Harbour Estates Ltd. v HSBC Bank Plc

I have before me two actions concerned with the benefit of an unusually-framed break clause which entitled a lessee who had its benefit, on giving due notice, to bring the term to an end. There is an argument as to whether the benefit of the clause was merely personal or “touched and concerned the land”. The right to terminate the lease has become valuable. Had its benefit passed automatically from the original lessee as the assignor to the assignee of the term (as that assignee, the current lessee, asserts) despite the benefit not having been mentioned in the assignment or did it not pass by reason of its not being mentioned as doing so (as the current lessor asserts)? It is clear that the benefit would have passed had it been mentioned. The proceedings require a close look at and give rise to difficult questions as to a relatively little-considered provision, Section 63 of the Law of Property Act 1925, and as to some parts of the law authoritatively described, as long ago as 1931, as arbitrary. If the benefit did not pass automatically, the current lessee seeks rectification of the Assignment.

On the 13^th January 1994 Midland Bank plc as landlord, acting as trustee for others, granted an underlease (“the Lease”) to its 100% subsidiary Stafford Properties Ltd (“Stafford”). The demised premises were at 3, Harbour Exchange, Isle of Dogs, London, E1, on the third floor. A corresponding underlease was made as to the fourth floor. For convenience I shall refer to only one of the two underleases; the case is in all respects the same for each of them. The term of the Lease was from 24^th June 1993 to the 24^th December 2013. The rent was substantial and reviewable. The expressions “the Landlord” and “the Tenant” were respectively defined to include, in effect, their respective successors in title. Clause 6 of the Lease provides as follows:-

“6.

The Tenant may determine this Lease on 23rd June 1999, 23^rd June 2004 or 23^rd June 2009 by serving on the Landlord not less than six months written notice of its desire to terminate the Term on such date (“the Date of Commencement”).

6.1

The Lease shall expire on the relevant Date of Determination and neither party shall have any further liability to the other in respect of the Premises save in respect of and without prejudice to any right of action of either party in respect of any antecedent breach by the other of this Lease.

6.2

Time is of the essence in respect of this Clause 6.

6.3

Any notice served under Clause 6 shall be irrevocable.

6.4

On the Date of Determination the Tenant shall:

(a)

give vacant possession of the Premises to the Landlord and

(b)

deliver to the Landlord the title documents to the Premises and the keys to the Premises.

6.5

The benefit of this Clause 6 is personal to Stafford Properties Limited and shall not be capable of assignment to or exercise by any other person PROVIDED THAT the benefit of this Clause 6 may be assigned to an assignee of this Lease permitted pursuant to paragraph 11 of the Sixth Schedule (“a Permitted Assignee”) where the Permitted Assignee is a Group Company (as defined in paragraph 11 of the Sixth Schedule) or in the reasonable opinion of the Landlord the Permitted Assignee has prior to the date of the assignment provided to the Landlord for its approval (such approval not to be unreasonably withheld):

(a)

references satisfactory to the Landlord; and

(b)

its audited accounts showing for the last three years either pre-tax profits of not less than three times the Current Rent and positive assets or net assets with a value of not less than five times the Current Rent and positive pre-tax profits.”

Nothing in Clause 6.6 or 7.1 throws any light on the questions before me. Clause 7.2 provides:-

“7.2

If the Tenant serves notice to determine this Lease in accordance with Clause 6 but the Lease does not determine on the Date of Determination then the provisions of Sections 24 to 28 (inclusive) of the Landlord and Tenant Act 1954 shall again apply.”

The Sixth Schedule (“Tenant’s Covenants”), brought in by Clause 2 of the Lease provided, so far as material:-

11.1

Not to assign or charge part only of the Premises

11.2

Not to part with or share the possession or occupation of the whole or any part of the Premises (except as provided in sub-paragraphs 11.3, 11.4 and 11.5 of this paragraph)

11.3

Not to charge or assign the whole of the Premises PROVIDED THAT the Tenant may within four months after obtaining the written consent of the Landlord (which shall not be unreasonably withheld or delayed) charge the whole of the Premises or assign the whole of the Premises to a respectable and responsible assignee who shall first have entered into a covenant with the Landlord to pay the Rent and other monies payable by the Tenant under this Lease and to perform and observe the other covenants on the part of the Tenant contained in this Lease during the residue of the Term and on condition that if the Landlord reasonably requires the Tenant shall procure that a guarantor or guarantors reasonably acceptable to the Landlord shall enter into a direct covenant with the Landlord in such terms as the Landlord shall reasonably require

11.4

………………..

11.5

(a) Notwithstanding any of the provisions of this Paragraph 11 the Tenant may (after giving written notice to the Landlord containing all relevant information) share occupation of the Premises with any Group Company on condition that any such sharing shall not create any relationship of Landlord and Tenant and that on any such occupier ceasing to be a Group Company such occupation shall immediately cease or be otherwise documented in accordance with the provisions of this Paragraph 11

(b) “Group Company” for the purposes of Clause 6 and this Paragraph 11 means any corporation which is a Holding Company of the Tenant or which is a subsidiary of any such Holding Company and for the purposes of this definition the following words shall bear the following meanings:

“corporation” shall have the meaning ascribed to it by Section 740 of the Companies Act 1985

“Holding Company” shall have the meaning ascribed to it by Section 736 of the Companies Act 1985

“Subsidiary” shall have the meaning ascribed to it by Section 736 of the Companies Act 1985

12

Within fourteen days after any assignment underletting mortgage or charge surrender or other disposition transmission or devolution of the Premises or any part of them to give to the solicitors for the time being of the Landlord notice in triplicate specifying the basic particulars of the same and at the same time to supply to them two certified copies of the instrument making or evidencing the same and pay to them a registration fee of twenty-five pounds or such higher sum as shall be reasonable at the time plus such registration fee as shall be payable to the Superior Landlord or his solicitors.”

By or on the 8^th December 1999 the reversion immediately expectant upon the Lease had become vested in the Royal Bank of Canada Trust Co. (Jersey) Ltd (“RBC”) as the “Landlord”. Midland Bank plc, the erstwhile landlord, had no longer any relevant concern in the premises as trustee and had changed its name on the 27^th September 1999 to HSBC Bank plc (“the Defendant”). It wished to become tenant in place of its subsidiary, Stafford. On the 8^th December 1999 RBC gave leave to Stafford to assign to the Defendant. In the grant of licence to assign the Defendant was referred to as “the Assignee”. Clauses 3 and 6 of the Licence respectively provided:-

“3

Licence

Subject to the covenants and conditions set out below the Landlord consents to the assignment of the Leases to the Assignee

6

Restriction

This Licence is restricted to the particular assignment hereby permitted.”

There is nothing in the Licence to suggest that the permission which it gave or the assignment which it contemplated was or would be circumscribed or limited save as that Clause 6 supra indicated. There is nothing, in other words, to indicate that at that stage Stafford had in mind, or had been denied permission for, an assignment which was in any way of less than it could be. Nor did RBC seek to impose any condition relating to the break clause, such, for example, that the break clause, after assignment of the term, should be personal to the assignee or that it should be (or continue to be) personal to Stafford.

On the 13^th December 1999 Stafford assigned the Lease in writing to the Defendant. In that instrument (“the Assignment”) the Defendant is called “the Buyer”. Under the heading “Definitions and Interpretations” sub-clauses 1.3 and 1.4 provided as follows:-

“1.3

“the Property” means the premises more particularly described in the Lease and briefly described in the Second Schedule

1.4

“the Term” means the term granted by the Lease”

Recitals in Clause 2 included that Stafford (there referred to as “the Seller”) had agreed to assign the Lease to “the Buyer” for the residue of the term. Clause 3 provided:-

“3

Assignment

In consideration of the performance and observance of the covenants by the Buyer contained in this Assignment the Seller assigns to the Buyer the Property TO HOLD to the Buyer for the unexpired residue of the Term SUBJECT to the performance of the Covenants.”

I do not feel able to infer from the assignment being of the whole unexpired residue of the term that the benefit of the mechanism by which the term might transpire to be less than its maximum was not intended to pass.

Notice of the assignment was given to RBC and was received by RBC’s Solicitors on the 17^th December 1999.

At some date thereafter the reversion immediately expectant on the Lease was transferred by RBC to Harbour Estates Ltd (“the Claimant”).

On the 14^th December 2003 the Defendant sent to the Claimant’s Solicitors a “Notice of Determination” purporting to terminate the Lease under the provisions of Clause 6 supra (which I will call “the Break Clause”). After identifying the Claimant as the intended addressee, the Notice, at its material part, said:-

“2.

Determination

HSBC Bank plc being the current tenant under the Lease (“the Tenant”) hereby gives Harbour Estates Limited, the current landlord under the Lease, notice that pursuant to clause 6 of the Lease (short particulars of which are contained above) the said Lease shall determine on 23 June 2004

3.

Vacant Possession

The Tenant hereby gives notice that the Tenant shall give the Landlord full vacant possession of the Premises on 23 June 2004”

It was signed on behalf of the Defendant.

On the 24^th November 2003 the Claimant’s Solicitors indicated that the validity of the “Notice of Determination” was not accepted.

On the 8^th March 2004 the Claimant issued a Claim Form claiming that in point of construction and in the events which had happened the Defendant was not entitled to bring the Lease to an end as at the 23^rd June 2004 and sought related relief that included relief as to the position as it said it would be on the 23^rd June 2009. A few days later, on the 15^th March 2004, the Defendant issued a Claim Form for opposite relief and seeking also rectification should it be necessary. On the 6^th April 2004 David Richards J by consent made an order for the two actions to proceed together as if claim and counterclaim and made consequential procedural provisions. Written evidence was then exchanged and, on the issue of rectification, I have, in addition, heard oral evidence by way of cross-examination of witness statements. So it is that I have before me three principal issues. The first is as to the true construction and effect of the Break Clause in the events which have happened. Secondly, if that effect is not to have enabled the Defendant to have brought the Lease to an end as at the 23^rd June 2004, the question arises as to whether any and if so what rectification might be appropriate of the Assignment. Thirdly, a question may arise as to the position as it might come to be in relation to the Break Clause in June 2009. I shall deal with these in turn.

Mr Fetherstonhaugh Q.C., for the Claimant, accepts that the Defendant, an assignee of the Lease, was and is a “Group Company” as defined in Sixth Schedule to the Lease and that, in that event, to use the words of sub-clause 6.5 of the Break Clause, “the benefit” of the Break Clause “may be assigned to it” without that assignment of benefit requiring the approval, references or accounts required for an assignment of benefit to someone other than a “Permitted Assignee”. He accepts, too, that there are no formal defects in the Notice of Determination. But, argues Mr Fetherstonhaugh, whilst the benefit of the Break Clause might have been assigned, it was not assigned prior to the last date upon which 6 months notice could have been given so as to have exercised the Break Clause as at the 23^rd June 2004. Indeed, at the hearing on 15^th and 16^th June 2004, his argument continued, the benefit of the Break Clause could not then or thereafter be assigned so as to enable a valid exercise of the Break Clause even as at 23^rd June 2009.

Mr Fetherstonhaugh accepts, of course, that in many cases the benefit of a break clause passes automatically with the term of the lease creating it – see Woodall, Landlord and Tenant, Vol 1 Para 17.288 citing Rowe d. Bamford –v- Hayley (1810) 12 East 464 at 469. He points also to the fact that the Lease antedates the Landlord and Tenant (Covenants) Act 1995 and thus that the transfer of the benefit of a break clause will, in common with the benefit of other clauses, pass only, he says, if, under the old phrase, the provision “touches and concerns the land”. He emphasises that Clause 6.5 begins by stating that the benefit of the Break Clause is “personal to Stafford …. and shall not be capable of assignment to or exercise by any other person”. There is, he accepts, an exception to that in the Break Clause but, even within the exception there is an ability in the Landlord (not to be unreasonably exercised) to deny any passing of the benefit of the Break Clause (save in the case where it is a Group Company that is assignee). In such circumstances, he argues, it cannot be said that this highly unusual Break Clause touches and concerns the land; its chief characteristic, a characteristic overriding the exceptions within it, is such, he says, that it was expressed to be personal to Stafford and (in general) incapable of assignment. No authority, he adds (and Mr Male Q.C. for the Defendant accepts this) can be found where a break clause including any such language as does this one has been held to “touch and concern” whatever “land” was relevant or to be such as to cause its benefit automatically to pass with the term of the lease of which it formed part. Mr Male, rightly in my view, describes the Break Clause as a “hybrid” but I shall for the time being accept Mr Fetherstonhaugh’s argument so far. I shall thus proceed for the moment on the basis that the opening words of sub-clause Clause 6.5 imprint on the Break Clause the chief characteristic of its being personal and, in general, unassignable, and that, on that account, I should not accept that it so “touches and concerns” the Lease as to pass with the Lease under that doctrine.

I do not see Griffith –v- Pelton [1958] 1 Ch 205 CA, cited by Mr Male, as assisting the Defendant as there was in that case no equivalent of the stipulation that the benefit was to be personal to Stafford, the original lessee, nor any provision which shows, as does the provision as to the landlord being able to decline permission for a transfer of the benefit to a non-Group Company, that it was within contemplation that the benefit that the Break Clause might not pass with the Lease.

Mr Male also relies upon Section 142 (1) of the Law of Property Act 1925. That section is concerned with obligations under conditions or covenants entered into by a lessor “with reference to the subject matter of the lease”. Such obligations in general pass automatically with the reversion. Section 142 adds of them that they:-

“….. may be taken advantage of and enforced by the person in whom the term is from time to time vested ….”

Section 142 therefore requires one to consider whether the condition concerned (here the Break Clause) has “reference to the subject-matter of the lease”. Standing in the way of a simple affirmative is the dictum of Cozens-Hardy LJ in Davis –v- Town Properties Investment Corpn. Ltd. [1903] 1 Ch 797 at 805 that Section 11 of the Conveyancing Act 1881 (in the same terms as Section 142:-

“…. in no way alters the old law as to the class of covenants the burden of which will run with the reversion.”

Assuming that to be right and proceeding on the basis I have indicated, Section 142 cannot be taken to have altered the law as to the class of conditions of which the person in whom the term is from time to time vested can take advantage. If, therefore, I am right in proceeding on the basis I have indicated, (namely that thisunusual hybrid Break Clause, neither wholly personal nor such as contemplated as invariably passing with the term, does not, under the old law “touch and concern” the lease) then neither is it “with reference to the subject-matter of the lease” so as to pass under Section 142.

Mr Fetherstonhaugh’s argument then continues that, there being no automatic transfer of the benefit under the “touches and concerns” doctrine, there was plainly no express mention in the Assignment of the benefit of the Break Clause being included, nor is there, he continues, any commercial or other necessity to imply a transfer of that benefit. Even as between one Group Company and another the assignor is not obliged to assign the benefit; sub-clause 6.5 says that it “may be” assigned not that it “shall” or “will” be. It could not be right, he says, to imply a transfer of a benefit where the assignor, free to transfer or not to transfer the benefit, cannot be seen to have chosen to transfer it. If, then, says Mr Fetherstonhaugh, there is no automatic, no express and no implied transfer of the benefit, it must be that the Defendant did not have its benefit on the 23^rd December 2003 (the last date for service of 6 months’ notice for the 23^rd June 2004) nor at any time prior to the 23^rd June 2004.

It is at this point in the argument that Mr Male referred to Section 63 of the Law of Property Act 1925. Mr Fetherstonhaugh had not, I think, seen Mr Male’s skeleton argument sufficiently ahead of the hearing to prepare a considered answer to the Section 63 argument and after the hearing had concluded he agreed with Mr Male, subject to my consent, that he should serve a written argument directed to it. In the event I received written arguments dated 18^th (from the Claimant) and 28^th June (from the Defendant). The parties had sensibly agreed terms such that my consequent inability to give judgment before the crucial date of 23^rd June should not prejudice either party. Section 63 provides as follows:-

“63 (1) Every conveyance is effectual to pass all the estate, right, title, interest, claim, and demand which the conveying parties respectively have, in, to, or on the property conveyed, or expressed or intended so to be, or which they respectively have power to convey in, to, or on the same.

(2)

This section applies only if and so far as a contrary intention is not expressed in the conveyance, and has effect subject to the terms of the conveyance and to the provisions therein contained.

(3)

This section applies to conveyances made after the 31st day of December 1881.”

The section replaces the Conveyancing Act 1881 section 63.

The term “conveyance” is defined in Section 205 of the 1925 Act to include a lease and every other assurance of property or of an interest therein by any instrument except a Will. The verb “convey” is given a corresponding meaning. The definition of “instrument” does not exclude an assignment in writing of a term. The word “property” is defined to include any thing in action and any interest in real or personal property.

There is relatively little learning available as to Section 63. The note to the section in Wolstenholme & Cherry’s Conveyancing Statutes 13^th Edition 1972, whilst saying that its object (and, I take it, that of its predecessor) was to abolish the “all estate” clause, goes on to add a number of further useful references. I fear I did not derive assistance from Price –v- John [1905] 1 Ch 744 and 74 LJ Ch (NS) 469 but did from Public Trustee –v- Duchy of Lancaster [1927] 1 KB 516. That case dealt, inter alia, with the question of whether the conveyance of a farm out of which a tithe rentcharge issued carried with it, by reason of Section 63, the rentcharge itself. It was held that the farm and the tithe rentcharge were two separate hereditaments and that express words were necessary to pass the rentcharge. The argument of Sir Herbert Cunliffe K.C. and the response to it of Mr Gavin Simonds Q.C., as he then was, is illuminating. After citing Section 63 Sir Herbert continued – page 521:-

“Therefore the mere conveyance of the farm to the Duchy sufficed to carry the tithe rentcharge with it. It must be conceded that even since the passing of the Act of 1881 it has always been the practice, where it was intended to sell the tithe rentcharge along with the land, to use express words for that purpose. But that practice must be regarded as due only to abundant caution.

Gavin Simonds K.C. and Winning for the Respondents. The clue to the construction of Section 63 of the Conveyancing Act is to be found in the words “the property conveyed”. Before the Act of 1836 [a reference to the Tithe Commutation Act 1836] the “all estate” clause did not pass tithe, for it only operated to convey the interest of the vendor in the hereditament purported to be conveyed and the words of that clause were as wide as those of section 63. The Appellant must show that the Act of 1836 made such an alteration of the law that tithe had ceased to be a separate hereditament. This is the first time in the 90 years that have elapsed since the passing of that Act that such a suggestion has ever been made.

[He was stopped].”

Bankes LJ held that the intent of the Tithe Commutation Act 1836 was to keep the tithe rentcharge hereditament separate from the land out of which it issued. He referred to Chapman –v- Gatcombe 2 Bing. N. C. 516, which had held that one separate hereditament could not be appurtenant to another, as “still good law” and continued at page 524:-

“and that general words such as those used in that case, “together with all the estate, right, title, interest …. of him W. Gatcombe therein or thereto or to any part or parcel thereof”, are insufficient to pass tithe rentcharge. And as the object of Section 63 of the Conveyancing Act 1881 was merely to do away with a necessity of using those general words and to treat every conveyance as if it contained them, that section does not carry the matter any further. It only enacts that the conveyance shall pass every interest etc. which the conveying party may have in “the property conveyed” and for the reasons above given tithe rentcharge is not such an interest.”

Scrutton LJ, after stating the historical position that a tithe was not regarded as an interest in the land in respect of which it was payable, said at page 526:-

“…. It was called in the language of lawyers of that day [1836] a “collateral hereditament” which was held by a different title from that of the land itself.”

He, too, regarded Chapman –v- Gatcombe as good law and continued at page 527:-

“That being so Section 63 of the Conveyancing Act 1881 does not assist the Appellant. It merely renders it unnecessary any longer to include in a conveyance the long string of general words, “all the estate, right, title, interest,” etc., that used to be known by the name of the “all estate clause”, and, in the absence of a contrary intention appearing, treats the conveyance as containing them. The result is that the conveyance of the lands of Chapel House Farm to the Duchy of Lancaster did not carry with it the rectorial tithe rentcharge, as that rentcharge was not an “interest in” the land out of which it issued but something collateral to and independent of it.”

Sargant LJ, after noting that the relevant conveyance had there begun with a conveyance of physical land continued at page 530:-

“So far it is plain that the conveyance would not include tithe rentcharge. But it is said this tithe rentcharge is an “interest in the land”, and that by virtue of Section 63 of the Conveyancing Act 1881, the conveyance is to be read as if these words were written in it. Now it is quite clear that before 1836 a conveyance of physical land with any number of general words added, such as “all the estate, right, property, interest, claim and demand” in the land conveyed would not pass tithe, for the reason that tithe was a hereditament independent of and separate from the land on which it was charged and was not an interest in it or appertaining to it.”

In Hill –v- Booth [1930] 1 KB 381 CA it was held that despite its entanglement with a right of entry intended to procure its payment, a separate personal obligation to pay instalments of the sum agreed as the premium for a lease remained merely a personal obligation and that a call for the payment by instalments was not a claim or demand in, to, or on the property conveyed within Section 63 – per Scrutton LJ at page 387; per Greer LJ at page 390.

In Irving –v- Turnbull [1900] 2 QB 129 the Queen’s Bench Divisional Court had part of Section 63 cited to them as part of the argument of the unsuccessful Appellant – page 132 top – although the section was not identified. The section is not mentioned in the judgment of either Darling J or Channell J and it is hard to determine how far, if at all, the Court had relied upon it although their conclusion was consistent with the passing under the section of a right in or to or on the property conveyed without its having been expressly mentioned.

In Thellusson –v- Liddard [1900] 2 Ch 635 Stirling J commented briefly on Section 63 of the Conveyancing Act 1881 in response to a contention that it took effect so as to pass whatever estate, right or interest the conveying party had in the property there being considered at the date of the deed that was relevant in that case. He indicated that that contention was well-founded.

In Hanbury –v- Bateman [1920] 1 Ch 313 an argument was raised on Section 63 – page 316 – but it failed because there was no “conveyance” for the purpose of Section 63. However, Sargant J at page 320 did comment:-

“The effect of the Act may be this, that a conveyance will have the effect of conveying every estate and interest which the person conveying can convey …. [but] I do not think you can read the definition clause of the Act so as to provide that a conveyance shall operate not only to convey everything that the person could convey, but also to appoint everything he could appoint.”

In re Stirrup’s Contract [1961] 1 WLR 449 Wilberforce J, dealing with a case where the showing of a good title depended on an assent under seal sufficing where a conveyance ordinarily-so-called should have been used, held there to be a good title shown. At page 454 he said:-

“Section 63 states that every conveyance is effectual to pass all the estate which the conveying party has or which is intended to be so passed; and if that is read in conjunction with the definition section, Section 205 (1) (ii), by which the expression “conveyance” includes an assent, that produces the result that an assent, provided that it is under seal, is effective to pass whatever estate the conveying party has.

I would be reluctant to decide this case on the basis of a mechanical argument of that kind alone, but I think on the broad framework of the Act, provided that the sole form of requirement of being under seal is complied with, any document, since 1925, at any rate, is effective to pass a legal estate, provided that the intention so to pass it can be ascertained.

I therefore feel on both those branches of the argument that the vendor here is correct in saying that, although the document is described as an assent, and although admittedly the case was not one for which an assent should be used, yet, nevertheless, on the intention to be ascertained from it and having regard to the statutory provisions, it was perfectly effective to pass the fee simple to the purchaser, and I propose so to declare.”

The comment on re Stirrup’s Contract by Sir Lancelot Elphinstone at (1961) The Conveyancer (N.S.) 490, whilst raising some doubts on the case, raises none as to Wilberforce J’s reliance upon Section 63.

To move from authorities noted in Wolstenholme & Cherry supra (and in Halsbury’s Statutes as supplied by Mr Fetherstonhaugh) to later authority, I was referred to Boots the Chemist Ltd –v- Street (1983) 268 Estates Gazette 817 per Falconer J. Counsel drew his attention to Section 63 and he read sub-section (1) of it. He continued:-

“I need not read any further. But [Counsel] submits, I think rightly so, that under that provision the transfer, which was a transfer of the freehold reversion, subject, of course, to the lease, from the original landlords to the present Plaintiffs, it is effective to pass such interest as there may be or may have been in the original landlords to have the lease rectified in the manner now sought to have it rectified.”

He made an order for rectification.

In Cedar Holdings Ltd –v- Green and another [1981] 1 Ch 129 the Court of Appeal had before it an argument that insisted that an interest in the proceeds of sale of the land conveyed was an interest “in …. the property conveyed” for the purposes of Section 63. At page 140 Buckley LJ observed that there seemed to be no judicial authority upon the meaning and effect of the expression “interest in the property conveyed” in Section 63. He continued:-

“That section replaced Section 63 of the Conveyancing Act 1881 which was in identical terms. The purpose of that section was clearly to ensure that a conveyance should operate to convey all that the grantor could convey in relation to the subject matter, notwithstanding that the language of the conveyance might not be in every respect apt to produce that result, and to eliminate the need for an “all estate” clause of the kind which conveyancers had previously been accustomed to include in conveyances.”

At page 141 he continued:-

“In Section 63 we are concerned with the expression “interest in the property conveyed or expressed or intended so to be”. This, as it seems to me, focuses attention upon the particular subject matter conveyed or expressed or intended to be conveyed. If, as in the present case, that subject matter is land it would seem to me a strong thing to construe the word “interest” in such a way as to make a conveyance effectual to pass property which is not land in any sense.

The device of the statutory trust for sale in respect of property vested in co-owners must have been very prominent in the minds of those who framed the 1925 property legislation. Had they intended the Law of Property Act 1925 Section 63 to have a different kind of operation from that which the Conveyancing Act 1881, Section 63, had been designed to achieve, I would certainly have expected some indication of this fact in Section 63. Instead, Section 63 of the Act of 1881 was left intact by the amending Act (The Law of Property Act 1922) and was consolidated without any change in its language into the Act of 1925. In my judgment, upon the true construction of Section 63 the beneficial interest in the proceeds of sale of land held upon the statutory trusts is not an interest in that land within the meaning of the section and a conveyance of that land is not effectual to pass a beneficial interest in the proceeds of sale.

It is not surprising that we have not been referred to any pre-1926 decision in which Section 63 of the Act of 1881 was held to operate in relation to an interest in the proceeds of sale of land held on trusts to sale.

The Plaintiffs say that it would be strange if the effect of Section 63, in conjunction with the 1925 reform of real property law, was that, whereas a conveyance executed on December 31^st 1925, of the whole interest in land of which the sole grantor was one of two or more co-owners would be effectual to pass his undivided share of the property, a similar conveyance executed on January the 1st 1926, would not be effectual to pass that which on that date became substituted for his previous undivided share in the land, viz., his undivided share in the proceeds of sale. The second defendant, on the other hand, contends that the historic function of Section 63 and of its predecessor, Section 63 of the Conveyancing Act 1881, is and was connected with the normal operations of conveyancing and that the section is not, and never has been designed to deal with matters which have no relation to the title in the subject matter of a conveyance which the grantee acquires under the conveyance, and in particular with matters which since 1925 are for conveyancing purposes behind a curtain for a trust for sale.”

Goff LJ, dealing with the argument of Mr Leolin Price Q.C., for the second defendant, that Section 63 could only be used to read into a conveyance a transfer of an interest in land and not an interest in its proceeds of sale, “which is an interest in personalty and not in land”, considered the question very difficult – page 144f. For some purposes, he noted, an interest in the proceeds of sale of land was regarded as an interest in land. However, after a review of cases dealing with the conversion of real property into personalty he came to the same conclusion as Buckley LJ. In Williams & Glynn’s Bank Ltd –v- Boland [1980] 2 All ER 408 HL at 415 Lord Wilberforce, with whose speech all others of their Lordships hearing the case agreed, held that Cedar Holdings supra had been wrongly decided. It was wrong in describing:-

“….. the interests of spouses in a house jointly bought to be lived in as a matrimonial home as merely an interest in the proceeds of sale, or rents or profits till sale.”

That, said Lord Wilberforce, is “just a little unreal”. Lord Wilberforce’s comment would, if anything, enlarge the effect of Section 63 rather than diminish it.

In Berkeley Leisure Group Ltd –v- Williams and Ors [1994] EGCS 18 the Court of Appeal held that a right to claim rectification of the boundary of the land conveyed passed with the conveyance of the land itself.

Before I turn to Mr Fetherstonhaugh’s argument based on analogies drawn from other statutory provisions I would see the effect of Section 63, so far as it can be seen from the authorities directly dealing with the section, to be capable of being summarised as follows. Its object, like that of Section 63 of the 1881 Act, was to avoid the litany of express mentions of ancillaries and sweepings-up which, in order to ensure that everything passed that could pass with the conveyance, had become the standard language of conveyancers. That standard language was, by statute, instead to be read into every conveyance (including a written assignment of a lease) unless a contrary intention was expressed in the conveyance. Of course, such standard words could not carry a separate hereditament; it would be absurd if a conveyance of Blackacre carried with it Whiteacre merely because the transferor owned both. But, focusing, as Mr Gavin Simonds’s argument in The Public Trustee supra suggested, on the words “the property conveyed”, one looks to see what, in terms of estates and interests, was the main corpus intended to be transferred and then, in the absence of an express contrary intention, one may give full literal effect to the words of the section. No authority I have seen has cut down that full literal effect and, indeed, it may even be – see the comment in Boland supra upon Cedar Holdings supra – that the section may operate to pass even something – a beneficial interest in the proceeds of sale of a property – not generally regarded as a right to or interest in the property itself. But there has to be the required nexus between “the property conveyed” and the right, claim or demand in issue; an entirely personal right would not pass as it would not be “in, to or on” the property conveyed – see Hill –v- Booth supra at p. 387-388. Subject only to Sargant LJ’s reference in Public Trustee supra to “apppertaining to it” (a reference neither Bankes nor Scrutton LJJ had made), on the face of things the section requires no investigation beyond whether the right is “in, to or on” the land conveyed; it specifies no examination into whether the particular right or claim is appurtenant or annexed to or enjoyed with the main corpus – compare Section 62 of the 1925 Act – or whether it “touches or concerns” that main subject matter or even “has reference to” it – compare Sections 141 and 142 of the 1925 Act. Nothing such is expressly required. Nor, one might think, would such a literal effect open any floodgates; the disponor only has to express a contrary intent in the disposition to deny such effect.

Section 63 offers a number of ways in which it can become applicable - the word “or” appears five times - but what will frequently be the easiest way of seeing it to be applicable, where it is a “right” that is in issue, is to ask whether the right, if, indeed, in, to or on the property conveyed, was such that the transferor had power to convey it along with the property conveyed. It will be remembered that, as the Assignment was from one Group Company to another, Stafford as assignor had power to pass the benefit of the Break Clause without requiring any consent from the landlord. Surely the benefit of the break clause, on that basis, is a right “in, to or on the land” where the land is the Lease and the right is there in the Lease?

To counter any such conclusion (but still proceeding on the basis that the benefit of the break clause is merely personal, even if literally a right “in, to or on” the land) Mr Fetherstonhaugh mounts a formidable argument based not upon Section 63 but on Section 62. Section 62 (1) provides as follows:-

“62.

(1) A conveyance of land shall be deemed to include and shall by virtue of this Act operate to convey, with the land, all buildings, erections, fixtures, commons, hedges, ditches, fences, ways, waters, watercourses, liberties, privileges, easements, rights, and advantages whatsoever, appertaining or reputed to appertain to the land, or any part, thereof, or, at the time of conveyance, demised, occupied, or enjoyed with, or reputed or known as part or parcel of or appurtenant to the land or any part thereof.

In a corresponding way Section 62 (2) provides that a conveyance of land shall include, inter alia, rights appertaining or reputed to appertain to the land or, at the time of the conveyance, enjoyed with or reputed or known as part or parcel of or appurtenant to the land. Subsection (4) indicates that Section 62 applies only if and so far as a contrary intention is not expressed in the conveyance and that the section has effect “subject to the terms of the conveyance and to the provisions therein contained”. Subsection (5) provides that the section should not be not be construed as conveying to any person any right mentioned in the section “further or otherwise than as the same could have been conveyed to him by the conveying parties”.

Mr Fetherstonhaugh, by reference to authorities on Section 62, argues, notwithstanding the difference in the language between the two sections and the apparent simplicity of a Section 63 inquiry into whether a right which the conveying party has is a right “in, to or on the property conveyed” and which he has power to convey, that one must treat Section 63, as Section 62, as passing only rights which in the technical sense touch and concern or are appurtenants of or annexed to the land. He relies chiefly for this argument upon the judgment of Sir Nicholas Browne-Wilkinson V-C, with which Croom-Johnson and Neill LJJ agreed, in Kumar –v- Dunning [1989] 1 WB 193. At page 198 there is, after citation of Section 62, a passage in which the Vice-Chancellor continues as follows:-

“The main intention of Section 62 was to provide a form of statutory shorthand rendering it unnecessary to include such words expressly in every conveyance. It is a matter of debate whether, in the context of the section, the words “rights … appertaining to the land” include rights arising under a covenant as opposed to strict property rights. However, I will assume, without deciding, that rights under covenant are within the words of the section. Even on that assumption, it still has to be shown that the right “appertains to the land”. In my judgment, a right under covenant cannot appertain to the land unless the benefit is in some way annexed to the land. If the benefit of a covenant passes under Section 62 even if not annexed to the land, the whole modern law of restrictive covenants would have been established on an erroneous basis. Section 62 (1) replaces Section 6 (1) of the Conveyancing Act 1881. If the general words “rights …. appertaining to land” operate to transfer the benefit of a negative restrictive covenant, whether or not such benefit was expressly assigned, it would make all the law developed since 1881 unnecessary. It is established that, in the absence of annexation to the land or the existence of a building scheme, the benefit of a restrictive covenant cannot pass except by way of express assignment. The law so established is inconsistent with the view that a covenant, the benefit of which is not annexed to the land, can pass under the general words in Section 62. Therefore, in my judgment, the Plaintiff cannot rely on Section 62 unless, at the least, he can show that the surety covenant touches and concerns the land so as to be capable of annexation, a point which I consider at (3) below.”

Mr Fetherstonhaugh’s argument is thus based on a comparability with the unthinkable upset that would be caused if, by way of Section 62, the benefit of a negative restrictive covenant passed without being mentioned with the land conveyed. Such a benefit is not a right “to” or “on” the property conveyed within Section 63 but a right in relation to other land, the land afflicted with the burden of the covenant but it could, I would accept, be described as a right “in” the land conveyed. Mr Fetherstonhaugh is entitled to ask how could there have been a necessary debate in Kumar as to whether the benefit of a covenant passed with land under Section 62, an argument rejected for want of the covenant touching and concerning the land, if, all along, it would have passed without any such annexation under Section 63? Of course there are significant differences in many respects between restrictive covenants and other property rights but the Vice-Chancellor was content, without further comment, to assume Section 62 applied to covenants as it did to other property rights and, for my part, I cannot see how he could have done otherwise.

I confess to doubt as to the intended respective boundaries to Section 62 and Section 63. In some respects an overlap between the two seems possible. Thus Section 62 (1) and (2) refer to rights and advantages appertaining to the land conveyed and Section 63 refers to “right” and “demand” (both in the singular) in, to or on the property conveyed. I am loth to require of Section 63 that it can pass only that which in a technical sense is an appurtenance of, annexed to or is such as to touch and concern the property conveyed and it is certainly arguable that that is not so. Firstly, Section 63 makes no reference to any annexation, appurtenance or the “touching and concerning” test. Secondly, the draftsmen of the 1925 legislation, in the highest degree familiar with such tests, expressly refer to them at other points in the legislation where they are needed and can thus, it may be argued, be intended not to have required them with where they are not expressly incorporated – compare, for example, Section 62, Section 84 (1) (b), Section 141 and Section 142. Thirdly, the authorities on Section 63, although mostly commenting only in passing (and perhaps dealing only, where Section 63 applied, with instances where the interest or right in issue was manifestly appurtenant or annexed) at no point decide that any such test is required to be satisfied before the section can operate. Fourthly, I find it almost offensive to common sense, in the absence of any expressed contrary intention and where the property conveyed was the term of years in the Lease, not to be able to regard the benefit of Break Clause in the Lease as falling within the meaning of the words in Section 63 as a “right …. in [or] to …… the property conveyed” given that, in the events which happened, the landlord had no power to withhold approval to an assignment of the Break Clause and that the benefit was thus a right which the assignor had power to convey. I would thus have been pleased to be able to have concluded that the benefit of the Break Clause, even if a right not touching or concerning the Lease, had passed, with the help of Section 63, to the Defendants by way of the Assignment as a right “in”the Lease, notwithstanding that the Assignment makes no express mention of such benefit. However what is, in my view, the insurmountable argument in Kumar bars such a conclusion. It is especially insurmountable as the Kumar reasoning was approved by the House of Lords in P & A Swift infra.

Moving from rights in, to or on the property conveyed to look at the requirements of “touching and concerning the land” in more detail, one encounters the dictum of Lord Oliver of Aylmerton in P & A Swift Investments –v- Combined English Stores Group plc [1989] AC 632 at 642 where he said:-

“Formulations of definitive tests are always dangerous, but it seems to me that, without claiming to expound an exhaustive guide, the following provides a satisfactory working test for whether, in any given case, a covenant touches and concerns the land: (1) The Covenant benefits only the reversioner for the time being and, if separated from the reversion, ceases to be of benefit to the covenantee: (2) The Covenant affects the nature, quality, mode of user or value of the land of the reversioner: (3) The Covenant is not expressed to be personal, that is to say neither being given only to a specific reversioner nor in respect of the obligations only of a specific tenant: (4) The fact that a covenant is to pay a sum of money will not prevent it from touching and concerning the land so long as the three foregoing conditions are satisfied and the covenant is connected with something to be done on to or in relation to the land.”

I would not expect the touching and concerning test, applicable to both, to be different whether one is using it to test whether a burden passes with the reversion or a benefit with the term. If that is right then that first requirement, transposed, would be that the benefit of the Break Clause, if separated from the term, would have to cease to be of benefit to the original lessee. I find that not to be the case. For example, if Stafford wished to assign the term to an assignee acceptable, indeed, irresistible under Clause 11 of the Lease but which had only recently been incorporated and was not a Group Company, such an assignee would not be able, on that account, to provide the 3-years’ accounts required as a pre-condition of the landlord’s consent. The assignment of the term could go ahead with the benefit of the break clause being expressed not to pass. The term would thus have become separated from the benefit of the Break Clause (assuming that the Break Clause could have a separate existence). In such a case, when, in time, the assignee’s accounts could be produced and the landlord would then have no ground to refuse his approval to an assignment of the benefit, Stafford could, one might suppose, require a payment by the then-lessee of a sum in order to procure Stafford to assign to that lessee the benefit of what could be or become the valuable right to terminate the lease.

If Lord Oliver’s guide is definitive (it has been relaxed by the Court of Appeal - a subject I shall later need to return to) then, on account of the Break Clause failing Lord Oliver’s first requirement, it may provide reason for me to have proceeded on the basis that this unusual and hybrid Break Clause is so personal in character as not to touch and concern the Lease. There are, though, a number of arguments that that is not so.

Firstly, it is not said that the burden of the Break Clause has not passed with the reversion to the Claimant. The Assignment by which the Claimant acquired the reversion is not in evidence but it is at least possible that no express transfer was made of the burden of the Break Clause but that it was left to pass without express mention, no doubt on the basis that it was an obligation under a condition entered into by the lessor with reference to the subject matter of the Lease and hence passing under the first part of Section 142. I appreciate that one and the same provision might possibly touch and concern the reversion but not the term but, even so, that the burden has been taken to run, unmentioned, with the reversion (assuming it has) would provide some argument for the assignee of the term being able to take advantage of the condition under the latter part of Section 142. It has not been suggested that the Break Clause is operable only against the original or any specified other lessor for the time being as opposed to its being operable against any lessor.

Secondly, there has been a perceptible shift against exclusive reliance upon an older view of the “touch and concern” test, a test the rules of which have long been said to be arbitrary, with the distinctions required by those rules being described as quite illogical – per Romer LJ in Grant –v- Edmondson [1931] 1 Ch 1 at p. 228. Thus Lord Oliver in P & A Swift supra commented, in 1988, and dealing with an argument based on the old law, that:-

“We are, in any event, concerned with what is the position in 1988 and not in 1539 … .”

So, too, in System Floors Ltd –v- Ruralpride [1995] 1 EGLR 48 CA the Court of Appeal was concerned with a break clause contained in an agreement not in the lease but in a side letter. The side letter made the benefit of the break clause personal to the original lessee but said nothing express as to whether the burden of the break clause passed to an assignee of the reversion. The Court of Appeal was concerned with whether the burden had passed with the reversion. Morritt LJ, after citing Lord Oliver’s suggested test of what is required of a covenant in order for it to touch and concern the land, said, at p. 50h:-

“Any dictum of Lord Oliver of Aylmerton commands the greatest respect even when, as here, he does not purport to lay down an exhaustive test and, indeed, recognizes the dangers of attempting to do so. Nevertheless, I do not think that the burden of a covenant will fail to satisfy the conditions of s. 142 merely because the benefit of it is personal to the present tenant.”

Both he and Millett LJ were ready to relax the third of Lord Oliver’s four tests for determining what touched and concerned the land. Lord Oliver’s formulation was not intended in all respects to be definitive and has proved not to be.

Thirdly, such criticism or relaxation of the old rule could suggest that Cozen-Hardy LJ’s view (which he alone took) in Davis –v- Town Properties supra, namely that the 1881 Act and subsequent legislation had not in any way changed the old test, could be looked at in a different way. If the old law and the expression in Section 142 “with reference to the subject matter of the Lease” are truly synonymous, then why not, in 2004, apply the test by reference to the more modern and simplified version of the two synonyms? Why not ask merely whether the condition has reference to the subject matter of the Lease? If that were to be the appropriate question to ask it is difficult to see how the advantage of the hybrid Break Clause should not have passed under the Assignment to the Defendants by virtue of Section 63, despite no express mention of an intention that it should.

Fourthly, even adhering to Lord Oliver’s guide, this hybrid is not “personal”; its benefit is not given only to a specific tenant. Indeed, three classes of lessees are contemplated as possibly having or acquiring its benefit, namely the original Lessee, a “Group Company” assignee and a specifically approved “Permitted Assignee”.

Fifthly, there is nothing in the Break Clause that suggests, after an assignment of the term by Stafford with the benefit of the Break Clause, that Stafford should any longer have any ability to regulate whether the benefit passed on subsequent assignments or that the Landlord should thereafter be able to resist the automatic passing of the benefit of the clause to a subsequent assignee of the term.

It is the unusual hybridity of the Break Clause which gives rise to difficulty in assigning it to one category or another; it is plainly not wholly personal and the arguments I have just described, on balance, enable me, in my judgment, to regard it as “touching or concerning”, or as having reference to the subject matter of, the Lease. Its benefit, even if I am correct in limiting Section 63’s apparently broad language as I have done, thus passed with the term on the Assignment, even though it was not mentioned, as it was a right “in, to or on the property conveyed” and touched and concerned the land.

That being so, I hold that the Defendant was entitled to exercise and did validly exercise the Break Clause as at the 23^rd June 2004.

It follows, too, that the Defendant would, if then still the lessee, have been able, had there not already been a valid exercise of the break clause, to exercise the Break Clause as at the 23^rd June 2009.

That conclusion makes any decision on rectification unnecessary but lest rectification becomes relevant I should say something as to the evidence which related to it.

The Defendants applied for rectification of the Assignment so as to add the words “together with the benefit of Clause 6 of the Lease” between the words “the Property” and “to hold” in its Clause 3.

As for the evidence, both of the witnesses for the Defendants, Mr Richard Craig M.R.I.C.S. (the Defendant’s Asset Manager in its Strategic Property Unit) and Miss Jill Wilson, a Solicitor in the Defendant’s Legal Department, gave both written and oral evidence. Both were impressive and honest witnesses whose evidence, written and oral, I can safely accept in full. As the Assignments were between a 100% subsidiary and its parent, Miss Wilson, in effect, acted for both sides of the transaction as also, though less engaged, did Mr Craig. She prepared the Assignment. I must take it from the evidence given that there was no intent or instruction at any time not to transfer the benefit of the Break Clause to the Defendant by way of the Assignment; on the contrary, it was always intended that such benefit should pass. Mr Craig mentioned to a colleague (the manager having day-to-day responsibility for the property) that he had in mind the right to terminate the Lease. Miss Wilson had been told that it was important that group leases were very flexible and she knew the Break Clause was a valuable right. The only reason why the Assignment did not contain any express reference to the transfer to the Defendant of the Break Clause was that it was firmly believed by those having the charge of the matter and in particular by Miss Wilson, (both assignor and assignee being known to be Group Companies within the definition in the Lease) that such benefit would pass automatically, without any need for express mention.

Returning to the two actions proceeding as if claim and counterclaim, I dismiss the Claimant’s claim and, on the Defendants’ counterclaim, I grant the declaration sought and, that being the case, make no order for rectification.