Commercial lease – Break clause – Break by defendant tenant conditional on absence of any arrears of rent at break date – Rent defined to include payment on demand of such sums as lessor expending from time to time on insurance – Whether valid demand possible only in respect of sums actually expended by landlord – Whether claimant expending such sums before break date – Whether break clause validly exercised – Summary judgment refused
The claimant was the landlord and the defendant was the tenant of commercial premises under a lease for a term of 15 years to December 2015. In March 2009, the defendant served notice to break the lease in mid-December 2010, pursuant to a break clause in the lease. The tenant’s right to break was conditional on there being no arrears of rent and no other outstanding breaches of covenant at the date of expiry of the notice.
In November 2010, the claimant sent an invoice to the defendant for £3,609.72, as the insurance premium for the premises on renewal for the forthcoming year. Such premiums were described as “additional rent” under the terms of the lease, which required the tenant to pay, within 14 days of a written demand, “such yearly sum or sums… as the Lessor may from time to time expend in insuring and keeping insured the demised premises”. The defendant queried the insurance demand on the ground that it would be vacating the premises in mid-December. The claimant asserted that the premium had properly fallen due and been properly invoiced such that the defendant was obliged to pay the whole sum as a condition of the effective exercise of the break clause. The defendant did not pay that sum.
Meanwhile, a cheque sent by the claimant to the insurance broker in respect of the premium went astray. The broker paid the insurance company but did not receive a replacement cheque from the claimant until late December, after the break date.
A dispute arose as to whether the defendant had effectively broken the lease. The claimant sought a declaration that the lease was continuing, owing to the existence of outstanding arrears of insurance rent at the break date, and a money judgment for arrears of rent. It applied for summary judgment on that claim. The defendant contended that, on the proper construction of the lease, the tenant’s obligation to pay the insurance charge arose only once the landlord had actually expended the sums in question, which had not occurred by the break date. The claimant contended that the premium had been paid because it had been credited by the insurer pursuant to arrangements between the insurer and the broker.
Held: Summary judgment was refused.
The ordinary and natural construction of the words “such yearly sum or sums… as the Lessor may from time to time expend in insuring and keeping insured” was that the tenant’s liability was to pay on demand only the sums that had actually been spent on insurance by the landlord. The word “may” did not indicate that the landlord could demand payment of an insurance charge in respect of sums that it had not yet expended. It simply reflected the fact that, at the time of the making of the lease, the landlord’s expenditure was both future and indeterminate. The fact that the premium had been credited by the insurer, pursuant to arrangements between the insurer and the broker, did not mean that it had been paid. It was not correct to speak of a payment on the renewal date by means of “credit” rather than actual money. There was simply the common situation, whereby the insurer’s offer of renewal would not lapse but would remain open for acceptance for a period after the renewal date and payment could be made within that period. At no time before the actual payment of the premium to the insurer was the claimant contractually obligated to the insurer to make the payment.
There was nothing in the terms of the lease to indicate that the relevant clause should be construed other than in accordance with its natural meaning. There was no reason of commercial common sense to reach a different interpretation. Accordingly, the claimant was entitled to serve a demand for payment of the insurance charge only in respect of such sums as it had already paid in insuring the property. At the date of the demand, the claimant had not paid any sums in insuring the property. The demand was therefore invalidly served and did not give rise to a liability on the part of the defendant to pay for the insurance charge before the expiry of the break notice.
David Stockill (instructed by Quality Solicitors Silks, of Oldbury) appeared for the defendant.
Sally Dobson, barrister
