High Court clarifies requirements of certainty in an agreement for a lease to be executed in favour of a third party

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Richard Smith J, in the Business and Property division of the High Court, gave judgment last week in Khan v Malik [2023] EWHC 22529 (Ch), a dispute focusing on the requirements of certainty in an agreement for a future lease.

Harvey v Pratt [1965] 1 WLR 1025 has long been the authority for the proposition that the essential requirements for a valid contract for a lease are certainty as to the parties, the property, the lease term, the rent and the lease commencement date.

This case involved a restaurant in Sunninghill, Berkshire. The parties were the freehold owner of the property (K) and a third party who had been asked to become involved and invest in the restaurant by one of the directors of the current tenant who was his brother in law (M).

A meeting took place whereby it was agreed that M would purchase the shares in the tenant company from all directors save his brother in law, surrender any tenancy that existed (there being an issue as to whether any tenancy had been properly executed), undertake and finance a comprehensive scheme of refurbishment on the restaurant, and then nominate a new corporate entity, which would be granted a lease and would thereafter operate the restaurant, with a view to recouping his investment in that way. If for any reason K failed to grant the lease, he would repay the monies spent on the refurbishment personally.

After the works were done, the freeholder K failed to grant a new lease to any entity nominated by M, but instead granted a lease to a separate individual, thus ousting M from any control or interest in the business.

M sued for damages, based on monies invested in expectation and under the agreement.

K defended on the factual basis that he denied the meeting and the agreement, but also on the alternative basis that even if the matters set out were agreed, it would give rise to an agreement that was so uncertain it would be void, not least because there was no start date agreed for the proposed tenancy.

The evidence of the Claimant was preferred on the facts of what was agreed at the meeting. Further, the Court held, and was confirmed on appeal, that the agreement reached was not an agreement for a lease, but was more akin to an option agreement, and as such did not need to meet the rigid rules of certainty set out in Harvey v Pratt. Further, and in the alternative, the Court found that even if Harvey was binding, it was possible to ascertain with reasonable certainty what the parties had intended and to give effect to the matters agreed by two businessmen.

The judgment can be found here.

The coverage of the decision in the Estates Gazette can be found here.

Aaron Walder represented the successful Claimant both at first instance and on appeal.

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