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[1997] 2 All ER 990

Amsprop Trading Ltd v Harris Distribution Ltd and another

CHANCERY DIVISION

NEUBERGER J


1, 7 NOVEMBER 1996



Landlord and tenant - Covenant - Covenant to keep premises in repair - Covenant contained in underlease and made between tenant and subtenant - Subtenant assigning underlease and reversion in headlease transferred to plaintiff - Whether plaintiff able to enforce covenants directly against subtenants - Whether previous head landlord entitled to enforce covenants against subtenants - Law of Property Act 1925, s 56(1).

In 1975 K Ltd was granted a lease of a warehouse for 99 years from 1973 and in 1987 the reversion was transferred to A Ltd. On 21 December 1987 K Ltd granted an underlease of the premises to the first defendant, HDL. In cl 3 of the underlease HDL covenanted with 'the landlords' (which was defined to mean K Ltd and its successors in title and assigns) to keep the premises in repair and to deliver them up at the end of the term in good repair. By cl 3(7) HDL covenanted to permit the superior landlords and the landlords to enter the premises in order to view the state of repair and by cl 3(8) HDL covenanted to remedy any defects in repair within three months of being given notice thereof, and, in the event of the superior landlords or the landlords carrying out such works on its failing to do so, to pay their costs and expenses. In 1993 HDL assigned the underlease to the second defendant, TDG, and on 7 May 1993 the plaintiff, ATL, acquired the reversion to the headlease from A Ltd. In February 1996 ATL served notice on TDG requiring it to carry out certain repairs within three months of service of that notice. However, one month later TDG vacated the premises and surrendered the underlease and soon afterwards ATL forfeited the headlease. Subsequently ATL commenced proceedings against HDL and TDG seeking a declaration that they were liable to pay ATL the costs of remedying any disrepair in the premises, or alternatively, damages. A preliminary issue was ordered to be tried as to whether ATL was entitled to enforce the covenants directly against the defendants. ATL contended that it was, on the ground that A Ltd could have done so by virtue of s 56(1)^a of the Law of Property Act 1925 since cl 3(7) and (8) of the underlease was for its benefit and that that right passed to ATL when ATL acquired the reversion to the headlease.

^a     Section 56, so far as material, is set out at p 994 j, post

Held - Where the identity of the covenantee was clear and unambiguous, s 56 of the 1925 Act did not operate to confer the benefit of the covenant on a party who was not within the ambit of the expressly identified covenantee. Moreover, s 56 only allowed a person to sue on a covenant, where not named as a party to it, if the covenant purported to be made with him; it was not enough merely to show that the covenant was made for his benefit. In the instant case, the covenants in cl 3 of the underlease were made with K Ltd and its successors in title and assigns, but K Ltd's landlord, A Ltd, did not fall within that expression. Accordingly, although cl 3(7) and (8) expressly referred to superior landlords, it would not have

[1997] 2 All ER 990 at 991

been open to A Ltd to enforce the covenants contained therein directly against the defendants. It followed that ATL could not do so either and the action would therefore be dismissed (see p 995 j to p 996 a j to p 997 a j to p 998 a f g and p 1001 g, post).

Dictum of Dillon J in Lyus v Prowsa Developments Ltd [1982] 2 All ER 953 at 958 applied.

Beswick v Beswick [1967] 2 All ER 1197 considered.

Dictum of Denning LJ in Drive Yourself Hire Co (London) Ltd v Strutt [1953] 2 All ER 1475 at 1483 doubted.

Notes

For the doctrine of privity of contract generally, see 9 Halsbury's Laws (4th edn) 329-331.

For the Law of Property Act 1925, s 56, see 37 Halsbury's Statutes (4th edn) 156.

Cases referred to in judgment

Aspden v Seddon, Preston v Seddon (1876) 1 Ex D 496, CA.

Beswick v Beswick [1967] 2 All ER 1197, [1968] AC 58, [1967] 3 WLR 932, HL.

Drive Yourself Hire Co (London) Ltd v Strutt [1953] 2 All ER 1475, [1954] 1 QB 250, [1953] 3 WLR 1111, CA.

Forster v Elvet Colliery Co Ltd, Quin v Elvet Colliery Co Ltd, Seed v Elvet Colliery Co Ltd, Morgan v Elvet Colliery Co Ltd [1908] 1 KB 629, CA; affd sub nom Dyson v Forster, Dyson v Seed [1909] AC 98, [1908-10] All ER Rep 212, HL.

Foster, Re, Hudson v Foster [1938] 3 All ER 357.

Lyus v Prowsa Developments Ltd [1982] 2 All ER 953, [1982] 1 WLR 1044.

Miller's Agreement, Re, Uniacke v A-G [1947] 2 All ER 78, [1947] Ch 615.

Norval v Pascoe (1864) 34 LJ Ch 82.

Rhone v Stephens [1994] 2 All ER 65, [1994] 2 AC 310, [1994] 2 WLR 429, HL.

Shaw's Application, Re (1994) 68 P & CR 591.

Stromdale & Ball Ltd v Burden [1952] 1 All ER 59, [1952] Ch 223.

Swift (P & A) Investments (a firm) v Combined English Stores Group plc [1988] 2 All ER 885, [1989] AC 643, [1988] 3 WLR 313, HL.

Tito v Waddell (No 2), Tito v A-G [1977] 3 All ER 129, [1977] Ch 106, [1977] 2 WLR 496.

White v Bijou Mansions Ltd [1938] 1 All ER 546, [1938] Ch 351, CA; affg [1937] 3 All ER 269, [1937] Ch 610.

Wiles v Banks (1984) 50 P & CR 80, CA.

Cases also cited or referred to in skeleton arguments

Austerberry v Oldham Corp (1885) 29 Ch D 750, CA.

Blore v Giulini [1903] 1 KB 356.

Cameron v Dalgety (1920) 39 NZLR 155, NZ SC.

Ecclesiastical Comrs for England v Sackville Estates Ltd [1937] 2 All ER 720, [1936] Ch 430.

Halsall v Brizell [1957] 1 All ER 371, [1957] Ch 169.

Parkinson v Reid (1966) 56 DLR (2d) 315, Can SC.

Pinemain Ltd v Welbeck International Ltd [1984] 2 EGLR 91.

Rufa Property Ltd v Cross [1981] Qd R 365, Qld Full Ct.

Scruttons Ltd v Midland Silicones Ltd [1962] 1 All ER 1, [1962] AC 446, HL.

Smith v River Douglas Catchment Board [1949] 2 All ER 179, [1949] 2 KB 500, CA.

Tweddle v Atkinson (executor of Guy (decd)) (1861) 1 B & S 393, 121 ER 762.

[1997] 2 All ER 990 at 992

Preliminary issue

By order made by Master Barratt on 24 July 1996 a preliminary issue was ordered to be tried in an action brought by the plaintiff, Amsprop Trading Ltd (head landlord by assignment), for a declaration to the effect that the defendants, Harris Distribution Ltd and TDG Ltd, were liable under covenants contained in an underlease to pay the plaintiff the cost of remedying any repair in the premises or, alternatively, damages. The facts are set out in the judgment.

Christopher Cant (instructed by H Montlake & Co, Ilford) for the plaintiff.

Judith Jackson QC (instructed by Burges Salmon, Bristol) for the defendants.

Cur adv vult

7 November 1996. The following judgment was delivered.



NEUBERGER J.


INTRODUCTION

This is a preliminary issue as to whether the plaintiff, Amsprop Trading Ltd (ATL), the head landlord by assignment, can claim directly against the original subtenant, the first defendant, Harris Distribution Ltd (Harris), and its assignee, the second defendant, TDG Ltd, on the covenants contained in the underlease. It raises points of some general interest in the field of the landlord and tenant.

THE FACTS

On 10 October 1975 USF Nominees Ltd (USF) granted a lease (the headlease) of a warehouse at Josselin Road, Basildon, Essex (the premises) to G J Keddie & Sons Ltd (Keddie) for a term of 99 years less three days from 31 July 1973. On 23 November 1987 USF transferred the reversion to the headlease to Amsprop Ltd (Amsprop). On 27 November 1987 Amsprop granted Keddie licence (the licence) to grant an underlease (the underlease) of the premises to the first defendant, Harris.

Clause 2 of the licence required the underlease to be--

'made subject to the lessee's covenants and the conditions (other than the covenant to pay the rent) ... contained in the Head Lease and shall contain a covenant by [the first defendant] with [Keddie] not to assign underlet or part with the possession of the premises or any part thereof without the consent in writing of [Amsprop] or its successors in title and a condition for re-entry on breach of such covenant ...'

Clause 4 of the licence contained a covenant by Keddie with Amsprop--

'not ... to waive the covenant ... so to be contained in the ... Underlease ... but on any breach of the said covenant to re-enter the premises ... and otherwise to enforce such covenant ...'

On 21 December 1987 Keddie granted the underlease to the first defendant for a term expiring on 1 January 1994.

In the underlease it was stated that any reference in the underlease to 'superior landlords' was to be a reference to USF or its successors in title, and that the expressions 'the landlords' and 'the tenants' were defined as respectively meaning Keddie and the first defendant and their respective successors in title. The underlease contained express grants and reservations in familiar form, relating to

[1997] 2 All ER 990 at 993

the passage of water, gas, electricity and other services. Clause 3 of the underlease contained the covenants by the first defendant. It opened with these words 'THE Tenants hereby covenant with the Landlords as follows'. Clause 3(4) was a covenant to keep the premises in repair. Clause 3(33) was a covenant to deliver up the premises at the end of the term in good repair. There were two other covenants, of central relevance to the issue before me, in the following terms:

'... (7) To permit ... the Superior Landlords and the Landlords their [agents] at all reasonable times after at least twenty four hours previous notice (except in emergency) to enter upon the ... premises ... for the purpose of ascertaining that the covenants ... herein contained have been duly observed ... and to view the state and condition of the ... premises and of all ... wants of repair ... there found to give or leave on the ... premises notice thereof in writing to the Tenants (8) At the Tenants' own cost ... within 3 months next after every such notice referred to in the last preceding sub-clause (or immediately in the case of emergency) well and substantially to repair and make good all such defects ... and wants of reparation ... as required by such notice ... and if the Tenants shall fail to comply with the requirements of such notice as aforesaid [it] shall be lawful for the Superior Landlords and the Landlords ... or ... their [agents] to enter upon the ... premises to execute such works as may be necessary to comply with the same And in the event of the Superior Landlords or the Landlords so entering the ... premises and carrying out such works to pay their costs and expenses of executing such works ... on demand as liquidated damages and such sums should be recoverable forthwith by action or by distress as if such monies formed part of the rents payable hereunder ...'

Comparison of the covenants in the headlease with those in the underlease shows that, to a very substantial extent, the covenants in the underlease reflected those in the headlease with minor appropriate adaptations. Thus, cl 2(9) and (10) of the headlease are effectively identical to the two sub-clauses of the underlease which I have quoted, save that there is no reference to the superior landlord in the covenants in the headlease.

On 2 February 1993 Amsprop gave licence to Keddie to consent to an assignment of the underlease, and the assignment of the underlease by the first defendant to the second defendant took place shortly thereafter. On 7 May 1993 ATL acquired the reversion to the headlease from Amsprop. After its contractual expiry date the underlease continued pursuant to s 24 of the Landlord and Tenant Act 1954.

On 20 February 1996 ATL served notice on the second defendant purportedly pursuant to cl 3(7) of the underlease requiring the second defendant to carry out certain repairs within three months of the service of that notice (the plaintiff's notice). On 24 March 1996 the second defendant vacated the premises and it is common ground that the underlease was surrendered on or about that date. On 24 April 1996 ATL forfeited the headlease.

On 27 March 1996 these proceedings were issued against the first and second defendants. In the prayer for relief, ATL seeks a declaration to the effect that the first and/or the second defendant are liable to pay ATL the cost of remedying any disrepair in the premises, or alternatively, damages. In the statement of claim it is contended that the disrepair constitutes a breach by the defendant of the obligations in the underlease to keep the premises in repair, and to deliver them

[1997] 2 All ER 990 at 994

up in repair at the end of the term. ATL also contends that, quite apart from any claim for damages for breaches of these covenants, it is entitled to recover the costs of carrying out the remedial works pursuant to cl 3(8) of the underlease.

THE PRELIMINARY ISSUES

In order to succeed in establishing a claim in principle against the defendants on the covenants in the underlease, ATL has to establish that: (1) if Amsprop had not assigned its reversion to ATL, Amsprop could have so claimed against the defendant; and (2) any such right that Amsprop had became vested in ATL when it acquired Amsprop's reversionary interest to the headlease. In order to succeed against the second defendant, ATL also has to establish that: (3) by taking an assignment of the underlease from the first defendant, the second defendant became liable to Amsprop. In order to succeed in any claim under cl 3(8) of the underlease, ATL will also have to establish that: (4) ATL is entitled to recover under cl 3(8) notwithstanding the fact that the underlease expired in March 1996.

I shall consider these four issues in turn. Before doing so, it is right to refer to the point that neither ATL, (nor indeed Amsprop), nor the second defendant is a party to the underlease.

In common law, a contract cannot normally be enforced by or against a stranger to it. This is, of course, because of the doctrine of privity of contract. Two important exceptions to this rule in the field of property law are, first, restrictive covenants and secondly, covenants which are enforceable by virtue of privity of estate. The covenants on which ATL seeks to rely on the present case cannot be restrictive covenants because they impose positive obligations. That is clear from the fact that ATL's case is that the defendants should have carried out substantial works of repair and, because they had not done so, they should pay ATL a substantial sum of money.

Privity of estate existed between Amsprop (and then ATL) and Keddie, and also between Keddie and the first defendant (and then the second defendant). However, there is no privity of estate between a superior landlord and a subtenant. This is clear from Megarry and Wade on the Law of Real Property (5th edn, 1984) p 740:

'Privity of estate means that there is tenure between the parties, i.e. that the relationship of landlord and tenant exists between them; cases in this category are thus confined to leases and tenancies.'

Could Amsprop have sued the defendants on the covenants in the underlease?

In light of the above considerations, Mr Christopher Cant, on behalf of ATL, accepts that he must find some statutory provision which warrants his contending that Amsprop, as the superior landlords should be entitled to enforce the covenants in the underlease directly against the defendants. He relies on s 56(1) of the Law of Property Act 1925, which provides:

'A person may take an immediate or other interest in land or other property, or the benefit of any condition, right of entry, covenant or agreement over or respecting land or other property, although he may not be named as a party to the conveyance or other instrument.'

He contends that the rights contained in cl 3(7) and (8) of the underlease are either an 'interest in land' or a 'covenant'. He contends that Amsprop would be entitled to enforce the covenants contained in the underlease, and, in particular,

[1997] 2 All ER 990 at 995

those in cl 3(7) and (8) because of the specific reference to the superior landlords therein.

I accept that the provisions contained in cl 3(4), (7), (8) and (33) constitute 'covenants' within s 56. However, I do not consider that cl 3(7) or (8) could be said to be an 'interest in land'. The argument to the contrary is based on the proposition that the two sub-clauses effectively constitute a reservation. As I have mentioned, the underlease contains reservations, and while the right of a person (be he landlord or a superior landlord) to enter premises could be conferred by a reservation or a covenant, it seems to me, that in the present case the parties to the underlease have chosen the latter alternative. Indeed, that is emphasised by the fact that the rights contained in cl 3(7) and (8) are not merely rights of entry, but include the right to recover money.

If one construes s 56 of the 1925 Act as widely as the words allow, one might conclude that it--

'[left] the courts free, in cases respecting property, to go back to the old common law, whereby a third party can sue on a contract made expressly for his benefit, and be rid also of the old rule about deeds inter partes.'

These are the words of Denning LJ in Drive Yourself Hire Co (London) Ltd v Strutt [1953] 2 All ER 1475 at 1483, [1954] 1 QB 250 at 274, which summarise the conclusion that he reached.

However, I consider that that view cannot stand in light of the reasoning of the House of Lords in Beswick v Beswick [1967] 2 All ER 1197, [1968] AC 58. In that case, Lord Upjohn discussed the history and ambit of s 56 in some detail (see [1967] 2 All ER 1197 at 1221-1224, [1968] AC 58 at 102-107). Although he described his views as 'obiter and tentative', he cited with approval ([1967] 2 All ER 1197 at 1223, 1224, [1968] AC 58 at 105, 106) the view of Simonds J in White v Bijou Mansions Ltd [1937] 3 All ER 269 at 277, [1937] Ch 610 at 625:

'... under sect. 56 ... only that person can call it in aid who, although not named as a party to the conveyance or other instrument, is yet a person to whom that conveyance or other instrument purports to grant something, or by which some agreement or covenant is purported to be in his favour.'

Lord Pearce took the same view, and indeed expressly agreed with Lord Upjohn. Lord Guest was 'not satisfied' that the limitations put on s 56 of the 1925 Act by Simonds J could be justified, but the extent of his disagreement is unclear (see [1967] 2 All ER 1197 at 1215-1216, 1211, [1968] AC 58 at 92 to 94, 87). The views of Lord Reid and Lord Hodson appear to be somewhat more equivocal. However, Lord Hodson's agreement with the judgment of Crossman J in Re Foster, Hudson v Foster [1938] 3 All ER 357 at 365 (cited by Lord Pearce ([1967] 2 All ER 1197 at 1215-1216, [1968] AC 58 at 93-94), from which it can be seen that Crossman J agreed with Simonds J), appears to me to show that Lord Hodson also agreed with Lord Upjohn (see [1967] 2 All ER 1197 at 1206, [1968] AC 58 at 80). Lord Reid's observations and his quotation of, and reference to, the view of Simonds J coupled with his disagreement with the view of Denning LJ that Re Miller's Agreement, Uniacke v A-G [1947] 2 All ER 78, [1947] Ch 615 (where Wynn-Parry J quoted and approved the views of Simonds and Crossman JJ) was wrongly decided, manifest at least an inclination towards the same view of Lord Upjohn (see [1967] 2 All ER 1197 at 1203, 1204, 1205, [1968] AC 58 at 74, 75, 76).

In the present case, the covenants in cl 3 of the underlease are expressed to be made with the landlords, which means Keddie and, at least where the context

[1997] 2 All ER 990 at 996

admits, its 'successors in title and assigns'. Amsprop, Keddie's own landlord, clearly does not fall within that expression. Accordingly, it seems to me that ATL's argument on this point faces a substantial hurdle, in that the parties to the underlease have expressly agreed that the covenants of the tenants are with the landlords and no one else is mentioned as a person for whose benefit the covenants are made.

However, cl 3(7) and (8) of the underlease are covenants which, in terms, state that the first defendant will do certain things which could be said to benefit the superior landlords: the first defendant will permit them to enter in order to inspect, to view, to leave notice, and to carry out works and will also reimburse them the cost of the works. These rights, it is contended, were clearly meant to be for the benefit of the superior landlords, and therefore, even in light of the observations in Beswick v Beswick, may be enforced directly by the superior landlords, by virtue of s 56 of the 1925 Act. I do not accept that argument for three reasons.

First, it seems to me that the provisions of cl 3(7) and (8) of the underlease, even in so far as they relate to the superior landlords, operate perfectly satisfactorily if they are treated as imposing obligations which can be enforced only by the landlords against the tenants. As I have mentioned, the headlease entitled the superior landlords to enter the premises, to carry out works, and to recover the cost of such works, in substantially the same terms as are to be found in cl 3(7) and (8) of the underlease. The reason for extending the covenants in cl 3(7) and (8) of the underlease to the superior landlords was, as it seems to me, to benefit Keddie as against its direct tenant, the first defendant. Thus, if, in exercise of their rights under the equivalent provisions in the headlease, the superior landlords entered the premises for inspection and left a schedule, Keddie would, as against the superior landlords, be obliged to carry out the necessary work under the terms of the headlease. By extending cl 3(7) to the superior landlords, Keddie ensured that the liability for carrying out such works, as between Keddie and the first defendant, would be that of the first defendant. Similarly, if neither Keddie nor the first defendant carried out such work, and the superior landlords exercised their right under the headlease to do so, Keddie would be liable, as between it and the superior landlords, to reimburse the cost of such work. Accordingly, by cl 3(8) Keddie ensured that, as between it and the first defendant, it was the first defendant who was liable to effect such reimbursement.

It was suggested on behalf of the defendants that it would also be necessary to extend cl 3(7) of the underlease to cover entry by the superior landlords, because otherwise, were the superior landlords to exercise their rights under the equivalent provision of the headlease, Keddie might be liable for breach of covenant of quiet enjoyment or trespass to the first defendant. This may well be wrong, because by exercising a right which had already been granted to them, the superior landlords, who had a higher title than Keddie, could well be said to be exercising a right which was enforceable against anyone with an inferior interest to Keddie even in the absence of a provision such as cl 3(7) or (8). None the less, the draftsman of the underlease may not have been wholly confident of this conclusion, and may have included rights of entry for the superior landlords out of an abundance of caution.

Secondly, in light of the observations in Beswick v Beswick, to which I have referred, I consider that, particularly in a case, such as cl 3 of the underlease, where the identity of the covenantee is clear and unambiguous, s 56 of the 1925

[1997] 2 All ER 990 at 997

Act does not operate to confer the benefit of the covenant on a party who is not within the ambit of the expressly identified covenantee. Only two cases have been cited to me which call that view into question.

The first is the decision of the Court of Appeal in Drive Yourself Hire Co (London) Ltd v Strutt, to which I have already referred. The decision and reasoning of Denning LJ is inconsistent with my conclusion, but I consider that the whole of his judgment, in so far as it was based on s 56, cannot be regarded as authority in light of the observations in Beswick v Beswick, to which I have referred. This point is of some significance, because it appears that the editors of at least one of the two leading textbooks on the law of landlord and tenant consider that at least some of the observations of Denning LJ in Strutt's case as to the effect of s 56 survive (see Hill and Redman's Law of Landlord and Tenant (18th edn) vol 1, n 10 to paras 2587-2590. Woodfall Landlord and Tenant vol 1, para 11.123 is more circumspect). The point is of some importance, not only in relation to the type of covenant with which I am here concerned, but also in connection with the type of covenant before the court in Strutt's case, namely a covenant in an underlease against alienation without the consent of the landlord or the superior landlord. The reasoning of Denning LJ, based on s 56, led him to conclude that the superior landlord could effectively enforce the requirement for consent contractually against the subtenant provided the underlease contained a proviso as between landlord and tenant that the tenant would not assign without the superior landlord's consent.

I do not consider that this view can survive the reasoning of the majority of the House of Lords in Beswick v Beswick, particularly in light of the approval therein of the reasoning of Simonds J in White v Bijou Mansions Ltd [1937] 3 All ER 269, [1937] Ch 610.

The other case which might be said to be inconsistent with the conclusion I have reached is the recent decision of Judge Marder QC in Re Shaw's Application (1994) 68 P & CR 591. To my mind, he decided that case on the basis of reading observations of Greene MR in White v Bijou Mansions Ltd [1938] 1 All ER 546, [1938] Ch 351 (upholding the decision of Simonds J) out of context. In my opinion, the observations of Greene MR were intended to have the same effect as the observations of Simonds J, and that view is supported by the fact that they are both cited as having the same effect by Lord Reid and Lord Guest and, inferentially, Lord Pearce in Beswick v Beswick (see [1967] 2 All ER 1197 at 1205, 1210-1211, 1216, [1968] AC 58 at 75, 86, 94).

Mr Cant relied on Stromdale & Ball Ltd v Burden [1952] 1 All ER 59, [1952] Ch 223 and Wiles v Banks (1984) 50 P & CR 80. I consider that both these decisions are distinguishable on two grounds. First, the court was in each case concerned with whether a purported grant to a person who was not a party to the deed could be enforced by that person; in the present case, as I have mentioned, I am concerned with the covenant, and not a grant. Secondly, it appears that in neither case was the covenantee expressly identified (in such a way as to exclude the person who is seeking to enforce the covenant).

I consider that the ambit of s 56 is accurately summarised in Megarry and Wade p 763:

'The true aim of section 56 seems to be not to allow a third party to sue on a contract merely because it is made for his benefit; the contract must purport to be made with him. Just as, under the first part of the section, a person cannot benefit by a conveyance unless it purports to be made to him

[1997] 2 All ER 990 at 998

(as grantee), so he cannot benefit by a covenant which does not purport to be made with him (as covenantee).' (Authors' emphasis.)

(See also Wolstenholme and Cherry's Conveyancing Statutes (13th edn, 1972) vol 1, p 133.)

Quite apart from this, I agree with Miss Judith Jackson QC in her submission that the observations of Dillon J in Lyus v Prowsa Developments Ltd [1982] 2 All ER 953 at 958, [1982] 1 WLR 1044 at 1049 are consistent with the view I have formed. Indeed, I accept her submission that if I were to decide this point in favour of ATL, my decision would be inconsistent with the conclusion of Dillon J in the passage I have referred to Lyus's case.

Thirdly, there are two further points on which the defendants can fairly rely in the instant case to support their contention that the provisions of cl 3(7) and (8) of the underlease were not intended to be enforced by the superior landlords. The first arises from the closing words of cl 3(8): the superior landlords would have no right either to recover 'the rents payable hereunder' or to effect distress as against the first defendant. Secondly, the terms of the licence, and in particular cl 2 thereof, indicate that the only provisions of the underlease in respect of which the superior landlords were concerned to reserve themselves rights of some sort were the alienation provisions. That, of itself, indicates to my mind that the provisions in the underlease in respect of which Amsprop was concerned to retain some sort of direct rights were the alienation provisions. Further, the provisions of the licence indicate that Amsprop did not anticipate being able to enforce the requirement for its consent to alienation of the sublease directly against the first defendant: Amsprop was anticipating enforcing the need for its consent by virtue its relationship with Keddie, and its right to forfeit the headlease in the event of Keddie failing to ensure that Amsprop's consent to an alienation of the underlease was obtained.

In the event, therefore, I consider that it would not be open to Amsprop to enforce the covenants contained in cl 3(7) and (8) directly against the first defendant, even though there is express reference to the superior landlords in those two sub-clauses. From this it must follow that it would not be open to Amsprop to enforce the covenants contained in cl 3(4) and (22) of the underlease, because there is not even any reference to the superior landlords in those two sub-clauses. It must also follow that ATL cannot enforce any of these covenants in these proceedings.

That makes it strictly unnecessary to consider the other points which have been argued before me. None the less, as they have been fully argued and the matter may go further, I will deal with them.

If Amsprop could have enforced the covenants, can ATL do so?

It seems to me that this issue is more easily disposed of. There are two reasons why I consider that ATL, as the superior landlords, at the date of expiry of the underlease, and as successor in title to Amsprop, would have been entitled to enforce the various covenants which are the subject of the present proceedings, if Amsprop could have done so.

First, I consider that the benefit of the covenants, if they were vested in Amsprop, would have become vested in ATL when Amsprop transferred the reversion to the headlease to ATL, by virtue of the provisions of s 78(1) of the 1925 Act. This provides:

[1997] 2 All ER 990 at 999

'A covenant relating to any land of the covenantee shall be deemed to be made with the covenantee and his successors in title ... and shall have effect as if such successors and other persons were expressed ...'

ATL is clearly one of the 'successors in title' of Amsprop. In light of the decision of the House of Lords in P & A Swift Investments (a firm) v Combined English Stores Group plc [1988] 2 All ER 885, [1989] AC 643, it appears to me that the relevant covenants in the underlease, if they could have been enforced by the superior landlords, would be covenants 'relating to any land [of the superior landlords]'.

The defendants contend that s 78 cannot be relied on because Amsprop was not a 'covenantee'. If I were wrong in my conclusion in the first point, and the covenants in the underlease should have been treated as having been entered into for the benefit of Amsprop by virtue of the provisions of s 56, then I think it must follow that Amsprop would be a 'covenantee' within the meaning of s 78. That conclusion derives assistance from the decision of the Court of Appeal in Forster v Elvet Colliery Co Ltd, Quin v Elvet Colliery Co Ltd, Seed v Elvet Colliery Co Ltd, Morgan v Elvet Colliery Co Ltd [1908] 1 KB 629 (affd sub nom Dyson v Forster, Dyson v Seed [1909] AC 98, [1908-10] All ER Rep 212).

Secondly, even if for some reason ATL could not have relied on s 78, I consider that ATL would have been able to rely on the decision in the Swift Investments case itself. In that case, the House of Lords held that an assignee of the original landlord could claim against a surety of the tenant on the basis of the suretyship covenant 'touched and concerned' or related to the landlord's interest. Accordingly, irrespective of s 78, an assignee of the landlord had the benefit of the suretyship covenant. To my mind, the same reasoning would apply in the present case as between ATL and the first defendant, if, contrary to my view, Amsprop had the benefit of any of the first defendant's covenants in the underlease.

If the first defendant was, could the second defendant be liable?

It is, of course, because of the doctrine of privity of estate that the second defendant would have been liable under the subject covenant to Keddie, notwithstanding that there was no privity of contract between them. There is, however, no privity between ATL and the second defendant.

Faced with this difficulty, Mr Cant, on behalf of ATL, contends that the second defendant would none the less be liable as assignee of the underlease for two reasons. The first reason is that the covenants are annexed to the underlease, and therefore they are enforceable against the person in whom, for the time being, the underlease is vested. As a matter of common sense, that argument has its attractions. First if, contrary to my view, cl 3(8) of the underlease were enforceable by the landlord and the superior landlord, then it could be said to be somewhat surprising at first sight if, after an assignment of the lease, it could only be enforced by the landlord, and not by the superior landlord against an assignee. Secondly, it is an argument which has obvious convenience in practice: eg in the case of multi-occupied buildings with landlord, tenant, and management company, it would be somewhat unsatisfactory if the management company could not enforce the obligation to pay service charges against a successor in title to the original tenant.

These points do not, however, justify my accepting ATL's argument. It is not particularly surprising that, if a covenant is entered into with two persons who have different capacities, an assignment has different results as regards each of

[1997] 2 All ER 990 at 1000

them. As to the management company point, a well-drafted lease of the sort I have contemplated will ensure that the tenant covenants with the landlord as well as with the management company to pay service charges, and also may require any tenant who wishes to assign to cause an assignee to enter into a fresh covenant with the management company.

I was not referred to any English authority which, to my mind, assisted ATL's argument. Norval v Pascoe (1864) 34 LJ Ch 82 and Aspden v Seddon, Preston v Seddon (1876) 1 Ex D 496 both appear to be examples of an application of a benefit and burden principle, to which I now turn.

The second argument relied on by Mr Cant was the benefit and burden principle. This was most recently considered by the House of Lords in Rhone v Stephens [1994] 2 All ER 65, [1994] 2 AC 310 where Lord Templeman disapproved the 'pure' benefit and burden principle suggested by Megarry V-C in Tito v Waddell (No 2), Tito v A-G [1977] 3 All ER 129 at 291ff, [1977] Ch 106 at 301ff. Lord Templeman, after accepting that there was a limited benefit and burden principle, said ([1994] 2 All ER 65 at 73, [1994] 2 AC 310 at 322):

'It does not follow that any condition can be rendered enforceable by attaching it to a right nor does it follow that every burden imposed by a conveyance may be enforced by depriving the covenantor's successor in title of every benefit which he enjoyed thereunder. The condition must be relevant to the exercise of the right.'

Mr Cant argues that in the present case the benefit and burden principle assists him: the second defendant has the benefit of the underlease, and therefore has the burden of covenants contained therein, and in particular the burden of any covenants of which ATL has the benefit. In my judgment, that argument relies on what Lord Templeman called the 'pure' benefit and burden principle and which he expressly disapproved. It cannot, in my view, be said that any obligation to the superior landlords under cl 3(8) is 'linked' or is 'relevant' to any benefit which the second defendant has obtained.

Accordingly, on the basis of the authorities and arguments advanced to me, I would find in favour of the second defendant on the third point, even if I had found in favour of ATL on the first point.

Reliance on cl 3(8) of the underlease

Even if ATL was entitled in principle to claim under the provisions of cl 3(8) of the underlease, the defendants contend that, on the present facts, ATL must fail.

Less than three months expired between service of ATL's notice being served and the underlease coming to an end by surrender. In those circumstances, it is submitted on behalf of the defendants that they were not even in default under cl 3(8), because the obligation thereunder to carry out work is an obligation which only has to be fulfilled within three months of the service of the notice under cl 3(7). On the face of it, that appears to be right. To meet this point ATL advances two arguments. The first is that once the cl 3(7) notice is served, the tenants under the underlease have three months in which to do the work, and if the work is not done the landlords can go in, carry out the work, and recover the cost. The fact that the underlease determined sometime during the three months is, according to ATL, irrelevant.

As a matter of construction, I reject that argument. It seems to me that the right of the landlords to carry out work under cl 3(8) only accrues once three months has expired from the service of the notice under cl 3(7). If the underlease

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comes to an end before the expiry of the three months, then the obligation to comply with the notice falls away. That view is reinforced by the fact that only once three months has expired, do the landlords have the right to enter and do the work. As was pointed out by Miss Jackson, that right is quite inapt to cover the period after the underlease has come to an end, when the landlords have the right to come in to do whatever they want.

To my mind, the right to recover the cost of any work, contained in the end of cl 3(8), is limited to the cost of work which is described in the earlier part of the sub-clause, and that is work which the landlords effect pursuant to their right of possession and occupation of the premises.

It is said that this involves giving cl 3(8) an unduly restricted meaning. To that I would give two answers. First, I believe that the above construction gives the clause its meaning. Secondly, even if that is not right, a provision such as cl 3(8), which gives the landlords substantial powers, and in particular power to carry out work at the tenant's expense, should be construed narrowly rather than widely.

The second point raised by ATL is that it is not open to the defendants to rely upon the underlease having been determined within three months of the service of the notice because it was by the act of the defendants (namely the negotiated surrender) that the underlease determined, and it is not open to a party to a contract to rely on his own act as frustrating the other party's rights. In this connection, I was referred to 9 Halsbury's Laws (4th edn) para 518.

I have no hesitation in rejecting that argument. First, it seems to me that the principle on which this argument relies hardly ever applies unless the act complained of is in itself wrongful (see 9 Halsbury's Laws n 4 to para 518, and also n 8 to para 359). In the present case, the surrender of the underlease was effected by agreement, as I understand it, between the second defendant and Keddie, and was perfectly lawful. Secondly, the underlease would have been determined within three months of ATL's notice by virtue of ATL forfeiting the headlease. Accordingly, even if there had been no surrender of the underlease, ATL would have faced exactly the same argument.

CONCLUSION

In these circumstances, I decide the first, third and fourth points in favour of the defendants, and, for what it is worth in these proceedings, I am in favour of ATL on the second point. Subject to the submissions of counsel, I believe that it follows that this action should be dismissed.

Order accordingly.

Celia Fox Barrister