Smith Brothers Farms Ltd v The Canwell Estate Co Ltd

Registered estate rentcharge – Rentcharge requiring appellant landowner to contribute to respondent rent owner’s costs of providing services to estate including upkeep of roads – Whether rentcharge valid under section 2(4)(b) and 2(5) of Rentcharges Act 1977 – Respondent’s claim for arrears due under rentcharge allowed – Appeal dismissed The respondent company provided services to an estate near Lichfield, Staffordshire, including the upkeep of the estate roads, which it owned. The appellant owned the freehold of certain agricultural land within the estate. The respondent company held a registered estate rentcharge over that land, created by a 1990 transfer to the appellant’s predecessor in title, requiring the landowner to pay a proportion of the costs, expenses, outgoings and matters mentioned in a schedule. The relevant schedule set out the respondent’s obligation to cleanse, repair, maintain and renew the roads.The respondent brought proceedings against the appellant to recover £14,653 in arrears of service charge contributions due under the rentcharge. An issue arose as to whether the rentcharge was invalid under the Rentcharges Act 1977, which prohibited the creation of new rentcharges after August 1977. The respondent claimed that the rentcharge fell within the exception, in section 2(4)(b) of the 1977 Act, for rentcharges created for the purpose of securing contribution towards the rent owner’s costs of performing covenants for the provision of services for the benefit of the land affected, or of that land and other land. The appellant contended that the rentcharge could not fall within section 2(4)(b) since: (i) the 1990 transfer contained no express covenant by the respondent to provide services to the estate; and (ii) even if there were such a covenant, the sum charged did not represent a reasonable payment for its performance by the rent owner, as required by section 2(5).Allowing the claim in the court below, the judge held that: (i) there should be implied into the 1990 transfer a covenant by the respondent to use its best endeavours to perform the obligations in the schedule; (ii) the transfer created a valid estate rentcharge within section 2 of the 1977 Act; and (iii) properly construed, the services to which the appellant had to contribute extended to all the roads on the estate, not just those over which it had a right of way. The appellant did not challenge the first of those conclusions but appealed in respect of the other two. Held: The appeal was dismissed.(1) The services that the respondent covenanted to provide fell within section 2(4)(b) notwithstanding that those services, and the consequent costs, included maintaining and repairing roads on the estate over which the appellant had no right of way. The rentcharge in the 1990 transfer had been created for the purpose, permitted under section 2(4)(b), of contributing towards the cost of the performance of covenants by the rent owner for the provision of services for the benefit of the land affected by the rentcharge, or for the benefit of that and other land. It had not been created for a pure income profit purpose that was prohibited and nullified by the 1977 Act. The focus was on the overall beneficial purpose of the rentcharge for the estate, not on specific, direct benefit for particular pieces of land affected. An estate rentcharge could be validly created for the purposes of section 2(4)(b) even if it was not specifically, solely or directly for the benefit of the defendant’s land; it was sufficient that the beneficial purpose was for that land and other land. The rentcharge created by the 1990 transfer qualified as an “estate rentcharge” within section 2(4)(b) since it was for the performance of a covenant for a permitted beneficial purpose, having regard to other land on the estate, as well as to the defendant’s land.(2) Section 2(5) was an anti-avoidance provision aimed at preventing the rent owner from requiring the landowner to make a payment unrelated to, or disproportionate to, the performance of the covenants within section 2(4)(b): Orchard Trading Estate Management Ltd v Johnson Security Ltd [2002] EWCA Civ 406 applied. Its aim was to prevent the circumvention of the general prohibition on the creation of rentcharges for pure income profit by means of rentcharges for more than nominal amounts that were not reasonable, having regard to the rent owner’s performance of the covenant. In determining the reasonableness of the payment, the emphasis was not on the kind or quantum of benefit actually obtained by the particular landowner in return for its contribution, but on whether the payment under the rentcharge represented what was reasonable for the performance of the covenants by the rent owner, viewed in the context of the purpose for which the rentcharge was created. Further, the validity of the rentcharge did not depend on the reasonableness of the amount calculated from time to time for the service charges. If the rentcharge had been created for a legitimate purpose, it was valid once and for all, from the outset. Section 2(5) merely had the effect that the rent owner would be unable to rely on the rentcharge, which would “not be treated” as a rentcharge, if the payment sought by the rent owner from the landowner were not reasonable in relation to the performance of the covenant. Consequently, the judge had correctly found that the respondent held a valid registered estate rentcharge, even though the appellant claimed that his contribution was unreasonable.(3) The judge had properly construed the relevant services of the respondent to which the appellant had to contribute as extending to all estate roads and not just those over which the appellant had a right of way. The respondent did not supply the services on an individual basis, to particular landowners of separate areas of land, but supplied them for the benefit of the estate as a whole, on which many different landowners owned land and from which they all stood to derive some benefit via the estate. Under the 1990 transfer, the appellant was bound to contribute a share of the respondent’s total cost in rendering services in respect of all the roads on the estate that it covenanted to maintain and repair. Soofi Din (instructed by Dewes LLP, of Tamworth) appeared for the appellant; John de Waal (instructed by Ansons LLP, of Lichfield) appeared for the respondent. Sally Dobson, barrister