Surrender and regrant: the tenant under the new lease is not a successor in title of the tenant under the original lease

In Tweedie v Souglides ([2012] EWCA Civ 1456, CA (Eng)) a residents’ association was the tenant under a headlease of the property. T was the tenant of flat 5 under the terms of an underlease. As a result of a first deed of variation, an extra floor (in the roof space above the area originally demised) was added to the underlease. This amounted to a surrender and regrant by operation of law (Friends Provident Life Office v British Railways Board). T and his brother acquired the freehold of the property. They granted T (as underlessee) and ‘the successors in title of the Lessee’ an option to extend the lease for a term of 60 years from the expiry of the term of the headlease. S acquired the underlease of flat 5. The residents’ association (the head lessee) entered into a second deed of variation adding the roof terrace to the underlease of flat 5. Again, this amounted to a surrender and regrant. S then sought to exercise the option.

It was held that he was not entitled to do so. He was not a ‘successor in title of T since he held under the new lease that arose from the second surrender and regrant. He was not therefore entitled to exercise the option. The option was void for perpetuity. S could not take advantage of the exception in section 9 of the Perpetuities and Accumulations Act 1964 since this was only available to the lessee or successors in title (and S was not a successor in title). It was not possible to contract out of the surrender and regrant by operation of law and so S could not overcome these problems by recourse to a liberal construction of the terms of the option.

An argument that S took the benefit of the option by virtue of section 62 of the Law of Property Act 1925 (Conveyancing and Property Ordinance, s.16) failed.

The Chancellor concluded his judgment:

‘[T]he 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.’ (at [19])

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