Underlease — Tenant company going into liquidation — Guarantor required to take underlease of property for remaining term — Guarantor giving notice requiring completion within reasonable time — Failure to complete — High Court declaring that guarantor discharged from any obligation
The defendant was lessee of the Quadrant, Pembroke Road, Newbury, Berkshire, under a headlease dated August 17 1989 for a term of 20 years from June 30 1989. By clause 4(13)(c) the lessee was permitted to underlet part of a floor of the building with the previous consent of the head landlord. By an underlease dated May 21 1990, made between the defendant as landlord, Xey (UK) Ltd as tenant, and the plaintiff as guarantor, pursuant to a licence to underlet given by the head landlord, the defendant sublet offices on part of the first floor of the Quadrant to the tenant for a term of 10 years from June 1989 at an initial rent of £19,500 pa, plus a service charge. The initial rent was subject to review in 1994 and the term was subject to a break clause entitling the landlord, or the tenant, to determine the term on June 30 1994 by service of at least three-months previous notice in writing. Clause 5(2) of the underlease provided that if the tenant (being a company) went into liquidation, and the liquidator disclaimed the lease, the guarantor could be required to take a lease from the landlord for the residue of the term.
The plaintiff was a company incorporated in Spain, of which the tenant was an associated company. On March 1 1993 the tenant went into liquidation and the liquidator disclaimed the underlease. By November 17 1993, seven months after the defendant’s notice, under clause 5(2) no grant of a new underlease had been made by the defendant. The plaintiff gave notice to the defendant’s solicitors requiring completion by December 3 1993 in default of which the plaintiff would regard itself as discharged from the contract. Nothing had happened by December 15 1993 when the plaintiff sought a declaration from the court that it was discharged from any obligation to take an underlease pursuant to the original underlease.
Held The plaintiff was entitled to the declaration claimed.
1. As regards the draft underlease, at all material times after June 30 1993 the plaintiff was willing to execute an underlease or counterpart complying with its obligations under clause 5(2).
2. The defendant’s draft was a one-sided document in that it set out the covenants of the tenant expressly, but contained no similar clause referring to the covenants of the landlord. A reader of the draft might reasonably conclude that there was doubt as to their incorporation. It followed that the plaintiff was entitled to reject that draft.
3. In relation to the draft licence, in the absence of express provision, it was for the mesne lessor to obtain the headlessor’s licence at his own expense. There was no implied obligation on the plaintiff to pay.
4. In the present case, when the notice of November 17 1993 was served, there had been extreme delay in completion. That was not the responsibility of the plaintiff. A party willing to execute a document complying with its obligations was not in breach of contract, even if he was simultaneously refusing to execute a document in a different form which would also comply with its contractual obligations.
Henry Harrod (instructed by Alan Taylor & Co) appeared for the plaintiff; Kirk Reynolds QC (instructed by Lester Aldridge, of Bournemouth) appeared for the defendant.