Harbour Estates Ltd. v HSBC Bank Plc

A lease assignment may pass the benefit of a break clause even where the assignment does not mention it. Section 63 of the Law of Property Act 1925 supplies general conveyancing words, subject to any contrary intention, but the right must have the necessary nexus with the property conveyed. A break clause may touch and concern the lease even though its benefit is expressed to be personal, if its structure permits assignment to defined classes of assignee and its benefit is connected with the term. The court should assess the clause as a whole and apply the modern, flexible approach to the touching-and-concerning test.

Two conjoined Chancery Division actions concerned underleases granted to Stafford Properties Ltd. Stafford later assigned the leases to HSBC Bank plc, a group company, but the assignment did not expressly mention the benefit of a valuable break clause. HSBC subsequently served notice seeking to terminate the leases in June 2004. Harbour Estates Ltd., the assignee of the reversion, challenged the notice, arguing that the benefit was personal to Stafford and had not passed. HSBC sought a declaration that the notice was effective and, alternatively, rectification of the assignment. The central issues were whether the benefit passed automatically under the lease, the common law rules concerning rights touching and concerning land, and section 63 of the Law of Property Act 1925.

1. The court dismissed Harbour Estates Ltd.’s claim and granted HSBC Bank plc the declaration sought. The break clause had passed with the lease, and HSBC validly exercised it so that the leases determined on 23 June 2004. Rectification was therefore unnecessary.

2. Section 63 of the Law of Property Act 1925 is intended to replace the former “all estate” wording. It may pass rights, claims and interests connected with the property conveyed, unless a contrary intention appears. It does not pass an entirely personal right having no sufficient nexus with that property. The court treated a written assignment of a lease as a conveyance for this purpose.

3. The break clause was an unusual hybrid. It described the benefit as personal to Stafford, but permitted assignment to a group company and to an approved permitted assignee. The landlord had no relevant power to withhold consent where the assignee was a group company. The clause was therefore not wholly personal. Its benefit was sufficiently connected with the lease to touch and concern it, or to have reference to its subject matter, and passed under the assignment despite the absence of express words.

4. The court considered the working test stated by Lord Oliver in P & A Swift Investments v Combined English Stores Group plc [1989] AC 632, while recognising the later relaxation of its personal-benefit element in System Floors Ltd v Ruralpride [1995] 1 EGLR 48. The clause’s hybrid character, its connection with the value and use of the lease, and the classes of persons who could benefit supported the conclusion that it touched and concerned the lease.

5. Had the 2004 exercise not already been valid, HSBC would have been entitled to exercise the break clause in June 2009 if it remained the tenant.