Landlord and Tenant

Question & Answer on Tenancy Issues

tenancy

SCENARIO

ABC Sdn Bhd took out a loan with Bank XYZ with a charge on a shop office (the Premises).

On 28 April 2013, MAX Co entered into a tenancy agreement with ABC Sdn Bhd for the tenancy of the Premises. The tenancy agreement was entered into with the understanding that MAX Co would restore, make improvements and maintain the Premises for the length of the tenancy, with an option to purchase at a later date.

However, ABC  has since 2 May 2013 become insolvent and Bank XYZ has since appointed a receiver and manager to administer to the affairs of ABC.

 

 ISSUES

A.    Is the tenancy agreement specifically enforceable?

The remedy of specific performance is an equitable remedy, hence can only be invoked where there is an equitable interest, i.e. a tenancy coupled with equity. The case King’s Confectionery Sdn Bhd v KT Systems Protection Sdn Bhd [2001] MLJU 680 held that:

“In order to enable the money expended by the tenant for renovation of the premises to be regarded as a tenant coupled with equity, the tenant must be led to believe by the landlord that as a result of the expenditure, the tenant will be allowed to remain in the premises for as long as he liked or for a considerable time.”

 In ABC’s case, one of the terms of the tenancy was that MAX Co restore, improve and maintain the farm, which they have been doing. Therefore, MAX Co has an equitable interest in the farm, as it has expended money believing that it would be allowed by the landlord to remain on the Premises for the length of the tenancy, with an option to purchase the Premises at a later date.

7.         The English case of Verrall v Great Yarmouth Borough Council [1981] 1 QB 202 held that where it was appropriate to do so, the court would protect any interest, including a license of a transient nature, by specific performance. The court concluded that:

 

“(1) the duration of the license, no matter how limited, is no bar to this kind of relief;

 

(2) the fact that a license can be revoked does not lead inevitably to the conclusion that damages are the only remedy for revocation.”

 

Therefore, as it is possible for a temporary license to be specifically enforceable, it should follow that a tenancy agreement should be specifically enforceable as well.

 

 B.     Is the tenancy specifically enforceable against the Receiver & Manager?

 

The English case Freevale Ltd v Metrostore (Holdings) Ltd [1984] Ch 199 held that the mere fact of receivership afforded no defence to a claim for specific performance.

 

This case was applied in Ah Kaw v Ayer Keroh Heights Sdn Bhd [1990] 1 CLJ 566, which quoted it stating that:

 

“…the fact that the vendor company is placed in receivership by a debenture holder if the company prior to  a completion of the contract does not destroy a purchaser’s equitable interests in the land under the contract and substitute for it a mere right to claim damages against the vendor company if the contract is not completed, instead the vendor company remains liable to complete the contract. Accordingly, this appointment of a receiver does not itself afford the vendor company a defence to a claim by the purchaser for specific performance of the contract.”

 

This means that if the contract or agreement was one that was specifically enforceable from its inception, the appointment of a receiver neither destroys the purchaser’s or tenant’s equitable interest in the land nor the ability to specifically enforce the agreement.

 

 CONCLUSIONS

 

MAX Co is advised that its tenancy agreement is specifically enforceable, as it has an equitable interest in the land.

 

The tenancy agreement may be specifically enforced against the receiver and manager, as the mere fact that the company is receivership does not destroy a pre-existing ability to specifically enforce an agreement.