Alan Estates Ltd v WG Stores Ltd

Conditional delivery of an executed deed creates an escrow. The maker is bound during the period of suspense and cannot withdraw or deal inconsistently with the grant. If the condition is fulfilled within a reasonable time, the transaction becomes binding and its title relates back to delivery for purposes necessary to give it effect. That relation back does not validate dealings with third parties or confer operative rights during the suspense period. Between the parties, however, a lease may be construed so that rent runs from the date of escrow delivery. A party cannot profit from its own repudiation by leaving the deed undated and postponing the date from which liability runs.

Alan Estates Ltd granted W G Stores Ltd possession of a shop in anticipation of a lease. The lease and counterpart were executed and exchanged on 1 November 1976, but were undated and held in escrow pending specified conditions. The tenants repudiated the transaction on 9 November 1976. The final outstanding condition was satisfied on 18 November 1977.

Whitford J had held that the lease became binding when the condition was satisfied, while declining to determine the rent issue. Judge Rubin later held that rent was payable only from 18 November 1977. The landlords appealed. The central issue was whether from the date hereof meant the date of delivery in escrow or the date on which the conditions were satisfied.

The appeal was allowed by Lord Denning MR and Sir Denys Buckley, with Ackner LJ dissenting. The landlords were granted a declaration that the obligation to pay rent commenced on 1 November 1976. The appeal and the proceedings below were awarded to the appellants with costs. The date for calculating interest was left to agreement, with liberty to apply, and leave to appeal to the House of Lords was refused.

1. Effect of escrow. An executed instrument delivered conditionally is an escrow. Although its operative effect is suspended, the maker is bound and cannot recall or repudiate it while the condition remains pending. If the condition is fulfilled within a reasonable time, the transaction becomes binding. The majority treated the title as relating back to delivery between grantor and grantee, while recognising that relation back is limited and does not validate dealings with third parties. The intended grantee cannot use the instrument during suspense to collect rent, serve notices to quit or mortgage the property. This approach relied on the principles discussed in Foundling Hospital Governors v Crane [1911] 2 KB 367 and Security Trust Co v Royal Bank of Canada [1976] AC 503.
2. Construction of the lease. Both documents had been delivered in escrow on 1 November 1976. Once the condition was satisfied, that was the date to be treated as the date of the lease for the phrase date hereof. The rent covenant therefore operated from 1 November 1976. Sir Denys Buckley based his conclusion principally on the legal effect of escrow and relation back. He also observed that, under the Law of Property Act 1925, section 52(1), no legal estate or legal relationship of landlord and tenant arose during suspense, but the parties’ agreed terms could take effect retrospectively once the escrow ceased.
3. Alternative ground. Lord Denning MR held that, if the tenants had not repudiated the bargain, the solicitors would have inserted 1 November 1976. The tenants could not rely on their own repudiation to postpone the date of the deed and avoid rent for the intervening period. The majority’s approach was inconsistent with the contrary reasoning in Terrapin International Ltd v Inland Revenue Commissioners [1976] 1 WLR 665 and with contrary observations in Cory (Wm) & Son Ltd v Inland Revenue Commissioners [1964] 1 WLR 1332 and [1965] AC 1088.
4. Dissent. Ackner LJ agreed that an escrow could not be withdrawn, but held that it did not become operative as a deed until the condition was satisfied. He would therefore have treated 18 November 1977 as the date hereof and dismissed the appeal.

1. Court of Appeal: The appeal was allowed by a majority in [1981] EWCA Civ 1. The decision below was varied by a declaration that rent was payable from 1 November 1976.
2. First instance: Judge Rubin held that rent was payable only from 18 November 1977. The earlier decision of Whitford J held that the lease became binding when the outstanding condition was fulfilled, but did not determine the rent issue.