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Don’t take it personally: Is the benefit of an agreement for lease personal to the landlord?

In Bella Italia Restaurants Limited v Stane Park Limited, Bella Italia had entered into a conditional agreement for lease with its prospective landlord, the Trustees of the Churchmanor Pension Scheme.

As you would expect, the agreement contained a right for the landlord to grant a lease, on the terms agreed, with a corresponding obligation on the tenant to accept this lease.

The Trustees then sold the property to Ropemaker. In the sale contract, the property was sold with the benefit of the agreement for lease and Ropemaker covenanted to comply with the Trustee’s obligations.

Bella Italia later attempted to terminate the agreement for lease on the grounds that the right to grant the lease was personal to the Trustees and that it was entitled to refuse to accept a lease from a new landlord. The Trustees refused and Bella brought proceedings for a declaration that the agreement was terminated.

The judge had to consider whether the right was personal to the Trustees, or whether Ropemaker was entitled to enforce completion of the lease under the agreement.

As a matter of contractual interpretation, it was found that the right was not personal to the Trustees and could be assigned.

The judge noted that a large number of provisions in the agreement were expressed to be personal to the parties. For example, the agreement stated that the benefit of the agreement was non-assignable by the tenant. The judge ruled that the absence of any equivalent provision in relation to the landlord was evidence that the parties did not intend any such restriction.

The fact that the landlord was defined in the agreement as the Trustees did not prevent assignment of the benefit to a new landlord. If the definitions had such effect, it would render redundant any provision in the agreement expressing an obligation to be personal.

The draft lease, attached to the agreement for lease, also stated that references to the landlord included its successors in title. This was further evidence that the agreement was not intended to be personal to the Trustees.

Ropemaker was therefore entitled to a declaration that the agreement was not validly terminated and that Bella Italia was liable to complete the lease offered by Ropemaker or be in breach.

This is an important reminder of the basic legal principle of the “freedom to contract”. Parties are, generally, entitled to assign their benefits or rights under a contract unless expressly stated otherwise. It is important fully to understand what you and the other side are entitled to do and, when it comes to an agreement for lease or any other contract, ensure that any intended restrictions on assignment are expressly incorporated.