Boris Ignachkov Legal Principles and Key Points
- In the case of Englewood Properties Ltd v Patel [2005] 1 WLR 1961, it was held that a property would not survive its sale where the benefit of an agreement entrusted to the seller was not part of the property; this would occur where a lessor’s covenant exists and the seller’s actions could not forfeit the subject matter interest of the sale
Facts of the Case
- C owned a parade of shops, one of which was leased to W Plc
- There was a covenant within the lease that upon the sale of any of the other shops, the conveyance would prevent the purchaser from using it or letting it for use as a fixed price store
- Ds were the successful bidders when the shop was auctioned to them
- D also sold the other shops, but did not insert this covenant in the separate sale agreements
Issues in Englewood Properties Ltd v Patel [2005] 1 WLR 1961
- Ds were worried that a risk existed of damages being brough against them if a fixed price store trade from any of the other premises in the parade
- Ds refused to complete the sale, arguing that C’s failure to insert the covenant in the multiple sale agreements was a breach of his trustee duties
- Cs brough action for specific performance
Held by the High Court (Chancery Division)
- Appeal dismissed – in a state of a pending completion, the trustee seller had to preserve the property as under the contract, though this did not extend to a lessor’s duty to imply covenant on purchases of adjoining property, unless imposed by a contract; C entitled to proceed with the sale
Lawrence Collins J
Read the judgement for the dismissal of the appeal, drawing on a wide range of case law to differentiate between vendor and lessor duties
- ‘I am satisfied that the ratio of this decision is that in the case of a sale of leasehold interests the vendor is under a duty to give good title, and therefore (subject to the express terms of the contract) to take care not to take steps which may result in forfeiture, and that the statement by the Law Commission is a compressed version of this principle.’ [paragraph 51]
- ‘My conclusion is that it is not arguable that, in the absence of an agreement to the contrary, Englewood had a duty to require the purchasers of the lots sold subsequently to the property to comply with the covenant in clause 5(c) of the October 1939 lease. The rationale of the case law is that equity imposes duties on the vendor to protect, pending completion, the interest which the purchaser has acquired under the contract. This is a case of a lessor’s covenant, and is not a case where the actions of the vendor could have led to a forfeiture of the interest which was the subject matter of the sale. For present purposes, if the most relevant obligations which equity imposes on the vendor are to take reasonable care to preserve the property in question, not to damage the property nor to prejudice the purchaser’s interest in the property pending completion, the obligations do not extend to a lessor’s duty to impose covenants on purchasers of adjoining properties unless that duty is imposed by the contract of sale of the property in question.’ [paragraph 58]
