Souglides v Tweedie

 

The Message

Court rejects technicalities to achieve a just result.

The Case

Souglides v Tweedie concerned freeholders’ attempts to resist the enforcement of an option for a tenant to be granted a lease extension.

Thomas and John Tweedie owned the freehold in a block of flats. A residents’ association had a lease which expired in 2028. Thomas Tweedie was granted an underlease of flat 5, which expired a few days before the lease. Tweedie mortgaged the underlease in favour of the Alliance Building Society. Subsequently, Tweedie added a further floor to his flat and built a roof terrace. While Tweedie and his landlord entered into a deed varying the underlease to include the additional floor, no reference was made to the terrace.

Tweedie wanted to extend the term of his lease, but because the residents’ association had the intermediate lease, the freeholders were unable to do so at that time. Instead, in 1987, they granted Tweedie and successors in title an option to require a lease extension, in consideration of one red rose, for a term of 60 years from immediately after the end of the residents’ association’s lease, which could not be exercised until over 21 years after the date of grant. The option was not registered against the freehold title. Tweedie entered into an agreement with Alliance to vary the mortgage so that he assigned to Alliance the benefit of any option relating to the property.

Tweedie fell into arrears with his mortgage and Alliance took possession of the flat, marketing it with the benefit of the option. Alliance contracted to sell the underlease to Mr Souglides, conditional on the option being registered against the freehold title. Even though the freeholders had previously consented to the option being registered against their title, they objected to Alliance’s application to register it, but the Land Registry decided to note it. The underlease was sold to Souglides, who was registered as proprietor.

The Souglides and the residents’ association entered into a deed supplemental to the underlease confirming that the area let extended to the roof terrace. The deed stated that the underlease continued in full force except as modified. A new title was created at the Land Registry for the terrace. In 2009, Souglides sought to exercise the option enclosing a red rose as required.

The freeholders disputed that they were obliged to grant the lease extension. They asserted that the option was void as it infringed the “rule against perpetuities”; the option could not be assigned to Alliance; and the deed adding the terrace meant the option could not be exercised. The High Court rejected the freeholders’ assertions and decided that Souglides was entitled to be granted the extension.

At the time of grant, options were subject to the “rule against perpetuities”, which prevented the creation of interests in property which vested at too remote a time. There were exemptions such as an option to acquire an “interest reversionary (whether directly or indirectly)” on the lease term. The question for the Court was whether an interest carved out of a superior freehold or leasehold interest (which was not an existing interest since the lease extension did not exist at the time of grant of the option) qualified. The Court held it did and, therefore, the option was not void for perpetuity.

It also held that the option could be assigned by way of mortgage to a mortgagee of the underlease, who should be treated as a successor in title. The Court interpreted the sale contract between Alliance and Souglides to encompass the option and, therefore, Alliance assigned the option to him. Even though the lease variation took effect as a surrender and re-grant because of the addition of the terrace, this did not cause Souglides to lose the option.

The Court considered that, if they had not decided in Souglides’ favour, a serious injustice would have occurred. The freeholders had consented to the option being registered (crucial to Souglides’ decision to buy the underlease), but, subsequently, sought to use technical legal arguments to claim it was void.