Shand and another v Morgoed Estates Ltd

Rentcharges — Enforcement — Terre-tenant — First rentcharge reserved by vendor of land on sale to developer — Second rentcharges created on sale of developed plots — Identity of terre-tenant as party liable to pay chief rent under first rentcharge — Whether terre-tenant holder of second rentcharge or current freehold owner of affected land By a number of conveyances, various parcels of land were conveyed to a developer. Rentcharges were reserved over the land in favour of the vendor; the respondents were the successor in title to those rentcharges. The appellant held a second layer of rentcharges as the successor in title to the developer, which had, after developing the land for residential housing, sold the individual plots and reserved the second rentcharges out of those conveyances. On taking a transfer of the second rentcharges, the appellant covenanted with the transferor to pay the chief rent due under the respondents’ rentcharges, but the appellant gave no such covenant directly to the respondents. The respondents brought proceedings against the appellant to recover arrears of chief rent. The appellant argued that it had no direct liability to the respondents for the chief rent because there was neither privity of contract nor privity of estate between them. It contended that, in the absence of a direct covenant with the respondents, only the terre-tenant, being a freeholder in actual possession and enjoyment of the land or in receipt of its profits, was liable to pay the chief rent; the appellant did not hold a freehold interest. Allowing the claim, the district judge held that since a rentcharge was a legal interest in land and the appellant was in possession of the rent thereunder, its position was equivalent to being in possession of the land and, as such, it was the terre-tenant. The appellant appealed. Held: The appeal was allowed. The action in debt to enforce a rentcharge lies against the terre-tenant, which must be both the party with the freehold interest in the property and the party entitled to possession or to “pernancy of the profits” of that property, namely the right to receive the profits from the land. The two tests, of holding a freehold interest in the land and of being the pernor of the profits, are both necessary and cumulative. If a freeholder is entitled to immediate possession, it is no objection that it is not in actual occupation of the profits, or has not actually received such rents and profits as exist or that they are insufficient to pay the chief rent. However, in order to be liable, the party charged must be the freeholder of land. The owner of a second rentcharge is not the freeholder but only the party to whom the freeholder pays the second rent, and, as such, it cannot be the terre-tenant. The appellant was not the terre-tenant and was not liable for the chief rent under the respondents’ rentcharge; the respondents would have to pursue their entitlement to rent against the freehold occupiers of the land for the time being. The following cases are referred to in this report. Cundiff v Fitzsimmons 91910] 1 KB 513, KB Swift v Kelly (1889) 24 LR Ir 478, Ir CA Thomas v Sylvester (1873) LR 8 QB 368 Varley v Leigh (1848) 2 Exch 446 This was an appeal by the appellant, Morgoed Estates Ltd, from a decision of District Judge Brown allowing a claim by the respondents, Diana Shand and Christopher Alderley, for chief rent under a rentcharge. Mr Jonathan Roberts, of Morgoed Estates Ltd, appeared for the appellant; William Hanbury (instructed by Blackhurst Budd, of Blackpool) represented the respondents. Giving judgment, HH Judge David Cooke said: [1] This is an appeal by the defendant in the original action, Morgoed Estates Ltd, against the decision of District Judge Brown given in a reserved judgment on 25 August of this year. The district judge himself gave permission for this appeal. [2] I summarise the facts from the district judge’s judgment (which is at p25 of the bundle). The claimants, the respondents to this appeal, are the successors in title of the grantee of various rentcharges in Manchester and its surrounding area. Those rentcharges were created by a number of conveyances in the early part of the 20th century. One Mr George Frederick Derbyshire, the grantor of those rentcharges, that is, the purchaser of the various parcels of land, developed the land for residential housing and sold off the individual properties, reserving further rentcharges for himself out of each house sold. The defendant, the appellant before me, is the successor in title to Derbyshire. Therefore, there are two layers of rentcharges: those reserved out of the conveyance to Derbyshire in favour of the claimant’s predecessors in title and those reserved out of the conveyances of the individual housing plots in favour of Derbyshire. Hereafter, I will call the rentcharge granted by Derbyshire in favour of the original vendor the chief rent, and the rentcharge reserved by Derbyshire out of the individual houses sold the second rent. [3] The respondents seek to recover from the appellant arrears of chief rent. The appellant does not dispute that the arrears exist or that the respondents have the benefit of and are entitled to enforce payment of the chief rent. However, the appellant argues that it has no direct liability for the chief rent because there is neither privity of contract nor privity of estate between these parties. [4] Now, as has been pointed out before me, in the conveyance to the appellant, by which it acquired the second rents that it holds, the appellant covenanted to the vendors of the second rents to pay the chief rent. The vendors of the second rents (or their predecessors in title) will in turn have given covenants to the present householders to pay the chief rent, the expectation being that the householders would be responsible for the payment of the second rents and the second rent holder would pay the chief rent. [5] The question here, however, is whether the second rent holder is directly liable to the holder of the chief rent. It arises in circumstances in which, as Mr William Hanbury, for the respondents, accepted, there is no direct covenant by the appellant enforceable by the respondents for the payment of the chief rents, and although the appellant holds a legal interest in the property, namely a rentcharge, it is not a freehold interest in the property. Indeed, the present appellant has never held a freehold interest in the property. The appellant submits that only a freeholder can be liable to pay the chief rent. |page:150| [6] The district judge was referred, as I have been, to a number of textbooks and to one particular case, Thomas v Sylvester*. I have had the benefit of additional case authority that was not before the district judge, but the textbook authorities are the same in both cases. First, there is an extract from Halsbury’s Laws of England (vol 39(2)), in para 877, which is headed “Nature of Remedy”, which says: Since the abolition of real actions, a rentcharge in fee may be recovered in an action of debt from the terre-tenant (that is, the person in actual possession and enjoyment of the land) entitled to a freehold interest, even where he is terre-tenant of part only of the land charged with the rent. A number of authorities are cited for the proposition that the rentcharge is recoverable from a terre-tenant entitled to a freehold interest. The first is Varley v Leigh (1848) 2 Exch 446, although it is noted that, in that case, the terre-tenant had personally covenanted to pay the rentcharge, which is not applicable in this case. The second is the case that was referred to the district judge, Thomas, and the note goes on to say “where the decision was independent of covenant”. I will refer to that case in due course. ————————————————————————— * Editor’s note: Reported at (1873) LR 8 QB 368 ————————————————————————— [7] The next paragraph, 878, is headed “Who may be liable”. It says: In order that the terre-tenant be made liable in an action of debt he must be “pernor of the profits” of the land (that is, the person who receives the profits), but he may be made liable whether he has or has not received profits equal to the rentcharge claimed. If the freeholder has an immediate right to take possession, he has sufficient “pernancy of the profits” to render him liable. Accordingly a mortgagee who had never entered might formerly be liable where the mortgage was by conveyance of the fee simple. The authority for the first proposition, that the terre-tenant must be the pernor of the profits of the land, is an Irish case: Swift v Kelly (1889) 24 LR Ir 478. The district judge was referred to that case, but, unfortunately, he was not able to be provided with a report of it. I do now have a copy of that case, so I have the advantage over the district judge in being able to consider it. [8] Second, there is an extract from Megarry & Wade: The Law of Real Property (in para 31-028) that is to similar effect. Third, there is an extract from an old textbook of 1884, Harrison’s The Law Relating to Chief Rents and Other Rentcharges. The respondents refer particularly to a paragraph at p181 from the original text, which is as follows: In the case of a first chief rent payable by the owner of a “second” rent, the action will apparently not lie against the latter directly, there being no privity. Here, as in other cases, the person to be sued is the pernor of the profits of the land upon which the rent is charged, who must recoup himself by means of the indemnity (if any) which he possesses under the deed creating the second rent. That paragraph seems to commence by referring to a first chief rent being “payable by” the owner of a second rent, but it goes on to say that no action may be maintained against the second rent holder directly. Of course, the appellant relies on that. [9] On the previous page in the same work, there is also this section, which seems to me to be relevant: All real actions being now abolished… the remedy by action of debt has become applicable to all cases of rent in arrear. The “rent” referred to is a rentcharge: The action is properly brought against the pernor of the profits of the land, the liability arising by reason of the receipt of the profits, and it therefore lies against an assignee, and not merely against the original grantor. [10] All those passages, it seems to me, rely, first, on the fact that the party to be made liable is what is referred to as a terre-tenant, that is to say, the holder for the time being of the freehold interest in the land. They say, second, that the terre-tenant, in order to be liable, must be the pernor of the profits of the land, that is to say, the party that is entitled to receive the rents and profits of the land. These seem to me to be references to two separate conditions. The first condition being that the party sought to be made liable is the freeholder, and the second is that, as freeholder, it is also the pernor of the profits. That is less clearly brought out in the extract from Harrison, but from the passage at p180 it does seem to me that the author there is referring to an “assignee [that is to say, an assignee of the freehold] and not merely the original grantor” of the rentcharge, which of course would have been the freeholder at the time of the grant. So where he passes on to refer to the pernor of the profits, it seems to me that he is referring to an assignee of the freehold that is also the pernor of the profits. [11] The district judge’s conclusion is set out at p29 of the bundle, which, as I say, he based primarily on the textbooks that he was referred to, having only one of the cases. He says, in [12] of his judgment: The starting point must be that a rentcharge is a legal interest in the land. (Law of Property Act 1925 Section 1(2)(b)). As a result it must be the case that the defendant as owner of the second rent has a legal interest in the properties to which it relates. Is that enough to make him the terre tenant and does he thereby have pernancy of the profits of the land? To assist me further I have made reference to the general definitions section of the Law of Property Act 1925. The following provisions are relevant: — Section 205 (1) (ix): “Land” includes land of any tenure, and mines and minerals and other corporeal hereditaments, also a manor, an advowson and a rent and other incorporeal hereditaments and an easement right. … (xxiii) possession includes receipt of rent and profits or the right to receive the same, if any… (xxiv) rent includes a rent service or a rentcharge. He goes on to say: Thus the owner of the rentcharge; (1) Has a legal interest; (2) That interest is an interest in land; (3) He is in possession of the rent, which is the equivalent to being in possession of the land. As a result it seems to me that it must follow that the owner of the second rent is the terre-tenant as he must be treated as in possession of the land. He then notes that that is a conclusion opposite to that reached by Harrison. [12] I now refer to the case authorities that I have been provided with, which are the foundation of the statements that are made by the authors of Halsbury’s and Megarry & Wade. Thomas was decided in 1873. The case note opens by recording that the plaintiff, as freeholder, had conveyed the relevant property to the defendant’s predecessors in title subject to the payment of a rentcharge. There were three judges in the case, Blackburn, Quain and Archibald JJ. The principal citations were from the judgment of Quain J, but all three judges were agreed in the result. Quain J says, at p372 of the report: Putting aside the remedy by real action, would debt have lain [that is to say, would an action of debt have been maintainable] against an assignee who is in possession of the same estate in land as the grantor of the rent? That appears to be decided in Sir W Loringes case… A little further on, he says: The action was against the person who is called the pernor of the land, provided he had the same estate as the grantor. I apprehend that the reason is that the land is the debtor, as is stated by Wilson J in Mills v Auriol. If a man comes into possession of land as tenant in fee, he is the pernor of the profits of the land, and was liable to a real action for the non-payment of a rentcharge created by a former tenant in fee; if this be so, since real actions are abolished, an action of debt will lie. [13] In both those passages, Quain J is clearly referring to an action being maintained against the person who is, for the time being, the freeholder of the property. That is the person who is referred to as the tenant in fee. It is clear that he is referring to a case in which the person sought to be charged has the same estate as the grantor, that is to say, the freehold estate out of which the rentcharge was granted. Having that estate, he was liable for the payment of the rentcharge by a real action, but since the abolishing of real actions he is made liable in an action for debt. |page:151| [14] Swift is an Irish case that, as I say, was referred to the district judge but was not available for him to read. That is an appeal decision. It is a decision made prior to the partition of the UK, and I think Mr Roberts is right to say that it is an authority, therefore, that is binding on this court, but even if not binding it would be highly persuasive, being made by an appeal court at a time when these matters were rather more frequently before the courts than I suspect they are at the moment. [15] The Chancellor Lord Ashbourne said, starting at p479: I am satisfied to treat as settled that where an owner of fee-simple land is in possession, and the land is charged with a rentcharge, the arrear can be recovered from the owner by a personal action. A little further on, he says: But in the present case there is a term of 100 years… And a little further down: What is the effect of this term, having regard to the fact that the liability of the owner to be sued at law is based upon the ground of his pernancy of the profits? He goes on to hold that, in the circumstances of that case, the defendant, who was the freeholder, was not to be treated as the pernor of the profits by reason of the existence of the term of years. However, it seems to be clear in that passage that the discussions start from the proposition that the person to be charged must be the owner of the land in fee simple, and the question in that case was whether he was also the pernor of the profits. The second judge was Chief Baron Palles, and, at p481, he says: Each of the Judges in the Court below based his judgment that the defendant was terre-tenant, not upon the ground that he had the estate of the grantor, but that he had that estate, and was pernor of the profits. Gibson J expressly states that “privity of estate and possession or pernancy of profits must co-exist. (Emphasis in the original.) At p482, he says: As, however, the defendant was admittedly in possession, and but for the existence of the term of ninety-nine years, would have had the entire of the fee which was vested in the grantor at the time of the grant, he would unquestionably have been pernor of the profits but for the existence of the term. Thus, the case depends upon the effect of the interposition of the term between the rentcharge and the freehold estate of the defendant… He goes on to conclude that the defendant is not the pernor of the profits. [16] Finally, I was referred to extracts from the decision of Naish LJ, beginning at p489. Concurring in the result arrived at by other members of the court, he says at p490: Thomas v Sylvester may be taken as establishing that if there were no term, and if the freehold reversioner were in possession in the pernancy of the rents and profits, an action of debt would lie against him. Does the interposition of the term create a distinction? He goes on to conclude that it does, and, at p491, he says: It is said, however, that here he is in possession — in the pernancy of rents and profits. I ask, however, in what capacity this possession and pernancy is enjoyed at law? Clearly as tenant at will, or, it may be, bailiff of the termor; and if it be a possession under, and not over, the term, I do not see how Thomas v Sylvester rules the case. In the next paragraph, he goes on to say: I am therefore of opinion that the possession of the defendant here is wholly different from that of the defendant in Thomas v Sylvester. In the latter case he had at law large and extensive rights, and, having these, was held liable to a personal action. Here there are no corresponding rights — a fact arising from a particular remedy and security — namely, a trust term having been created with the consent, or on the stipulation, it must be taken, of the jointress, for the purpose of protecting the jointure. The “jointure” refers to the rentcharge. [17] Finally, by way of authority Mr Hanbury was able to obtain a copy of Cundiff v Fitzsimmons [1911] 1 KB 513, in which a rentcharge was sought to be recovered against a mortgagee. It is relevant to note that at the time of that action, being before the 1925 property law reforms, the mortgage in that matter was held under a conveyance of the fee simple and not as it would be now by grant of a term of years or charge by way of legal mortgage. At pp517-518, Darling J says: It is conceded by both parties that the person who is liable to pay the chief rent is the terre tenant, that is to say the person who, having a freehold interest in the land, has the pernancy or possession of such rents and profits as there are. Mr Hughes says that the defendants were not the terre tenants because although they were owners in fee simple of the land, they had never entered into possession of the land and therefore were not pernors of the profits. At the foot of p518, he says: That seems to shew conclusively that the terre tenant or person who is liable to pay the rent-charge need not be in actual possession of the land and that the owner will be terre tenant even where the land is derelict. Over the page: I come then to the conclusion that the mortgagees here are the terre tenants, that they were in possession in the sense that they had the legal possession, and the mere fact that they had not the actual occupation did not excuse them from liability to pay the chief rent. So that again was a situation in which the person sought to be charged held the freehold interest of the property, and the question was whether that person was also the pernor of the profits. [18] The case authorities therefore seem to me to make it clear that the action in debt lies against the party that is referred to as the terre-tenant, which must be both the party with the freehold interest in the property and also the party entitled to possession of the property or to the pernancy of the profits. No doubt, a freeholder in actual occupation is in the pernancy of profits, and the cases that I have been referred to, Swift and Cundiff, discuss whether, in the circumstances, a freeholder is to be regarded as the pernor of the profits in those particular examples. What they hold is that the freeholder is not necessarily the pernor of the profits if, as in Swift, he does not have the immediate rights of freeholder by virtue of the interposition of a term of years, a 100-year term. However, if he is entitled to immediate possession, it is not an objection that he is not actually in occupation of the profits or has not actually received such rents and profits as there are or that they are not sufficient to pay the chief rent. That is the authority of Cundiff. They all start from the proposition that to be liable the party in charge must in the first instance be the freeholder. [19] In my judgment, the district judge regrettably allowed himself to be led astray by the argument over possession and pernancy or entitlement to receive the rents and profits. His conclusion was that the owner of the second rent is the terre-tenant, since it must be treated as being in possession of the land for the reasons that he gave. Where he went wrong, it seems to me with respect, is that he did not treat the two tests as being necessary and cumulative, that is to say, that the terre-tenant must have the freehold interest in the land, that is, the same estate as the original grantor of the chief rent, and it must also be the pernor of the profits. He conflated the two and treated the question of who is the terre-tenant as depending only on the entitlement to rents and profits. That said, it may be open to question whether the receipt of a second rent would be regarded as sufficient to make a party the “pernor” of the profits, given the amplification of that expression that was given in Swift and the emphasis on the existence of the wide range of rights normally available to the freeholder. However, that, I think, is probably an academic question because it seems to me ex hypothesi if the party sought to be charged is the owner of a second rent, it is not the freeholder, it is the party to whom the freeholder pays the second rent. It cannot, in my judgment, ever be the terre-tenant. [20] For those reasons, in my judgment, the appellant is not and has never been the terre-tenant and is not liable to pay the chief rent. [21] That puts the claimants, the respondents to this appeal, in the position that they must pursue their entitlement to rent against those |page:152| who are the terre-tenants, that is, the present freehold occupiers. The district judge felt that that would cause difficulty and confusion, but it seems to me that the chief rent holder is, in fact, in a very privileged position, it being the case on authority that it is entitled to recover the entirety of the chief rent from the present freeholder of any part of the land. The confusion and difficulty therefore falls on those freeholders, if there are many of them as there appear to be here, who must, if called on to pay, exercise their rights of contribution or indemnity against the other present freeholders or against the appellant, which has given an indemnity to those freeholders or its predecessors. [22] However, for those reasons, in my view, the appeal must be allowed and the district judge’s order set aside. Appeal allowed.