Tweedie & Anor v Souglides

In January 1981, before the events with which this appeal is concerned, the freehold of 53 Ennismore Gardens, London, SW7 was subject to a lease (“the Lease”) for a term of 80 years expiring on 25th January 2028 then registered in the name of 53 Ennismore Gardens Residents’ Association Ltd under Title No:LN76008. The fourth floor of 53 Ennismore Gardens, called Flat 5, was subject to an underlease (“the Underlease”) for a term of 55 years expiring on 22nd December 2028 then registered in the name of the first defendant Thomas Tweedie under Title No:NGL263705. On 26th February 1981 Thomas Tweedie charged the Underlease of Flat 5 by way of legal mortgage to the Alliance Building Society (“the Alliance”) to secure repayment of £17,000 and interest. The charge incorporated the Alliance Mortgage Conditions. Such terms, which were varied from time to time, included an express assignment and declaration of trust to and in favour of the Alliance in respect of related rights, as defined.

In 1985/6 Thomas Tweedie extended Flat 5 by the creation of an additional, fifth, floor in the roof space above surmounted by a flat roof. At some stage a roof terrace was constructed on the flat roof over the fifth floor but without planning permission. The works in relation to the fifth floor, but deliberately not in relation to the roof terrace, were regularised by the execution on 2nd October 1986 of a Deed supplemental to the Underlease (“the First Deed of Variation”) by the 53 Ennismore Gardens Residents Association Ltd (1) and Thomas Tweedie (2). The First Deed of Variation recited the Underlease and the consent of the underlessor and the superior lessor to the alterations. In clause 1 the underlessor confirmed and agreed that the additional premises, defined by reference to the plan, formed part of the demised premises. In clause 2 the underlessor and underlessee agreed that the additional premises, so defined, “are held and enjoyed by the [under]lessee on the same terms in all respects as those contained in the [original underlease]”. The additional premises shown on the plan included the fifth floor but not the external surface of the new roof.

On 12th March 1987 Thomas Tweedie and his brother, the second defendant John Tweedie, were registered as the proprietors, and therefore the head-lessor, of the freehold of 53 Ennismore Gardens. By a deed dated 10th April 1987 (“the Option”) the defendants, defined as the Freeholders “which expression shall include the successors in title of the Freeholders” granted to Thomas Tweedie, defined as the Lessee “which expression shall include the successors in title of the Lessee”

“the right to require that the Freeholders shall grant to the Lessee an extension lease for a term of 60 years from 25th December 2028, such right not to become exerciseable…until the 25th day of December 2008 and cease to be exerciseable if not exercised by 20th December 2028.”

The consideration payable on the exercise of such option was, as provided by clause 2, to be “one red rose”. By clause 6 the parties requested the Registrar to note the terms of the Option in the registered titles of the freehold and underlease. The lessee and underlessor, 53 Ennismore Gardens Residents Association Ltd, was not a party to the Option.

On 12th July 1993 the Alliance, having taken possession of Flat 5, sold the residue of the term created by the Underlease, as chargee, to the claimant Mr Souglides and his then wife. They were duly registered as proprietors of the Underlease. On 24th May 1994 the head lessee, 53 Ennismore Gardens Residents Association Ltd, and Mr and Mrs Souglides, as underlessees, executed a Deed of Variation (“the Second Deed of Variation”) so as to include the roof terrace in the premises demised by the Underlease. They did so by amending the plan annexed to the Underlease so as to include both the fifth floor and the roof terrace. They agreed, in clause 5, that save as thereby modified “the [under]Lease shall continue in full force and effect in all respects…”. It is common ground that the Second Deed of Variation effected a surrender and regrant of the Underlease. It was so regarded by the Land Registry which re-registered the title to the Underlease under title no:NGL720144. The Tweedies, as freeholders, were not parties to the Second Deed of Variation. On 2nd March 2008 the claimant, Mr Souglides, was registered as the sole proprietor of the Underlease.

By a letter dated 20th February 2009, with which was included one red rose, the solicitor for Mr Souglides gave notice on his behalf to exercise the Option. The defendants refused to grant the extension lease on the ground, amongst others, that the Option was void for perpetuity as it did not comply with s.9 Perpetuities and Accumulations Act 1964. That section provides:

“(1)

The rule against perpetuities shall not apply to a disposition consisting of the conferring of an option to acquire for valuable consideration an interest reversionary (whether directly or indirectly) on the term of a lease if—

(a)

the option is exercisable only by the lessee or his successors in title, and

(b)

it ceases to be exercisable at or before the expiration of one year following the determination of the lease.

This subsection shall apply in relation to an agreement for a lease as it applies in relation to a lease, and ‘lessee’ shall be construed accordingly.

(2)

In the case of a disposition consisting of the conferring of an option to acquire for valuable consideration any interest in land, the perpetuity period under the rule against perpetuities shall be twenty-one years ….”

These proceedings were commenced by a Part 8 claim form issued by Mr Souglides on 8th April 2011. He sought an order for the specific performance of the Option. The evidence consisted of witness statements from the solicitors for the respective parties exhibiting the relevant documents. There was no cross-examination. The claim was heard by Newey J over two days in February 2012. Before him there were four issues, viz:

The Tweedies now appeal with the permission of Patten LJ. They take issue with the conclusions of the judge on the fourth and second issues. In summary they contend that:

This question arises in the context of both the Option and s.9 from the fact of the execution of the Second Deed of Variation after the Option had been granted. It is common ground that the legal effect of the variation of a lease so as to include further land is a surrender by the lessee of the original lease and the regrant of a lease of the original and the additional land for a term equal to the unexpired term under the surrendered lease and otherwise on the equivalent terms and conditions. Jenkin R Lewis & Son Ltd v Kerman [1971] Ch 477, 496 and Friends Provident Life Office v British Railways Board [1996] 1 AER 336, 342-345.

The Tweedies contended that the legal consequence of the Second Deed of Variation was that Mr Souglides could not be the successor in title to Thomas Tweedie in respect of Flat 5 because the title under which he held only arose in 1994 on the execution of the Second Deed of Variation. Thus, they contended, Thomas Tweedie held under the surrender and regrant effected by the First Deed of Variation in 1987, Mr Souglides held under the surrender and regrant effected by the Second Deed of Variation and they were different titles. The judge did not accept this argument. In paragraphs 53 to 55 he concluded:

“53.

While, however, the 1994 Deed brought about a surrender and re-grant as a matter of law, it can also be described as varying the Underlease. In fact, the 1994 Deed is called “Supplemental Deed of Variation”, explains in a recital that the parties “are desirous of altering the terms of the Lease” and provides that, save as modified, the Lease is to “continue in full force and effect in all respects” (emphasis added). In a similar way, the Land Registry referred to a term “created by a Supplemental Deed of Variation which varied the extent of an earlier Lease dated 2 June 1975 (as varied by a Supplemental Deed dated 2 October 1986)” (emphasis added). Likewise, the Option itself identified the “Lease” with which it was concerned as the Underlease “as extended by a Supplemental Deed dated 2nd October 1986” (emphasis added).

54.

Further, the 1994 Deed did not remove any premises from the Underlease; it added to them. The Claimant remains lessee of all the premises comprised in “the Lease”, as that expression is used in the Option.

55.

In the circumstances, it seems to me that the 1994 Deed will not have affected the Claimant’s position as one of the First Defendant’s “successors in title”. I do not consider that the expression “successors in title”, as used in either section 9(1)(a) of the 1964 Act or the Option, was intended to exclude a person in the Claimant’s position. I cannot see why Parliament should have wanted a lessee whose lease was “varied” by the addition of extra premises to lose the benefit of an option. Nor, to my mind, would the Option have conveyed to a reasonable person that it would cease to be exercisable in such circumstances (compare the first of the principles of construction given by Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society, at 912-913).”

Counsel for the Tweedies contends that the judge was wrong. He points out that the surrender and regrant effected by the Second Deed of Variation was a legal consequence of the parties’ wish to add premises to those demised by the earlier lease. It was not a consequence which the parties could contract out of and its terms could not affect the proper construction of the term ‘successors in title’ appearing in the earlier Option and s.9. Accordingly, so he submitted, the considerations to which the judge referred in the paragraphs from his judgment I have quoted are irrelevant to the questions before us.

Counsel for Mr Souglides accepts that the execution of the Second Deed of Variation gave rise, by operation of law, to a surrender of the old lease and the regrant of a new one. She contends that the execution of the Second Deed of Variation made no difference to the identity of the occupant, namely Mr Souglides, to whom the roof terrace had passed already by the operation of ss.62 and 63 Law of Property Act 1925. She submitted that successors in title included the occupants for the time being and should not be given a strict interpretation in the context of either the Option or s.9(1). She suggested that her submissions were supported by the decision of Upjohn J in Snape v Snape (1959) 173 EGLR 697 and of the Court of Appeal in WEG Motors Ltd v Hales [1962] Ch.49.

I prefer the submissions of counsel for the Tweedies. First, until the execution of the Second Deed of Variation the legal right to the roof terrace was vested in the Head Lessee, 53 Ennismore Gardens Residents Association Ltd. There was no grant by the head lessee to either Thomas Tweedie or Mr Souglides between the time of the construction of the roof terrace to the execution of the Second Deed of Variation to which either s.62 or s.63 Law of Property could apply so as to pass that right to either of them even if, which I doubt, either section could have had the effect for which counsel for Mr Souglides contended.

Second, the phrase ‘successors in title’ plainly concerns title to property not its actual occupation. As Patten LJ observed in the course of argument, in the context of the Option the phrase necessarily refers to the lessee of Flat 5 because its express purpose was to extend his lease which terminated on 22nd December 2028. Similarly, s.9 is concerned with remoteness of the vesting of legal or beneficial interests in, not occupation of, property. The reference in s.9(1)(a) to successors in title must, in context, refer to successors in title to the lease to which the interest being conferred by the option is reversionary.

Third, the submissions of counsel for Mr Souglides are not, in my view, supported by either of the decisions on which she relied. In Snape v Snape (1959) 173 EGLR 697 a right to light dispute was settled on terms, amongst others, that the owner of the dominant tenement, 74 London Road, granted to the owners of the servient tenement, 75 and 76 London Road, and their successors in title the right, if he wished to sell No 74, to buy it for £615. The owners of No 76 granted a long lease of it to a Mr Brise and he assigned the lease to the London and Manchester Assurance Co Ltd. In addition the owners of No 76 undertook to the London and Manchester Assurance Co Ltd to execute in its favour a written assignment of the option. The issue was whether the London and Manchester Assurance Co Ltd was entitled to exercise the option originally granted to the owners of Nos 75 and 76 London Road and their successors in title. Upjohn J concluded that it could not as it was not a successor in title to the freehold. At p.680 he said:

“The undertaking to execute in the document of April 1950, was an assignment in equity, because it was conceded that it was a document for valuable consideration. That raised the short question of the construction of the option clause, and what was the meaning therein of the words "successors in title." It was an "option engrossed" as dealt with in Griffith v. Pelton, [1958] Ch. 225, which set out the law on this subject. The obvious intention of the 1937 agreement was to give the freeholders of 75 and 76, London Road, the right to purchase the neighbouring land in order to protect the use of their windows in any subsequent sale of No. 74. The meaning of "successors in title" in the option clause was successors being owners in fee of No. 76. Accordingly, the assignment in April, 1950, was wholly inoperative because the insurance company did not own the freehold of No. 76.”

Not only does this case show that occupation is not enough but that the title to which the claimant must have succeeded is that denoted in the original grant.

The second case on which counsel for Mr Souglides relied was WEG Motors Ltd v Hales [1962] Ch.49. The facts are complicated. In essence the freeholder, G.R. Investments Ltd, on 26^th July 1938 demised premises to Weg Motors Ltd for a term of 21 years and, by a separate document, conferred on Weg, defined as “the lessees”, “and their successors in title” the option of taking a further lease of 21 years. G.R.Investments Ltd was subsequently dissolved and the freehold title devolved on the defendants. Weg exercised the option and sought specific performance of it. Their case succeeded both before Danckwerts J and the Court of Appeal. Lord Evershed MR in the judgment he delivered on behalf of himself and Harman LJ said [p.70]:

“In our judgment, having regard to the nature and purport of the option agreement and to the intimate relation between the agreement and the lease already noticed, the terms of the definition in the agreement must have been intended to limit its effect to the two parties thereto so long as they retained the quality of being respectively "lessors" and "lessees" and thereafter to those who should succeed to the reversion immediately expectant on the lease, on the one hand, and to the lease on the other. No doubt an express assignment of the benefit of the option agreement would be necessary to its effective implementation by subsequent holders of the plaintiffs' title under the lease. But it follows in our judgment inevitably from our last conclusion that, according to the true construction of the agreement, and in particular of clause 2 thereof, the option would only be exercisable by the plaintiffs or by any assignees of the benefit of the option agreement so long as the lease continued to subsist and the plaintiffs or such assignees respectively continued to have vested in them the term of the lease.”

On the face of it that decision supports the argument of counsel for the Tweedies, not counsel for Mr Souglides.

Counsel for Mr Souglides relies on the fact that the freehold originally vested in G.R.Investments Ltd passed through various hands before being vested in Grove Hall Court Ltd. The latter company then entered into a sale and leaseback with the Trustees of the Royal Liver Friendly Society. Thus at the time of the action Grove Hall Court Ltd, though it had once been the freeholder, was only a lessee. Counsel suggests that because Grove Hall Court Ltd was a defendant and an order for specific performance was granted to Weg Motors Ltd the Court of Appeal must have regarded Grove Hall Court Ltd as a successor in title to G.R.Investments Ltd notwithstanding that it was a lessee only. In my view this submission involves a misreading of the report. The order for specific performance made by Danckwerts J was against the Trustees of the Royal Liver Friendly Society, see [1961] Ch 176, 197 and [1962] Ch 49, 56, not Grove Hall Court Ltd.

The rejection of the submissions of counsel for Mr Souglides does not, necessarily, have the consequence that the appeal should be allowed. So I return to the judge’s reasons in paragraph 53 to 55 of his judgment, quoted in paragraph 9 above. Those paragraphs concentrate on the effect of the Second Deed of Variation. But it is not disputed that the Second Deed of Variation gave rise, as a matter of law, to a surrender of the old lease and grant of the new one. The real issue, therefore, is not the effect of the Second Deed of Variation but the proper construction of the phrase ‘successors in title’ in both the Option and s.9(1)(a). The provisions of the Second Deed of Variation are irrelevant to that question.

In both those contexts it is necessary that the title should be that in existence as at the date of the Option or its grant. In the case of the Option it is to be “an extension” of the lease referred to in Recital C. In the case of s.9(1)(a) the interest to be granted must be “reversionary” on a lease. Accordingly, the successor must be a successor to the original lessee in respect of the same title, namely that lease. I can see no basis on which a surrender and regrant can be excepted from that requirement as a matter of the construction of either the Option or the section. Let it be assumed that the original lease was of a small house and the deed of variation added an adjacent farm. Why should an option to buy at a fixed price contained in the original lease be exerciseable in respect of both the small house and the adjacent farm? The fact that the addition of the roof terrace was only a minor addition cannot make the difference. In addition the conclusions of the majority in WEG Motors Ltd v Hales [1962] Ch.49 is binding on us. It points unmistakeably to the same conclusion.

For these reasons I would allow the appeal, set aside the judge’s order and dismiss the claim. The result may seem harsh and contrary to common sense, but the problem has arisen because the Tweedies, as freeholders and grantors of the Option, were not parties to the Second Deed of Variation and 53 Ennismore Gardens Residents Assocation Ltd, which was, was not also a party to the Option. In the more normal case where the grantor of the option is also the lessor there may well be scope for arguing that the regrant included a regrant of the option. In that event the present problems would not have arisen. Unfortunately for Mr Souglides that is not this case.

It is common ground that if we reach the conclusion that the judge was wrong in the answer he gave to the first question set out in paragraph 7 above then the second would not arise. In those circumstances, as I understand that the other members of the Court concur with me on the first question, I will not consider the second.

I agree, although with regret, for it seems to me that Mr Souglides has not been well served by the law.

I also agree.