Noakes & Co Ltd v Rice [1902] AC 24

House of Lords

Basic Facts: The holder of a 26-year lease on a pub mortgaged it to a brewery, agreeing to purchase liquor exclusively from the brewery for the entire duration of the lease (a beer tie agreement), even after the loan was repaid.

Issue for the Court: When will collateral terms be considered to be clogging and fettering?

Held: The court ruled that any collateral advantage that extended beyond the mortgage term infringed the mortgagor’s equity of redemption. The covenant becomes void upon redemption of the mortgage.

Lord MacNaghten held:

• Equity does not permit terms that impede or prevent redemption of a mortgage.

• Clogging the right to redeem by requiring continued obligations post-redemption is impermissible.

Lord Lindley disagreed:

• The collateral term in this case was not inherently clogging if it did not affect the right of redemption directly.