Bower Terrace Student Accommodation Ltd & Anor v Space Student Living Ltd

Management and letting agreements cannot bind a mortgagee or fixed charge receivers where the property owner lacked authority to grant a proprietary interest without the mortgagee’s consent. Specific performance will not be ordered where it would require the defendant to breach its obligations to a third party or do something it is not lawfully competent to do. The same principle applies whether the claimant seeks a lease or a contractual licence. On an interim injunction application, the court may treat uncertain statutory-formality arguments as merely arguable where a concluded determination is unnecessary. Receivers appointed under a fixed charge are entitled, subject to the balance of convenience and adequate protection in damages, to perform their functions without interference from the incumbent property manager.

The claimants owned student accommodation subject to charges in favour of National Westminster Bank. Fixed charge receivers were appointed after loan defaults and sought to assume management of the properties. The defendant, which managed and let the accommodation, relied on management and letting agreements and asserted that they created leases, exclusive possession and protection under the Landlord and Tenant Act 1954.

The receivers applied for an injunction requiring the defendant to hand over management and provide information and assistance. The central issues were whether the agreements conferred proprietary rights binding on the bank or receivers, whether specific performance could create a lease or licence contrary to the charges, and whether a periodic tenancy arose from possession and payments.

1. The application succeeded. The receivers were entitled to carry out their functions without interference from Space and to obtain the information and assistance sought. The receivers’ undertaking in damages, together with the circumstances of the properties and the substantial indebtedness, provided no basis for refusing relief.
2. The agreements could not bind the bank or the receivers insofar as they were intended to create a proprietary interest. The property owners were prohibited by the charges from granting leases or licences or parting with possession without the bank’s consent. The parties’ close corporate relationship meant that Space was, or should have been, aware of that restriction.
3. Even assuming that the agreements satisfied the statutory formalities, specific performance would not be ordered. It would require the companies, acting through the receivers, to grant leases prohibited by the charges. Applying Warmington v Miller [1973] QB 877, equity would not compel a defendant to breach a contract with a third party or to do what it was not lawfully competent to do. The same reasoning defeated the alternative claim for specific performance of a contractual licence.
4. The argument that the agreements failed to comply with section 2(3) of the Law of Property (Miscellaneous Provisions) Act 1989, because they were signed by only one director, was arguable. The court declined to reach a concluded view on the relatively new statutory provisions concerning execution by companies.
5. The fallback argument that Space was a periodic tenant was unsupported by evidence. In any event, knowledge through the common directors that such a tenancy would be prohibited by the charges would negate the suggested objective inference. Version 1 of the agreement more naturally described a management arrangement than a lease, and neither version convincingly granted exclusive possession.