Perpetuities and the exercise of an option

In Souglides v Tweedie ([2012] EWHC 561) (now overturned by the Court of Appeal) U1 was the underlessee of a fourth floor flat. U1 created a fifth floor out of the roof space and a roof terrace. The underlease was varied in 1986 to include the fifth floor. Later, in 1987, the freeholder granted U1 an option to extend the underlease for 60 years (the headlease would come to an end three days after the underlease). The option was exerciseable at any time between 25th December 2008 and 25th December 2008. U1 charged the underlease and, in effect, all ‘Related Rights’ to a building society. U1 failed to keep up with the mortgage payments and the building society took possession and the lease was sold to S and his then wife. The option was later registered. S sought to exercise the option in February 2009.

The freeholders claimed that the option was void for perpetuity. They argued that the exception for options contained in leases in section 9 of the Perpetuities and Accumulations Act 1964 did not apply since the option had not been granted by U1’s immediate landlord. This argument failed; there is no such requirement.

The option was said to be exerciseable by U1 and his successors in title. Was S a successor in title since he claimed through the building society and it was argued that, given the nature of a charge, the building society (and its successors) were not successors in title of U1. This failed too. The building society was sufficiently like a successor in title (Law of Property Act sections 1(2)(c) and 87).

The freeholders also argued that the variation of the lease was a surrender and re-grant given that it altered the extent of the demised premises. Did this invalidate the option since it referred to the original lease as varied while S held under the terms of a new lease? This argument was rejected too.

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