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

The receivers appointed by the chargee bank were entitled to carry out their management and sale functions and to take over management of the properties despite opposing "Management and Letting Agreements" under which Space claimed proprietary rights. The court held that those agreements, whatever their contractual status between the parties, could not bind the bank or the receivers because the charges expressly prohibited creation of proprietary interests without the bank's consent. Specific performance to create leases was not available because it would require the companies (acting through the receivers) to take steps prohibited by the charges and would compel breach of third-party rights (following the principle in Warmington v Miller). The court found the agreements did not demonstrate a binding equitable lease for the purposes of restraining the receivers and granted the injunction sought by the receivers, subject to appropriate undertakings.

Background and parties: The claim arose after National Westminster Bank appointed fixed charge receivers (Rosalind Jane Goode and Nathan John Pask) over two student-accommodation freehold properties owned by Herbal Hill Studios Limited and Bower Terrace Student Accommodation Limited. Space Student Living Limited (Space) asserted management and letting agreements gave it exclusive possession and protection under the Landlord and Tenant Act 1954. The receivers sought injunctive relief and related orders to take over management and obtain information and assistance necessary to preserve the security.

Nature of the application: The receivers applied for an injunction to enable them to take over management and rent collection and to obtain information and cooperation from Space. Space resisted, asserting that the Management and Letting Agreements (two versions exist) created a lease or equivalent proprietary rights binding the receivers and the bank.

Issues framed:

• Whether the Management and Letting Agreements created a proprietary interest (a lease or an equitable lease) binding the bank or the receivers;
• Whether the agreements complied with formal requirements (notably s.2(3) Law of Property (Miscellaneous Provisions) Act 1989 and Companies Act 2006 signing formalities) so as to be specifically enforceable;
• Whether specific performance would be appropriate or barred because it would compel the parties to do something prohibited by third-party rights (the bank's charges);
• The balance of convenience and adequacy of damages for the grant of interim relief.

Court's reasoning and findings: The court emphasised the terms of the bank charges which expressly prohibited the owner companies granting leases, licences or parting with possession without the bank's consent. The Management and Letting Agreements post-dated the charges and no bank consent was shown. The judge was satisfied that, even if effective as between Space and the owners, the agreements could not bind the bank or the receivers and did not place the receivers under any obligation to accept them.

The court considered arguments on formalities under s.2(3) of the 1989 Act and ss.43–44 Companies Act 2006 but declined to reach a final view, treating the point as arguable rather than decisive on an interim application. However, the court accepted the submission that specific performance was inappropriate because it would require the grant of leases in breach of the bank charges and thereby compel a party to breach a contract with a third party (applying the principle in Warmington v Miller).

On construction, the first version of the agreements looked like management agreements and did not show exclusive possession; the provenance and late reliance on a second version that might arguably suggest exclusive possession were unexplained and unreliable. The receivers were likely to succeed at trial in demonstrating the agreements did not impede their duties and were not binding on the bank. Considering the balance of convenience and undertakings offered, the receivers were entitled to the injunctive relief sought.

The application for an injunction by the receivers was allowed. The court held that the Management and Letting Agreements could not bind the bank or the receivers because the bank's charges prohibited creation of proprietary interests without consent, and specific performance to create leases would be inappropriate as it would compel breach of the charges. The receivers were therefore entitled to carry out their duties and to the relief sought, subject to undertakings.