The unpaid vendor’s lien may be unavailable if a property is surrendered.
George Wimpey Manchester Limited (“Wimpey”) v Valley and Vale Properties Limited (in administration) and others (1 March 2012) concerned a seller’s rights where a buyer has failed to pay the purchase price, in particular, the concept of the “unpaid vendor’s lien” and whether this entitled the seller to require the buyer to provide a deed of release of the seller from certain liabilities.
Valley & Vale owned a freehold property in Salford. In February 2004, it entered into an agreement for lease with Wimpey in relation to an undeveloped building plot. Wimpey had potentially onerous obligations under the agreement including the construction of an access road and storm drains and payment of overage, and the obligations were guaranteed by Wimpey’s parent company. In August 2004, Valley & Vale granted Wimpey a 150 year lease of the property, but Wimpey still had obligations to fulfil under the agreement.
In 2007, Wimpey agreed to sell its lease back to Valley & Vale for £5 million. In effect, this was an agreement to surrender the lease back to the landlord. The agreement provided that Valley & Vale would apply to the Land Registry to merge the freehold and leasehold interests in the property to effectively release Wimpey and its guarantor from the lease obligations. The agreement also required the parties to enter into a deed of release, which not only released the parties from their lease obligations, but also, crucially for Wimpey, from all outstanding agreement for lease obligations. This was of key importance to Wimpey as it considered those obligations would depress the price it would obtain for the lease, if the surrender to Valley & Vale did not proceed and its lease had to be sold on the open market.
In 2009, Wimpey issued proceedings seeking specific performance of the agreement. A few months later, administrators were appointed in respect of Valley & Vale, which was unable to pay the balance of the purchase money due under the agreement. The court’s permission was required to continue proceedings against a company in administration, which was granted and Wimpey applied for summary judgment on the basis that it was entitled to partial specific performance of the agreement.
At first instance, the High Court declared that Wimpey had the benefit of an unpaid vendor’s lien over the property. A vendor’s lien is a seller’s right to retain a property that it is selling until the purchase price has been paid. The lien was implied into the agreement and was not excluded by the fact that the agreement provided for merger of the lease into the freehold following completion of the surrender. Since the price had not been paid in full, Wimpey could apply to court for an order to sell its lease in the open market. The Court held that the lien would remain until the balance of the price was paid or the agreement terminated.
Valley & Vale appealed to the Court of Appeal, which decided in its favour. The key issue in the case was whether Wimpey, using the unpaid vendor’s lien, could sell the lease with the benefit of the agreement for lease release. Valley & Vale argued that there was no lien. Any such lien could not survive the transfer of the lease to Valley & Vale in accordance with the agreement, because the lien could only be over the lease, which would be destroyed by merger into the freehold on completion of the surrender.
The Court agreed with Valley & Vale. The lien would arise only by implication and could be excluded by express provisions in the agreement. The lien was excluded in this case, because the intention expressed by the parties was that merger should follow swiftly on completion. Since merger was an essential feature of the transaction and a lien would prevent the merger taking place, the lien was excluded.