City of London Corpn v Fell (Herbert Duncan Ltd v Cluttons)

An original tenant’s contractual liability under lease covenants extends only for the term for which it covenanted. Statutory continuation of a business tenancy under the Landlord and Tenant Act 1954 does not extend that contractual liability beyond the contractual term.

Covenants which touch and concern the land are annexed to the leasehold term and the reversion. An assignee therefore holds the term subject to those covenants independently of the continuing contractual liability of the original tenant. The leasehold estate can survive the release, dissolution or expiry of the original covenantor’s liability. This reflects the fundamental distinction between contractual liability and the status arising from ownership of the term.

The Corporation granted Wilde Sapte & Co a ten-year business lease ending on 24 March 1986. Wilde Sapte assigned the lease to Grovebell Group Ltd with the Corporation’s consent. Grovebell remained in occupation, so the tenancy continued under Part II of the Landlord and Tenant Act 1954 until its liquidator surrendered it on 23 January 1987.

Rent and outgoings of £33,460.64 accrued during the statutory continuation. The Corporation sought that sum from Wilde Sapte as the original tenant. A deputy High Court judge and the Court of Appeal rejected the claim. The central issue was whether the statutory continuation extended the original tenant’s contractual covenants beyond the term stated in the lease.

1. Appeal dismissed unanimously. Lord Templeman delivered the leading speech. Lord Goff of Chieveley, Lord Jauncey of Tullichettle, Lord Browne-Wilkinson and Lord Mustill agreed with his reasons.

2. Per Lord Templeman, Wilde Sapte had covenanted to pay rent only during the ten-year contractual term. Although section 24 of the Landlord and Tenant Act 1954 prevented the occupying tenant’s tenancy from ending on the contractual expiry date, the Act did not expressly impose liability upon a former tenant. Its purpose was to protect occupying business tenants against their landlords. No liability upon the original tenant could properly be implied.

3. The contention that an assignee’s liability depended upon the continuing enforceability of the covenants against the original tenant was rejected. The release or disappearance of the original tenant’s contractual liability neither destroys the term nor relieves the assignee of covenants which touch and concern the land. The same conclusion follows where the original corporate tenant is dissolved.

4. At common law, the benefit and burden of leasehold covenants touching and concerning the land run with the term. Sections 141 and 142 of the Law of Property Act 1925 annex the relevant rights and obligations to the reversion. Every legal owner of the term and reversion therefore holds that estate with the benefit and burden of the covenants annexed to it.

5. An assignee does not become liable because it personally covenanted. Liability arises while it owns the term to which the relevant provisions are annexed. It ceases in respect of later breaches after the assignee assigns the lease onward. Conversely, the original tenant’s continuing contractual liability after assignment is a separate remedy and is not necessary to sustain either the leasehold estate or the assignee’s obligations.

6. The Corporation’s submission confused contract with status. Wilde Sapte could not be required to pay rent accruing after the period for which it covenanted and in respect of an estate which it did not then enjoy. The Court of Appeal’s order was affirmed, and the Corporation was ordered to pay the respondent’s costs.

1. House of Lords: The Corporation’s appeal was dismissed unanimously. The Court of Appeal’s order was affirmed, with costs against the Corporation.

2. Court of Appeal: Nourse and Evans LJJ and Sir Michael Kerr held that the Corporation could not recover the post-expiry rent and outgoings from the original tenant.

3. High Court: Deputy High Court judge Desmond Perrett QC held that the Corporation was not entitled to recover the sum claimed.