Landlord and tenant — Option for tenants to obtain a further term on termination of existing lease — Conditions precedent to exercise of the option that tenants should have paid the rent and performed and observed all the stipulations contained in the lease — Main issue was whether the tenants had duly fulfilled the condition precedent — Tenants had in fact allowed arrears of rent and water rates to arise but had paid the amounts due before they purported to exercise the option — Tenants had also committed a breach of a negative covenant not to apply for planning permission without the landlords’ consent but had obtained relief from forfeiture in respect of this breach inter alia — When tenants purported to exercise the option landlords submitted that as a result of the various breaches the condition precedent had not been complied with and the option could not be exercised — Grey v Friar, Finch v Underwood, Bastin v Bidwell, Simons v Associated Furnishers Ltd and Bassett v Whiteley discussed — Whether a condition precedent requiring the performance of a covenant can be treated as complied with if a breach of the covenant has taken place but has been remedied before the time for the exercise of the option — Whether this mitigation of the literal strictness of interpretation could be applied to the breach of a negative covenant — Whether such a covenant is capable of remedy — Rugby School (Governors) v Tannahill, Scala House & District Property Co Ltd v Forbes and Expert Clothing Service & Sales Ltd v Hillgate House Ltd considered — Held that, in the case of the covenants to pay rent and rates, performance before the exercise of the option was sufficient compliance notwithstanding the earlier failure — Held, however, that the breaches of the covenant not to apply for planning permission without the landlords’ consent were incapable of remedy and the grant of relief against forfeiture did not enable the tenants to claim that the covenant had been observed — The condition precedent to the exercise of the tenants’ option to secure a further term had therefore not been fulfilled — Judgment for landlords
The following cases are referred to in this report.
Bassett v Whiteley (1983) 45 P&CR 87
Bastin v Bidwell (1881) 18 ChD 238
Expert Clothing Service & Sales Ltd v Hillgate House Ltd [1986] Ch 340; [1985] 3 WLR 359; [1985] 2 All ER 998; [1985] 2 EGLR 85; (1985) 275 EG 1011 & 1129, CA
Finch v Underwood (1876) 2 ChD 310
Grey v Friar (1854) 4 HLC 565
Rugby School (Governors) v Tannahill [1934] 1 KB 695; [1935] 1 KB 87, CA
Scala House & District Property Co Ltd v Forbes [1974] QB 575; [1973] 3 WLR 14; [1973] 3 All ER 308; (1973) 227 EG 1161, CA
Simons v Associated Furnishers Ltd [1931] 1 Ch 379
In this action the plaintiff landlords, Bass Holdings Ltd, sought declarations the effect of which was that, by reason of breaches of covenant committed by the defendant tenants, Morton Music Ltd, the defendants were not entitled to exercise an option for the grant of a further lease contained in a lease of the Queen’s Hotel, Hamlet Court Road, Westcliff-on-Sea, Essex.
Paul Morgan (instructed by Nabarro Nathanson) appeared on behalf of the plaintiffs; Nicholas Dowding (instructed by Nutt & Oliver) represented the defendants.
Giving judgment, SCOTT J said: By a lease dated September 20 1982 the plaintiff, Bass Holdings Ltd, demised to the defendant, Morton Music Ltd, The Queen’s Hotel, Hamlet Court Road, Westcliff-on-Sea, Essex. The term of the demise was expressed to be ‘fifteen years computed from the 1st day of April 1982’. A yearly rent of £15,000 payable on the usual quarter days was reserved ‘for the first three years of the said term’. Thereafter the rent was to be subject to upward adjustments in accordance with a rent review procedure. The Queen’s Hotel included a public house as well as the accommodation usually associated with a hotel. The tenant’s covenants included covenants obliging the tenant to keep the public house open during all lawful hours and to deal exclusively with the lessor for all beer sold or consumed on the demised premises. In short, The Queen’s Hotel was let as a tied house.
The lease contained also the tenant’s covenants of a character commonly found in leases. There was a covenant to pay the rent reserved at the times and in manner prescribed; there was a covenant to pay taxes, rates, etc; there was a covenant ‘to keep the demised premises and the painting, papering and decoration thereof in good and substantial repair order and condition’; there was a covenant that the tenant would not apply for planning permission in respect of the demised premises without the lessor’s prior written consent; there were many other covenants both of a positive and of a negative character that I need not detail. In addition, there were a number of tenant’s covenants attributable to The Queen’s Hotel’s status as a tied house. The lease included a proviso for re-entry in the normal form.
Clause 9 of the lease contains the provision that has given rise to this litigation. It is in these terms:
IF the Tenant shall be desirous of taking a further lease of the demised premises for a further term of One hundred and Twenty-five years . . . from the date of the term hereby granted and shall not later than the 29th September 1985 give to the Lessors notice in writing of such its desire and if it shall have paid the rent hereby reserved and shall have performed and observed the several stipulations on its part herein contained and on its part to be performed and observed up to the date thereof then the Lessors will on payment to them by the Tenant of the sum of £300,000 let the demised premises to the Tenant for a further term of One hundred and Twenty-five years . . . from the date of the term hereby granted at a rent of one peppercorn per annum (if demanded) subject in all other respects to the same stipulations as are herein contained except this Clause for renewal and save for the alterations referred to in Part III of the Schedule hereto.
By a letter dated September 19 1985 written by Nutt & Oliver, the defendant’s then solicitors, the defendant purported to exercise its right under clause 9 of the lease to call for a new 125-year term. The|page:51| letter was received by the plaintiff on September 20 1985. It is in these terms:
We act for Morton Music Ltd the tenant of the above premises under a lease granted by you on the 20th September 1982.
We hereby give you notice of our client’s desire under clause 9 of the Lease to take a further term of the demised premises for 125 years from the 1st April 1982 and otherwise upon the terms referred to in the Lease. We are sending a copy of this letter to Messrs Nabarro Nathanson your Solicitors and we look forward to hearing from them in connection with the new Lease accordingly.
The plaintiff does not accept that this letter constituted an effective exercise of the clause 9 option. First, the plaintiff contends that the contents of the letter do not represent an exercise of the option. The commencement of the new term was expressed by the letter to be April 1 1982. Clause 9 refers to ‘a further term of One hundred and Twenty-five . . . years from the date of the term hereby granted . . .’ The plaintiff contends that the date of the term hereby granted is either September 20 1982, the date of the lease, or March 31 1997, the date on which the 15-year term will expire and that, accordingly, the letter was an ineffective attempt to exercise the clause 9 option. Secondly, the plaintiff contends that in three respects the defendant was or is in breach of its covenants in the lease.
It is common ground that by September 1984 rent due under the lease was in arrears to an extent of £18,000 or thereabouts. In addition, the defendant was in default in payment of water rates.
On September 11 1984 the plaintiff re-entered the demised premises and forfeited the lease on account of the rent arrears. On October 9 1984 the defendant issued an originating summons seeking relief from forfeiture. In its answer to the defendant’s application for relief from forfeiture, the plaintiff sought to maintain the forfeiture by relying alternatively on breaches by the defendant of its covenant not to apply for planning permission without the prior written consent of the plaintiff. It is not in dispute that in March 1984 and again in October or November 1984 applications were made on the defendant’s behalf for outline planning permission. In neither case was the plaintiff’s consent sought. Both applications were rejected by the local planning authority and it is common ground that neither has caused any quantifiable loss or damage to the plaintiff. But, none the less, each application represented a breach of covenant.
The defendant’s response was to seek relief from forfeiture in respect not only of its rent arrears but also of its breaches of covenant.
The defendant’s applications for relief from forfeiture were dealt with by an order made by Master Dyson on March 12 1985 and slightly varied on April 1 1985. The order recited an undertaking by the defendant at all times thereafter to comply with its covenant not to apply for planning permission without the plaintiff’s written consent. The order granted the defendant relief from forfeiture both in respect of the rent arrears and in respect of the breaches of covenant to which I have referred. The relief was, however, granted on certain conditions. The conditions required payment by the defendant of the rent arrears and interest thereon, payment of rates and water rates in arrears and payment of the plaintiff’s taxed costs. Each of these conditions was complied with. So the defendant’s lease was reinstated. None the less, rent had been in arrear and there had been breaches of covenant by the defendant.
The third matter relied on by the plaintiff relates to the defendant’s repairing and decorating obligations under the lease. The plaintiff contends that over the period September 19 1985 to September 29 1985 the condition of The Queen’s Hotel did not comply with those obligations. The defendant denies that this was so.
In the three respects that I have mentioned the plaintiff contends that the defendant failed to perform or observe its obligations under the lease and that in consequence the defendant was not entitled to exercise the clause 9 option. Of these three matters only the third, the alleged failure of the defendant to comply with its repairing and decorating obligations, raises any dispute of fact.
By an order made on May 9 1986 by Master Cholmondely Clarke, two questions were directed to be tried as a preliminary issue, namely:
(a) Whether the option notice dated September 19 1985 is a valid notice to exercise the option contained in Clause 9 of the Lease dated September 20 1982
(b) Whether the defendant is precluded from exercising the said option by virtue of past breaches of covenant.
The first of these two questions raises the point about the form of the letter of September 19 1985. Was ‘the date of the term hereby granted’ April 1 1982 or some other date? If it was some other date, does the error in the letter prevent the letter being treated as an effective exercise of the clause 9 option?
The second question is whether the admitted previous breaches of covenant by the defendant prevented the defendant from exercising the clause 9 option. The reference in sub-para (b) of para (2) of the order of May 9 1980 to ‘past breaches of covenant’ was not intended to include the alleged breach of the repairing and decorating covenant. If the admitted breaches of covenant were fatal to the defendant’s right to exercise the option, there would be no point in wasting time and incurring considerable costs in trying to resolve the substantial disputes of fact regarding the condition of the property.
So I turn to the two questions comprised in the preliminary issue.
(a) The question whether the letter of September 19 1985 was appropriate in form to constitute an exercise of the clause 9 option falls into two parts. One raises a point of construction of clause 9. What is the date referred to as ‘the date of the term thereby granted’? In the letter of September 19 1985, April 1 1982 was specified as the date of commencement of the new term. Was that the right date? If it was not, a point of construction of the letter itself arises. Was the letter, notwithstanding its reference to the wrong commencement date, a sufficiently clear expression of intention to exercise the clause 9 option?
On the first point there are three alternative dates which have been canvassed in argument. One is April 1 1982, the date from which the 15-year term granted by the lease was expressed to be measured. ‘. . . FIFTEEN . . . YEARS computed from the First day of April 1982 . . .’ were the words in the habendum. The second date is September 20 1982. That is the date borne by the lease. It is a fair inference that it was the date on which the lease was executed. If that is right, it was the date on which the term granted by the lease came into existence. The third possibility is March 31 1997, the date on which the 15-year term will come to an end.
The third possibility, March 31 1997, seems to me easy to reject. Clause 9 requires the option to be exercised not later than September 29 1985. The option is exercisable if the tenant shall have performed and observed its obligations under the lease ‘up to the date thereof’. Both Mr Morgan for the plaintiff and Mr Dowding for the defendant agreed that ‘up to the date thereof’ meant up to the date of the exercise of the option, ie September 29 1985 at the latest. There would be no sense whatever in requiring an option for a new 125-year term from April 1 1997 to be exercised some 12 years earlier and even less in making the exercise conditional on observance of the tenant’s obligations up to a date some 12 years earlier than the commencement of the new term. I decline to attribute to the parties so eccentric and improbable an intention.
The date of the lease, September 20 1982, was the date on which the term thereby granted commenced. It was in a real sense ‘the date of the term hereby granted’. But I am not satisfied that it was the date the parties had in mind. If they had had September 20 1982 in mind, the phrase used would be likely to have been the simple and commonly used phrase ‘from the date hereof’. The phrase ‘the date of the term hereby granted’ refers the reader back to the habendum in which the term is defined. It is there defined as ‘FIFTEEN YEARS computed from the First day of April 1982’. A natural reading of the phrase in clause 9 seems to me to lead to April 1 1982 as being the date referred to. This conclusion is supported by the language of the provisions dealing with the rent reserved by the lease. Para (A) of clause 3 of the lease reserves that ‘for the first Three years of the said term the yearly rent of FIFTEEN THOUSAND POUNDS . . .’ Para (B) commences thus:
During every period of Three years of the said term after the said first three years that is to say during the three year periods commencing on the First day of April One thousand nine hundred and eighty-five the First day of April One thousand nine hundred and eighty-eight the First day of April One thousand nine hundred and ninety-one and the First day of April One thousand nine hundred and ninety-four . . .
This language makes it clear that the ‘first three years of the said term’ referred to in clause 3(A) are the years from April 1 1982 to March 31 1985. It is consistent to construe the phrase ‘the date of the term hereby granted’ in clause 9 as meaning April 1 1982. It would be inconsistent to construe the phrase as meaning September 20 1982.
In my judgment, therefore, the letter of September 19 was correct in giving April 1 1982 as the date from which the new 125-year term was to be computed. The question whether, if the correct date of commencement of the clause 9 term had been September 20 1982 or March 31 1997, the letter of September 19 1985 would none the less|page:52| have constituted an effective exercise of the clause 9 option does not now arise.
(b) The second question comprised in the preliminary issue is whether the defendant was precluded from exercising the clause 9 option by virtue of what the order calls ‘past breaches of covenant’. The past breaches do not include the alleged breach of the repairing covenant. The past breaches comprise the following admitted breaches of covenant:
(i) the failure to pay rent that led to the arrears of £18,000-odd referred to in the order dated March 12 1985. The whole of the arrears and interest thereon were paid within 14 days of the date of the order.
(ii) the failure to pay water rates in respect of the period prior to September 11 1984. The requisite sum was paid on or about March 26 1985.
(iii) the two occasions, one in March 1984 and the other in October or November 1984, on which the defendant made an application for outline planning permission without the consent of the plaintiff. Relief from forfeiture of the lease on account of these breaches was granted to the defendant under the order dated March 12 1985.
Clause 9 expresses the right to exercise the option to be subject to two conditions precedent. The first of these relates to the notice to be given exercising the option: ‘IF the Tenant . . . shall not later than the 29th September 1985 give to the Lessors notice in writing of such its desire . . .’ Subject to the point that I have decided under question (a), it is not in dispute that this condition was fulfilled. The second condition precedent is expressed thus:
IF the Tenant . . . shall have paid the rent hereby reserved and shall have performed and observed the several stipulations on its part herein contained and on its part to be performed and observed up to the date thereof . . .
Did the admitted fact of the past breaches having occurred deprive the defendant of the right to exercise the option? I have described the above provision as a condition precedent. Its language requires it to be so construed. Authority, too, requires it to be treated as a condition precedent (see Grey v Friar (1854) 4 HLC 565). It is also well settled that fulfilment of the condition was necessary if the option was to be exercisable. The difficulty, however, is in deciding exactly what it was that the condition required to be done or not to be done.
Mr Morgan has made three submissions. First, he has submitted that the condition required the rent due under the lease to be paid at the times fixed by the lease for payment. If rent were paid late, then, he submitted, the covenant for the payment of rent would not have been ‘performed and observed’. Late payment is made in order to remedy a breach of covenant. It is not a performance of the covenant.
Secondly, he has submitted that the condition requires all positive covenants in the lease to be performed in the manner and at the times specified in the lease. This submission is only different from the first in that the first relates specifically to rent and this relates to positive covenants generally. Thus, Mr Morgan submitted, there would be a failure to perform and observe a covenant to keep demised property in repair if the demised property were at any time during the term to be in disrepair. Subsequent repair would remedy the past breach of covenant and would also, perhaps, discharge a continuing obligation under the covenant, but it would not remove, and nothing could remove, the historical fact that the tenant had been in breach of the covenant to repair.
Thirdly, Mr Morgan has submitted that the condition requires that no breach should have occurred of any negative covenant.
In short, Mr Morgan’s case is that any breach, however slight, of any covenant, whether positive or negative, prevents the defendant from claiming to have performed and observed the covenants and bars exercise of the clause 9 option.
Mr Dowding, in answer, invites attention to the position at the time the notice exercising the option is served. If by then, he submitted, all positive covenants had been performed, at least in the sense that the acts required thereunder had been done, and if at that time the negative covenants were being observed, the condition would be fulfilled and the option would be exercisable.
If the condition is to be construed literally according to its strict language, Mr Morgan’s submissions are, in my view, correct. If a covenant has been broken, the covenantee has not, strictly, performed and observed the covenant. But Mr Dowding, on the strength of a number of authorities, invited me to adopt a more liberal construction of the condition precedent. So I must, I think, refer to the authorities in order to see what, if any, principle they decide.
I should start with Grey v Friar (1854) 4 HLC 565. A 42-year mining lease contained a break clause giving liberty to the tenant, on giving 18 months’ notice, to put an end to the term. The provision was in these terms:
Then and in such case (all arrears of rent being paid, and all and singular the covenants and agreements on the part of the said lessees having been duly observed and performed), this lease . . . shall . . . cease, determine, and be utterly void.
The question was whether or not the provision made the performance of all the covenants a condition precedent to the tenant’s power to put an end to the lease. The Court of Exchequer held that it did not. The Court of Exchequer Chamber held that it did. The judges were summoned to advise the House of Lords. Eight of them thought that there was a condition precedent; three thought there was not. The lords themselves were divided. So the decision of the Exchequer Chamber stood. The ratio of the case is not directly relevant, since there is in my view no doubt but that the relevant part of clause 9 represents a condition precedent. But a number of the judgments contain pertinent comments on the effect of the condition. Talfourd J, at p 592, said:
. . . the truth probably is, that in the framing of the proviso in question, the parties did not intend to use the words ‘duly observed and performed’ in their technical sense, as importing that no covenant during the eight years or longer period had ever been broken; in which sense they are certainly unreasonable; but in a sense in which they import a condition perfectly natural and just, namely, that before the expiration of the notice, the objects of the covenants should be attained, that is, that the works should be put into repair, the water pumped out of the mine, and everything done which the lessees were bound to do in order that they might deliver up the premises in a proper condition to their landlord.
Baron Alderson, at p 595, said:
But I think that the condition precedent, even taking the words of it, may really mean that covenants broken, if the breach shall be compensated for before the expiration of the notice, shall be considered as covenants duly performed within this proviso. For as rent in arrear, if paid before the expiration of the notice, clearly is within it, so the performance of the other covenants being found in conjunction with it, may bear the like interpretation.
Erle J and Coleridge J expressed the same opinion. Erle J said, at p 599:
It is said that there would be inconvenience in restricting the power of determining it to the event of all the covenants having been performed, which would be almost an impossibility. To this one answer is, that if the parties agree so to stipulate, the law must give effect to the stipulation. It may also be answered, that the stipulation does not mean that there should not have been any breach of covenant during the term, but that when the notice expires there should not exist any cause of action in respect of performance of covenants. The stipulation for arrears of rent being paid, refers to a covenant which had been broken; but all cause of action for the breach having been satisfied by subsequent accord, and the covenant for rent would, within the meaning of this clause, be observed and performed, if all arrears of rent were paid before the expiration of the notice. So the covenant for repair, though broken during the term, would be observed if all repairs were at last completed. So in respect of other breaches; if the damage had been settled by arbitration and the amount paid, or if an action had been brought and the judgment satisfied, the legal duty of the covenanter, by reason of his covenant, would have been so far observed and performed, that all liability in respect thereof would be at an end. In this sense, the stipulation would be free from any hardship towards the lessee, as he might obtain the privilege if he did his duty. This construction does not depend upon giving a peculiar effect to the words of this instrument, for it seems to me that the same principle is applicable to all contracts. The legal effect of the promise in every contract at common law is alternative, either to do the thing promised or make compensation instead. In some contracts the alternative is expressed when liquidated damages are stipulated for, in others the liability arises by implication of law, either to do or to compensate for not doing, according as may be settled by accord, or arbitration, or judgment. In all contracts the legal duty thereunder has been performed, and so the contract may be said in one sense to be performed, when either the thing contracted for has been done, or compensation instead thereof has been made.
Coleridge J said, at p 608:
The condition, thus expressed, I think it reasonable to understand as requiring that the account between the parties must, both as to rent and covenants, be clear; the rent need not have been always paid on the day; but all arrears, if any, must have been paid up; the covenants must have been strictly kept, or, if broken, must have been satisfied for. So understood, the words import a condition precedent neither impossible nor unreasonable; and where that is clearly the case, the mere difficulty of performance, from the number or nature of the covenants to be performed — a fact which must have been perfectly within the knowledge of the party contracting — seems to me a very unsatisfactory reason for holding it to be otherwise.
|page:53|
These views on the construction of the condition precedent in the case were all obiter. They were, moreover, expressed in relation to the particular provision in the particular lease before the court. None the less, they were expressed in response to the same argument, broadly, as that which has been addressed to me, namely, that to give a strict literal construction to the condition precedent would be likely to render the option unexercisable.
Finch v Underwood (1876) 2 ChD 310 concerned the lessor’s covenant to grant the tenants a new lease. The covenant was that the lessor
shall and will, at the expiration of the term hereby granted (in case the covenants and agreements on the said tenants’ part shall have been duly observed and performed), grant unto the said tenants
the new lease. At the expiry of the old lease, repairs to an amount of some £13 required to be done. The question was whether this trifling breach of the repairing covenant disentitled the tenants to the grant of the new lease. The Court of Appeal held that it did. James LJ, at p 315, said:
No doubt every property must at times be somewhat out of repair, and a tenant must have a reasonable time allowed to do what is necessary: but where it is required as a condition precedent to the granting a new lease that the lessee’s covenants shall have been performed, the lessee who comes to claim the new lease must show that at that time the property is in such a state as the covenants require it to be. He can easily send in his builder, get a report of what repairs are necessary, and do them before he applies for the lease. There is no hardship in requiring this of him, and I think he is not entitled to excuse himself by saying that the want of repair is trifling. The answer to that is, ‘No matter; your bargain was to leave the property in thorough repair.’ If he has not fulfilled his legal bargain, which is also his bargain in equity, he cannot sustain his claim for a lease.
James LJ was, however, addressing himself to the state of the demised premises at the expiry of the term. He was not addressing himself to the question whether trifling breaches during the term but made good before the end of the term would have disentitled the tenants to the grant of the new lease.
Mellish LJ did address himself to that question. He said:
Under the terms of the covenant in the present case the lease is to be granted only in case the covenants and agreements on the part of the tenants shall have been duly observed and performed. What does that mean? I think it does not mean that the tenants must have strictly observed and performed the covenants all through the term, for the expression is, ‘shall have been duly observed and performed;’ and I think that this is satisfied if they have been so observed and performed that there is no existing right of action under them at the time when the lease is applied for.
The dicta I have cited from the judgments in Grey v Friar and from Mellish LJ’s judgment in Finch v Underwood all suggest that past breaches of covenant that have been remedied do not prevent fulfilment of a condition cast in the terms that the conditions in those two cases were cast.
Bastin v Bidwell (1881) 18 ChD 238 was a case on all fours with Finch v Underwood. The lessor had covenanted that the tenant, on giving six months’ notice before the expiry of the current lease and ‘upon paying the rent and performing and observing the covenants’ of his present lease, might have a new lease. Both at the time the notice was given and on the expiry of the notice the tenant was in breach of his painting and repairing covenants. Kay J held that the condition precedent had not been fulfilled and that the tenant was not entitled to the new lease. He expressly avoided deciding whether, if the breaches at the time that the notice was served had been remedied before its expiration, the condition precedent would have been fulfilled.
The point which Kay J had left undecided arose for decision in Simons v Associated Furnishers Ltd [1931] 1 Ch 379. This case involved a break clause. The lessees were entitled to determine a 17-year term at the expiration of the first five or 10 years of the term. The right was subject to two conditions precedent. First, the tenant had to give six months’ previous notice. The second condition precedent required that the lessees should ‘up to the time of such determination pay the rent and perform and observe the covenants and conditions on their part hereinbefore contained’. The lessees served the six months’ notice. At the date of the notice there were breaches of the repairing covenants in the lease. These breaches were remedied before the expiration of the notice. Clauson J referred to Grey v Friar and then said, at p 386:
the next question is, what does the clause mean? Upon a possible construction, it may make it essential that the tenant should comply with all the covenants throughout the whole period of the five years or, in other words, that the tenant must be able to say that in no single instance during that period has rent been in arrear or a covenant broken.
On that question there has been from time to time a certain amount of difference of judicial opinion. If the condition imports that it is unfulfilled if there has been any breach of covenant, even if it has been remedied, the condition may be a very hard one and such as can scarcely be supposed that parties would enter into; but here I am bound by a very heavy weight of judicial opinion to hold that the true meaning of that clause is this, that it will have been complied with, if at the end of the five years ‘there should not exist any cause of action in respect of performance of covenants’: or, I may put it this way, the condition must be understood as ‘requiring that the account between the parties must, both as to rent and covenants, be clear; the rent need not have been always paid on the day; but all arrears, if any, must have been paid up; the covenants must have been strictly kept, or, if broken, must have been satisfied’. In the language I have used I have ventured to quote the language in the first case of Erle J and in the second case the language of Coleridge J in advising the House of Lords in the case to which I have already referred.
It was not argued in Simons v Associated Furnishers Ltd that a past breach of covenant would, notwithstanding that it had been remedied, be fatal to the lessees’ right to exercise the break option. It was argued that the existence of breaches when the notice was served was fatal. Clauson J construed the relevant provision in the lease as directing attention to the state of affairs when the notice expired. He therefore rejected this argument and held that the condition precedent had been fulfilled. The importance of the case for present purposes lies in the learned judge’s acceptance of the dicta in the judgments of Erle J and Coleridge J in Grey v Friar.
Finally, I should refer to Bassett v Whiteley (1983) 45 P&CR 87. The case concerned an option given to tenants to renew the lease for a further term provided that they ‘shall have paid the rent hereby reserved and shall have reasonably performed and observed the several stipulations herein contained and on their part to be performed and observed up to the termination of the tenancy hereby created . . .’. The tenants gave notice exercising the option. Between the date of the notice and of the expiry of the original term the tenants delayed on two occasions paying the rent due under the lease. They had, however, paid all the rent before the expiry of the original term. The main argument in the case centred upon the effect of the adverb ‘reasonably’ as qualifying the condition precedent. Waller LJ held that the tenants had reasonably performed and observed their obligations notwithstanding that they had been late on two occasions in payment of rent. Griffiths LJ rejected the suggestion that simply because all arrears of rent had been paid before the expiry of the original term, the condition precedent had necessarily been fulfilled, but agreed with Waller LJ that there had been a reasonable performance of the tenants’ obligations. He said at the end of his judgment, at p 93:
The word ‘reasonably’ is clearly introduced in this clause to mitigate the great hardship that would flow from the possibility that a very trivial breach of the stipulations might result in the loss of the option. It gives a discretion to the court, and I have no doubt that it should, in this case, be exercised in favour of the tenants.
Griffiths LJ commented in the course of his judgment that there was not much assistance to be derived from authorities dealing with the construction of different words in different leases.
I would respectfully accept that, in the end, the questions raised in the present case turn on the construction of clause 9 of the lease. None the less, it does seem to me that the line of authorities to which I have referred do establish that a condition precedent which requires that there shall have been performance and observance of a tenant’s covenants does not fail simply on account of there having been a past, but remedied, breach of covenant. It would be possible to formulate a condition precedent which did require that there should not at any time have been any breach of a tenant’s covenants. But the fairly common form of condition precedent that is to be found in clause 9, not materially different from the corresponding conditions precedent contained in the respective leases in Grey v Friar, Finch v Underwood, Bastin v Bidwell and Simons v Associated Furnishers Ltd, does not, in my judgment, fail on account of a past breach of covenant provided that the breach has been remedied.
It is a feature, however, of the authorities to which I have referred that none deals with the case of a breach of a negative covenant. In each of the cases the breach relied on was an omission to comply with a positive obligation. A breach of a positive obligation is, in a real sense, capable of remedy. The act required to be done can be done late; the dilapidations can be repaired; the arrears of rent can be paid;|page:54| the painting and decorations can be done. In all these cases the acts required by the positive covenant can be done; the breach can be remedied.
But the position where there has been a breach of a negative covenant is more difficult. An act has been done that the tenant covenanted would not be done. If that has happened, how is it to be remedied? The act has been done. Premises may, in breach of a covenant not to use them for immoral purposes, be used for those purposes. The user may cease well before the time at which an option to take a new lease falls to be exercised. If the option is subject to the condition that all the tenant’s obligations shall have been performed and observed, how can that condition be held to have been fulfilled?
The question whether a breach of a negative covenant is capable of remedy has arisen often in cases concerning section 146 of the Law of Property Act 1925. Rugby School (Governors) v Tannahill [1934] 1 KB 695 was a case where demised premises had been used for immoral purposes. MacKinnon J, at p 701, said:
A promise to do a thing, if broken, can be remedied by the thing being done. But breach of a promise not to do a thing cannot in any true sense be remedied; that which was done cannot be undone. There cannot truly be a remedy; there can only be abstention, perhaps accompanied with apology.
The case went to appeal, [1935] 1 KB 87. In the Court of Appeal, Greer LJ agreed that the particular breach was not capable of remedy but reserved his opinion as to whether a breach of a negative covenant was necessarily incapable of remedy. He said, at p 90:
. . . in some cases with the immediate ceasing of that which is complained of, together with an undertaking against any further breach, it might be said that the breach was capable of remedy.
Maugham LJ expressed the same reservation.
Scala House & District Property Co Ltd v Forbes [1974] QB 575 was a case in which there had been a breach of a covenant not to assign, underlet or part with possession. The Court of Appeal held that for section 146 purposes the breach was not capable of remedy. Russell LJ said, at p 585:
An unlawful subletting is a breach once and for all. The subterm has been created.
At p 588; he said:
. . . it is a complete breach once and for all: it is not in any sense a continuing breach.
In Expert Clothing Service & Sales Ltd v Hillgate House Ltd [1986] Ch 340*, Slade LJ distinguished between breaches of negative covenants and of positive covenants so far as capability of remedy was concerned. He said, at p 354:
While the Scala House decision is, of course, authority binding on this court for the proposition that the breach of a negative covenant not to assign, underlet or part with possession is never ‘capable of remedy,’ it is not, in my judgment, authority for the proposition that the once and for all breach of a positive covenant is never capable of remedy.
*Editor’s note: Also reported at [1985] 2 EGLR 85; (1985) 275 EG 1011 & 1129.
The section 146 authorities were dealing with a question of construction of section 146. But the reasoning in the dicta to which I have referred bears, in my view, on the question of construction of conditions precedent such as that with which I am concerned. It is easy enough in relation to positive covenants to construe a requirement that the covenants be ‘performed and observed’ as requiring performance in the popular rather than in the legal sense of the expression (see Kay J in Bastin v Bidwell at p 252). It is quite another thing, to my mind, to try to extend that construction so as to cover negative covenants as well.
Mr Dowding submitted initially that if a negative covenant was being observed at the relevant time, the fact that there had been an earlier breach or breaches of the covenant was immaterial. The requirement of the condition precedent that the tenant ‘shall have performed and observed’ the covenant would, he said, be satisfied. This proposition is far too wide to be acceptable. Mr Dowding then qualified his submission by accepting that the tenant must show that any state of affairs brought into existence by a previous breach of a negative covenant had ceased to exist. He instanced a case of an assignment or subletting without consent where the assignee had reassigned the premises to the assignor or the subtenancy had been surrendered. An alternative qualification of the primary submission was that the breach of a negative covenant should be ignored if, at the relevant time, the lessor had no subsisting cause of action in respect thereof. Support for Mr Dowding’s submission, thus qualified, was found in some of the dicta from Grey v Friar that I have already cited.
Erle J, at p 600, said:
. . . the contract may be said in one sense to be performed, when either the thing contracted for has been done, or compensation instead thereof has been made,
and Coleridge J, at p 608, said:
. . . the covenants must have been strictly kept, or, if broken, must have been satisfied for.
I am, however, unable to accept Mr Dowding’s submissions and can see no escape from the conclusion that once a negative covenant has been broken, a condition that requires performance and observance of all covenants cannot be fulfilled. The dicta in the cases to which I have referred and the general approach exemplified by those cases make, if I may respectfully say so, very good sense where positive covenants are concerned. The requirement that a positive covenant be performed and observed can easily and sensibly be read as a requirement that the acts necessary to be done for compliance with the positive covenant should be done. This was what Kay J in Bastin v Bidwell referred to as the popular meaning of performance of a covenant. But a positive covenant requires an act to be done: breach of the covenant involves an omission. An omission can be remedied by doing late what should have been done earlier. None of this applies to negative covenants. Negative covenants are broken by the doing of some positive act. Once the act has been done, it has been done; the covenant has not been performed and observed. The circumstances that the act effecting the breach is not repeated and is an isolated act does not alter the fact that there has been a breach of the covenant, that the covenant has not been observed and that a condition requiring the covenant to have been performed and observed, whether read strictly or in a popular sense, has failed. The proposition that a previous breach of a negative covenant can be ignored if the state of affairs brought into existence by the breach has come to an end cannot, in my view, be accepted; nor am I able to accept that the breach can be ignored if no existing right of action remains in respect thereof. I do not see how payment of damages, or effluxion of time so that the cause of action has become statute-barred, or the granting of relief from forfeiture, can alter the fact that the covenant has not been performed or observed. Payment of damages for breach does not represent the performance of the covenant. The grant of relief from forfeiture is based on the fact that the covenant has not been performed or observed. Neither inaction by a lessor so that a cause of action for damages becomes statute-barred nor receipt of rent so that the right to forfeit for breach of covenant is lost can rewrite history. The act representing a breach of covenant has been done. The covenant has not been observed. It is true, as Mr Dowding forcefully pointed out, that this conclusion has the result that relatively trifling breaches of negative covenants will cause a condition precedent cast in the form of the condition precedent in the present case to fail and the right to exercise the option to be lost. I do not, however, accept that the consequence is to render the condition precedent virtually incapable of fulfilment. A negative covenant is not broken unless a positive act is done. I do not see any reason why a tenant should not be able to desist from a positive act that, if done, may place him in breach of a negative covenant. The parties could, if they had wished, have rendered the condition precedent less onerous by requiring, as the condition in Bassett v Whiteley required, merely that the tenant’s obligations be ‘reasonably performed and observed’. The condition precedent in the present case contains no such qualification.
Certainty as to what will and what will not effect a failure of the condition precedent is desirable in this, as in any other, lease. Coleridge J in Grey v Friar, at p 611, said:
My answer, however, to your Lordships’ question, does not rest on this explanation, but upon the broad principle of construing language which is unambiguous according to its plain meaning, and ascertaining the intention of parties from the language they use so construed; and I think it of the utmost consequence not to be diverted from that principle in any judicial decision, by the apparent inconvenience or hardships which may follow. It is far better that a known and certain and reasonable rule should bear hard on an individual now and then, who may thank his own incaution, or, it may be, his own dishonesty, for what he suffers, than that the whole public should labour under the intolerable grievance of having no certain rule at all by which their contracts are to be construed.
Certainty would, in my view, be lost if I accepted Mr Dowding’s submissions.
I turn, therefore, to the breaches of covenant relied on by the plaintiff as disentitling the defendant to exercise the clause 9 option.
|page:55|
(i) It is common ground that the defendant allowed arrears of rent of £18,000-odd to accumulate. The whole of the arrears, together with interest thereon was, however, paid before the option was exercised. For the purpose of clause 9, the rent was paid and the covenant for payment of rent was, in my judgment, performed and observed.
(ii) The defendant allowed water rates to fall into arrears. However, before the clause 9 option was exercised, the requisite amount had been paid by the defendant. For the purposes of clause 9, the covenant to pay water rates had, in my judgment, been performed and observed.
(iii) On two occasions the defendant committed a breach of its covenant not to apply for planning permission without the consent of the plaintiff. On two occasions, therefore, it failed to observe that covenant. By the order of March 12 1985, the defendant was granted relief from forfeiture of the lease on account, inter alia, of those two breaches of covenant. But the grant of relief from forfeiture does not, in my judgment, enable the defendant to claim to have performed and observed that covenant. The condition precedent on which the defendant’s right to exercise the clause 9 option depended was not, in my judgment, fulfilled.
I would, therefore, answer in the affirmative both questions comprised in the preliminary issue.
The judge granted a declaration that by reason of breaches of covenant by the defendants they were not entitled to the grant of a further lease pursuant to clause 9. There was no order for costs on the preliminary issue. The plaintiffs were awarded the costs of the action other than costs attributable to a dilapidations issue. Leave to appeal, if necessary, was granted.
