Ashburn Anstalt v Arnold

Where an estate contract binds a purchaser only through an overriding interest, that interest protects existing contractual rights within the occupied land. It does not enlarge those rights or extend them to other land. A contractual right to a lease of a shop on completion of redevelopment does not itself entitle the beneficiary to dictate where shops are built. If a suitable shop is built wholly within the protected land and no suitable alternative is offered, the beneficiary may insist on its lease. Protection over part of a shop does not confer a right to a lease of the whole premises. The treatment of a trivial overlap was left open.

Walter John Arnold and W.J. Arnold & Company Limited had carried on business at 126 Gloucester Road. Following the sale of their leasehold interests to Matlodge Ltd., an agreement permitted continued occupation and provided for the grant of a lease of a shop following redevelopment. The relevant obligations were subsequently novated with Cavendish Land Co. Ltd., the freeholder. Ashburn Anstalt later acquired the freehold without becoming a party to that contract.

On an appeal from the Chancery Division, the Court of Appeal had previously determined that the occupation agreement created a lease and that the agreement for a future lease constituted an overriding interest only over the occupied premises. The estate contract had not been registered. The court then heard further argument about consequential relief. Meanwhile, the company had commenced county court proceedings for a new lease under the Landlord and Tenant Act 1954. The present questions concerned whether it could restrain redevelopment, compel the grant of a lease within the protected site, or obtain damages in lieu of specific performance.

Declarations made unanimously. Fox LJ delivered the judgment, with which Neill and Bingham LJJ expressly agreed.

1. The overriding interest protected existing contractual rights over the occupied land. It neither enlarged those rights nor altered their content. Ashburn could therefore be subject to no greater obligation than the original contracting owner. Since the estate contract had not been registered, the company had no enforceable rights under it against Ashburn over the remainder of the development site.

2. The undertaking to grant a lease following redevelopment was contractual, rather than merely a warranty sounding in damages. Its terms nevertheless conferred no right to require a shop to be built on the protected site. The developer retained the choice of where to locate shops. The company could not restrain a development merely because it provided no suitable shop on that site.

3. If a shop were built wholly on the protected site and Ashburn offered no other shop meeting the contractual description, the company could insist on the grant of its lease. The original contracting owner could have been compelled to grant that lease if it were the only shop built. Where several shops were built but none was offered, the court could permit the company to choose and enforce that choice. Enforcing a choice confined to the protected site would preserve the parties' existing rights.

4. The company could not insist on a lease of an entire shop built partly on the protected site and partly outside it. That would extend the overriding interest to other land. Fox LJ left open whether a trivial overlap outside the site could be disregarded. That question required precise facts which did not yet exist.

5. Damages in lieu of specific performance were discretionary. The court declined to speculate about circumstances in which they might be appropriate. It determined the consequential questions itself rather than leaving them to the judge hearing the lease renewal proceedings. The plaintiffs were awarded the costs of the further argument. Leave to appeal to the House of Lords was refused.

• Court of Appeal: On 25 February 1988, determined consequential questions following its earlier judgment. Declarations were made unanimously and leave to appeal to the House of Lords was refused.
• Court of Appeal: On 27 October 1987, held, among other matters, that clause 5 created a lease and that clause 6 constituted an overriding interest over 126 Gloucester Road.
• High Court, Chancery Division: The appeal originated from a decision of Mr Evans-Lombe QC, sitting as a deputy High Court judge. The supplied judgment does not state the terms or citation of that decision.