P & A Swift Investments v Combined English Stores Plc

The benefit of a surety’s covenant guaranteeing a tenant’s obligations may run with the reversion without express assignment. It does so where the covenant touches and concerns the land.

The covenant must benefit only the reversioner for the time being, affect the nature, quality, use or value of the land, and lack a personal character. A monetary obligation may qualify if it satisfies those conditions and relates to something done on, to or in relation to the land. A guarantee of tenant covenants which touch and concern the land ordinarily has the same character as those covenants.

The appellant joined an underlease solely as surety for the tenant’s obligations. The original landlord later assigned the leasehold reversion to the respondent without expressly assigning the benefit of the surety’s covenant. After the tenant defaulted on rent and entered liquidation, the respondent recovered £4,250 against the surety in the Queen’s Bench Division.

Judge Oddie considered himself bound by Kumar v Dunning [1987] 3 W.L.R. 1167. He certified the case under section 12 of the Administration of Justice Act 1969, and the House granted leave for a direct appeal. The central issue was whether the benefit of the surety’s covenant touched and concerned the land and therefore passed with the reversion without express assignment.

1. The appeal was dismissed unanimously and the order of Judge Oddie was affirmed. Lord Templeman and Lord Oliver of Aylmerton delivered reasoned speeches. Lord Keith of Kinkel, Lord Roskill and Lord Ackner agreed with both. The appellant was ordered to pay the respondent’s costs.

2. Per Lord Oliver, the statutory rule substantially re-enacted in section 141 of the Law of Property Act 1925 applied only to covenants between landlord and tenant. Since the surety had no interest in the demised land and there was no privity of estate, the respondent’s right depended on the common law rule. That rule transmitted the benefit where the assignee held the legal estate and the covenant touched and concerned the land.

3. Per Lord Oliver, a leasehold reversion could constitute land for this purpose. There was no logical reason why the existence of a lease should prevent the benefit of a third-party covenant from running with the land. The House would not assume, in the absence of direct authority, that the common law had remained fixed since the sixteenth century.

4. Per Lord Oliver, the working test was whether: (i) the covenant benefited only the reversioner for the time being and ceased to benefit the covenantee when separated from the reversion; (ii) it affected the nature, quality, mode of use or value of the reversioner’s land; and (iii) it was not expressed to be personal. A covenant to pay money could qualify if those requirements were met and the obligation was connected with something done on, to or in relation to the land.

5. Per Lord Templeman and Lord Oliver, a surety’s guarantee of tenant covenants which touch and concern the land has the same relevant character as those covenants. The surety’s primary obligation is that the promised acts will be performed or omitted, although the remedy for breach may sound only in damages. The surety’s covenant therefore ran with the reversion.

6. Lord Oliver approved Kumar v Dunning [1987] 3 W.L.R. 1167 as correctly decided for the correct reasons. The present case was materially indistinguishable. Lord Roskill also relied on the Vice-Chancellor’s reasons in that case.

1. House of Lords: The direct appeal was dismissed unanimously. Judge Oddie’s order was affirmed, with costs against the appellant.
2. Queen’s Bench Division of the High Court: Judge Oddie entered judgment for the respondent for £4,250, interest and costs. Being bound by Kumar v Dunning [1987] 3 W.L.R. 1167, he did not hear full argument. He granted a certificate under section 12 of the Administration of Justice Act 1969, and the House subsequently granted leave for a direct appeal.