George Wimpey Manchester Ltd v Valley & Vale Properties Ltd (in administration) and others

Sale of land – Agreement for sale of leasehold interest back to appellant freeholder – Agreement requiring appellant to apply to Land Registry for merger of freehold and leasehold interests on completion – Respondent as unpaid vendor held to have lien over leasehold interest – Whether unpaid vendor’s lien excluded as inconsistent with nature of transaction – Whether respondent entitled to directions for sale of property – Appeal allowed – Directions for sale refused The appellant owned the freehold of an area of a building site in Salford, part of which had been developed as flats. Pursuant to an agreement for lease dated February 2004, it granted a 150-year lease of an undeveloped building plot on the site to the respondent. The agreement contained covenants by the respondent, guaranteed by its parent company, to build an access road and storm drains, comply with conditions in respect of applications for planning permission, pay overage on development of the site, and pay a marketing contribution. The agreement for lease was a “collateral agreement”, within section 28(1) of the Landlord and Tenant (Covenants) Act 1995, such that the benefit and burden of the covenants were annexed to the land.In December 2007, the respondent agreed to sell its leasehold interest back to the appellant for £5m by way of surrender of the lease. The sale agreement provided for the appellant to apply to the Land Registry for merger of the freehold and leasehold interests and further provided that, on completion, the parties would enter into a deed of release, effecting a mutual release of the covenants under the lease and agreement for lease. The sale agreement incorporated the standard commercial property conditions (2nd ed), “save in so far as inconsistent with [its] express provisions”. The appellant paid a deposit of £50,000.In November 2009, the respondent brought proceedings seeking partial specific performance of the sale agreement. After the appellant went into administration, the proceedings were continued with the permission of the court under Schedule B1 to the Insolvency Act 1986. Summary judgment was given for the respondent. The judge held that the respondent, as an unpaid vendor, was entitled to a lien over the leasehold interest for the purchase price and that the appellant was obliged to deliver the deed of release to the respondent, as part of the consideration due under the sale agreement. Consequent on that decision, the respondent sought directions for the sale of the property free from any claims by the appellant. The appellant appealed. Held: The appeal was allowed. Whether there was an unpaid vendor’s lien fell to be determined by an objective assessment of the parties’ intentions, as expressed in their agreement: Barclays Bank plc v Estates & Commercial Ltd [1997] 1 WLR 415 applied. The burden of proof lay with the party that denied the existence of a lien. What had to be proved was that the parties had intended the unpaid vendor’s lien to be excluded. On a true interpretation of the sale agreement in the instant case, the unpaid vendor’s lien was excluded as being inconsistent with the nature of the transaction. The parties had expressed the intention that merger of the freehold and leasehold interests should follow swiftly on completion. That merger was an essential feature of the transaction. The idea of enforcing a lien for the unpaid purchase price after completion was inconsistent with that agreement since the lien would give the vendor a beneficial interest in the property that, unless discharged, would prevent the merger from taking place. The lien was therefore excluded as being inconsistent with the parties’ common intention of achieving a merger on completion.The purpose of the respondent’s strategy in relying on an unpaid vendor’s lien was to enable it to sell the property with the benefit of the agreement for release of the covenants, thereby placing it in the position of a “super-secured” creditor. However, there were overwhelming timing difficulties with that strategy. The respondent would need to keep the sale agreement alive for that purpose and not repudiate it, and would therefore have to waive its right to receive the sum of £5m in cash on completion and instead accept deferred payment on enforcement of the lien, and pursuant to its claims as an unsecured creditor in the administration. By the terms of the sale agreement, following completion, and after waiver of the right to receive £5m, the appellant would be obliged to produce the transfer and deed of release and the respondent would simultaneously have to deliver the documents duly executed by it. It would be impossible for it to sell a leasehold interest pursuant to a power of sale conferred by the lien once that happened, since, as soon as the transfer was delivered, the appellant would register it at the Land Registry and merger would take place. The security for the lien would have gone and the respondent would no longer be in a position to make any sale. The position was not altered by condition 8.5.2 of the standard conditions, which relieved the vendor of any obligation to hand over documents of title until the purchaser had complied with all its obligations on completion. That condition did not apply since it was inconsistent with the express provisions in the sale agreement for delivery of documents of title at completion. The court could not give directions for sale of the property on the terms sought by the respondent. Edward Pepperall (instructed by Shoosmiths, of Birmingham) appeared for the appellant; Andrew Charman (instructed by Gateley LLP, of Birmingham) appeared for the respondent. Sally Dobson, barrister