#6710 - Rainbow V. Tokenhold - Commercial Remedies BCL

Rainbow v. Tokenhold

Facts

The plaintiff, Rainbow Estates Ltd., is the freeholder of Gaynes Park Mansion, Epping, Essex, a grade II listed building. The first defendant, Tokenhold Ltd., is the leaseholder of the mansion (excluding its eastern annex) and the second defendant, Mr. Herskovic, is the leaseholder of the eastern annex.

In 1976 Mr. Herskovic and his brother bought the mansion, and subsequently the freehold was transferred to Venrich Ltd., a 100 company owned by Mr. Herskovic and his brother. In about 1989 Barclays Bank Plc. advanced money on the security of the mansion. In 1993, when the bank was considering enforcing its charge on the property, Mr. Herskovic and his brother revealed to the bank the existence of two leases of the property. Each of the leases was dated 15 December 1987, and each was granted by Venrich: one was to Tokenhold, and comprised the mansion other than the eastern annex; the other was to Mr. Herskovic and comprised the eastern annex. In each case the tenants were granted leases until 14 December 2004 at a rent of 5,000 per annum, with the tenants covenanting "to keep and maintain the property in good and tenant-like repair throughout the term" and "to permit the landlord and its agents at all times reasonable access to examine the condition of the premises.”

In June 1991 Venrich was struck off the Companies Register for failure to comply with filing requirements, and at some time in 1995 the bank applied to have it restored in order to present a winding up petition and appoint a liquidator. In 1996 the liquidator sold the property to Senator Properties Ltd. for 150,000, which on 5 November 1996 then transferred it to Rainbow for 230,000.

Subsequently, in the course of correspondence and in these proceedings Tokenhold and Mr. Herskovic maintained that no rent was due under the leases, and that there was no repairing obligation on the tenants, because the leases were subject to two agreements dated 17 November 1987 under which the repairs were to be the responsibility of the landlord, Venrich, and under which the cost of work undertaken by the tenants could be deducted from the rent.

In an earlier judgment, I decided (on the assumption that the agreements and the leases were genuine documents): (a) that there was a conflict between the agreements and the leases; (b) that, in general, where there is a conflict between a lease and a prior agreement, the rights of the parties are governed by the lease; (c) that there was no credible evidence that the agreements and the leases were part of one transaction. The consequence was that the defendants were responsible for repairs and were in arrears with the rent.

Question

Whether a covenant by the landlord to keep the property in repair can be enforced specifically.

Holding

Earlier view – no specific performance of the obligation to repair

Until relatively recently it was generally accepted that repairing covenants could not be specifically enforced, whether they were landlord's covenants or tenant's covenants. Lord Eldon L.C. said, at p. 405, that the landlord:

“may bring an ejectment upon non-payment of rent: but he may also compel the tenant to pay rent. He cannot have that specific relief with regard to repairs. He may bring an action for damages: but there is a wide distinction between damages and the actual expenditure upon repairs, specifically done. Even after damages recovered the landlord cannot compel the tenant to repair: but may bring another action…”

Two reasons for not permitting specific enforcement of covenant to repair

Mutuality: But, said Lord Eldon L.C.: “The difficulty upon this doctrine of a court of equity is, that there is no mutuality in it. The tenant cannot be compelled to repair.” The view that the landlord's covenant could not be specifically enforced came to be based on the theory that there was no mutuality because the tenant's covenant could not be specifically enforced.

Constant Supervision: The view that the landlord's covenant could not be specifically enforced came to be based on the theory that there was no mutuality because the tenant's covenant could not be specifically enforced, or because the works could not be adequately defined, or because effective compliance could not be obtained without the constant supervision of the court: cf. Fry on Specific Performance, 6th ed. (1921), pp. 42-50, 222-223.

These reasons are not longer valid

Mutuality: But today there is little or no life in these reasons. First, as regards the requirement of mutuality, it is now clear that it does not follow from the fact that specific performance is not available to one party that it is not available to the other: want of mutuality is a discretionary, and not an absolute, bar to specific performance. The court will grant specific performance if it can be done without injustice or unfairness to the defendant.

Constant Supervision: So also, the objection to an order for specific performance based on the need for the court's constant supervision is designed to avoid repeated applications for committal which are likely to be expensive in terms of cost to the parties and the resources of the judicial system, but as regards orders to achieve a result, Lord Hoffmann said, at p. 13:

“Even if the achievement of the result is a complicated matter which will take some time, the court, if called upon to rule, only has to examine the finished work and say whether it complies with the order... This distinction between orders to carry on activities and orders to achieve results explains why the courts have in appropriate circumstances ordered specific performance of building contracts and repairing covenants...”

Analogy with obligations to build

In particular, it became settled that the court will order specific performance of an agreement to build if (a) the building work is sufficiently defined; (b) damages would not compensate the plaintiff for the defendant's failure to build; and (it seems) (c) the defendant is in possession of the land so that the plaintiff cannot employ another person to build without committing a trespass.

Conclusion

These decisions show that there is no longer any life in the proposition that the court will not grant specific performance against a landlord of a covenant to...