The risks of ‘getting personal’ in agreements for lease
Mark Banham summarises a recent case in which a tenant was required to take a lease from the landlord’s successor in title under an agreement for lease.
The High Court, in the recent case of Bella Italia Restaurants Ltd v Stane Park Ltd and others  EWHC 2747 (CH), held that under an agreement for lease the landlord’s obligation to grant was not personal to the named landlord. This meant that the tenant remained liable to enter into the lease even where the landlord had sold the property. Consequently, a tenant can find itself entering into a lease with a different landlord to the one it expected.
The case arose out of a dispute between the tenant Bella Italia and the freehold owners (“the Trustees”) in respect of an agreement to lease a retail premises in Colchester, which was being developed. Subsequent to entering into the agreement for lease, the Trustees sold the premises to Ropemaker Properties Ltd (“Ropemaker”). In August 2018 the works on the premises were finished and Bella gave notice to complete on the Trustees. The Trustees questioned why notice had not been sent to Ropemaker, and confirmed that Ropemaker was willing and able to complete the lease.
On the intended completion date of 13 September 2018, Bella Italia refused to complete on the ground that the agreement had been entered into with the Trustees, as opposed to Ropemaker, and consequently the terms could not be fulfilled given the transfer in ownership of the premises. On the following day, Bella Italia gave notice to the Trustees terminating the agreement for failure to complete, which the Trustees refused to accept was valid.
Bella Italia initiated court proceedings, seeking a declaration that the agreement was terminated, or alternatively that it had not breached the agreement. In response, the Trustees sought a declaration that the agreement had not been terminated and that Bella Italia was liable to complete the lease with Ropemaker. They also brought a separate claim seeking specific performance of the agreement for lease.
The issues in the case concerned:
- whether the contractual interpretation of the agreement required the Trustees to grant the lease, or whether it could be granted by Ropemaker; and
- whether the Landlord and Tenant (Covenants) Act 1995 (“the 1995 Act”) transferred the benefit and burden of the agreement under section 3 to the effect that the obligation to grant the lease could have passed to Ropemaker.
The court found in favour of the Trustees on the basis of contractual interpretation and, having reached its conclusion, did not need to grapple with the issue of whether the Trustees could rely upon the provisions of the 1995 Act.
Clause 15.1 of the agreement for lease provided that the landlord shall grant to the tenant, and the tenant shall accept from the landlord the lease. Bella Italia argued that this clause was personal to the Trustees, given that “Landlord” was defined as the Trustees, and no reference was made to the landlord’s successors in title. However, the court referred to the existence of other provisions in the agreement, which emphasised that the landlord could not be required to grant the lease to any person other than the tenant (clause 15.2) and the tenant could not assign the benefit of the agreement (clause 15.3). The lack of any comparable wording in clause 15.1 suggested that the parties did not intend that clause to be personal to the Trustees.
Additionally, the agreement also contained two clauses (28.1 and 28.2), which operated to list the provisions that were personal and binding only on the named parties in those clauses. The absence of clause 15 from that list further supported the argument that clause 15.1 was not intended to be personal to the Trustees.
The court thereby concluded that the agreement for lease had not been validly terminated and that Bella Italia was liable to take the lease from Ropemaker.
The practical importance of the case
Tenants who wish for their agreements for lease to be personal to the named contracting parties should be aware of this case and be very explicit about that. By ‘getting personal’, tenants who regard the identity of their landlord as an important consideration can avoid circumstances in which they are obliged to assume a lease with a previously unintended party.
It would be very odd to have a lease, or agreement to lease, where the landlord is unable to sell its interest in the property at the risk of losing its tenant. On the other hand, occupation licences (as opposed to leases) are personal in nature – something that buyers of property (and licensees) often forget or turn a blind eye towards, and this can be troublesome.