Archive for the ‘implied obligation’ Category

Non-derogation from grant: relevance of the circumstances at the time of the transaction

October 4, 2012

In Harmer v Jumbil (Nigeria) Tin Areas Ltd ([1921] 1 Ch 200, CA (Eng)) L granted T a lease of certain land for the purpose of storing explosives. L owned nearby land which had been used for tin mining but it was assumed that the mines had been worked out. T needed a Government licence to store explosives and it was a condition of the licence that there would be no buildings within prescribed distances. L’s successor granted a lease of the nearby land and the tenant of that land started to work the mines and proposed to erect buildings so close to the explosives store as to breach the terms of the explosives licence. T sought and was granted an injunction to prevent the building work during the term of the current licence on the basis that this would be a breach of the covenant not to derogate from grant.

Younger L.J. explained that the principle ‘merely embodies in a legal maxim a rule of common honesty.’ (p. 225). He continued:

‘The obligation … must in every case be construed fairly, even strictly, if not narrowly. It must be such as, in view of the surrounding circumstances, was within the reasonable contemplation of the parties at the time when the transaction was entered into, and was at that time within the grantor’s power to fulfil.’ (p. 226).

The act complained of did not need to involve any physical interference with the demised property.

Here both parties knew that the lease was of property to be used to store explosives. T knew the precise terms of the licence while L could at least be taken to have known that a licence was needed and that it would impose some restriction on proximity to other buildings. In these circumstances, the scope of the implied covenant was such as to prevent the use of L’s retained land for building works during the term of the current licence.


Derogation from grant: relevant factors

October 3, 2012

In Platt v London Underground Ltd ([2001] WL 172012) LUL granted a lease of a kiosk to P. The kiosk was in the exit from an underground station. Only people leaving the station through that exit (there was another) would use the kiosk. P claimed that LUL only allowed passengers to use the relevant exit during the morning rush hour and at no other times. Thus, the kiosk was starved of trade. P succeeded in his claim that LUL had acted in derogation from grant.

The surrounding circumstances at the time of the grant were a strong indicator as to what the parties must have had in their mutual contemplation. The kiosk relied on passengers going through the exit as its only source of customers. At the time of the lease, the exit was open for much of the time. This was plainly important to the tenant. There was nothing in the circumstances at the time of the grant or in the communications between the parties, or in the express terms of the lease to indicate that P had accepted a risk that the exit might be closed most of the time. The parties had contemplated that the exit would be part of the station operation during the opening hours of the station. Closure of the exit for much of the time during the lease did amount to a derogation from grant.

Neuberger J. provided some commentary on the law concerning derogation from grant. There is  a ”very substantial degree of overlap, between the obligation not to derogate from grant, the covenant for quiet enjoyment, and a normal implied term in a contract.’ (p. 5)

He endorsed the approach of Bowen L.J. in Myers v. Catteson ((1889) 42 ChD 470 at 481) who said that the aim of the covenant is to give effect to,  ‘the obvious intention of the parties, so as to give the transaction between them a minimum of efficacy and value which upon any view of the case it must have been their common intention that it should have.’

The judgment contains a set of principles concerning non-derogation from grant (pp. 4 – 8). The express terms of the lease and the surrounding circumstances at the date of the lease will be highly relevant in determining whether an act amounts to a derogation from grant. Where the action complained of is the use of the landlord’s retained land, the tenant cannot complain of uses to which the retained land could reasonably be put after the grant of the lease.

‘When assessing what the parties to a contract actually or must have contemplated, one should focus on facts known to both parties and statements and communications between them. A fact which could only have been known to one party could not, save in very unusual circumstances, be a legitimate part of the factual matrix. A thought locked away in the mind of the parties, or even perhaps of both parties, cannot normally be a relevant factor when assessing the parties’ understanding. In English law at any rate, contract is concerned with communication as well as mutuality’.

Changing the character of a shopping mall: derogation from grant?

October 2, 2012

In Petra Investments Ltd v Jeffrey Rogers plc ((2001) 81 P & C.R. 21) L granted T a lease of a unit in a shopping mall. L originally intended that it would be aimed principally at a particular market segment (which T sought to serve). Trade at the mall was not as good as had been hoped but there were a number of reasons for this. In an attempt to improve matters, L created extra retail space within the mall and let a large part of the mall for use as a Virgin Megastore. This did not improve trade for T, in fact matters got worse. It had complained about the effect on its business of the works done to create the extra space. L granted it a service charge reduction in full and final settlement of any claim it might have arising out of the creation of the Virgin Megastore. Ultimately, T argued that the creation of the Virgin Megastore was in breach of the covenant not to derogate from grant since it gave the impression that the mall was no more than the Virgin Megastore. It argued that the breach was repudiatory and it purported to accept the breach.

Hart J. said:

‘I am inclined, however, to think that the circumstances of the grant in this case did impose an obligation on the landlord not so to alter or use the common parts of the centre in such a manner as to cause it to lose its character as a retail shopping mall.’ ([53]).

He doubted whether there was any more specific implied obligation (as to the nature or mix of tenants). The decision to let a large part of the retail space to a single retailer ran the risk of breaking this covenant. The defendant’s agreement not to make a claim in respect of the creation of the Virgin Megastore meant that it was unable to pursue this claim. The judge seemed to doubt whether there was a breach in any event since a shopping mall, however small, still remained ([55]).

The judge also said that a construction of the lease terms that would oust the operation of non-derogation in its entirety should be rejected.

Derogation from grant: common honesty: giving with one hand and taking away with the other

September 28, 2012

In Johnston & Sons Ltd v Holland ([1988] 1 EGLR 264, CA (Eng)) L granted T a lease of a building but reserved a right to use the flank wall for advertising purposes.  T’s successor in title  later acquired the open land next to the flank wall and erected its own hoarding near the flank wall so as (intentionally) to obscure the flank wall and make it useless for advertising purposes. This was held to be a derogation from the grant made by virtue of the reservation. While the reservation could not prevent T from making use of the open land (including the erection of the blocking hoarding) it could prevent this being done for the purpose of frustrating the purpose underlying the grant:

‘Constructing a building is one thing. Erecting a blocking hoarding for the sole purpose of screening the flank wall or erecting one’s own advertising hoarding for the purpose of effectively taking over the advertising site for oneself is altogether different.’ (Nicholls L.J.)

Quiet enjoyment: landlord’s liability for the actions of other tenants

September 27, 2012

In Hilton v James Smith & Sons (Norwood) Ltd ([1979] 2 EGLR 44, CA (Eng)) L owned a row of shops with a private road (a cul de sac) giving access to the rear of the shops. T was the tenant of the end of the cul de sac. It had an easement to use the road for access and delivery but could never use it because other tenants and people making deliveries to them parked in such a way as to obstruct the road. The leases of all of the shops contained a prohibition on parking cars, obstructing the road or causing a nuisance or annoyance to the landlord or other tenants and to use the road only for delivery purposes. L was liable to T (even though the actions were not lawful under the terms of the other tenants’ leases) in nuisance and for breach of the covenants for quiet enjoyment and non-derogation from grant (Ormrod L.J. thought the label didn’t matter). L was liable because it had the means of bringing the problem to an end (an action for nuisance or breach of the express covenant just mentioned) but had done nothing.

Landlord’s use of adjoining land making demised property less fit for contemplated purpose

September 25, 2012

In Aldin v Latimer Clark, Muirhead & Co ([1894] 2 Ch 437) a landlord granted a lease of property to be used for the purpose of carrying on the business of a timber merchant. The tenant covenanted not to use the property for any other purpose. The landlord later erected buildings on the neighbouring land retained by him which interfered with the flow of air to the sheds and made them less useful for the tenant’s business. The court held that the right to the flow of air could be an easement but no such easement had been acquired here.

The tenant claimed that this amounted to nuisance, derogation from grant and breach of the covenant for quiet enjoyment. The landlord was liable in damages.

‘[W]here a landlord demises part of his property for carrying on a particular business, he is bound to abstain from doing anything on the remaining portion which would  render the demised premises unfit for carrying on such business in the way in which it is ordinarily carried on, but that this obligation does not extend to special branches of the business which call for extraordinary protection.’ (444 per Stirling J).

Yearly tenants have an implied obligation to use the property in a tenantlike manner

January 23, 2011

Yearly tenants have an implied obligation to use the property in a tenantlike manner. This means that if they have done anything to change the character of the property then they have a duty to reinstate.

Marsden v Edward Heyes Limited ([1927] 2 KB 1, CA (Eng)) concerned a yearly tenancy of property that included a shop and residential accommodation. The tenant removed the wall between the shop and the residential accommodation to form a larger shop. It was held that this changed the character of the property and was a breach of the yearly tenant’s obligation to use the property in a tenantlike manner. The tenant has to yield up at the end of the term property of the same character as that demised to him.