The potential landlord agreed with the proposed tenant to build a hotel by a date, and the tenant agreed to take a lease when it was ready. The building was late in completion. The tenant took the lease but without prejudice to his claim for damages. The landlord then mortgaged its interest to the claimant. The tenant sought to set its damages claim off against the rent due to the mortgagee for periods since the date of the mortgage. The mortgage took effect under the common law as a conveyance, subject to the mortgagee’s obligation to reconvey once the mortgage debt was paid off. The mortgagee had the legal title to the land.
Held: The tenant’s claim for a set-off failed. A transferee of the reversion is entitled to recover the rent in his own right, and therefore an equitable right of set-off which could have been raised in the case of a normal equitable assignment of a chose in action (including one which would now be recognised as a legal assignment by virtue of section 136) cannot be invoked.
Lord Reading CJ said: ‘It is perfectly plain that we are not dealing here with the right to set-off against the assignment of a chose in action, in which event quite different principles apply. . . ‘But that is not the real question in this case. The whole point depends upon whether or not Mr Crawford is right in saying that his client would be entitled to set off this claim, notwithstanding that it is not an interest in land. That is the whole matter in dispute. If what his client had was an interest in land which he desired to set off against the mortgagees in possession, no doubt the cases which he has quoted are in point as authorities for that proposition; but the moment it is ascertained that in this case the claim is not an interest in land, but if established is merely a right to damages against the mortgagor for breach of an agreement made in respect of, or in connection with, the land’.
Buckley LJ said that the tenant’s argument that the right to future rent which had been transferred was a chose in action was ‘wholly misconceived’ and that the mortgagees were not assignees of the rent: ‘The mortgagees were entitled, as mortgagees, to the reversion expectant on the determination of the lease under which the defendant held, and as such mortgagees they were entitled in their own right to enforce payment of the arrears of rent. They were not assignees of the rent; they were persons claiming to enforce payment of rent as entitled thereto as mortgagees; they could have distrained for the rent.’
‘Then it was said that there was a right of set-off by reason of the fact that the damages in question were damages arising from a breach of contract to do something upon the land within a time.
‘Now that, I conceive, is wholly a misconception. The doctrine is this – that whether there be a purchaser or mortgagee (it does not matter which) and the purchaser or mortgagee finds a tenant in possession, he is bound to assume that the tenant in possession has some interest in the land . . [The damages gained under the building agreement] were not any incumbrance on the land, and the right to them was no estate or interest in any way in the land. The damages in question, therefore, are not within the principle which is to be found in and perfectly indisputably established by the cases which have been cited to us’.
Judges:
Lord Reading CJ, Buckley LJ, Phillimore LJ
Citations:
[1914] 2 KB 284
Jurisdiction:
England and Wales
Cited by:
Cited – Edlington Properties Limited v J H Fenner and Co Limited CA 22-Mar-2006
The landlord had assigned the reversion of the lease. There was an outstanding dispute with the tenant defendant who owed arrears of rent, but sought to set these off against a claim for damages for the landlord’s failure to construct the factory in . .
Approved – National Provincial Bank Limited v Ainsworth HL 1965
The significance of the distinction between occupation and rights was that although the deserted wife was in actual occupation of the former matrimonial home, the quality of her rights was not such as to be capable of amounting to an overriding . .
Explained – Re Arrows Ltd (No 3) ChD 1992
Hoffmann explained the case of Reeves v Pope: ‘The reasoning of the Court of Appeal was that a mortgagee or transferee of a property subject to a lease does not become entitled to the rents . . as an assignee [of] a chose in action by the original . .
Cited – Lotteryking Ltd v AMEC Properties Ltd ChD 1995
The tenant sought to prevent the sale of the landlord’s reversion until the lessor’s repairing obligations had been met. One of the grounds was that on a sale the tenant’s right of set-off would not pass.
Held: An order was refused. Lightman . .
Lists of cited by and citing cases may be incomplete.
Landlord and Tenant
Updated: 07 May 2022; Ref: scu.242645
