Archive for the ‘Assignment’ Category

Willmott v Barber

November 21, 2011

In Willmott v Barber ((1880) L.R. 15 Ch. D. 96) B was tenant of three acres of land. He granted W a lease of one acre and W spent money on that land and certain neighbouring land of his. B also granted W an option to purchase B’s lease of the three acres. W sought to exercise the option. B’s lease provided that the lease could not be assigned without the landlord’s prior written consent. The landlord refused to give consent and B refused to assign the lease to W. W sought specific performance as against Barber and an order compelling the landlord to give his consent to the assignment. As against the landlord he relied on estoppel on the basis that the landlord had allowed B to spend money on the land in the mistaken belief that he would be able to exercise the option.

The action failed as against B since there would be no order for specific performance to compel B to act in breach of his prior agreement with his landlord. The action failed as against the landlord since the landlord had no way of knowing about W’s mistake concerning his legal rights. Was it a ‘fraud’ for L to insist that there could be no assignment without his written consent (as provided for in the lease to Barber)? Fry J. said:

‘It requires very strong evidence to induce the Court to deprive a man of his legal right when he has expressly stipulated that he shall be bound only by a written document. It has been said that the acquiesence which will deprive a man of his legal rights must amount to fraud, and in my view that is an abbreviated statement of a very true proposition. A man is not to be deprived of his legal rights unless he has acted in such a way as would make it fraudulent for him to set up those rights.’ (at 105)

Fry J. then proceeds to list five factors which he thought would have to be present:

‘In the first place the plaintiff must have made a mistake as to his legal rights. Secondly, the plaintiff must have expended some money or must have done some act (not necessarily upon the defendant’s land) on the faith of his mistaken belief. Thirdly, the defendant, the possessor of the legal right, must know of the existence of his own right which is inconsistent with the right claimed by the plaintiff. If he does not know of it he is in the same position as the plaintiff, and the doctrine of acquiescence is founded upon conduct with a knowledge of your legal rights. Fourthly, the defendant, the possessor of the legal right, must know of the plaintiff’s mistaken belief of his rights. If he does not, there is nothing which calls upon him to assert his own rights. Lastly, the defendant, the possessor of the legal right, must have encouraged the plaintiff in his expenditure of money or in the other acts which he has done, either directly or by abstaining from asserting his legal right. Where all these elements exist, there is fraud of such a nature as will entitle the Court to restrain the possessor of the legal right from exercising it, but, in my judgment, nothing short of this will do.’ (105 – 106)

The landlord did not (at the relevant time) know of his own rights nor of W’s mistaken belief. Nor had W’s expenditure necessarily arisen from a belief that he could exercise the option. He could insist on the lease term providing that his written consent to an assignment was needed.

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Does CPO s.31 apply to equitable leases? Does the tenant need to sign an agreement for lease to bring the lease within CPO s.31?

August 26, 2011

CPO s.31 allows assignees of the reversion to enforce the terms of a written agreement for lease. This is true even though only the landlord has signed the written agreement.

In Rye v Purcell ([1926] 1 KB 446) L’s authorised agent wrote to T granting T a lease of property. T remained in possession under the terms of the lease and paid the rent mentioned in the letter. L assigned the reversion and the assignee brought an action claiming that T had failed to keep the property in repair in breach of the terms of the written agreement. T argued that the assignee did not have the benefit of the covenant. It was accepted that the equivalent of section 31 of the Conveyancing and Property Ordinance covered agreements for lease. T argued, however, that there was no agreement as T had never signed any written agreement. The assignee succeeded. The letter was a sufficient agreement to bring the lease within CPO s.31. Further, either party could have obtained specific performance of the agreement based on the landlord’s signature or the tenant’s remaining in possession. In any event, privity of estate arose where T went into possession under the terms of a deed or written agreement executed or signed by L without any need for T to execute or sign a counterpart.

Assignee of lease only liable on lease covenants while in possession

August 25, 2011

An assignee of a lease is (at common law) liable to perform the lease covenants while the lease is vested in them but not after they have assigned the lease.

In Johnsey Estates Ltd v Lewis and Manley (Engineering) Ltd ((1987) 54 P & CR 296, CA (Eng)) T assigned a lease to A1 who assigned it to A2. A2 went into liquidation. The question was whether A1 was liable for rent due in respect of the period after the assignment to A2. The English Court of Appeal held that it was not liable at common law. It was, however, liable to indemnify T (who had made the payment to L) because of an indemnity implied into the assignment for valuable consideration by English law (section 77(1) of the Law of Property Act 1925). The nearest equivalent to that indemnity in Hong Kong is the indemnity implied by section 35 of the Conveyancing and Property Ordinance into an assignment of the whole of the interest in land held under a government lease.

Can assignor of reversion enforce tenant’s covenants

August 23, 2011

An assignor of the reversion loses the right to enforce tenant’s covenants that touch and concern the land even if the breach occurred before the assignment. This is the effect of section 31 of the Conveyancing and Property Ordinance.

In Re King ([1963] Ch. 459, CA (Eng)) L granted a long lease to T. The lease contained covenants on the tenant’s part to repair and (f necessary) rebuild the property and to keep it insured in joint names. The property was  severely damaged in 1944 but wartime restrictions prevented its rebuilding. The freehold reversion was assigned to the London County Council in 1960. The English Court of Appeal held that L could no longer, after the assigment, bring proceedings for breach of the covenant to rebuild. This was the effect of the plain words of the English equivalent of CPO, s. 31 (s.141 of the Law of Property Act 1925). Even though the insurance policy was in joint names it was held that the insurance monies belonged entirely to the tenant.

Assignor of lease loses right to sue for tenant’s breach of covenant

August 19, 2011

The effect of section 31 of the Conveyancing and Property Ordinance is that an assignor of the reversion loses the right to sue for breaches of covenant (including the covenant to pay rent) that occurred while the reversion was vested in him.

In Elegant Profit Ltd v Chung Lai Sang ([2005] HKEC 1300) a tenant was in arrears with the rent. The landlord assigned the reversion and then brought proceedings to recover the arrears. These failed. It was held that the effect of section 31 of the Conveyancing and Property Ordinance was to annex the right to bring these proceedings with the reversion. It would not be appropriate to allow both the assignor and the assignee to sue.

Can assignor of lease sue landlord after the assignment?

August 17, 2011

An assignor of a lease can, even after the assignment, bring proceedings against a landlord in respect of breaches of a landlord’s covenant that caused loss during the time that the lease was vested in the assignor.

In City and Metropolitan Properties Ltd v Greycroft Ltd ([1987] 1 WLR 1085) a tenant who had bought the residue of the 99 year lease of a flat as an investment could not sell it at auction because of the disrepair arising from the landlord’s breach of its covenant to keep the structure of the property in repair. Once the landlord had done the necessary works the tenant was able to sell the lease at a profit. After the assignment the assignor brought proceedings against the landlord in respect of the loss caused to it during the time that the lease had been vested in it. The landlord argued that assignors lose their right to bring proceedings once they have assigned the lease. This failed; the tenant could bring proceedings in respect of loss caused by a breach that occurred or was subsisting during the time that the lease was vested in it. The court argued by analogy with the fact that the assignor undoubtedly retained responsibility for breaches of tenants’ covenants during that period. The middle portion of the English equivalent of CPO s. 32 (LPA s. 142(1)) did not mean that the assignor lost this right to sue.

Mortgagee in possession and tenant’s right of set-off

August 16, 2011

A mortgagee in possession receives rent in its own name. The tenant cannot set off against rent due to the mortgagee any claim that the tenant had against the mortgagor before the mortgagee went into possession. The liability to repay a rent deposit is a purely personal contractual arrangement; a mortgagee who goes into possession has no liability to repay the tenant’s deposit.

In Bank of China (Hong Kong) Ltd v Creative Far East Ltd ([2005] HKEC 403, CA) L granted a lease to T and a mortgage to M. M went into possession and later brought proceedings against T in respect of rent arrears and dishonoured cheques. T sought to set off an amount it claimed was due to it because of overpayments of management charge made to L; it claimed an equitable right to recover the overpayments based on mistake and misrepresentation. Relying on section 9 of the Law Amendment and Reform (Consolidation) Ordinance Cap. 23 and  Young v Kitchen ((1878) 3 Ex D 127) it claimed that there had been an assignment to M that was subject to its equitable right to recover the overpayments. The claim failed since M did not rely on any assignment by L but its own title to the rents as mortgagee in possession. There was no link between the sums due to M and the amounts claimed by T.

T also sought to enforce its right to recover the rental deposit against M. This failed too. The liability to repay the rent deposit was a purely personal contractual arrangement between L and T.

Assignee of a contract has to give clear notice to original vendor

March 15, 2011

Where a purchaser assigns a contract, the assignee must give clear notice of the assignment to the original vendor. Otherwise the vendor is entitled, and bound, to complete the contract by transferring title to the original purchaser. The notice must make it clear that there has been an assignment and that the assignee is willing to stand in the shoes of the assignor as far as the benefit and burden of the contract are concerned.

In Shaw v Foster ((1871 – 1872) LR 5 HL 321) Foster entered into a contract to sell land to Pooley. Pooley agreed to assign the benefit of the contract to his bankers if requested to do so. The bank gave notice to Foster that Pooley had agreed to assign the contract to them by way of security if requested to do so. No further notice was given to Foster. In due course, Foster completed the contract by transferring title to Pooley. The bank claimed that Foster had acted unlawfully in disregarding their claims. The bank failed because the notice was to the effect that an assignment would take place in the future if the bank so requested. The House of Lords held that Foster was entitled, and obliged, to transfer the property to Pooley and not to the bank. The notice was not of an assignment but of a possible future assignment. Further, the bank did not make it clear that they were prepared to accept the obligations imposed on the purchaser by the contract.

Can you demolish a partition wall between two flats?

February 14, 2011

Whether a partition wall belongs to the owners of the relevant flats or is a common part is a question of construction of the relevant instruments (the DMC and the assignments). One would expect the allocation of exclusive use of any part of a building to be dealt with expressly in the text of the instrument (rather than being merely an inference from notes on a plan referred to in the instrument). A wall can be structural even if it is not load-bearing.

In Tam Sze Man v Incorporated Owners of Shan Tsui Court ([2011] HKEC 111) the owners of two adjoining flats wanted to demolish the partition wall dividing the two flats. They claimed that they were co-owners of the wall. The Incorporated Owners argued that it was a common part. The CFI noted that the DMC and the assignment did not allocate exclusive use of the wall to the flat owners. An assignment of ‘Flat X’ includes the floor and ceiling surfaces in the Flat and the air space between them (Nation Group Development Ltd v New Pacific Properties Ltd ([2000] 3 HKCFAR 427 at 436G). The fact that the plan of the flat attached to the assignments followed the line of the wall did not help the flat owners’ case. One would not expect exclusive ownership to be inferred solely from notes on a plan. Rather, one would expect it to be dealt with in the text of the instrument (at para. 30). The walls were a common part and did not belong to the owners of the flats.

The term ‘structural alteration’ in a DMC indicates ‘permanent physical alteration to the fabric of the building affecting the common interests of the owners.’ (at para. 43). A wall can be structural even if it is not load-bearing.