P & A Swift Investments v Combined English Stores Group plc [1988] UKHL 3; [1989] AC 632
House of Lords, 7 July 1988 — whether the benefit of a tenant’s guarantee passed to a new landlord without an express assignment.
Facts
P & A Swift (Investments) Ltd held a long lease of business premises in Lime Street, Liverpool. In 1967 it granted a thirty-five-year underlease to a subsidiary of Combined English Stores Group plc. The subsidiary later became known as Dubarry (Liverpool) Ltd.
Combined English Stores joined in the underlease as guarantor. It promised that the tenant would pay the rent and perform its other covenants, and that it would make good the landlord’s resulting loss if the tenant defaulted.
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After the original landlord company went into voluntary liquidation, its interest as landlord under the underlease was transferred to the respondent firm, P & A Swift Investments. The transfer did not expressly assign the benefit of the guarantee.
Dubarry subsequently failed to pay rent and went into creditors’ voluntary liquidation. Its liquidator later disclaimed the underlease. Combined English Stores refused to pay the arrears when the new landlord called on the guarantee.
Issue and decision
The question was whether the benefit of the guarantor’s covenant ran with the landlord’s reversion: the interest in the premises subject to the underlease. If it did, the successor landlord could enforce it without a separate express assignment.
Judge Oddie, sitting in the High Court, awarded the landlord £4,250 plus interest and costs. A direct appeal to the House of Lords followed. The House unanimously dismissed the guarantor’s appeal and affirmed the judgment, with costs.
Why the common-law rule mattered
The guarantor had no estate in the premises. Its relationship with the landlord was contractual. The successor landlord therefore could not rely on section 141 of the Law of Property Act 1925, which concerned covenants between landlord and tenant.
Instead, its claim depended on the common-law rule allowing the benefit of a covenant to pass with the land. The successor had to hold the legal estate, and the covenant had to touch and concern that land. Lord Oliver rejected the argument that the landlord’s reversion could not count as land for this purpose.
The test for touching and concerning land
Lord Oliver offered a working test, while warning against treating it as exhaustive:
- The covenant benefits the reversioner for the time being and ceases to benefit the covenantee when separated from the reversion.
- It affects the nature, quality, use or value of the reversioner’s land.
- It is not expressed to be personal to a particular reversioner or concerned only with a particular tenant’s obligations.
- A promise to pay money can qualify if those conditions are satisfied and it is connected with something to be done on, to or in relation to the land.
Why the guarantee satisfied the test
The tenant’s covenants, including its obligation to pay rent, plainly affected the landlord’s interest. The guarantee supported performance of those same obligations. It was not simply an unrelated personal promise to pay money.
Lord Templeman explained that a guarantee of a tenant’s covenant which touched and concerned the land did so itself. Lord Oliver likewise focused on the substance of the promise: the guarantor undertook that the relevant obligations would be performed, even though the remedy for its failure would be damages.
The House approved the reasoning in Kumar v Dunning. The benefit of this guarantee passed with the reversion, and the new landlord was entitled to recover the unpaid rent. A separate express assignment of the guarantee was unnecessary.
Judgment: P & A Swift Investments v Combined English Stores Group plc [1988] UKHL 3.
