Souglides v Tweedie & Anor

An option granted to a lessee to acquire a reversionary interest may fall within the leasehold-option exemption from the rule against perpetuities, even where the interest is carved out of a superior leasehold or freehold interest. A chargee by way of legal mortgage may be a successor in title for this purpose. The benefit of an option may be transferred informally or inferred from the transaction as a whole. A surrender and re-grant resulting from an enlargement of the demised premises does not necessarily deprive the lessee of the option where the transaction is also properly understood as a variation and the lessee remains in possession of the original premises.

The claimant was the registered proprietor of a flat underlease. The defendants were the freehold owners. An earlier lessee had been granted an option to require a 60-year extension lease, exercisable between 2008 and 2028. The claimant acquired the underlease from the earlier lessee’s mortgagee and later exercised the option.

The defendants contended that the option was void for perpetuity, could not have been assigned to the mortgagee or transferred to the claimant, and had become nugatory after a deed enlarged the demised premises. The central issues concerned the construction and application of section 9(1) of the Perpetuities and Accumulations Act 1964, the status of a legal chargee, the transfer of the option, and the effect of the later deed.

1. Perpetuity. The option was exempt from the rule against perpetuities under section 9(1) of the Perpetuities and Accumulations Act 1964. The expression “an interest reversionary (whether directly or indirectly)” was not confined to an existing superior lease or the freehold. It could include an interest carved out of a superior interest. That construction was consistent with the statutory language, the Law Reform Committee’s reasoning, and the policy of encouraging lessees to develop leasehold land (paras 27–30).
2. Mortgage assignment. A chargee by way of legal mortgage was capable of being a “successor in title” of the lessee. Although a legal charge did not transfer the legal estate, the chargee acquired a legal interest and was assimilated to a mortgagee by sub-demise for many purposes under the Law of Property Act 1925. A contrary construction would make it difficult or impossible to mortgage many leasehold options sensibly (paras 31–39).
3. Transfer to the claimant. The sale contract, read in context, reasonably conveyed that the option was included in the sale of the underlease. The registration clause would otherwise have had no commercial significance. The mortgagee’s subsequent delivery of the option deed to the purchaser’s solicitors further manifested an intention to transfer it. At least an equitable assignment had therefore occurred (paras 40–49).
4. 1994 deed. The deed enlarging the demised premises operated as a surrender and re-grant as a matter of law, but it could also properly be described as a variation of the underlease. The claimant remained lessee of all the original premises, with additional premises added. The expression “successors in title” was not intended to exclude him, and the option did not become nugatory (paras 50–56).
5. Order. The claim succeeded. The claimant was entitled to an extension lease in accordance with the option, covering the fourth and fifth floors but not the roof terrace (para 57).

First-instance decision. No prior appellate decision is stated in the judgment.