Alma Property Management Ltd v Crompton

The court refused the claimant's application for specific performance of the defendants' repairing covenants under the common parts lease (the "CP Lease"). Key legal principles applied were estoppel by convention and estoppel by representation, the court's discretion to refuse specific performance of tenant repairing covenants (with reference to Rainbow Estates), and the statutory tests under section 1 of the Landlord and Tenant Act 1988 and section 16 of the Landlord and Tenant (Covenants) Act 1995 governing consent to assign and authorised guarantee agreements (AGAs).

The judge found (i) there was a common understanding after the receivership ended in October 2016 that the claimant, through its managing agent, would manage the building and provide the services, and the defendants relied on that; (ii) that reliance did not amount to detriment sufficient to estop the claimant from requiring the works to be done now, because the cost of the works would be recoverable and the defendants would be indemnified by the claimant; (iii) the defendants obtained the CP Lease in the course of their receivership powers and therefore acted as agents of the mortgagor and, in principle, were entitled to indemnity from the claimant for liabilities properly incurred in the receivership; and (iv) in the exercise of its discretion the court should refuse specific performance against the defendants because the claimant had an adequate alternative (to carry out the works or permit assignment to NTRML) and it would be unfair to compel the receivers, who are entitled to indemnity, to carry out the works.

On the conditional consent to assign, the court held the claimant had established that a reasonable landlord could require a guarantee of the assignee's liabilities, but it was unreasonable in all the circumstances to require the defendants personally to enter into AGAs because that would seek to increase the claimant's position at the defendants' expense given the defendants' entitlement to an indemnity. The claimant's decision letter and factual findings under section 1(6)(b) LTA 1988 were considered in detail.

Background and parties: The dispute concerned the CP Lease for the common parts of a multi-storey building. Alma Property Management Limited (the freeholder/claimant) sought specific performance against two former fixed charge receivers (the defendants) who had the CP Lease vested in them by vesting order in 2013. The claim sought an order requiring the defendants to carry out identified repair works to the structure, exterior and roof of the building and to provide the services under the CP Lease. The defendants counterclaimed that the claimant's conditional consent to an assignment to the residents' management company (NTRML) was unreasonable.

Procedural posture and relief sought: This was a first-instance trial in the Chancery Division. The claimant conceded the claim to require provision of the services generally and pursued only an order for the specific works. The defendants sought a declaration that the AGA condition attached to consent to assign was unreasonable and therefore ineffective.

Issues for decision:

• Whether the claimant was estopped from requiring the defendants to carry out the works (estoppel by convention or representation);
• Whether the court should refuse specific performance in its discretion, including the effect of the defendants having held the lease as receivers and their entitlement to indemnity;
• Whether the claimant's condition to consent to assignment (AGAs from the defendants) was a reasonable condition under section 1 of the Landlord and Tenant Act 1988 and, if not, the effect of that unreasonableness.

Court’s findings and reasoning: The judge accepted that by October 2016 there had been a clear handover of management to the claimant's managing agent and that the defendants relied on that understanding and acted accordingly. However, the reliance did not create a detriment sufficient to estop the claimant from requiring the works now because any extra cost arising from delay would be recoupable and the defendants would be indemnified by the claimant for liabilities incurred in the receivership. The vesting of the CP Lease in the defendants was held to have been done in the exercise of their receivership powers, such that the relationship was a peculiar agency and the defendants were in principle entitled to an indemnity for liabilities properly incurred. On discretion the judge followed the modern approach to specific performance of tenant repairing covenants (Rainbow Estates) and refused the remedy because the claimant had adequate alternatives (it could itself do the works or allow assignment) and it would be unfair to compel the defendants who were entitled to indemnity.

On the AGA condition, the court held that, objectively, a reasonable landlord could require a guarantee of a lessee-management company's performance, given the importance of the CP Lease, but it was unreasonable in the particular circumstances to require the defendants themselves, who had been receivers and who are entitled to indemnity, to provide AGAs. Requiring those inducements would have the effect of improving the claimant's position at the defendants' expense, contrary to principle and the statutory test in section 1 LTA 1988. The consequence was that the condition was unreasonable and therefore ineffective; the defendants were entitled to assign to NTRML without the claimed AGA condition.

Subsidiary findings: the judge made findings on credibility of witnesses, the historic management of the building and the delay in effecting works; he considered statutory and equitable principles relating to receivers, indemnity and estoppel.

Remedies and outcome: The claimant's application for specific performance was refused; the defendants' counterclaim succeeded to the extent of declaring the AGA condition unreasonable and permitting assignment without that condition.

At first instance the court refused the claimant's application for specific performance of the defendants' repairing obligations. The judge held that the defendants had acted in the exercise of receivership powers and were, in principle, agents entitled to an indemnity; that the defendants were not estopped from being required now to carry out the works; but that in the exercise of the court's discretion specific performance should be refused because the claimant had adequate alternatives and it would be unfair to compel receivers entitled to indemnity. Separately, the court held that the condition that the defendants enter authorised guarantee agreements as a condition of consent to assign was unreasonable and therefore ineffective; the defendants are entitled to assign the CP Lease to NTRML without that condition.