Ridgewood Properties Group v Valero Energy Limited

 

The Landlord and Tenant (Covenants) Act 1995 does not apply to options or conditional Agreements for Lease.

The Message

The Court will not readily imply terms into agreements.

The Case

The High Court has considered whether a Landlord who has entered into an agreement to grant a lease can lawfully sell the property and pass the obligations onto the purchaser

Between 2001 to 2004, Ridgewood entered into a number of airspace agreements with the Defendant, then known as Texaco, whereby Ridgewood was to seek planning permission to build flats and offices above certain Texaco petrol stations and to then carry out the works under a building lease for each site. Once the development was complete, Texaco was to transfer its interest in the site to Ridgewood and take leases back of the petrol station.

In 2005, Texaco sold its interest in all the properties to Somerfield and another company called Azure Properties. It claimed it was entitled to do so as the airspace agreements contained no restriction on any sale. It sought to re-assure Ridgewood that the purchaser would be bound to comply with the agreements.

Ridgewood claimed that Texaco was in fundamental breach of the agreements as not only was there an implied obligation not to sell but the sale did not bind the purchaser and made it impossible for Texaco to comply with its obligations, such as providing access to the sites and assisting in obtaining planning permissions.

The Court noted various drafting errors in the agreements but it did not consider there had been any intention to prevent Texaco selling or such a term should be implied. Where a professionally drawn agreement does not provide for something, the Court held that the normal inference is that nothing was to happen as, otherwise, the agreement would have said what was to happen.

However, the Court did hold that Texaco would be in breach if, by selling, it put performance of the agreements out of its power. A party is under an implied obligation not to do anything to make performance of its obligations impossible.

Accordingly, the Court had to consider whether the purchaser was bound by the airspace agreements under the Landlord and Tenant (Covenants) Act 1995. Under this Act, the benefit and burden of landlord and tenant covenants under leases and agreements for leases automatically pass to a purchaser on a sale. However, the purchaser claimed it was not bound by this Act.

The Court held that the airspace agreements were not leases or agreements for leases covered by the Act. This was because they were only options dependent on planning permission being obtained. Importantly, the Court held that a conditional Agreement for Lease is no different to an option and does not bind a purchaser as it does not grant an interest in land and the obligations under it are not landlord and tenant covenants within the Act.

So, Texaco was in breach as it could no longer perform, or compel performance, of its obligations to Ridgewood. But the Court found that Ridgewood had affirmed the agreements because it had continued with various planning applications even after it knew about the sale and that the purchaser would not co-operate. Texaco successfully argued that it was only when Ridgewood knew that planning was unobtainable for many sites come what may that it sought to rely on the breach to terminate the agreements and it was too late by then.

The end result was that breach was established but no damages were awarded on the basis of wrongful repudiation of the agreements by Texaco. To recover any damages, Ridgewood will instead have to show that it suffered loss directly due to a lack of co-operation following the sale and, on the facts, this may be difficult to prove.