenants. If the covenants ceased to be enforceable against the original tenant, they could not be enforced against the assignee. The Act of 1954 would not therefore work unless the statutory continuation of the term granted by the Lease also continued the liability of the original tenant under the covenants. The Lease, he said, must be underpinned, whatever that expression means, by the original tenant's covenants. I can find nothing in principle or authority to support the proposition that if the covenants of a lease cannot be enforced against the original tenant they cannot be enforced against the assignee. If, after an assignment, a landlord expressly released the original tenant from his covenants, the residue of the term granted by the lease would remain vested in the assignee and the assignee would be obliged to observe and perform those covenants which ran with the term, or, as it is usually put, ran with the land, just as he would be liable before the release. Similarly, if an original tenant were a corporation which was dissolved during the term, the residue of the term would remain vested in the assignee who would remain liable to observe and perform the covenants.At common law, after an assignment, the benefit of a covenant by the original landlord which touches and concerns the land runs with the term granted by the lease. The burden of a covenant by the original tenant which touches and concerns the land also runs with the term; see Spencer's, case (1583) 5 Co. Rep. 16(a).By statute, the benefit of a covenant by the original tenant which touches and concerns the land runs with the reversion. Section 141 of the Law of Property Act 1925 replacing section 1 of the Grantees of Reversions Act 1540 (32 Hen. 8 c.34), section 10 of the Conveyancing Act 1881 and section 2 of the Conveyancing Act 1911 provides that:(1) "Rent reserved by a lease, and the benefit of every covenant or provision therein contained, having reference to the subject matter thereof, and on the lessee's part to be observed or performed, and every condition of re-entry and other condition therein contained, shall be annexed and incident to and shall go with the reversionary estate in the land . . . immediately expectant on the term granted by the lease

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By statute, the burden of a covenant by the original landlord which touches and concerns the land also runs with the reversion. Section 142 of the Law of Property Act 1925 reproducing section 2 of the Act of 1540 and section 11 of the Conveyancing Act 1881 provides that:
"(1) The obligation under a condition or of a covenant entered into by a lessor with reference to the subject matter of the lease shall, if and as far as the lessor has power to bind the reversionary estate immediately expectant on the term granted by the lease, be annexed and incident to and shall go with that reversionary estate . . . and may be taken advantage of and enforced by the person in whom the term is from time to time vested . . . and ... the obligation aforesaid may be taken advantage of and enforced against any person so entitled."
The principle that the benefit and burden of covenants in a lease which touch and concern the land run with the term and with the reversion is necessary for the effective operation of the law of landlord and tenant. Common law. and statute following the common law, recognise two forms of legal estate in land, a fee simple absolute in possession and a term of years absolute: see section 1 of the Law of Property Act 1925. Common law, and statute following the common law, were faced with the problem of rendering effective the obligations under a lease which might endure for a period of 999 years or more beyond the control of any covenantor. The solution was to annex to the term and the reversion the benefit and burden of covenants which touch and concern the land. The covenants having been annexed, every legal owner of the term granted by the lease and every legal owner of the reversion from time to time holds his estate with the benefit of and subject to the covenants which touch and concern the land. The system of leasehold tenure requires that the obligations in the lease shall be enforceable throughout the term, whether those obligations are affirmative or negative. The owner of a reversion must be able to enforce the positive covenants to pay rent and keep in repair against an assignee who in turn must be able to enforce any positive covenants entered into by the original landlord. Common law retained the ancient rule that the burden of a covenant does not run with the land of the covenantor except in the case of a lease, but even that rule was radically modified by equity so far as negative covenants were concerned; see Tulk v. Moxhay (1848) 2 Ph. 774.The effect of common law and statute on a lease is to create rights and obligations which are independent of the parallel rights and obligations of the original human covenantor who and whose heirs may fail or the parallel rights and obligations of a corporate covenantor which may be dissolved. Common law and statute achieve that effect by annexing those rights and obligations so far as they touch and concern the land to the term and to the reversion. Nourse L.J. neatly summarised the position when he said in an impeccable judgment at [1993] 2 W.L.R. p. 716:-

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"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."
The common law did not release the original tenant from liability for breaches of covenant committed after an assignment because of the sacred character of covenant in English law. I understand that Scots law releases the original tenant once he has been replaced by a permitted or accepted assignee. This only means that the fortunate English landlord has two remedies after an assignment, namely his remedy against the assignee and his remedy against the original tenant. It does not follow that if the liability of the original tenant is released or otherwise disappears then the term granted by the lease will disappear or that the assignee will cease to be liable on the covenants.As between landlord and assignee the landlord cannot enforce a covenant against the assignee because the assignee does not covenant. The landlord enforces against the assignee the provisions of a covenant entered into by the original tenant, being provisions which touch and concern the land, because those provisions are annexed by the lease to the term demised by the lease. The assignee is not liable for a breach of covenant committed after the assignee has himself in turn assigned the lease because once he has assigned over he has ceased to be the owner of the term to which the covenants are annexed.Covenants are introduced on the creation of a lease but are not necessary to sustain a lease. Upon an assignment of a lease, the provisions of the covenants by the original tenant continue to attach to the term because those provisions touch and concern the land and not because there continues to exist an original tenant who has ceased to own any interest in the demised land but remains liable in contract to fulfil the promises he made under covenant. Mr. Arden's submission confuses contract with status, a distinction fundamental to the English system of leasehold tenure of land. The only object and effect of this submission is that it would enable the Corporation of the City of London to compel Wilde Sapte to pay £33,460.64 which Wilde Sapte never covenanted to pay in respect of an estate in land which Wilde Sapte never enjoyed. I would dismiss this appeal with costs.

LORD GOFF OF CHIEVELEY

My Lords,I have the advantage of reading in draft the speech prepared by my noble and learned friend Lord Templeman. For the reasons he gives, I too, would dismiss this appeal.

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LORD JAUNCEY OF TULLICHETTLE

My Lords,I have had the advantage of reading in draft the speech by my noble and learned friend, Lord Templeman. For the reasons he gives I too would dismiss this appeal.

LORD BROWNE-WILKINSON

My Lords.For the reasons given by my noble and learned friend Lord Templeman I too would dismiss this appeal.

LORD MUSTILL

My Lords.For the reasons given by my noble and learned friend Lord Templeman I too would dismiss this appeal.

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