Prudential Assurance Co Ltd v David Monroe Ayres & Christopher Grew (2007)


The effect of a supplemental deed between a landlord and a partnership, as the assignee of an underlease, was to restrict the assignee's liability for rent to the partnership assets to the exclusion of the personal assets of individual partners and in the case of default to limit any recovery by the landlord against the tenant and any previous tenant in the same way. Although not a party to the deed a previous tenant could take advantage of the limitation on liability by virtue of the Contracts (Rights of Third Parties) Act 1999 s.1(1)(b).


The claimant intermediate landlord (C) sought to recover rent from the defendants (D), as previous tenants of premises, in their capacity as guarantors of the partnership (P) to which an underlease had been assigned and which had become insolvent. C had granted an underlease to D. D wished to assign the underlease to P. C agreed to the assignment by D to P. In the licence to assign D covenanted with and guaranteed to C that if P failed to pay rent then D would do so. By a separate supplemental deed between C and P it was agreed that the liability of P under the lease was limited to the partnership assets and did not extend to the personal assets of individual partners, and that any recovery by C against P or any previous tenant under the lease for any such default would be limited accordingly. P became insolvent leaving rent unpaid and C claimed against D. D argued that the effect of the supplemental deed in the events that had happened was wholly to exonerate D from liability to C. C argued that despite the supplemental deed the amount of rent due under the underlease remained unchanged and that any limitation on recoverability against P did not have as an inescapable consequence an alleviation of the burden on a previous tenant.


Although the rent reserved by the underlease remained unchanged, that did not prevent the limitation of liability by the deed since it was open to a landlord to indicate to his tenant a willingness to accept less than the reserved rent, Central London Property Trust Ltd v High Trees House Ltd (1947) KB 130 considered. The reference in the supplemental deed to the "liability" of the underlessee had to be read as not affecting the rent reserved but as indicating a binding willingness on the part of C in some circumstances to accept less than the reserved rent and thus to deny itself also any remedy at law or in equity for the full reserved rent whilst those particular circumstances applied. Unless P raised the inadequacy of the partnership assets, the full reserved rent would be payable and accepted but, once that inadequacy was raised, whereas the obligation remained the same, there would be no remedy available to C beyond the extent of the described partnership assets. The words "or any previous tenant" in the deed could not simply be ignored on the basis that their apparently intended effect would not be directly consequential upon the earlier restriction of recoverability against P. The use of the words "under the lease" and "any such default" were not so inept as to displace the natural meaning of the words that limited C's recovery against D as guarantors. D although not party to the supplemental deed could take advantage of the limitation of recovery against them by operation of the Contracts (Rights of Third Parties) Act 1999 s.1(1)(b). The deed purported to confer a benefit on D for the purposes of that section and D were therefore entitled to enforce the relevant provisions of the deed against C. That construction did not render the guarantees given by D completely without content. Those guarantees did not fall foul of the Landlord and Tenant (Covenants) Act 1995 s.16(5).

Judgment for defendants