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Alma Property Management Ltd v Crompton [2022] EWHC 2671 (Ch)

Alma Property Management Ltd v Crompton [2022] EWHC 2671 (Ch)

Judgment was handed down by Fancourt J. on 28 October 2022 in Alma Property Management Ltd v Crompton, a case about two receivers of Alma’s freehold interest in North Tower in Manchester (a 22-story tower block which comprises a hotel on the lower floors and flats on the upper floors). In order to preserve the asset for sale, the receivers obtained an order vesting a lease of the common parts and structure in their names when that lease was disclaimed after the lessee company was dissolved. After a sale fell through, Alma decided to redeem its charge and the receivership was brought to an end but the lease remained vested in the receivers. Four years later, nearly £1m of major works were required to the building and having had no involvement since the redemption of the loan, the receivers received a letter before action from Alma requiring them to carry out the works pursuant to the lessees’ covenants.

The receivers sought Alma’s consent to assign the lease to a company owned by the lessees of the flats, which company also held the head lease of the flats and was liable to contribute half of the cost of the works. Alma gave its consent but on condition of an AGA from the receivers.

Alma brought a claim for specific performance seeking an order that the receivers carry out the repairs to the building. The receivers counterclaimed for a declaration that consent had been unreasonably withheld to the proposed assignment.

In dismissing the claim for specific performance, the Court reiterated and applied the guidance of Lawrence Collins QC in Rainbow Estates Ltd v Tokenhold Ltd [1999] Ch. 64 and held that Alma should have relied on its right to carry out the works itself and recover the cost from the receivers. The Court also took account of the receivers’ status as Alma’s agents (as analysed in Silven Properties Ltd v Royal Bank of Scotland plc [2004] 1 WLR 1997) and concluded that since the receivers did not hold the lease for their own benefit and were entitled to be indemnified by Alma as their principal and under s.37 of the Insolvency Act 1986, specific performance should not be ordered.

In relation to the counterclaim, the Court concluded:

By s.1(3) of the Landlord and Tenant Act 1988, the landlord was not required to state the reasons for imposing a condition for giving consent, just to state the condition. However the landlord was only able to rely on reasons for the condition which actually influenced that decision (which were evidenced by the landlord’s solicitor’s letter setting out the requirement for an AGA). On this basis Alma was not entitled to rely on additional reasons given in evidence at trial.

The condition specified by Alma’s solicitors was that the receivers should enter into an AGA. They did not stipulate any particular terms of that AGA. The receivers would comply with that condition by offering an AGA based on the minimum requirements in s.16 of the Landlord and Tenant (Covenants) Act 1995 and so Alma could not require the receivers to agree to any of the optional additional terms in s.16(5).

In ordinary circumstances, it would have been reasonable for the receivers to give an AGA because of the covenant strength of the management company (which was dependent on the lessees of the flats to fund any works) but because the receivers took the lease for the benefit of Alma, it was unreasonable for Alma to require the receivers to covenant to guarantee performance of the covenants in the common parts lease long after the receivership had ended, especially where the Court held that the indemnity of the receivers under s.37(1)(b) of the Insolvency Act 1986 would not apply to their liability under an AGA. Applying Mount Eden Land Ltd v Straudley Investments (1997) 74 P & CR 306, the court therefore held that Alma was seeking to enhance its rights by imposing the condition of an AGA and therefore that condition was unreasonable.

The Court also considered a defence based on estoppel by convention and estoppel by representation. The Court rejected the argument that estoppel by convention could never apply to future dealings after one of the parties indicated that it wished to rely on its strict legal rights, it was held that it did not apply to the prospective repairing liability under the lease in the circumstances of this case.

Adam Rosenthal KC and Mark Galtrey acted for the receivers, instructed by Wedlake Bell LLP. A copy of the judgment can be found here: https://www.bailii.org/ew/cases/EWHC/Ch/2022/2671.pdf

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