F. Agreements to Transfer Interests in Land

• Author: John D. McCamus
• Profession: Professor of Law. Osgoode Hall Law School, York University
• Pages: 591-596

Page 591

The application of the doctrine of frustration to agreements to transfer an interest in land has proven to be a contentious matter. On one view, as long as it is possible to transfer the interest in question, there is simply no room for application of the doctrine of frustration. This point is sometimes explained on the basis that such agreements are not mere contracts. Rather, they convey or create an interest in land and, accordingly, are inherently not susceptible to the application of frustration doctrine. When the interest passes, the contract is performed. On the other hand, the view has been taken, especially in the context of leases, that there is, in principle, no reason why an agreement to lease land could not be subject to the doctrine if a supervening event undermines the very purpose for which the agreement was entered. Further, though this is a matter of some controversy, similar views have been adopted, by Canadian courts in particular, with respect to the potential application of the doctrine to agreements for the purchase and sale of land.

In Cricklewood Property and Investment Trust Ltd. v. Leighton’s Trust Investment Ltd.,¹²⁸the House of Lords divided on the question of whether the doctrine of frustration could, in principle, apply to a lease of land. This case involved a ninety-nine-year lease of a building estate under which the lessee covenanted to erect a shopping centre within a certain period of time after having been given notice by the lessor to do so. Rental became payable one year after the giving of such notification. Although notices had been served by the lessor, the commencement of war and consequent wartime building restrictions prevented the construction of the centre. The lessee resisted making the required rental payments on the basis that the lease had been frustrated. The House of Lords divided on the question of whether, in principle, the doctrine of frustration could apply to a lease. Viscount Simon offered the view that neither authority nor principle precluded the application of the doctrine to a lease. He conceded that it was very difficult to imagine circumstances in which a simple lease of land for a period of years under which the lessee was free to use the land in any fashion desired could be subject to determination on the basis of a frustrating event. Where, however, a lease has been entered into for the express purpose of using the land for a particular purpose, such as erecting a building on the land that would ultimately benefit the lessor on termination of

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the lease, it was easier, in his view, to imagine circumstances in which it might be appropriate to apply frustration doctrine. On the present facts, however, the lease had more than ninety years to run and the length of the interruption resulting from the wartime regulations was likely to be a small fraction of the whole term of the lease. Accordingly, the doctrine did not apply. Although Lord Wright was in agreement on the point of principle, two members of the panel¹²⁹were of the view that the doctrine of frustration was simply inapplicable to a lease of land. Even if circumstances developed that made it difficult or impossible for one party to carry out some of its obligations under the lease, the lease would still be effective. As Lord Russell explained, "the estate and the land would still be vested in the tenant."¹³⁰The fifth member of the panel¹³¹reserved on the point as the doctrine would not be applicable to the facts in issue, in any event.

The House of Lords returned to the point of principle, however, in 1980 in National Carriers Ltd. v. Panalpina (Northern) Ltd.¹³²On this occasion, the matter was resolved in favour of the proposition that the doctrine of frustration can apply to leases. The argument to the contrary that a lease is more than a mere contract because it conveys an interest in land was rejected on the basis that there may be situations in which the mere transfer of the leasehold estate may not accomplish the purpose of the agreement. On this point, Viscount Simon’s illustration of a building lease was considered persuasive.¹³³Further, their Lordships were of the view that a distinction between agreements creating estates in land and other types of contracts would be artificial. Thus, as the doctrine of frustration plainly applies to leases of vessels, it was not at all clear why it could not also apply to leases of land.¹³⁴Some support was also drawn from American experience, including a line of cases holding that leases of liquor saloons had been frustrated by prohibition.¹³⁵In response to the further argument that it should be accepted as a general principle that on execution of a lease, risk passes to the lessee, it was suggested that while this may be generally the case, especially in the context of a long-term lease, there was no reason why the

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risk of a particular supervening event might not fall upon the lessor.¹³⁶

Again, on the particular facts of this case, however, it was concluded that the doctrine was inapplicable. The defendant had leased a warehouse for a period of ten years. A road that provided the only vehicular access to the warehouse was closed by the municipality to facilitate repairs to a...