Rider v Ford
[1923] 1 CH 541[1922] R. 1737.
(Decision by: Russell J.)
Rider
v Ford
Judge:
Russell J.
Judgment date: 13 March 1923
Decision by:
Russell J.
Witness Action
The plaintiffs, the firm of Rider & Son, were builders, and were willing to build a house for the defendant on certain terms. In June, 1907, the defendant entered into an agreement with them on the terms contained in the following letter:
"Re No. 2, Shepherd's Green. T. Rider & Son, Southwark, S.E. June 4, 1907. - We understand from a letter we have received from Mr. May yesterday that you have decided to take the additional ten feet frontage at the above. The whole matter therefore stands thus - the house to be built on the plot of land adjoining Mr. Watts, in accordance with the plans and specifications prepared by Mr. May (which we had both better sign), and to be completed as nearly as possible by Christmas next. You to take the house for 3, 5, or 7 years at the rent of 147l. per annum, and to have the option of purchasing either the freehold for 2,900l. or a lease of 97 years (ground rent 20l.) for 2,400l. If you will send us a letter accepting these terms it seems to us that this is all that will be necessary."
By a letter, dated June 12, 1907, to the plaintiff's firm, the defendant confirmed the above terms, but no formal document embodying them was executed. The defendant went into possession of the said premises under the agreement on March 25, 1908, and, after the expiration of the seven years, was still in possession as tenant from year to year. By a notice dated May 26, 1922, the plaintiffs required the defendant to give up possession of the premises on March 25, 1923. The defendant claimed to be entitled to exercise the above option, as he was still in possession of the premises with the consent of the plaintiffs, who had never called upon him to elect whether he would exercise the option, and he had done nothing to abandon the same. The plaintiffs thereupon issued a writ on July 25, 1922, and asked for a declaration that the defendant was not entitled to exercise any option either to buy the freehold or a lease of the premises on the terms set out in the letter of June 4, 1907.
G. B. Hurst K.C. and W. M. Hunt for the plaintiffs.
This is an option, unlimited as to time, to purchase either the fee or a lease for ninety-seven years. An option to purchase cannot be exercised after the expiration of the original term, but an option to renew can be exercised so long as the relationship of landlord and tenant continues. It is one thing to give an option to purchase at a fixed price within a limited time, but it is a very different thing to suppose a landlord could have intended to confer on a tenant a right to purchase at the original sum although the right may not be exercised for fifteen or twenty years. An option to purchase the reversion, and so destroy the tenancy, is not one of the terms incorporated in the tenancy from year to year which comes into operation on the expiration of the original term.
"In my opinion the option in this case (i.e., to purchase the reversion) is a matter that is wholly outside the relation of landlord and tenant, and therefore is not one of the terms of the original tenancy on which the lessee held the property when he became tenant from year to year": per Peterson J. in In re Leeds and Batley Breweries and Bradbury's Lease. [1]
Covenants to renew, and even to renew in perpetuity, have for centuries been held to be valid; but a covenant to convey the fee simple, although for all practical purposes nothing more than a covenant of perpetual renewal, comes within the rule against perpetuities: Woodall v. Clifton. [2]
Moss v. Barton [3] and Buckland v. Papillon [4] were both cases of options to renew and not of options to purchase as here. In both cases the option was to take a lease at the expiration of the previous term at the same rent, and therefore delay in exercising the option made no difference. In this case if the option is now exercisable the ninety-seven years would run from to-day and not from the end of the seven years. Renewal of a lease imports that the essential terms of the lease are to be renewed, as in Moss v. Barton [5]and Buckland v. Papillon [6], but here the most essential term of the tenancy is changed, and a rent of 147l. becomes a rent of 20l. If a lease to carry out the original intention of the parties had been drawn up in 1907 there can be no doubt that the exercise of the option would have been limited to the original term - namely, seven years. It is submitted that neither option is exercisable after the expiration of the seven years.
Courthope Wilson K.C. and R. H. Hodge for the defendant.
An option such as this is an independent contract. A covenant that aims at creating at a future time the position of vendor and purchaser of the reversion, between the owner and the tenant for the time being, is not a covenant concerning the tenancy or its terms: Woodall v. Clifton. [7] There is no limitation in the agreement as to the time within which the option is to be exercised, and in those circumstances it can be exercised so long as the relationship of landlord and tenant continues: Moss v. Barton [8]; Buckland v. Papillon. [9] In In re Leeds and Batley Breweries and Bradbury's Lease [10] the option was expressed to be exercisable only "at any time six months before the determination of the lease." More than six months after the end of the lease the tenant, who had continued on as tenant from year to year, claimed to exercise the option on the ground that it was one of the terms of the original agreement applicable to the tenancy from year to year. Peterson J. held that the tenant could not exercise the option and relied on the decision of Lord Chelmsford L.C. in Buckland v. Papillon [11]:
"In other words the Lord Chancellor took the view that an option given in an agreement for a lease for three years to call upon the lessor to grant a lease for a longer period would not be one of the terms of the original agreement under which the tenant from year to year holds the premises after the determination of the original term. His view was that the option to have a longer term had nothing whatever to do with the tenancy from year to year."
The exercise of the option is not limited in time and the Court will not introduce stipulations which the parties have not thought fit to introduce. Although the language of the agreement gives an option to purchase the fee or to purchase a lease for ninety-seven years, in law it is an option to purchase the fee, or to call for a new lease. The first option puts an end to the tenancy, while the second operates to continue the relationship of landlord and tenant. "The option of purchasing the lease" is a valid option, and the question of perpetuity does not arise in the case of a covenant to renew a lease. The option to buy the fee is also good if it does not infringe the rule against perpetuities. This option is only exercisable by Ford while he remains in possession of the premises, or, it is submitted, by his assignee during the life of Ford.
Judgement
This action is brought by the firm of Rider & Son against their tenant, the defendant, to obtain a declaration that he is neither entitled to purchase the freehold of the house which he occupies, nor to call for a lease of it. The words "have the option of purchasing a lease" in the letter of June 4, 1907, are inaccurate because Messrs. Rider were the freeholders, and there was no leasehold interest of ninety-seven years in existence which the defendant could purchase. The words really mean that the defendant should have the option of either purchasing the freehold or of obtaining a demise of the premises for ninety-seven years at a particular ground rent in consideration of the payment of a premium of 2400l. Is the defendant entitled in law to exercise either of these options? The plaintiffs say that this is an option to purchase, and that such an option cannot be exercised after the original tenancy conferred by the document which gives the option has expired, and that therefore the option is not exercisable by a tenant who holds over and becomes a tenant from year to year. On the other hand cases have been cited in which quite a different view has been held of options to take a fresh lease of the premises. The defendant relies on the cases of Moss v. Barton [12] and Buckland v. Papillon. [13] [After discussing these two authorities His Lordship continued] Thus in Moss v. Barton [14], where the contract was to grant a lease on request, and no time was fixed within which the request was to be made, and in Buckland v. Papillon [15], where the contract was to grant a lease whenever called upon, it was held that the right to exercise the option continued as long as the relationship of tenant and landlord continued between the person claiming to exercise the option and the person against whom it was claimed to be exercisable.
There are two options in the agreement before me, and I cannot read into it any limit in point of time except that indicated by Lord Chelmsford in Buckland v. Papillon [16] - namely, that the option exists so long as the relationship of landlord and tenant continues, notwithstanding that the original term of seven years has run out. The plaintiff relied on the decision of Peterson J. in In re Leeds and Batley Breweries and Bradbury's Lease. [17] In that case the plaintiff had been the lessee of certain leasehold premises under a lease dated May 19, 1903, for a term of seven years. The lease contained a proviso that if the lessee desired to purchase the unexpired residue of the leasehold *546 reversion, and should "at any time within six calendar months before the determination of this lease" give to the lessors a written notice to that effect, then the person giving the notice should be the purchaser of the unexpired residue of the term at the price of 3000l. In February, 1910, the term created by the lease was extended for one year from June 1, 1910, so as to determine on May 31, 1911. At the end of the extended time the plaintiff continued in possession, becoming a tenant on sufferance, and, after payment of rent, a tenant from year to year. In November, 1919, eight years after the original term had come to an end, the plaintiff gave the lessors notice of his intention to purchase the unexpired residue of the term of 999 years for 3000l. Peterson J. said:
"In the present case there was an option on the part of the lessee to purchase the reversion at any time six calendar months before May 31, 1911. That was a conditional offer by the landlord, or a contract for sale on a performance of condition, the condition being that six calendar months before May 31, 1911, the lessee should give notice in writing of his intention to purchase."
The learned judge held that in 1919 the option was no longer exercisable. That decision has no application to a case such as this where the option is not limited in time. In such a case the true view is, as appears from the authorities to which I have referred, that an option unlimited in time exists so long as the relationship of landlord and tenant continues. In my opinion the defendant is entitled to exercise this option but subject to any effect which the rule against perpetuities may have.
Defendant's counsel admits that the rule against perpetuities must render invalid the option to purchase the freehold unless the agreement is read as giving only an option to the defendant personally, or to an assignee of the defendant, but only exercisable during the defendant's life. In my opinion the agreement cannot be read in that way and therefore I hold that the option to purchase the freehold is inoperative and invalid because of the rule against perpetuities. As to the right to call for a lease of the premises the position is different; it is not disputed that under the authorities a covenant for what is called a renewal of the lease is outside the rule against perpetuities. It was argued that this was not a covenant for the renewal of a lease because the agreement in terms describes it as a right to purchase. That is merely a question of language, and it is quite inaccurate to describe as a right to purchase a lease that which is really a right to call for a lease. It was further argued that although a right to renew a lease was outside the rule this was not such a right because it was a right to call for a lease on different terms from the original. But the right to renew is a right to call for a fresh lease. The new lease is the result of a fresh demise. Even if all the provisions in the fresh lease were the same as in the old lease it would none the less be a fresh demise, and a fresh term with fresh covenants. I am unable to see any reason why the position as regards the rule against perpetuities should be any different in the case of a right to call for a lease, even though the terms may not be in all respects the same as the terms of the original lease, and in the case of a right to call for a lease in which every provision may be word for word the same as in the old lease. In my opinion the right to call for the lease of ninety-seven years, to run from the expiration of the existing tenancy, is not invalidated by the rule against perpetuities and may be exercised by the defendant.
[1920] 2 Ch. 548, 553.
[1905] 2 Ch. 257, 263.
(1866) L. R. 1 Eq. 474.
(1866) L. R. 1 Eq. 477; L. R. 2 Ch. 67.
(1866) L. R. 1 Eq. 474.
(1866) L. R. 1 Eq. 477; L. R. 2 Ch. 67.
[1905] 2 Ch. 257, 279.
(1866) L. R. 1 Eq. 474.
(1866) L. R. 1 Eq. 477; L. R. 2 Ch. 67.
[1920] 2 Ch. 548, 552.
L. R. 2 Ch. 67.
L. R. 1 Eq. 474.
L. R. 1 Eq. 477; L. R. 2 Ch. 67.
L. R. 1 Eq. 474.
L. R. 1 Eq. 477; L. R. 2 Ch. 67.
L. R. 1 Eq. 477; L. R. 2 Ch. 67.
[1920] 2 Ch. 548.