Taylor Fashions Ltd v Liverpool Victoria Friendly Society [1981] 2 WLR 576  Chancery Division

Taylor Fashions leased retail premises (no 22 Westover road, Bournemouth) from Old & Campbell who owned the freehold of no 22 & 21 and ran a retail fashion business themselves from no 21. The lease was for 28 years subject to an option to renew for a further 14 years conditional upon Taylors installing a lift at their own expense. Subsequently Old & Campbell transferred the freehold in both premises to Liverpool Victoria and leased back no 21 to continue their retail business. The lease of no 21 to Olds for 42 years, contained a provision that should Taylor Fashions not exercise the option to renew, Liverpool Victoria would have an option to terminate the lease after 28 years. 15 years later Olds took out a lease on no 20 also from Liverpool Victoria. This lease was tied into the other leases and was for 14 years with an option to renew, subject to Taylors renewing their lease. The leases were due to terminate on December 25th 1976. The option to renew the leases had not been registered as estate contracts on the land charges register. Taylors installed the lift and also carried out extensive improvements on the premises in the belief that they would have a further 14 years Liverpool Victoria were aware of the work and that it was done in the belief that they had a valid option. Olds were encouraged by Liverpool Victoria to spend money making substantial improvements to no 21 and to take out an new lease on no 20 in the belief that the option to Taylor was valid. Liverpool Victoria claimed that the options to renew were void for want of registration under the Land Charges Act 1972. Taylors sought specific performance of the option. Olds sought specific performance of the option on no 20 and a declaration that the option to terminate the lease on no 21 was invalid.

Held: 

The option to renew the lease of no 22 (Taylor Fashions) was void. The option to renew the lease of no 20 was valid and specific performance was granted. The option to terminate the lease of no 21 was non operative.

Oliver J:

"In the case of Taylors there were two difficulties. The first was the difficulty of imputing to the defendants either encouragement or acquiescence in regard to Taylors' belief in the validity of the option. The defendants came into the picture as purchasers of the reversion on an existing lease and subject to all its expressed obligations so far as enforceable against them. In installing the lift Taylors were simply doing what was contemplated by the lease and the defendants could not lawfully object to the work and could not be under any duty to communicate to Taylors what the defendants did not know themselves, namely, that the option was unenforceable because of non-registration. The second difficulty was that, although Taylors believed that the option was valid, it was not possible to say that they would have decided not to do the work if they had thought otherwise. It was even less possible to say that the defendants were, or must have been, aware that Taylors would not have done it. It was therefore necessary, although with some regret, to dismiss Taylors' claim for specific performance.  

The case of Olds was very different. First of all, the defendants obtained the freehold from them at a price which was calculated, so far as Olds were concerned, on the footing that the break clause in the 1949 lease was to operate, and the term of the leaseback was to be reduced from 42 to 28 years, only in the event of the non-exercise of an option assumed to be subsisting when the lease was granted. Secondly, in the 1963 transaction Olds were encouraged by the defendants to expend a very large sum on no 21, and to take a lease of the adjoining premises (no 20), upon the faith of the expectation, encouraged by the defendants, that they would be entitled to renew in a particular event which Olds were invited to believe was at least possible. It would be most inequitable if the defendants, having put forward Taylors' option as a valid option in two documents, under each of which they were the grantors, and having encouraged Olds to incur expenditure and alter their position irrevocably by taking additional premises on the faith of that supposition, were now to be permitted to resile and to assert, as they wished to do, that they were, and had been all along, entitled to frustrate the expectation which they themselves created and that the right which they themselves stated to exist did not, at any material time, have any existence in fact. It followed that Olds' claim to specific performance succeeded."

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