Tiffany Investments Ltd. & Anor v Bircham & Co Nominees (No 2) Ltd. & Ors

A contractual right of pre-emption requires a positive offer where the offer is essential to make the right effective. Under a lease clause requiring the lessee first to offer the term before disposing of it, the obligation arises when the lessee forms the relevant wish and must be performed immediately before a binding contract of disposal, rather than merely before legal assignment. A conditional binding contract is a disposition because the property is beyond the lessee’s sole control. Breach creates an equitable interest equivalent to that of a purchaser under a binding sale. The terms of the disposal may supply the price and encumbrances. Section 17 of the Landlord and Tenant Act 1954 does not invalidate the clause, its machinery or the resulting equitable interest. The earlier interest has priority over later interests.

The appeal concerned a long lease at a low rent containing a right of pre-emption. In 1986 the Bailies agreed to sell the lease to Tiffany for £250,000 without first offering it to the lessors. The agreement was not completed by registration of an assignment, but the price was paid and a transfer was executed. After the Bailies ceased occupation, Tiffany agreed in 1999 to sell the lease to Ms Chantry. The lessors later compromised proceedings with the Bailies and acquired the lease for £250,000.

Tiffany and Ms Chantry claimed that the Bailies held the lease for Tiffany and that the lessors had unreasonably withheld consent to the proposed assignment. The lessors claimed priority based on the 1986 breach. Lindsay J granted declarations in favour of the lessors. The appeal concerned the construction of the pre-emption clause, the effect of section 17 of the Landlord and Tenant Act 1954, and priority between the competing interests.

Appeal dismissed. The Vice-Chancellor gave the leading judgment and Waller LJ agreed. Sedley LJ concurred, while expressing concern about the possible effect of section 17 of the Landlord and Tenant Act 1954.

1. Construction of clause 5. The requirement that the lessee should first offer the lease to the lessors imposed a positive obligation. Although similar wording may merely create a condition precedent where its purpose is to permit a landlord to veto an assignment, an offer is essential to make a right of pre-emption effective. Once the lessee formed the relevant wish to dispose of the lease, the positive obligation arose.
2. Time for performance. The obligation had to be performed immediately before the lessee entered into a binding contract of disposal. Clause 5 distinguished between disposing of the term and assigning it. Disposal was therefore not limited to the final transfer of the legal estate. The Court approved the timing observations in Bircham & Co Nominees Ltd v Worrell [2001] EWCA Civ 775, although those observations had been obiter in that earlier judgment.
3. A conditional binding contract was still a disposition for this purpose. It placed the property beyond the lessee’s sole control. If the condition was fulfilled the disposition would be completed; if not, the property remained subject to the pre-emption right on any further disposition.
4. Equitable interest. The Bailies breached clause 5 immediately before concluding the 1986 Agreement. Under the principle applied in Pritchard v Briggs [1980] 1 Ch 338, the breach gave the lessors an equitable interest comparable to that of a purchaser under a binding contract. The absence of a separate offer, acceptance or document satisfying section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 did not defeat that interest, because the 1986 Agreement supplied the relevant price and absence of encumbrances.
5. Section 17. Section 17 did not invalidate clause 5 or steps taken under it. Part I protection concerned the continuation or termination of the protected tenancy, whereas a disposal to a third party did not itself engage those rights. Any sale to the lessors could amount to a present surrender, which the statutory proviso permitted. The court therefore rejected the need to decide whether section 17 had merely suspensory effect. The reasoning was consistent with the distinction drawn in Joseph v Joseph [1967] Ch 78 and Allnatt Properties Ltd v Newton [1981] 2 AER 290, while limiting the wider reading of Re Hennessey [1975] 1 Ch 252.
6. Priority. The lessors’ equitable interest arose in 1986, before any relevant interest of Tiffany or Ms Chantry. There was no conduct by the lessors causing them to lose that priority. The declarations in their favour were therefore upheld.

1. Court of Appeal (Civil Division) The court dismissed the appeal and upheld the declarations made below.
2. Chancery Division Lindsay J held that clause 5 required the Bailies to offer the lease to the lessors before contracting with Tiffany, that the failure created an equitable interest in the lessors, and that the interest had priority over the interests claimed by Tiffany and Ms Chantry.