Why did a landlord buy a tenant's leasehold interest in the landlord's property?

Question

1. Pls ELI5. The Landlord (Hughes) unmistakably owns the property leased to the lessee (Metropolitan Railway Co). Thus why did a Landlord buy the lessee's leasehold interest in the landlord's own property?

2. Why wouldn't the Landlord just authorise the lessee to breach and end the lease with no penalty, and return the property to the Landlord?

Richard Taylor, Damian Taylor. Contract Law Directions (6 edn 2019). p 92.

However, in Hughes v Metropolitan Railway Company (1877), the House of Lords gave effect to conduct which amounted to a promise as to future conduct. The landowner Hughes served notice on the Railway Company to perform repairs on the property it leased from him within six months, on pain of forfeiture of the lease. The Railway Company said that it would carry out the repairs but, before it did this, it wished to hear from Hughes on its proposal for Hughes to buy the Railway Company’s leasehold interest in the property. The parties entered into negotiations but they did not arrive at an agreement and Hughes sought to eject the Railway Company from the property six months after it had served the notice of repair (the Railway Company performed the repairs two months later).

Paul Davies. JC Smith's The Law of Contract (2018 2 ed). p. 92.

But does Hughes v Metropolitan Railway Co really support the principle enunciated in High Trees? This was a case involving a waiver. A landlord gave his tenant six months’ notice to repair the premises, the lease being forfeitable if the tenant failed to comply. During the six months, the parties entered into negotiations for the sale of the lease to the landlord and, with the landlord’s concurrence, no repairs were done while the negotiations were in progress. The negotiations failed.

O'Sullivan & Hilliard's The Law of Contract (2018 8 ed). p. 114.

5.77       Denning J was here referring in particular to the case of Hughes v Metropolitan Railway (1877). There, a landlord served a notice on his tenants to carry out certain repairs to the leased property within six months. (The lease provided that the tenants were responsible for repairs to the property and that the landlord was entitled to terminate (‘forfeit’) the lease if the repairs were not performed in accordance with the notice.) The tenants replied saying that they would carry out the repairs, but wondered whether the landlord might be interested in buying out their leasehold interest and suggested that the repairs might be deferred pending any negotiations. The landlord entered into negotiations and, while these were going on, the tenants deferred the repairs. After negotiations broke down, the tenants began the repairs but they were not completed within the initial six-month period, whereupon the landlord attempted to forfeit the lease.

Answer 1

Interesting question. I can imagine two situations in which costs and benefits are such that the tenant might have good reason to reject your offer:

1) Suppose the MRC (the tenant) had already made improvements to the property. It expected to recoup the cost of those improvements over the life of the lease. If it simply walks away from the lease, it will lose some of the money it invested in those improvements.

2) Hughes, the landlord, does not own all of the rights to his property. Because of the lease, the MRC owns the right to use the property for the term of the lease. This right is valuable — that is why the MRC is willing to pay for it. Depending on how valuable that right is, the MRC might balk at simply giving this valuable property away for free.

Assuming the lease prevents the MRC from subletting the property, then MRC and Hughes are stuck having to deal with each other. Bargaining in these situations is notoriously difficult. The only threat each side has is that it will insist on carrying out the terms of the lease. In many situations, as the OP suggests, such threats will not be credible.

Note: Answer # 2 illustrates the old saying that property is like a bundle of sticks, with each stick representing control over some aspect of the property. In most cases, no one person owns all of the sticks in the bundle. Instead, rights to control various aspects are held by different people. For example, my neighbors may "own" the right to drive across "my" property to get to their garage through an easement. The city may "own" the right to decide what sort of building I can put on the property through zoning. My neighbors may effectively "own" the right to my view, since they can let their trees block it (although this right may be limited by ordinances about blocking views, etc.). And so on.