In A2
Dominion Homes Limited v Prince Evans the High Court had to consider the
effect of a unilateral notice registered to protect an agreement for lease and
the lease granted pursuant to it. The facts are straightforward. A2
instructed Prince Evans to act for it in taking a long lease over property to
be granted by the freehold owner. The lease was to be granted at a
premium of c£3.7m and was to be taken following the completion of building
works. An agreement for lease was entered into and a deposit of £1.25m
paid. The agreement for lease was protected by the registration of a
unilateral notice against the freehold title. Thereafter, but before the lease
was completed and registered, the freehold owner charged the building to its
bank.
The question
was what priority was afforded by the unilateral notice and specifically did it
bind the bank, even though the lease was granted after the charge? The
reason why the question of priority was important here is because under the
terms of the charge no lease could be granted without lender consent.
Lender consent was not obtained and therefore the interest of A2 and its
substantial investment in the property was at risk if the lease did not bind
the lender.
The court
determined that the effect of the unilateral notice in this case was to confer
priority to A2 in respect of the agreement for lease and also the lease
granted pursuant to the agreement. To hold otherwise would lead to
absurdity as there would be no point in registering the agreement at all and
therefore no ability to protect the interest of the prospective lessee.
In circumstances where registration of the agreement for lease would bind
anyone who purchased the freehold to abiding by the terms of the agreement and
granting the lease, the mortgagee should not be in a preferential position
where it could deny the lease bound it
This is a
victory for common sense, but there is one cautionary note. What would
the position be if the form of lease granted differed from the form in the
agreement for lease? After all it is common for the form of the lease to be
varied by agreement for any number of reasons between the date of the agreement
and the grant of the lease. Could it in those circumstances be said that
the lease granted was not granted pursuant to the agreement? The answer is that
it could be. In A2 the question did not arise because it was
recognised that the lease granted was strictly in accordance with the agreement
and this formed part of the basis of the decision. However it might
conceivably be said that where there are amendments to the form of lease then
those might be sufficiently significant to negate the court’s analysis in A2
and deny priority to the lessee.
