Whose right is it anyway? ‘Freedom to contract’ means grant of a lease confirmed not to be a personal right

United Kingdom

In Bella Italia Restaurants Ltd v Stane Park Ltd and others [2019] EWHC 2747 (Ch), Bella tried to terminate an agreement to lease relating to property in Colchester (the “agreement”) originally made with the first defendant among others (“the Trustees”), on the grounds that (Bella claimed) it was entitled to refuse to accept a lease from the new landlord, Ropemaker, to whom the property was transferred on 30 March 2017.

Bella’s argument was that the agreement was personal to the Trustees, and therefore only the Trustees could grant it a lease of the property – notwithstanding that the Trustees were no longer the legal owners.

To determine whether the agreement was personal or not, Kelyn Bacon QC looked at two issues: contractual interpretation and statutory interpretation. When interpreting the contract, the operative clause 15 of the agreement was looked at in depth, specifically cl.15.1 which stated that the ‘Landlord’ would grant to the ‘Tenant’ a lease on the terms set out in the agreement.

It was found that although the ‘Landlord’ was defined in the agreement as the Trustees, the benefit of granting the lease was not personal to the Trustees. Although cl.15.1 did not expressly say that the benefit could be transferred, it did not state that it could not. To determine the importance of this, clauses 15.2 and 15.3 of the agreement were also considered, as these clauses expressly stated that the benefit of the agreement was non-assignable by the Tenant – so, the Landlord could not be required to grant a lease to anyone but Bella. The agreement did not set similar restrictions on the Landlord, and so Mr Bacon decided that it was not the purpose of the agreement to do this. Therefore, the benefit of granting a lease could pass to Ropemaker, and Bella was still tied into the agreement.

The issue of statutory interpretation did not need to be explored, as Ropemaker could rely on the agreement to uphold its right to grant a lease to Bella. However, if it was not able to rely on this, then Ropemaker would have sought to rely on the Landlord and Tenant (Covenants) Act 1995 to argue that the Trustees’ benefits still passed to them. Mr Bacon did not rule on this issue.

The overall finding meant that Bella had failed to validly terminate the agreement, and so it was liable to complete the lease offered by Ropemaker.

This is an important reminder to know your agreement, and particularly what you and the other side are and are not entitled to do.  The basic legal principle of the ‘freedom to contract’ will mean that generally speaking, parties are entitled to assign their rights – even if a right appears on first blush to only benefit a specific named person – unless the parties are expressly barred in the contract from doing so. Here, Bella mistakenly believed that the other side was not entitled to transfer the benefit of granting a lease and is now obliged to complete a lease that it wanted to avoid.

Article co-authored by Ellie Short.