Archive for the ‘Perpetuities’ Category

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

December 6, 2012

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])

Perpetuities and the exercise of an option

April 30, 2012

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.

The rule against perpetuities has long been a part of Hong Kong law

March 1, 2011

The rule against perpetuities is one part of the English common law that applied in Hong Kong.

Lau Leung Shi v Lau Po Tsun ((1911) 6 HKLR 149) concerned the will of Lau Chin Ting. The testator had considerable property in Hong Kong but was domiciled in China. He left some of his property to establish ‘for Ancestors, Sacrificial Fund’. One question was whether the Hong Kong leasehold property included in this bequest was subject to the rule against perpetuities. It was held that it was and so the bequest failed. This has now to be read subject to the terms of the New Territories Ordinance.

The rule against perpetuities does not apply to compensation paid on the resumption of Tso land

February 23, 2011

The rule against perpetuities does not apply to compensation paid on the resumption of Tso land to which section 13 of the New Territories Ordinance applies. The law of partition does not apply to Tso land. A sale needs the consent of all of the members. There is no Chinese custom concerning the distribution of Tso land (since in principle it was not to be divided). The members themselves would have to agree on how it (or sale proceeds) should be distributed.

In Kan Fat-Tat v Kan Yin-Tat ([1987] HKLR 516) land belonging to a Tso was resumed by the government. Compensation took the form of cash and Letters B. As a result the Tso property comprised this compensation and other land belonging to the Tso. The plaintiff sought a partition of the land and per stirpes distribution of the compensation. The defendant, his brother, claimed that if the Tso failed then its property should belong to him on a resulting trust as he had provided the Tso property in the first place. It was held that section 13 of the New Territories Ordinance and Chinese customary law in the New Territories meant that the compensation remained Tso property and the rule against perpetuities did not apply. Had it applied, the Tso would fail with regard to that property and it would be held on resulting trust for the defendant. The law on partition did not apply to Tso land. Any sale or distribution needed the consent of all of the members. There was no Chinese custom as to how a distribution should be effected and the members would have to agree on this for themselves.

Partition of Tso lands

February 20, 2011

The provision in the New Territories Ordinance giving the court power to recognise Chinese custom and customary law affecting land in the New Territories is mandatory. Accordingly, the law of partition and the rule against perpetuities do not apply to such land.

Tang Kai-Chung v Tang Chik-Shang ([1970] HKLR 276) was an action for partition of Tso lands. The six sons of a focal ancestor formed a Tso after their father’s death. The descendants of each son formed a Tong. The Tso land was divided into nine portions. Six of these were managed on behalf of the Tongs. Management of each portion rotated amongst the six Tongs. The income from the land was divided among the Tong members. The managers of the smaller Tongs brought an action for the partition of the Tso land so as to create six equally sized portions. Each Tong would then have its own portion. This application was resisted by the managers of the larger Tongs. They argued that the English law of partition (which was the law then being relied on as the Partition Ordinance came into effect after proceedings had been commenced) was inapplicable since it was inconsistent with Chinese customary law. Section 13 of the New Territories Ordinance (Cap 97) gave the court power to recognise and enforce any Chinese custom or customary right affecting land in the New Territories. Mills-Owen J held that section 13 was mandatory. It meant that the English law of partition and the rule against perpetuities did not apply to Tso land in the New Territories. The application for partition failed.