Topland Portfolio No. 1 Ltd v Smiths News Trading Ltd
| Jurisdiction | England & Wales |
| Judge | Mr Justice Arnold,Lord Justice Sullivan,Lady Justice Hallett |
| Judgment Date | 21 January 2014 |
| Neutral Citation | [2014] EWCA Civ 18 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: A3/2013/1700 |
| Date | 21 January 2014 |
[2014] EWCA Civ 18
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE CHANCERY DIVISION
Alison Foster QC sitting as a Deputy High Court Judge
[2013] EWHC 1445 (Ch)
Royal Courts of Justice
Strand, London, WC2A 2LL
Lady Justice Hallett
Lord Justice Sullivan
and
Mr Justice Arnold
Case No: A3/2013/1700
Jonathan Seitler QC (instructed by Thrings LLP) for the Appellant
Edward Cole (instructed by TLT LLP) for the Respondent
Introduction
The claimant ("Topland") is the owner of a commercial property. The tenant of the property became insolvent. The defendant ("Smiths"), the tenant's parent company, is a surety under the lease. Topland brought a claim against Smiths for the unpaid rent. Smiths contends that it was released from its obligations as surety as a result of a licence to alter the property granted by Topland's predecessor in title to the tenant without Smiths' consent. In a judgment dated 6 June 2013 ( [2013] EWHC 1445 (Ch), [2014] 1 P & CR 2) Alison Foster QC sitting as a Deputy High Court Judge found in favour of Smiths and dismissed the claim. Topland now appeals with permission granted by Lewison LJ.
The facts
There is no dispute as to the facts, which can be shortly stated. Topland is the current freehold owner of land known as the Do It All Site, on the south side of Glentworth Road, Westgate, Morecambe ("the Property"). That freehold is subject to a 35 year lease dated 18 May 1981 between PAT (Pensions) Limited ("PAT") as Lessor, WH Smith Do-It-All Ltd (later known as Payless DIY Ltd, "Payless") as Lessee, and Smiths (then known as W.H. Smith & Son Ltd) as Surety ("the Lease").
On 28 September 1987 PAT granted Payless a licence which authorised certain alterations to the Property ("the Licence"). Smiths was not a party to the Licence and did not consent to it.
Topland bought the reversion in 2001. By 2011 the annual rent was £310,000 plus VAT payable quarterly. Payless went into administration on 5 May 2011. Rent was paid up to 21 June 2011, but on that date the administrators disclaimed the Lease. By 8 February 2012, when Topland brought this claim, there were rent arrears under the Lease amounting to £281,038.36 plus interest. On 15 August 2012 Payless was dissolved. On 8 October 2012 Topland gave notice to Smiths requiring it to take a new lease for the remainder of the term of the Lease.
The Lease
Clause 1(b)(v) of the Lease defines "the demised premises" as meaning:
"the land and premises described in Part 1 of the First Schedule hereto and each and every part thereof together with the appurtenances thereto belonging and together also with any buildings and each and every part thereof now or hereafter erected or in the course of erection thereon or on any part thereof together with all additions, alterations and improvements thereto which may be carried out by or on behalf of the Lessee prior to or during the term and shall also include any plate glass windows and doors and all Landlords fixtures and fittings now or hereafter in or about the same".
Part 1 of the Second Schedule sets out a number of covenants by the Lessee, including the following:
i) "… as often as occasion shall require during the term … to repair and keep the whole of the demised premises … and all additions and improvements thereto in good and substantial repair and condition and to yield up the same at the expiration or sooner determination of the term in good and substantial repair and condition …" (clause 5(a));
ii) "in the third year of the term and thereafter in every third year of the term … to paint the outside parts of the demised premises and all additions thereto …" (clause 6(a));
iii) "in the seventh year of the term and thereafter in every seventh year of the term … to paint French polish clean or otherwise treat as the case may be all the inside wood metal and other work previously usually or requiring to be painted french polished cleansed or other treated of the demised premises …" (clause 7);
iv) "to yield up unto the Lessor at the expiration or sooner determination of the term the demised premises so painted repaired cleansed maintained and kept in accordance with the covenants and conditions on the part of the Lessee to be observed and performed hereinbefore contained Together with all additions and improvements made thereto in the meantime …" (clause 8);
v) "Not to do or permit to be done any damage or waste to or interfere with the construction nor arrangement or external appearance of the demised premises or to cut maim injure or remove any of the walls timbers or structural parts of the demised premises nor to make any alteration or additions whatsoever to the demised premises …" (clause 14(e)(i));
vi) "No building or structure of any kind shall at any time be erected upon the demised premises Provided that this paragraph shall not prevent the erection of greenhouses and sheds in connection with the use of the Premises as a garden centre" (clause 16); and
vii) "notwithstanding any consent which may be granted by the Lessor under these presents not to carry out or make any alteration or addition to the demised premises … (being an alteration or addition … which is prohibited by or for which the consent of the Lessor is required to be obtained under these presents and for which planning permission needs to be obtained) before planning permission therefore has been produced to the Lessor …" (clause 24).
The Fifth Schedule sets out a number of covenants by the Surety. The key provision for present purposes is clause 1:
"The Lessee shall at all times pay the rent hereinbefore reserved at the times and in manner hereinbefore contained and shall duly observe and perform all the covenants and conditions on the Lessee's part hereinbefore contained to be observed and performed and that if the Lessee shall make default in the payment of the rent herein reserved or any part thereof or in observing and performing the said covenants and conditions or any of them the Surety will pay and make good to the Lessor on demand all loss damage costs and expenses thereby arising or incurred by the Lessor PROVIDED ALWAYS and it is agreed that notwithstanding any neglect or forbearance on the part of the Lessor to obtain payment of the rent herein reserved or any part thereof when the same shall become payable or to enforce observance or performance of any of the covenants or conditions on the Lessees part to be observed and performed or any time which may be given by the Lessor to the Lessee or that the Lessee may have ceased to exist shall not release or exonerate or in any way affect the liability of the Surety under this covenant".
The Licence
Clause 1(b)(iv) defines the "demised premises" as having the same meaning as in the Lease. Clause 1(b)(v) defines "the Works" as meaning the works shortly described in the Schedule, namely:
"The construction of an opening of the west wall of the warehouse forming part of the demised premises the construction of a new garden centre on the west side of the said warehouse and alterations to the layout of the existing car parking area
The erection of a high security boundary fence".
By clause 2 the Lessor grants a Licence to the Lessee to execute the Works, but on terms that the Licence does not impose on the Lessee an obligation to carry out the Works for the purposes of clause 2(b) of the Third Schedule to the Lease (i.e. so that the Works when done would not have any effect upon the calculation of rent for the purposes of rent adjustment under clause 2 of the Lease).
Clause 3(g) of the Licence contains a covenant by the Lessee as follows:
"if the Lessor shall so reasonably require at the expiration or sooner determination of the term demised by the Lease to reinstate the demised premises to the same condition in which they were immediately prior to the commencement of the Works such reinstatement to be carried out with good quality materials and in a good and workmanlike manner to the reasonable satisfaction of the Lessors Surveyor".
Clause 4(a) provides that it is agreed that:
"all the covenants conditions and obligations contained in the Lease shall be applicable to the Works and to the demised premises in their altered state".
The rule in Holme v Brunskill
Smiths' defence to Topland's claim relies upon the rule in Holme v Brunskill (1878) LR 3 QBD 495. In that case the plaintiff let a farm in Cumberland to a tenant farmer, together with a flock of sheep. At the time when the farm was let, it extended to 234 acres and there were 700 sheep. The surety guaranteed the tenant's obligation to re-deliver the flock of sheep in good condition at the end of the term of the lease. When the flock was re-delivered, however, the sheep were reduced in number and were not in good condition. Earlier, in the course of the term, the tenant had made an agreement with the plaintiff that he would surrender a field of about 7 acres in exchange for a decrease in his rent of £10 a year. The surety neither consented to, nor knew of, this variation to the original lease. A majority of the Court of Appeal held that the surety was discharged from his obligations by reason of the variation even though a jury had held that the variation had not substantially or materially altered the tenant's obligations under the lease.
Cotton LJ, with whom Thesiger LJ agreed, stated the applicable principle at 505–506 in the following terms:
"The true rule in my opinion is, that if there is any agreement between the...
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